-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P91vofeK4vJ9dSNjAx2K0A4cyZli0HovDjvggEjE1+mrJkl7KCQNiLCsvWQSBroB Vk2UsNhYrh05U+/FofbCbA== 0000950133-00-000589.txt : 20000217 0000950133-00-000589.hdr.sgml : 20000217 ACCESSION NUMBER: 0000950133-00-000589 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 17 FILED AS OF DATE: 20000216 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCREAMING MEDIA COM INC CENTRAL INDEX KEY: 0001106917 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 134042678 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-30548 FILM NUMBER: 547643 BUSINESS ADDRESS: STREET 1: 601 WEST 26TH STREET STREET 2: 13TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10001 BUSINESS PHONE: 2126917900 MAIL ADDRESS: STREET 1: 601 WEST 26TH STREET STREET 2: 13TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10001 S-1 1 SCREAMING MEDIA.COM INC. 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 16, 2000 REGISTRATION STATEMENT NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ SCREAMING MEDIA.COM INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ------------------------ DELAWARE 7389 13-4042678 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
------------------------ 601 WEST 26TH STREET, 13TH FLOOR NEW YORK, NEW YORK 10001 (212) 691-7900 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ KEVIN C. CLARK CHIEF EXECUTIVE OFFICER 601 WEST 26TH STREET, 13TH FLOOR NEW YORK, NEW YORK 10001 (212) 691-7900 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ Copies to: DAVID J. GOLDSCHMIDT, ESQ. STEPHEN L. BURNS, ESQ. SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP CRAVATH, SWAINE & MOORE FOUR TIMES SQUARE 825 EIGHTH AVENUE NEW YORK, NEW YORK 10036-6522 NEW YORK, NEW YORK 10019-7475 (212) 735-3000 (212) 474-1000
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 of the Securities Act of 1933, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] ------------------------ CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- PROPOSED TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED OFFERING PRICE (1) REGISTRATION FEE - -------------------------------------------------------------------------------------------------------------------- Common Stock, par value $0.01........................... $75,000,000 $19,800 - -------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) of the Securities Act of 1933, as amended. ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE AN AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. SUBJECT TO COMPLETION, DATED FEBRUARY 16, 2000 Shares SCREAMINGMEDIA.COM Common Stock ------------------ Prior to this offering, there has been no public market for our common stock. The initial public offering price of the common stock is expected to be between $ and $ per share. We have applied to list our common stock on The Nasdaq Stock Market's National Market under the symbol "SCRM." The underwriters have an option to purchase a maximum of additional shares to cover over-allotments of shares. INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 4.
UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS SCREAMINGMEDIA ------------- ------------- -------------- Per Share....................................... $ $ $ Total........................................... $ $ $
Delivery of the shares of common stock will be made on or about , 2000. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. CREDIT SUISSE FIRST BOSTON DEUTSCHE BANC ALEX. BROWN THOMAS WEISEL PARTNERS LLC The date of this prospectus is , 2000. 3 [LEFT BLANK FOR INSIDE COVER] 4 ------------------ TABLE OF CONTENTS
PAGE ---- PROSPECTUS SUMMARY.................. 1 RISK FACTORS........................ 4 FORWARD-LOOKING STATEMENTS.......... 13 USE OF PROCEEDS..................... 13 DIVIDEND POLICY..................... 13 CAPITALIZATION...................... 14 DILUTION............................ 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................... 17 BUSINESS............................ 23 MANAGEMENT.......................... 32 RELATED PARTY TRANSACTIONS.......... 41
PAGE ---- PRINCIPAL STOCKHOLDERS.............. 42 DESCRIPTION OF CAPITAL STOCK........ 43 SHARES ELIGIBLE FOR FUTURE SALE..... 47 U.S. FEDERAL TAX CONSIDERATIONS FOR NON-U.S. HOLDERS.................. 48 UNDERWRITING........................ 52 NOTICE TO CANADIAN RESIDENTS........ 54 LEGAL MATTERS....................... 55 EXPERTS............................. 55 CHANGE IN ACCOUNTANTS............... 55 WHERE YOU CAN FIND MORE INFORMATION....................... 56 INDEX TO FINANCIAL STATEMENTS....... F-1
------------------ YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE ON THE DATE OF THIS DOCUMENT. DEALER PROSPECTUS DELIVERY OBLIGATION UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING), ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. i 5 PROSPECTUS SUMMARY This summary highlights the information contained elsewhere in this prospectus. This summary is not complete and does not contain all the information you should consider before buying shares in this offering. You should read the entire prospectus. SCREAMINGMEDIA.COM We have developed a leading global technology platform for the aggregation and distribution of digital content over the Internet. Using our proprietary technologies, we aggregate content from a wide range of content providers and filter, deliver and efficiently integrate this content into our customers' Web sites almost instantaneously. Our technology is compatible with existing and emerging delivery platforms, including wireless, and is designed to support a variety of content formats, ranging from text to streaming video. We believe that the ScreamingMedia solution offers Web sites the most cost-effective means to meet the growing need to provide high-quality content to their users, which is essential to building a loyal user base. We offer Web sites a single-source solution for their timely and relevant content needs and offer content providers an efficient syndication solution. We have assembled a growing digital content network, which as of January 31, 2000 consisted of over 530 Web site customers and 119 content providers supplying content from over 390 publications. We added 105 of our current customers in January 2000. We enter into contracts with our customers, typically for an initial period of one year, providing us with a recurring monthly fee. We also have a growing international presence, with 54 of our customers and 19 of our content providers based outside of the United States, primarily in Latin America, the United Kingdom and Canada. We believe that high-quality content is vital to Web sites in order to drive traffic, develop user loyalty and increase the length of time that users spend on a site. Web sites have limited options to obtain timely and relevant content. Traditionally, Web sites either had to produce their own content or enter into multiple relationships with a variety of content providers. These options can involve considerable expense, limit the range and quality of the content available and create integration difficulties. Our solution offers Web sites the following key benefits: - the ability to obtain highly-targeted, continuously updated content from a wide range of sources; - a reliable single-source solution, offering a compelling cost proposition; - seamless integration of content into the look and feel of the Web site, giving customers control over their users' online experience and enhancing their brand identity; and - a flexible and scalable solution that meets the needs of a wide range of customers and is easily adaptable to their changing needs. Our objective is to establish our technology platform as the global standard for the exchange of digital content and related services. To achieve this, we intend to: - rapidly expand our digital content network; - maintain and extend our product and technology leadership; - establish ScreamingMedia as a leading brand; - continue to pursue strategic relationships; and - expand our international presence. Our principal executive offices are located at 601 West 26th Street, 13th Floor, New York, New York 10001, and our telephone number is (212) 691-7900. The address of our Web site is www.screamingmedia.com. The information on our Web site is not part of this prospectus. Content Engine(R) is a registered service mark of ScreamingMedia. ScreamingMedia(SM) and Digital Content Network(SM) are service marks of ScreamingMedia. SiteWare(TM) is a trademark of ScreamingMedia. This prospectus also contains trademarks of other companies. 1 6 THE OFFERING Common stock offered............................... shares Common stock to be outstanding after this offering......................................... shares Use of proceeds.................................... For general corporate purposes, including increasing our sales and marketing activities, expanding our international operations, product development and working capital. Nasdaq National Market Symbol...................... SCRM
The number of shares of common stock to be outstanding after this offering is based on our shares outstanding as of January 31, 2000. This information excludes: - 3,769,928 shares of common stock issuable on the exercise of stock options outstanding as of January 31, 2000 issued under our 1999 stock option plan at a weighted average exercise price of $2.30; - 269,642 shares of common stock issuable on the exercise of warrants outstanding as of January 31, 2000 at a weighted average exercise price of $5.38; and - shares of common stock available for issuance under our 2000 equity incentive plan. ------------------------ Except as otherwise indicated, the information in this prospectus assumes the following: - the conversion on closing of this offering of all outstanding shares of convertible preferred stock into 8,411,314 shares of common stock; and - no exercise of the underwriters' overallotment option. 2 7 SUMMARY FINANCIAL DATA
YEAR ENDED DECEMBER 31, ------------------------------------------------ 1995 1996 1997 1998 1999 ------ ------ ------ ------ -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Total revenue................................ $ 525 $ 782 $ 574 $ 567 $ 2,985 Total operating expenses..................... 419 772 669 1,163 16,479 Operating income (loss)...................... 106 10 (95) (596) (13,494) Net income (loss)............................ $ 106 $ 10 $ (95) $ (610) $(13,166) ====== ====== ====== ====== ======== Basic net income (loss) per share............ $ 0.10 $ 0.01 $(0.08) $(0.48) $ (1.44) ====== ====== ====== ====== ======== Weighted average number of shares of common stock outstanding.......................... 1,100 1,100 1,175 1,283 9,115 ====== ====== ====== ====== ======== Pro forma basic net loss per share........... $ (1.04) ======== Pro forma weighted average number of shares of common stock outstanding................ 12,628 ========
Pro forma basic net loss per share has been calculated assuming the conversion of all previously outstanding preferred stock into common stock, as if the shares had converted immediately upon their issuance. See note 2 of the notes to our financial statements for an explanation of the determination of the number of shares used in computing basic net loss per share.
AS OF DECEMBER 31, 1999 ---------------------------------------- PRO FORMA ACTUAL PRO FORMA AS ADJUSTED ------- -------------- ----------- (IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents................................ $22,122 $22,122 $ Working capital.......................................... 21,930 21,930 Total assets............................................. 32,370 32,370 Capital lease obligations, less current portion.......... 647 647 Redeemable convertible preferred stock................... 27,332 -- Total stockholders' equity (deficiency).................. (447) 26,885
The pro forma balance sheet data gives effect to the automatic conversion of our outstanding redeemable convertible preferred stock and our convertible preferred stock into 8,411,314 shares of common stock. The pro forma as adjusted data gives effect to our receipt of the net proceeds from the sale of shares of common stock offered by us at an assumed initial public offering price of $ and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. 3 8 RISK FACTORS An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below before deciding to invest in shares of our common stock. The trading price of our common stock could decline due to any of these risks, in which case you could lose all or part of your investment. In assessing these risks, you should also refer to the other information in this prospectus, including our financial statements and the related notes. RISKS RELATED TO OUR BUSINESS BECAUSE WE HAVE A LIMITED OPERATING HISTORY, IT WILL BE DIFFICULT FOR YOU TO EVALUATE OUR BUSINESS. We have a limited operating history on which you can evaluate our business and prospects. We began our current line of business at the end of 1997 and began focusing exclusively on this business in the later part of 1998. You should consider the risks, uncertainties, expenses and difficulties frequently encountered by early-stage companies, particularly companies, like us, that are in new and rapidly evolving markets like the Internet, and using new and unproven business models. We cannot be certain that our business strategy will be successful or that we will successfully address these and other risks and uncertainties. WE HAVE A HISTORY OF SIGNIFICANT OPERATING LOSSES AND EXPECT TO INCUR SIGNIFICANT LOSSES FOR THE FORESEEABLE FUTURE. We have incurred significant losses since our inception. As of December 31, 1999, we had an accumulated deficit of $13.8 million. We incurred a net loss of $13.2 million for the year ended December 31, 1999. We expect to incur operating losses and experience negative cash flow for the foreseeable future. We anticipate our losses will also increase significantly from current levels as we incur additional costs and expenses related to: - sales and marketing activities; - employing additional personnel; - funding our international operations; - software and product development; - establishing strategic relationships; and - increasing the number of content providers. We cannot predict when we will operate profitably, if ever. Our ability to achieve profitability will depend on our ability to generate and sustain substantially higher net sales while maintaining reasonable expense levels. We cannot be certain that if we were to achieve profitability, we would be able to sustain or increase profitability. OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS DUE TO MANY FACTORS, ANY OF WHICH COULD ADVERSELY AFFECT OUR STOCK PRICE. Our revenues and operating results may vary significantly from quarter to quarter. It is possible that in some future periods our operating results may fall below the expectations of public market analysts and investors. Any decline in revenues or earnings or a greater than expected loss for any quarter could cause the market price of our common stock to decline. The factors, some of which are outside our control, that may cause our financial results to vary from quarter to quarter include: - the demand for our services; - the value, timing and renewal of contracts with customers and content providers; - the amount and timing of operating costs and capital expenditures relating to the expansion of our operations and development of our technology and software; - the ability to execute our sales and marketing strategy successfully; - the introduction by our competitors of new or enhanced services or products; - the performance of our network and technology; 4 9 - changes in our management team and key personnel; - changes in government regulations affecting our business; and - general economic conditions. These factors, together with our limited operating history and unproven business model, make it difficult to forecast our future revenues or results of operations accurately. We also have limited meaningful historical financial data upon which to base planned operating expenses. A substantial portion of our operating expenses is related to personnel costs, marketing programs and overhead, which cannot be adjusted quickly. Our operating expense levels reflect, in part, our expectations of future revenues. If actual revenues on a quarterly basis are below management's expectations, or if our expenses precede increased revenues, both gross margins and results of operations would be materially adversely affected. Because of these anticipated fluctuations, our results in any quarter may not be indicative of future performance and it may be difficult for investors to properly evaluate our prospects. OUR BUSINESS WOULD SUFFER IF WE WERE TO LOSE ANY OF OUR MAJOR CONTENT PROVIDERS. Access to a large and diverse array of content is critical for the successful development of our digital content network and the ultimate appeal of our services to our customers. We do not generate original content and are therefore highly dependent upon third-party content providers. The loss of any of our major content providers would harm our business. In addition, we cannot be certain that we will be able to license content from our current or new providers on favorable terms in the future, if at all. Failure to retain and add content providers to our network would materially adversely affect our business, financial condition and operating results. FAILURE TO EFFECTIVELY MANAGE OUR GROWTH AND EXPANSION COULD ADVERSELY AFFECT OUR BUSINESS AND OPERATING RESULTS. Although we have grown rapidly during the past year, we may not be able to continue to grow at a similar pace or to effectively manage our growth. Our growth has placed significant demands on our management and other resources and will continue to do so in the future. Our number of full-time employees increased from eight on December 31, 1998 to 141 on January 31, 2000. As we continue to grow, we expect to hire more employees and expand the scope of our operating and financial systems, which will increase our operating complexity and the level of responsibility exercised by our management personnel. To manage our growth effectively, we must continue to develop and improve on our operational and financial systems. We are currently in the process of upgrading our accounting system, which we expect to complete by the middle of 2000. If we are unable to manage our growth effectively, it could have a material adverse effect on our business, financial condition or results of operations. OUR SENIOR MANAGEMENT TEAM HAS LIMITED EXPERIENCE WORKING TOGETHER, WHICH MAY MAKE IT DIFFICULT TO CONDUCT AND GROW OUR BUSINESS. Our chief executive officer has only been employed by us since November 1999, and several of our senior managers, including our chief technology officer, joined us in the last several months. Therefore, there has been little or no opportunity to evaluate the effectiveness of our senior management team as a unit. The failure of our senior management to function effectively as a team may have an adverse effect on our ability to maintain a cohesive culture and compete effectively. WE MAY BE UNABLE TO ATTRACT AND RETAIN PROFESSIONAL STAFF, WHICH COULD HARM OUR BUSINESS AND PRODUCT DEVELOPMENT. Our ability to grow, increase our market share and develop our products depends in large part on our ability to hire, retain and manage highly skilled employees, including technical, sales, marketing and business development personnel. Companies in our industry and similar industries compete intensely to hire and retain qualified personnel, and we cannot assure you that we will be able to attract the employees we need, or that we will be able to retain the services of those we have hired. We cannot assure you that we will be able to 5 10 prevent the unauthorized use or disclosure of our proprietary knowledge, practices and procedures if our employees leave us. THE LOSS OF ANY OF OUR SENIOR MANAGEMENT OR KEY PERSONNEL COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND OPERATING RESULTS. We depend on the continued services and performance of our senior management and other key personnel including technical and sales personnel. If we lose the services of our senior managers or any of our other executive officers or key employees, our business could be materially adversely affected. OUR BUSINESS MODEL DEPENDS ON SUCCESSFUL DEVELOPMENT OF IMPROVED TECHNOLOGY AND SERVICES. The market for Internet products and services is characterized by rapidly changing technology, evolving industry standards and customer demands and frequent new product introductions and enhancements. To be successful, we will have to continually improve the performance, features and reliability of our products and services. For example, we believe that to compete effectively in the future, we will need to expand our customized content product to include types of content, such as photo and video. Additionally, new Internet or telecommunications technologies may require us to alter our technology and products to avoid them becoming obsolete. Improving our current products and developing and introducing new products will require significant research and development. We can give no assurance that our technological development will advance at the pace necessary to sustain our growth. WE HAVE RELATIVELY LITTLE EXPERIENCE IN SELLING AND MARKETING OUR SERVICES AND WE MAY EXPERIENCE LONGER SALES CYCLES, WHICH MAY IMPEDE EXPANSION OF OUR BUSINESS. We have had relatively little experience marketing our services and may not be able to successfully implement our sales and marketing initiatives. Marketing our services in order to expand our customer base is crucial to the success of our business. On December 31, 1998, we had only three sales people. The majority of our sales people were hired since the start of 1999. We may be unable to hire, retain, integrate and motivate sales and marketing personnel. New sales and marketing personnel may also require a substantial period of time to become effective. Moreover, although our average sales cycle from the time a potential customer is first contacted to the time a contract is signed currently ranges from three to six weeks, there can be no assurance that we will not experience longer sales cycles in the future. Such a lengthening in sales cycles could make our operating results more unpredictable. Unsuccessful sales or marketing efforts or a material lengthening of our sales cycle could have material adverse effects on our business, financial condition and operating results. OUR NETWORK IS SUSCEPTIBLE TO FAILURES THAT COULD CAUSE LOSS OF DATA OR INTERRUPTIONS OR DELAYS IN DISTRIBUTION OF CONTENT. We are exposed to the risk of network failure, both through our own systems and those of our service providers. While our utilization of redundant transmission systems may improve our network's reliability, we cannot be certain that the network will avoid downtime. Our systems and operations are vulnerable to damage or interruption from fire, flood, power loss, telecommunications failure, break-ins, earthquake and similar events. Substantially all of our own computer and communications hardware systems are in facilities we lease in New York City. Our disaster recovery plan may not be sufficient, and our business insurance may not adequately compensate us for losses that may occur. The occurrence of a natural disaster or unanticipated problems at our facilities in New York could cause interruptions or delays in distribution of content and loss of data. We also rely upon third parties to facilitate network transmissions. There are no assurances that these transmissions will remain either reliable or secure. Any transmission problems, particularly if those problems persist or recur frequently, could result in the loss of content providers and customers. Network failures of any sort may have a material adverse effect on our business, financial condition and operating results. 6 11 WE MAY FACE CAPACITY CONSTRAINTS AND SYSTEMS DEVELOPMENT DIFFICULTIES THAT COULD IMPEDE OUR ABILITY TO EXPAND OUR SYSTEMS AND OUR BUSINESS. Our ability to provide high-quality content offerings depends largely on the efficient and uninterrupted operation of our computer and communications systems. We may be unable to expand the capacity of our existing systems or develop new systems to enable our business to grow. Our future success will depend in part on our ability to expand our network infrastructure rapidly in order to accommodate significant increases in content processing volume. Almost all of our software systems are internally developed, and we rely on our employees and third-party contractors to develop and maintain these systems. If certain of these employees or contractors become unavailable to us, we may experience difficulty in improving and maintaining our systems. Although we are continually enhancing and expanding our network infrastructure, we have experienced periodic systems interruptions, which we believe may continue to occur. Failure to achieve or maintain high-capacity data transmission without system downtime would adversely affect our reputation and business. WE FACE INTENSE COMPETITION THAT COULD IMPAIR OUR ABILITY TO GROW AND ACHIEVE PROFITABILITY. We currently compete against a variety of other content-oriented service providers, and additional competitors may emerge. Competition among Internet-related companies is generally intense. We may experience even greater competition as we address a wider array of market segments. If we fail to compete in this increasingly intense competitive environment, our operating results may be adversely affected. We compete with both traditional and online aggregators and distributors of content. Historically, traditional content providers have offered products that are less suitable for most Web site customers than ours. However, some of these traditional providers have begun to offer products that are suitable for Web sites. These providers may develop products that offer features comparable to ours, and others may begin to focus on the online marketplace. We also compete with existing online aggregators and distributors of content, some of whom offer products similar to ours. Some of these companies offer different subscription models, delivery systems and types of content, and these differences could prove attractive to potential customers. In the future, these competitors or others might offer products with the features we currently provide, or other features desired by potential customers. Many of our current and potential competitors have longer operating histories, larger customer or user bases, and significantly greater financial, marketing and other resources than we do. These competitors can devote substantially more resources than we can to business development and may adopt aggressive pricing policies. In addition, larger, well-established and well-financed entities may acquire, invest in or form joint ventures with our competitors as the use of the Internet and other online services increases. Increased competition from these or other competitors could adversely affect our business. WE FACE RISKS RELATING TO OUR CUSTOMERS' ABILITY TO PAY US. The Internet is a relatively new field of commercial endeavor. The cost of establishing a Web site is low, and new online service providers, content providers and advertisers are launched regularly. Many of our customers were funded with venture capital and other forms of financing before they proved to be successful. Those companies that are unable to prove themselves successful before they have spent their initial funding may find it difficult or impossible to secure additional funding and, therefore, be unable to pay amounts due to us. Our financial condition could be adversely affected if any of our customers fails to pay amounts due on a timely basis. WE MAY BE LIABLE FOR CONTENT THAT WE DISTRIBUTE. As a distributor of content on the Internet, we may face direct or indirect liability for defamation, negligence, copyright, patent, trade secret or trademark infringement and other claims based on the nature of the content we distribute. Our proprietary software technology enables us to deliver content harvested from participating content providers only to customers who have been authorized to access that content. We might inadvertently distribute content to a customer who is not authorized to receive it, which could subject us to a 7 12 claim for damages from the information provider or harm our reputation in the marketplace. In addition, we could be exposed to liability arising from the activities of our customers or their users with respect to the unauthorized duplication of, or insertion of inappropriate material into, the content we supply. Although we carry general liability insurance, our insurance may not cover claims of these types or may be inadequate to indemnify us for all liability that may be imposed on us. If we face liability, particularly liability that is not covered by our insurance or is in excess of our insurance coverage, then our business may suffer. IF WE ARE UNABLE TO MAINTAIN OUR REPUTATION AND EXPAND OUR NAME RECOGNITION, WE MAY HAVE DIFFICULTY ATTRACTING NEW BUSINESS AND RETAINING CURRENT CUSTOMERS AND EMPLOYEES, AND OUR BUSINESS MAY SUFFER. We believe that establishing and maintaining a good reputation and name recognition are critical for attracting and retaining customers and employees. We also believe that the importance of reputation and name recognition is increasing and will continue to increase due to the growing number of providers of Internet services. If our reputation is damaged or if potential customers are not familiar with us or the solutions we provide, we may be unable to attract new, or retain existing, customers and employees. Promotion and enhancement of our name will depend largely on our success in continuing to provide effective solutions. If customers do not perceive our solutions to be effective or of high quality, our brand name and reputation will suffer. WE MIGHT NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY AND MAY BECOME INVOLVED IN COSTLY AND TIME-CONSUMING INFRINGEMENT CLAIMS. We regard our trademarks, service marks, copyrights, trade secrets and similar intellectual property as critical to our success. The unauthorized reproduction or other misappropriation of our trademarks or other intellectual property could diminish the value of our proprietary rights or reputation. If this were to occur, our business could be materially and adversely affected. We rely upon a combination of trademark and copyright law, patent law, trade secret protection and confidentiality and license agreements with our employees, customers and others to protect our proprietary rights. We have received and have filed a number of trademarks and service marks, and have filed several patent applications with the United States Patent and Trademark Office. However, registrations and patents may only be granted in selected cases, and there can be no assurance that we will be able to secure these or additional registrations or patents. Furthermore, policing and enforcement against the unauthorized use of our intellectual property rights could entail significant expenses and could prove difficult or impossible. In addition, there can be no assurance that third parties will not bring claims of copyright or trademark infringement, patent violation or misappropriation of creative ideas or formats against us with respect to content that we distribute or our technology or marketing techniques and terminology. Any such claims, with or without merit, could be time consuming to defend, result in costly litigation, divert management attention, require us to enter into costly royalty or licensing arrangements or prevent us from distributing certain content or utilizing important technologies, ideas or formats. In addition, we could be exposed to liability arising from the activities of our customers or their users with respect to the unauthorized use of the proprietary rights of our content providers. Our general liability insurance may not cover claims of these types or may be inadequate to indemnify us for all liability that may be imposed on us. WE COULD FACE ADDITIONAL RISKS AND CHALLENGES AS WE EXPAND INTERNATIONALLY AND MAY FACE UNEXPECTED COSTS IN DEVELOPING INTERNATIONAL REVENUES. We have recently begun to invest financial and managerial resources to expand our operations in international markets. We recently opened an office in London and will be opening an office in Miami in early 2000 to service the Latin American market. If our revenues from international operations, and particularly from our operations in the countries and regions on which we have focused our spending, do not exceed the expense of establishing and maintaining these operations, our business, financial condition and operating results will suffer. We have only limited experience in international operations, and we may not be 8 13 able to capitalize on our investment in these markets. In this regard, we face certain risks inherent in conducting business internationally, including: - fluctuations in currency exchange rates; - any imposition of currency exchange controls; - unexpected changes in regulatory requirements applicable to the Internet or our business; - difficulties and costs of staffing and managing international operations; - differing technology standards; - difficulties in collecting accounts receivable and longer collection periods; - political instability or economic downturns; - potentially adverse tax consequences; and - reduced protection for intellectual property rights in certain countries. Any of these factors could harm our international operations and, consequently, our business, financial condition, and operating results. POTENTIAL ACQUISITIONS AND STRATEGIC INVESTMENTS MAY RESULT IN INCREASED EXPENSES, DIFFICULTIES IN INTEGRATING TARGET COMPANIES AND DIVERSION OF MANAGEMENT'S ATTENTION. We may attempt to expand our range of technology and products and gain access to new markets through strategic acquisitions and investments. If this occurs, we may encounter the following risks: - our management's attention may be diverted during the acquisition and integration process; - we may face costs, delays and difficulties of integrating the acquired company's operations, technologies and personnel into our existing operations, organization and culture; - the adverse impact on earnings of amortizing the acquired company's intangible assets may be significant, particularly in light of the high valuations of many Internet and other information technology services companies; - we may issue new equity securities to pay for acquisitions, which would dilute the holdings of existing stockholders; - the timing of the acquisition or our failure to meet operating expectations for acquired businesses may impact adversely on our financial condition; and - we may be adversely affected by expenses of any undisclosed or potential legal liabilities of the acquired company, including intellectual property, employment and warranty and product liability-related problems. If realized, any of these risks could have a material adverse effect on our business, financial condition and operating results. RISKS OF DOING BUSINESS OVER THE INTERNET OUR SUCCESS DEPENDS ON THE CONTINUED GROWTH OF THE INTERNET AND THE DEVELOPMENT OF INTERNET INFRASTRUCTURE. Our success will depend in large part on continued growth in use of the Internet, particularly for content and e-commerce facilitation. There are critical issues concerning the commercial use of the Internet that remain unresolved. Those issues that we expect to affect the development of the market for our services include: - security; - reliability; - cost; - ease of access; 9 14 - quality of service; and - bandwidth availability. If the Internet develops more slowly than we expect as a commercial or business medium, it will adversely affect our business. LEGAL UNCERTAINTIES AND GOVERNMENT REGULATION OF THE INTERNET COULD INHIBIT GROWTH OF THE INTERNET AND E-COMMERCE. Many legal questions relating to the Internet remain unclear. It may take years to determine whether and how existing laws governing matters such as intellectual property, privacy, libel and taxation apply to the Internet. In addition, new laws and regulations that apply directly to Internet communications, commerce and advertising are becoming more prevalent. For example, the U.S. Congress has recently passed Internet-related legislation concerning copyrights, taxation, and the online privacy of children. As the use of the Internet and the prevalence of e-commerce grow, there may be calls for further regulation, such as more stringent consumer protection laws. Finally, our distribution arrangements and customer contracts could subject us to the laws of foreign jurisdictions in unpredictable ways. These possibilities could affect us adversely in a number of ways. New regulation could make the Internet less attractive to users, resulting in slower growth in its use and acceptance than we expect. Complying with new regulations could result in additional cost to us, which could reduce our margins, or it could leave us at risk of potentially costly legal action. We may be affected indirectly by legislation that fundamentally alters the practicality or cost-effectiveness of utilizing the Internet, including the cost of transmitting over various forms of network architecture, such as telephone networks or cable systems, or the imposition of various forms of taxation on Internet-related activities. Regulators continue to evaluate the best telecommunications policy regarding the transmission of Internet traffic. RISKS RELATING TO THIS OFFERING YOU WILL EXPERIENCE IMMEDIATE AND SIGNIFICANT DILUTION IN THE BOOK VALUE PER SHARE. The initial public offering price of our common stock is substantially higher than the net tangible book value per share of our outstanding common stock will be immediately after this offering. If you purchase our common stock in this offering, you will incur immediate dilution of approximately $ in the net tangible book value per share of common stock from the price you pay for our common stock in this offering. WE CANNOT GUARANTEE THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR OUR COMMON STOCK. There has not been a public market for our common stock. We cannot predict the extent to which a trading market will develop or how liquid that market might become. The initial public offering price will be determined by negotiation between the representatives of the underwriters and us and may not be indicative of prices that will prevail in the trading market. VOLATILITY OF OUR STOCK PRICE COULD ADVERSELY AFFECT STOCKHOLDERS. The market price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in response to factors such as: - variations in our actual or anticipated quarterly operating results or those of our competitors; - announcements by us or our competitors of technological innovations; - introduction of new products or services by us or our competitors; - changes in financial estimates by securities analysts; - conditions or trends in the Internet industry; - changes in the market valuations of other Internet companies; - announcements by us or our competitors of significant acquisitions; and - our entry into strategic partnerships or joint ventures. 10 15 All of these factors are, in whole or part, beyond our control and may materially adversely affect the market price of our common stock regardless of our performance. Investors may not be able to resell their shares of our common stock following periods of volatility because of the market's adverse reaction to such volatility. In addition, the stock market in general, and the market for Internet-related and technology companies in particular, has been highly volatile. The trading prices of many Internet-related and technology companies' stocks have reached historical highs within the last 52 weeks and have reflected relative valuations substantially above historical levels. During the same period, such companies' stocks have also been highly volatile and have recorded lows well below such historical highs. We cannot assure you that our stock will trade at the same levels of other Internet stocks or that Internet stocks in general will sustain their current market prices. THE NET PROCEEDS FROM THIS OFFERING MAY BE ALLOCATED IN WAYS WITH WHICH YOU MAY NOT AGREE. Our business plan is subject to change based upon changing conditions and opportunities and our management has significant flexibility in applying the net proceeds we receive from this offering. Because the net proceeds are not required to be allocated to any specific investment or transaction, you cannot determine at this time the value or propriety of our application of the proceeds and you and other stockholders may not agree with our decisions. See "Use of Proceeds" for a more detailed description of how management intends to apply the proceeds of this offering. THE SALE OR AVAILABILITY FOR SALE OF SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK COULD ADVERSELY AFFECT ITS MARKET PRICE. Sales of substantial amounts of our common stock in the public market after the completion of this offering, or the perception that such sales could occur, could adversely affect the market price of our common stock and could materially impair our future ability to raise capital through offerings of our common stock. In connection with this offering, we and our officers, directors and all of our existing stockholders and warrant holders have agreed not to sell or transfer any shares of our common stock for 180 days after completion of this offering without the underwriters' consent. However, the underwriters may release these shares from these restrictions at any time. We cannot predict what effect, if any, market sales of shares held by any stockholder or the availability of these shares for future sale will have on the market price of our common stock. See "Shares Eligible for Future Sale" for a more detailed description of the restrictions on selling shares of our common stock after this offering. WE DO NOT INTEND TO PAY DIVIDENDS. We have never declared or paid any cash dividends on our capital stock. We currently intend to retain any future earnings for funding growth and, therefore, do not expect to pay any dividends in the foreseeable future. WE WILL CONTINUE TO BE EFFECTIVELY CONTROLLED BY OUR SIGNIFICANT STOCKHOLDERS AFTER THIS OFFERING, AND THE INTERESTS OF THESE STOCKHOLDERS COULD CONFLICT WITH YOUR INTERESTS. Immediately upon completion of this offering, our executive officers and directors, in the aggregate, will beneficially own approximately % of our outstanding common stock on a fully-diluted basis. As a result, these stockholders, if acting together, would be able to exert considerable influence on any matters requiring approval by our stockholders, including the election of directors, amendments to our charter and by-laws and the approval of mergers or other business combination transactions. The ownership position of these stockholders could delay, deter or prevent a change in control of ScreamingMedia and could adversely affect the price that investors might be willing to pay in the future for shares of our common stock. IT MAY BE DIFFICULT FOR A THIRD PARTY TO ACQUIRE OUR COMPANY, WHICH COULD DEPRESS OUR STOCK PRICE. Delaware corporate law and our certificate of incorporation and bylaws contain provisions that could have the effect of delaying, deferring, or preventing a change in control of ScreamingMedia that stockholders may consider favorable or beneficial. These provisions could discourage proxy contests and make it more difficult for you and other stockholders to elect directors and take other corporate actions. These provisions 11 16 could also limit the price that investors might be willing to pay in the future for shares of our common stock. These provisions include: - a staggered board of directors, so that it would take three successive annual meetings to replace all directors; - prohibition of stockholder action by written consent; and - advance notice requirements for the submission by stockholders of nominations for election to the board of directors and for proposing matters that can be acted upon by stockholders at a meeting. In addition, we have entered into a stockholder rights agreement that makes it more difficult for a third party to acquire us without the support of our board of directors and principal stockholders. 12 17 FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements that address, among other things: development of services; expansion strategy; use of proceeds; projected capital expenditures; liquidity; development of additional revenue sources; development and expansion of marketing relationships; market acceptance of Internet commerce; technological advancement and ability to develop "brand" awareness. These statements may be found in the sections of this prospectus entitled "Prospectus Summary," "Risk Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business" and in this prospectus generally. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including all the risks discussed in "Risk Factors" and elsewhere in this prospectus. We urge you to consider that statements which use the terms "believe," "do not believe," "expect," "plan," "intend," "estimate," "anticipate" and similar expressions are intended to identify forward-looking statements. These statements reflect our current views with respect to future events and are based on assumptions and are subject to risks and uncertainties. USE OF PROCEEDS We estimate that we will receive net proceeds from the sale of the shares of common stock in this offering of $ million, assuming an initial public offering price of $ per share (the mid-point of the filing range) and after deducting estimated underwriting discounts and commissions and estimated offering expenses. If the underwriters exercise their over-allotment option in full, we estimate that our net proceeds will be $ million. The principal purposes of this offering are to obtain additional capital, to create a public market for our common stock and to facilitate future access to public equity markets. As of the date of this prospectus, we have no specific plans to use the net proceeds from this offering other than as set forth below. We intend to use the net proceeds of this offering for general corporate purposes, including increasing our sales and marketing activities, expanding our international operations, product development and working capital. In addition, we may use a portion of the net proceeds to explore potential acquisitions. However, we currently have no commitments or agreements and are not involved in any negotiations with respect to any such transaction. We have not determined the amount of net proceeds to be used specifically for each of the foregoing purposes. Pending any such uses, we intend to invest the net proceeds in investment grade, interest-bearing securities. DIVIDEND POLICY We have never declared or paid any cash dividends on our capital stock. We currently anticipate that we will retain any future earnings for the development and operation of our business. Accordingly, we do not anticipate declaring or paying any cash dividends in the foreseeable future. 13 18 CAPITALIZATION The following table shows our capitalization as of December 31, 1999: - on an actual basis; - on a pro forma basis to give effect to the conversion of all of our outstanding preferred stock into a total of 8,411,314 shares of common stock upon the completion of this offering; and - on a pro forma as adjusted basis to reflect the issue and sale of shares of common stock by us in this offering at an assumed initial public offering price of $ per share less estimated underwriting discounts and commissions and estimated offering expenses payable by us.
AS OF DECEMBER 31, 1999 ------------------------------------ PRO FORMA ACTUAL PRO FORMA AS ADJUSTED -------- --------- ----------- (IN THOUSANDS) Cash and cash equivalents................................. $ 22,122 $22,122 $ ======== ======= ======= Capital lease obligations, less current portion........... $ 647 $ 647 $ -------- ------- ------- Redeemable convertible preferred stock: Series B, $0.01 par value; 2,678,572 shares authorized, issued and outstanding actual; no shares authorized, issued and outstanding pro forma and pro forma as adjusted............................................. 27,332 -- -------- ------- ------- Stockholders' equity (deficiency): Series A Convertible Preferred Stock, $0.01 par value; 1,527,085 shares authorized, issued and outstanding actual; no shares authorized, issued and outstanding pro forma and pro forma as adjusted.................. 15 -- Common Stock, $0.01 par value; 100,000,000 shares authorized, 10,406,562 shares issued and 9,246,562 shares outstanding actual; 100,000,000 shares authorized, 18,817,876 shares issued and 17,657,876 shares outstanding pro forma; 100,000,000 shares authorized, shares issued and shares outstanding pro forma as adjusted............. 104 188 Additional paid-in capital.............................. 22,857 50,120 Warrants................................................ 787 787 Deferred compensation................................... (10,379) (10,379) Treasury stock.......................................... (19) (19) Accumulated deficit..................................... (13,812) (13,812) -------- ------- ------- Total stockholders' equity (deficiency)............ (447) 26,885 -------- ------- ------- Total capitalization............................ $ 27,532 $27,532 $ ======== ======= =======
The outstanding share information is based on our shares outstanding as of December 31, 1999. This information excludes: - 3,637,628 shares of common stock issuable on the exercise of stock options outstanding as of December 31, 1999 issued under our 1999 stock option plan at a weighted average exercise price of $2.26; and - 269,642 shares of common stock issuable on the exercise of warrants outstanding as of December 31, 1999 at a weighted average exercise price of $5.38. 14 19 DILUTION If you invest in our common stock, your interest will be diluted to the extent of the difference between the public offering price per share of our common stock and the pro forma net tangible book value per share of our common stock after this offering. Our pro forma net tangible book value as of December 31, 1999 was $26.5 million, or $1.50 per share. Pro forma net tangible book value per share represents the amount of total tangible assets less total liabilities, divided by the number of shares of common stock outstanding after giving pro forma effect to the conversion upon completion of this offering of all of our outstanding preferred stock into a total of 8,411,314 shares of common stock. Dilution in pro forma net tangible book value per share represents the difference between the amount per share paid by new investors purchasing shares in this offering and the pro forma net tangible book value per share immediately after this offering. After giving effect to the sale by us of shares of common stock in this offering at an assumed initial public offering price of $ per share, less estimated underwriting discounts and commissions and offering expenses payable by us, our pro forma net tangible book value as of December 31, 1999 would have been $ million, or $ per share. This represents an immediate increase in pro forma net tangible book value of $ per share to our existing stockholders and an immediate dilution in pro forma net tangible book value of $ per share to new investors purchasing shares in this offering. The following table illustrates this dilution on a per share basis: Assumed initial public offering price per share............. $ Pro forma net tangible book value per share as of December 31, 1999............................................... $1.50 Increase in the pro forma net tangible book value per share attributable to this offering.................... ----- Pro forma as adjusted net tangible book value per share after this offering....................................... ----- Dilution per share to new investors......................... $ =====
The following table summarizes, on a pro forma basis, as of December 31, 1999, the number of shares of stock purchased from us, the total consideration paid to us and the average price per share paid by existing stockholders and by new investors purchasing shares in this offering. The calculation below is based upon an assumed initial public offering price of $ per share, before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us:
SHARES PURCHASED TOTAL CONSIDERATION ----------------- -------------------- AVERAGE PRICE AMOUNT PERCENT AMOUNT PERCENT PER SHARE ------ ------- -------- -------- ------------- Existing stockholders..................... % $ % $ New investors............................. ------ ------ ------ ------ Total................................... % $ % ====== ====== ====== ======
The foregoing discussion and table assume no exercise of any outstanding stock options or warrants to purchase common stock as of December 31, 1999. As of December 31, 1999, there were: - 3,637,628 shares of common stock issuable upon the exercise of stock options outstanding at a weighted average exercise price of $2.26 per share; and - 269,642 shares of common stock issuable upon the exercise of warrants outstanding at a weighted average exercise price of $5.38 per share. To the extent these options or warrants are exercised, there will be further dilution to the new investors. 15 20 SELECTED FINANCIAL DATA The following selected financial data should be read in connection with, and are qualified by reference to, the financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this prospectus. The statements of operations data for the years ended December 31, 1998 and 1999, and the balance sheet data at December 31, 1998 and 1999 are derived from our financial statements, which have been audited by Deloitte & Touche LLP, independent auditors. The statement of operations data for the year ended December 31, 1997, and the balance sheet data as of December 31, 1997 are derived from our financial statements, which have been audited by David Tarlow & Co., P.C., independent auditors. The financial statements for each of the two years in the period ended December 31, 1996 have been derived from our unaudited financial statements. These unaudited financial statements have been prepared on substantially the same bases as the audited financial statements and include all adjustments, consisting only of normal recurring adjustments, that we consider necessary of a fair presentation of the financial position and results of operations for these periods.
YEAR ENDED DECEMBER 31, --------------------------------------------------------------- 1995 1996 1997 1998 1999 ---------- ---------- ---------- ---------- ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Revenue: Network services.................. $ -- $ -- $ 246 $ 309 $ 2,480 Set-up fee........................ -- -- 41 68 492 Other............................. 525 782 287 190 13 ---------- ---------- ---------- ---------- ----------- Total revenue.................. 525 782 574 567 2,985 ---------- ---------- ---------- ---------- ----------- Operating expenses: Cost of services.................. 115 242 70 130 974 Research and development.......... -- 3 107 97 894 Sales and marketing............... 35 129 87 105 3,768 General and administrative........ 235 360 347 455 4,330 Depreciation and amortization..... 34 38 33 26 451 Stock-based compensation.......... -- -- 25 350 6,062 ---------- ---------- ---------- ---------- ----------- Total operating expenses....... 419 772 669 1,163 16,479 ---------- ---------- ---------- ---------- ----------- Operating income (loss)............. 106 10 (95) (596) (13,494) ---------- ---------- ---------- ---------- ----------- Other income (expense), net......... -- -- -- (14) 328 ---------- ---------- ---------- ---------- ----------- Net income (loss)................... $ 106 $ 10 $ (95) $ (610) $ (13,166) ---------- ---------- ---------- ---------- ----------- Basic net income (loss) per share... $ 0.10 $ 0.01 $ (0.08) $ (0.48) $ (1.44) ========== ========== ========== ========== =========== Weighted average number of shares of common stock outstanding.......... 1,100 1,100 1,175 1,283 9,115 ========== ========== ========== ========== =========== Pro forma basic net loss per share............................. $ (1.04) =========== Pro forma weighted average number of shares of common stock outstanding....................... 12,628 ===========
Pro forma basic net loss per share has been calculated assuming the conversion of all previously outstanding preferred stock into common stock, as if the shares had converted immediately upon their issuance. See note 2 of the notes to financial statements for an explanation of the determination of the number of shares used in computing basic net loss per share.
AS OF DECEMBER 31, --------------------------------------- 1995 1996 1997 1998 1999 ---- ---- ---- ---- ------- (IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents........................... $ 30 $ 13 $-- $120 $22,122 Working capital..................................... 122 102 41 24 21,930 Total assets........................................ 220 240 166 274 32,370 Capital lease obligations, less current portion..... -- -- -- -- 647 Redeemable convertible preferred stock.............. -- -- -- -- 27,332 Total stockholders' equity (deficiency)............. 54 143 64 (190) (447)
16 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with "Selected Financial Data" and our financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors including the risks discussed in "Risk Factors" and elsewhere in this prospectus. OVERVIEW ScreamingMedia is a leading global aggregator and distributor of digital content over the Internet. Using our proprietary technologies, we aggregate digital content from a wide range of content providers and filter, deliver and efficiently integrate this content into our customers' Web sites almost instantaneously. We were incorporated in August 1993 as The Interactive Connection, Inc. Until 1997, our primary business focus was Web site design, development and consulting. By the end of 1997 we had designed, developed and tested our proprietary software. In late 1998 we shifted our business focus entirely to the business of aggregating and distributing digital content over the Internet. In January 1999, we were reincorporated in Delaware and renamed as Screaming Media.Net, Inc. We subsequently changed our name to Screaming Media.com Inc. in December 1999. Revenue Our revenue is composed of network services revenue, set-up fees and other revenue. We derive our network services revenue primarily from distributing content directly to our customers' Web sites through our network infrastructure. Our contracts typically have an initial term of one year. We charge our customers a minimum monthly fee based on a contractually specified volume of content. We charge our customers additional monthly fees for content delivered in excess of the contracted volume of content. We recognize revenue for the contracted minimum monthly fee on a straight-line basis ratably over the life of the contract. We recognize revenue from content used in excess of the contracted volume as the services are delivered. We report our revenue net of allowances and rebates. We generally charge our customers a one time set-up fee. Set-up fees are charged for building custom filters and enabling the customer to connect to our network. The amount of the set-up fee varies according to the number of custom filters created and other factors. We recognize set-up fee revenue ratably over the initial term of the contract, commencing with the service start date specified in the contract. In 1999, our other revenue consisted of an immaterial amount of revenue from other services, including server hosting and maintenance. Prior to 1999, our other revenue also included revenue from Web hosting and Web design and consulting. We do not expect to actively pursue these lines of business in the future. Cost of Services Cost of services consists of the content royalty fees we pay to content providers for the distribution of their content and the network costs associated with the aggregation and distribution of that content. Monthly royalty fees are calculated based on the volume of a provider's content used by our customers. Under our existing contracts with content providers, we only pay royalties on content that we have delivered to our customers. Research and Development Expenses Our research and development expenses consist primarily of personnel costs and outside consulting services for research, design and development of our internal use software applications relating to our digital content network. Research and development costs are expensed as incurred. 17 22 Sales and Marketing Expenses Our sales and marketing expenses consist mainly of advertising costs, personnel costs and sales commissions, as well as related trade show, promotional and public relations expenses. Our success in increasing revenues depends on our ability to increase our customer base as well as our range of content providers. Accordingly, we intend to pursue sales and marketing campaigns aggressively after this offering. General and Administrative Expenses General and administrative expenses consist primarily of management and administrative personnel costs, fees for professional services and facilities costs. Stock-Based Compensation We recorded a charge for the amortization of deferred stock-based compensation of approximately $6.1 million in 1999. Stock-based compensation is a result of the issuance of stock options to employees, directors and affiliated parties with exercise prices per share subsequently determined for financial reporting purposes to be below the fair market value per share of our common stock at the date of the applicable grant. This difference is recorded as a reduction of stockholders' equity and amortized as non-cash compensation expense on an accelerated basis over the vesting period of the related options. RESULTS OF OPERATIONS The following table sets forth our results of operations as a percentage of revenue for the years ended December 31, 1997, 1998 and 1999, respectively.
FOR THE YEAR ENDED DECEMBER 31, -------------------------- 1997 1998 1999 ---- ----- ----- Revenue: Network services.......................................... 43% 54% 83% Set-up fee................................................ 7 12 17 Other..................................................... 50 34 -- ---- ----- ----- Total revenue.......................................... 100% 100% 100% ==== ===== ===== Operating expenses: Cost of services.......................................... 12% 23% 33% Research and development.................................. 19 17 30 Sales and marketing....................................... 15 18 126 General and administrative................................ 60 80 145 Depreciation and amortization............................. 6 5 15 Stock-based compensation.................................. 4 62 203 ---- ----- ----- Total operating expenses............................... 116 205 552 ---- ----- ----- Operating income (loss)..................................... (16) (105) (452) Other income (expense), net................................. -- (2) 11 Net income (loss)...................................... (16)% (107)% (441)% ==== ===== =====
YEARS ENDED DECEMBER 31, 1998 AND 1999 Revenue. Total revenue increased to $3.0 million for the year ended December 31, 1999, from $567,000 in the previous year. This increase was due to an increase in our customers to 453 at December 31, 1999 from 30 at December 31, 1998, an increase in the average monthly network services revenue per customer and higher initial set-up fees. In 1999, one customer accounted for approximately 12% of revenue. () Cost of Services. Cost of services increased to $974,000 for the year ended December 31, 1999, from $130,000 in the year ended December 31, 1998. As a percentage of revenue, cost of services also increased 18 23 to approximately 33% for the year ended December 31, 1999 from approximately 23% for the year ended December 31, 1998. The dollar increase was primarily due to increases in network services revenue resulting in greater content royalty fees paid to content providers. The percentage increase was primarily a function of higher royalty fee arrangements with certain content providers. We anticipate that the cost of services will continue to grow in absolute dollars as we expand our digital content network. Research and Development. Research and development expenses increased to $894,000 for the year ended December 31, 1999, from $97,000 for the year ended December 31, 1998. As a percentage of revenue, research and development expenses increased to approximately 30% for the year ended December 31, 1999 from approximately 17% for the year ended December 31, 1998. This increase was due to direct personnel and consulting costs incurred in further development of our content filtering, aggregation and distribution software and the development of new products. During this period, we increased the number of our research and development staff to 13 from two. We believe that significant investments in research and development expenses will be required to enhance and expand our products and services. Accordingly, we expect that our research and development expenses will continue to increase in absolute dollars for the forseeable future. Sales and Marketing. Sales and marketing expenses increased to $3.8 million for the year ended December 31, 1999, from $105,000 for the year ended December 31, 1998. As a percentage of revenue, sales and marketing expenses increased to approximately 126% for the year ended December 31, 1999 from approximately 18% for the year ended December 31, 1998. The increase in sales and marketing expense was primarily due to a $2.5 million increase in compensation expense associated with the growth of our sales, content acquisition, customer support and marketing departments. The remainder of the increase was primarily attributable to the launch of a marketing campaign in the third quarter of 1999. We intend to expand our sales and marketing activities and staff substantially, both domestically and internationally, in order to increase market awareness and to promote and sell the ScreamingMedia solution. Accordingly, we expect our sales and marketing expenses to continue to increase in absolute dollars. General and Administrative. General and administrative expenses increased to $4.3 million for the year ended December 31, 1999, from $455,000 for the year ended December 31, 1998. As a percentage of revenue, general and administrative expenses increased to approximately 145% for the year ended December 31, 1999 from approximately 80% for the year ended December 31, 1998. This increase resulted primarily from an increase in personnel costs associated with a significant increase in the number of administrative personnel, as well as increased facilities expenses and accounting, legal and consulting fees. Stock-Based Compensation. In connection with the grant of stock options to employees during 1999, we recorded deferred stock compensation of $16.4 million. We amortized $6.1 million of this deferred stock compensation in 1999. In 1998, we incurred a charge of $350,000 for stock-based compensation. YEARS ENDED DECEMBER 31, 1997 AND 1998 Revenue. Total revenue decreased to $567,000 for the year ended December 31, 1998, from $574,000 for the year ended December 31, 1997. In 1998, we completed our transition from a Web design, hosting and consulting enterprise to our present content delivery business. As a result, we did not actively seek to renew Web design, hosting and consulting agreements when they expired. Cost of Services. Cost of services increased to $130,000 for the year ended December 31, 1998, from $70,000 for the year ended December 31, 1997. As a percentage of revenue, cost of services increased to approximately 23% for the year ended December 31, 1998 from approximately 12% for the year ended December 31, 1997. This increase was primarily the result of additional network costs associated with our aggregation and distribution of content. Research and Development. Research and development expenses decreased to $97,000 for the year ended December 31, 1998, from $107,000 for the year ended December 31, 1997. Our research and development expenses remained essentially flat as we redirected our internal resources from the business of Web site design and development to the development of our digital content network. 19 24 Sales and Marketing. Sales and marketing expenses increased to $105,000 for the year ended December 31, 1998, from $87,000 for the year ended December 31, 1997. Sales and marketing costs remained relatively flat as a percentage of revenue. General and Administrative. General and administrative expenses increased to $455,000 for the year ended December 31, 1998, from $347,000 for the year ended December 31, 1997. As a percentage of revenue, general and administrative expenses increased to approximately 80% for the year ended December 31, 1998 from approximately 60% for the year ended December 31, 1997. This increase resulted primarily from increases in overhead costs associated with legal and accounting services, additional facilities expenses and general office supplies. QUARTERLY OPERATING RESULTS The following table sets forth our unaudited quarterly operating results for the fiscal year ended December 31, 1999. This information has been derived from our unaudited interim financial statements. In our opinion, this unaudited information has been prepared on a basis consistent with our audited financial statements contained elsewhere in this prospectus and includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information for the quarters presented. Historical results for any quarter are not necessarily indicative of the results to be expected for any future period.
QUARTER ENDED --------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, 1999 1999 1999 1999 --------- -------- ------------- ------------ (IN THOUSANDS) Revenue: Network services............................... $ 234 $ 324 $ 681 $ 1,241 Set-up fee..................................... 25 69 135 263 Other.......................................... 8 -- 2 3 ----- ------- ------- ------- Total revenue.......................... 267 393 818 1,507 Operating expenses: Cost of services............................... 60 96 283 535 Research and development....................... 137 182 196 379 Sales and marketing............................ 75 445 1,389 1,859 General and administrative..................... 270 549 1,036 2,475 Depreciation and amortization.................. 12 35 125 279 Stock-based compensation....................... -- 134 1,687 4,241 ----- ------- ------- ------- Total operating expenses............... 554 1,441 4,716 9,768 ----- ------- ------- ------- Operating loss................................... (287) (1,048) (3,898) (8,261) ----- ------- ------- ------- Other income (expenses), net..................... -- 31 24 273 ----- ------- ------- ------- Net loss............................... $(287) $(1,017) $(3,874) $(7,988) ===== ======= ======= =======
LIQUIDITY AND CAPITAL RESOURCES Since inception, we have financed our operations primarily through private sales of equity and debt securities, which totaled approximately $34.2 million in aggregate net proceeds through December 31, 1999. As of December 31, 1999, we had cash and cash equivalents of $22.1 million. As of December 31, 1999, our principal commitments consisted of obligations outstanding under a series of capital leases of computer and networking equipment and our facilities leases. The capital leases expire at intervals between 2000 and 2002. We have no obligation to purchase the equipment subject to the leases at their conclusion. We operate from leased premises in New York, San Francisco and London. Our current aggregate annual rent obligations under these leases are approximately $1.1 million for each of 2000 and 20 25 2001. We anticipate that our actual rental obligations for those years will be higher as a result of us entering into leases for additional offices. During 1999, our capital expenditures were $3.4 million, consisting primarily of purchases of computers, networking equipment and the build-out of our headquarters. For the years ended December 31, 1999 and 1998, net cash used in operating activities was $7.8 million and $110,000, respectively. The net cash used in operating activities in 1999 resulted primarily from net losses of $13.2 million, an increase in prepaid advertising of $2.9 million and an increase in trade accounts receivable of $1.3 million, offset by a $6.1 million non-cash charge for stock-based compensation and a $3.1 million increase in accounts payable and accrued expenses. For the years ended December 31, 1999 and 1998, net cash used in investing activities was $3.8 million and $7,000, respectively. The net cash used in investing activities in 1999 was principally for the purchase of equipment and leasehold improvements. For the years ended December 31, 1999 and 1998, net cash provided by financing activities amounted to $33.5 million and $237,000, respectively. Net cash provided by financing activities in 1999 was provided primarily by net proceeds generated from our offerings of capital stock, which together totaled $33.5 million. This total included $28.0 million from the sale of Series B preferred stock and $5.5 million from the sale of Series A preferred stock. We anticipate that the net proceeds of this offering, together with our current cash and cash equivalents, will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months. However, we may need to raise additional funds in order to support our growth, to expand our international operations, to develop new, or enhance existing, services or products, to respond to competitive pressures or to acquire complementary products, businesses or technologies. If we need to raise additional funds, we will likely do so through the issuance and sale of equity securities. If this were to occur, the percentage ownership of our stockholders could be reduced, our stockholders may experience additional dilution and such securities may have rights, preferences or privileges senior to those of our stockholders. We cannot assure you that additional financing will be available on terms favorable to us, or at all. If adequate funds are not available or are not available on acceptable terms, our ability to fund our expansion, take advantage of unanticipated opportunities, develop or enhance services or products or otherwise respond to competitive pressures would be significantly limited. Our business, results of operations and financial condition could be materially adversely affected by such limitations. MARKET RISK In 1999, all of our revenues and expenses were denominated in U.S. dollars. We anticipate that in the future the proportion of operating expenses paid in foreign currencies will increase and that the number of foreign currencies in which our revenue is denominated will also increase. Accordingly, we may be subject to exposure from adverse movements in foreign currency exchange rates in relation to these revenues and expenses. We do not currently use derivative financial instruments. YEAR 2000 COMPLIANCE The Year 2000 issue is the result of computer systems and programs using two digits rather than four to identify a given year. As a result, computer systems or programs that are not Year 2000 compliant may not be able to distinguish whether "00" means 1900 or 2000, which could result in a variety of failures and other errors. Our business is dependent on the Year 2000 compliance of our own computer systems and software including the software that we supply to our customers, as well as that of third parties, such as major content providers, and the infrastructure that supports the Internet. In preparation for the Year 2000, we tested our software and hardware and performed minor remedial work on our software to ensure Year 2000 compliance. Because we are a relatively new business, the majority of our own hardware and software has been acquired or developed within the last two years, during which time there was a high awareness of Year 2000 issues. 21 26 To date, we have not experienced any material difficulties associated with the Year 2000. To our knowledge, no third party upon which we depend has experienced a material Year 2000 problem. However, it is still possible that errors or defects may remain undetected, or that dates other than January 1, such as February 29, 2000, may trigger Year 2000 problems. If this occurs with respect to our software or computer systems, or those of third parties on which we rely, our reputation, business, operating results and financial condition could suffer. RECENT ACCOUNTING PRONOUNCEMENTS Effective January 1, 1998, we adopted Statement of Financial Accounting Standards No. 131, Disclosure about Segments of an Enterprise and Related Information. SFAS No. 131 establishes standards for the way business enterprises report information about operating segments, as well as enterprise-wide disclosures about products and services, geographic areas and major customers. We operate in one segment. Our customers are located in eight countries around the world with the majority being in the United States. All of our transactions have been conducted in United States dollars. As of January 31, 2000, we did not have any material revenues or assets outside the United States. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which establishes accounting and reporting standards for derivative instruments and hedging activities. Generally, it requires that an entity recognizes all derivatives as either an asset or liability and measures those instruments at fair value, as well as identifies the conditions for which a derivative may be specifically designated as a hedge. SFAS No. 133 is effective for fiscal years beginning after June 15, 2000. We do not currently engage in or plan to engage in any derivative or hedging activities. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1 ("SOP 98-1"), Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. This statement requires companies to capitalize qualifying computer software costs which are incurred during the application development stage and amortize them over the software's estimated useful life. SOP 98-1 is effective for fiscal years beginning after December 15, 1998. We adopted requirements of SOP 98-1 as of January 1, 1999. 22 27 BUSINESS OVERVIEW We have developed a leading global technology platform for the aggregation and distribution of digital content over the Internet. Using our proprietary technologies, we aggregate digital content from a wide range of content providers and filter, deliver and efficiently integrate this content into our customers' Web sites almost instantaneously. Our technology is compatible with existing and emerging delivery platforms, including wireless, and is designed to support a variety of content formats, ranging from text to streaming video. We believe that the ScreamingMedia solution offers Web sites the most cost-effective means to meet the growing need to provide high-quality content to their users, which is essential to building a loyal user base. Our rapidly growing digital content network offers a single-source solution of timely and relevant content for Web sites and offers our content providers an efficient syndication solution. Our digital content network is composed of Web site customers and content providers. As of January 31, 2000, we had over 530 customers and obtained content from over 390 publications, supplied by 119 content providers. We added 105 of our current customers in January 2000. We have a growing international presence, with 54 of our customers and 19 of our content providers based outside the United States, primarily in Latin America, the United Kingdom and Canada. We enter into contracts with our customers, typically for an initial period of one year, that provide for a recurring monthly network services fee. Our customers are predominantly operators of Web sites, spanning a broad range of Internet categories, and include AltaVista Shopping.com, The Black World Today, CareerBuzz, Commerce One, drkoop.com, Entertaindom.com, InteliHealth, MSN MoneyCentral, Sun Microsystems, Inc. and Yupi Internet. Our content providers range from traditional news services to new media sources and include Astrology.com, AP Online, Deutsche Presse-Agentur, EFE, Knight-Ridder Tribune, Knoxville New-Sentinel, The New York Times Syndicate, Red Herring.com and ThirdAge.com. INDUSTRY BACKGROUND Rapid Growth of the Internet The Internet has emerged as a global medium for communications and commerce. International Data Corporation, or IDC, estimates that the number of Web users worldwide will increase from approximately 196 million in 1999 to approximately 502 million by the end of 2003. IDC also estimates that the number of Web users in the United States alone will increase from approximately 81 million in 1999 to approximately 177 million by the end of 2003. Rapid Growth in Business Use of the Internet and "Vertical" Web Sites Businesses worldwide are increasingly using the Internet to take advantage of new revenue opportunities and operational efficiencies. In the last several years, many businesses have emerged with operating models that are exclusively dependent on the Internet, while traditional businesses of all sizes are working quickly to establish Web sites and expand their Internet presence. One indicator of the pace of this growth is IDC's projection that the market for business-to-business e-commerce will grow from $80 billion in 1999 to $1.1 trillion in 2003. As the number of Web sites has grown, another trend that has emerged is the proliferation of "vertical" Web sites, or Web sites targeted to specific interest groups. Vertical sites represent one of the fastest-growing segments of the Internet and are attracting a greater portion of advertising dollars. According to Forrester Research, the share of Internet advertising revenue generated by vertical Web sites will grow from 35% in 1999 to 55% in 2004. 23 28 Growing Importance of High-quality Content The ability of Web sites to attract users is based in large part on their ability to provide users with value-added content. We believe that high-quality content is the primary reason users return to their favorite Web sites. In order to drive traffic to their sites and maximize stickiness, or the amount of time a user spends on a Web site, Web sites need to obtain high-quality content to differentiate themselves and to attract the attention of loyal users on the increasingly crowded Internet. Web Sites Face Challenges Obtaining and Managing High-quality Content Web sites have traditionally faced two costly and time consuming alternatives in attempting to obtain and integrate compelling content -- either to produce the content themselves or to outsource content from multiple third-party sources. Web sites that choose to create their own content face the high cost of maintaining an editorial staff as well as limitations on the volume and breadth of the content they can produce. Web sites that choose to aggregate third party content themselves must spend the time and effort to establish relationships with multiple content providers, often at a high cost, in order to obtain a sufficient array of content. They must then sift through a large volume of incoming content, in multiple formats, in order to find relevant content for their site. THE SCREAMINGMEDIA SOLUTION We provide a single-source solution that enables Web sites to cost-effectively obtain and integrate high-quality, targeted content. Our proprietary technologies allow our customers to obtain custom-filtered digital content that is delivered in real time and fully integrated into the look and feel of their Web sites. Our rapidly growing digital content network provides important benefits to both our customers and our content providers. BENEFITS TO OUR CUSTOMERS Custom-Filtered, Real-Time Content. We offer Web sites continuously updated customized content drawn from our broad selection of content providers. We create one or more custom filters for our Web site customers, producing what we believe is the most precisely targeted content service currently available. Our proprietary technology enables us to process and deliver relevant content to customers' Web sites within seconds of our receiving the material from our content providers. Compelling Cost Proposition. We provide our Web site customers with a single-source solution for their content needs. Our solution is both easy to implement -- our software is compatible with all major Web platforms and can be installed with minimal time and effort -- and easy to use, with very little ongoing effort required. Customers can opt to maintain full editorial control in selecting the content they receive from us or they can opt to operate "hands-free," with content integrated directly into their Web site without any further editorial effort. By using the ScreamingMedia solution, our customers can avoid the time and expense associated with maintaining an editorial staff or dealing with multiple content providers, enabling them to focus their resources on other critical aspects of their business. Seamless Integration into a Customer's Web Site. We deliver and integrate content directly into our customers' Web sites in a manner consistent with the look and feel of the site, enabling our customers to maintain and enhance their brand identity. The content we supply is fully integrated so that users remain on our customers' sites, which is an advantage over other services that require users to link away to the content provider's site. This enhances user loyalty, allows Web sites to control the user's online experience and maximizes our customers' revenue opportunities. Flexible Solutions for a Broad Range of Customers. Our solutions are scalable and adaptable to meet customers' changing needs. The ScreamingMedia solution is equally suitable for customers requiring a high volume of content across many categories and those requiring a narrow stream of highly targeted content. Additionally, our solution may be used to supplement a Web site's original content. We can supply local, national and international content in different languages from a broad range of sources to Web sites worldwide. In addition, our new packaged news product, which we expect to launch in early 2000, will offer 24 29 customers a lower-cost, pre-edited news solution. Our delivery formats are compatible with existing and evolving standards, including HTML, ASCII text, XML and special formatting for database insertion, and our software is compatible with all major Web site technology platforms. Enhanced Stickiness and Value. By providing our customers with continuously updated, targeted and relevant content, we believe that we help them differentiate their Web sites, build a loyal user base and increase the time each user spends on the site, as well as the frequency of user visits. This enhanced traffic and stickiness increases revenue opportunities for our customers. BENEFITS TO OUR CONTENT PROVIDERS We offer our content providers the opportunity to expand the distribution of their content and extend their reach at little or no cost. Our digital content network also allows content providers to increase their brand exposure while generating additional revenue opportunities. For content providers that already syndicate their content, the benefit lies in accessing additional distribution outlets without having to negotiate specific arrangements, which translates into increased distribution and revenue potential at little or no incremental cost. For other publishers, particularly small or niche content providers, we offer an attractive opportunity to syndicate their material and reach audiences that they could not otherwise access. STRATEGY Our objective is to establish our technology platform as the global standard for the exchange of digital content and related services. The key elements of our strategy are as follows: Rapidly Expand Our Digital Content Network. We plan to aggressively expand the number of customers and content providers that make up our digital content network. The growth of our digital content network benefits both customers and content providers. As more Web sites use our services, this helps attract content providers by offering greater exposure and the opportunity to earn more revenue. Similarly, as more content providers join the network, the more valuable our services become to our customers as they gain access to an even greater array of content. We intend to rapidly grow our customer base through expanded domestic and international sales and marketing efforts and the continued expansion and enhancement of our products and services. We believe that the expansion of our digital content network will create significant barriers to entry and help our solution become the global standard for digital content aggregation and distribution. Maintain and Extend Product and Technology Leadership. We believe that we are currently the technology leader in aggregating and distributing digital content to Web sites. We intend to maintain and extend our technology and product leadership through continued research and development investments. We plan to continue developing products and services that respond to changing customer needs and evolving technologies and standards. Our development efforts are focused on offering new types of content such as photos, audio and video and adding complementary network services such as context-based e-commerce applications. In addition, we are currently extending our platform to provide our Web site customers with enhanced wireless content delivery capabilities. Establish ScreamingMedia as a Leading Brand. We believe that strong brand recognition is critical to our continued success. We intend to establish ScreamingMedia as the leading global brand for digital content aggregation and distribution. In September 1999, we launched our first brand-building campaign through print advertising in major business publications. We intend to aggressively extend our global brand-building campaign in 2000, which will include offline and online advertising, appearing at industry trade shows, sponsoring and appearing at industry conferences and other activities. Continue to Pursue Strategic Relationships. We intend to continue developing strategic relationships with other Internet-related companies to expand and enhance our digital content network. To date, we have entered into strategic alliances with partners including Agency.com, B2Bworks, Concentric Networks, Interwoven, Proxicom and Red Hat. These partners help us generate sales leads, and in some instances bundle our software with their technology offerings, which facilitates the growth of our network. We intend to form 25 30 additional strategic relationships that further enhance our business. In addition, where appropriate, we intend to pursue strategic acquisitions that offer complementary products, services or technologies. Expand Our International Presence. There are significant opportunities to continue to expand our digital content network outside the United States. In particular, Latin America, Europe and Asia are expected to experience dramatic growth in Internet use over the next several years. We intend to capitalize on these opportunities. By moving into these markets early, just as the need for Web content becomes critical, we believe we will be able to obtain a significant advantage over our competitors. Our content processing technology allows us to aggregate and manipulate any form of content in any language and consequently we face few technological barriers to international expansion. Currently, we aggregate and distribute content in different languages for customers both within the United States and internationally. To further extend our international presence, we opened a London office in January 2000 and we plan to open an office in Miami in early 2000 to service the Latin American market. We will also pursue strategic relationships with international partners when appropriate opportunities arise. CUSTOMERS As of January 31, 2000, we had entered into contracts with over 530 customers. Our customers are predominantly operators of Web sites, spanning a broad spectrum of Internet categories. The following is a representative list of our customers: BUSINESS-TO-BUSINESS ChemConnect Commerce One eSteel Power Marketers Association TECHNOLOGY EarthWeb Red Hat Sun Microsystems, Inc. BUSINESS AND FINANCE Accounting.com Insurance Information Institute MSN MoneyCentral E-COMMERCE/ADVERTISING/PORTALS About.com AltaVista Shopping.com AuctionRover DoubleClick GoEdison.com ENTERTAINMENT DVDfile Entertaindom.com iCAST Trans-World Entertainment Company HEALTH Cancer Facts drkoop.com eNutrition.com InteliHealth National Multiple Sclerosis Society Shared Medical Systems thehealthchannel.com INTERNATIONAL/FOREIGN LANGUAGE LatPro.com Telemundo Yupi Internet RECRUITING CareerBuzz Career Zone SPECIAL INTERESTS The Black World Today EVOTE.COM The Gay Financial Network Womens' Health Interactive WIRELESS ENABLED The New York Times on the Web OmniSky Oracle Corp. 26 31 CASE STUDIES thehealthchannel.com -- Using ScreamingMedia Content to Enhance Stickiness. thehealthchannel.com had been subscribing to a content syndication service that only provided headlines that linked the visitor off their site in order to read the articles. thehealthchannel.com needed a content service that allowed them to keep their users on their site longer. ScreamingMedia provided thehealthchannel.com with custom filters and our SiteWare(TM) software, allowing them to access thousands of high-quality, full-text articles from our Content Engine(R). Using SiteWare(TM), thehealthchannel.com is now able to publish the entire text of articles in a manner consistent with the look and feel of their site. As a result, thehealthchannel.com can now provide targeted content without driving away traffic or surrendering advertising revenue to a third party. The Black World Today -- Using ScreamingMedia to Help Increase Ad Revenue. The Black World Today, or TBWT, wanted to create additional revenue from advertising and sponsorships in order to expand, but had insufficient page-views to attract the volume of advertising they desired. ScreamingMedia's solution has enabled TBWT to publish relevant, high-quality content, thereby adding additional pages of targeted news content to their site. TBWT believes that the use of the ScreamingMedia network has helped them to increase their page-views and attract new advertisers. Sun Microsystems, Inc. -- Using ScreamingMedia as a Single Source Content Solution. Sun wanted to offer their large community of Java(TM) developers real-time news from multiple sources, but did not want the inconvenience and expense of creating and managing multiple content licensing deals. The ScreamingMedia solution provided Sun with a single source for custom-filtered articles related to Java technology from multiple sources in real time and allowed them to integrate these articles directly into Sun's Web site. By outsourcing the provision of news for its Web site to ScreamingMedia, Sun was able to gain a depth and specificity of news coverage it could not have obtained elsewhere, and integrate these articles into its Web site at low cost, with very little effort. EVOTE.COM -- Using ScreamingMedia to Lower Editorial Costs. EVOTE needed to provide high-quality, up-to-the-minute election news for the 2000 Presidential election, but it was not cost-effective to hire the additional editorial staff it required. ScreamingMedia created a custom filter for EVOTE, enabling EVOTE's editors to select election-related content from a wide variety of sources with minimal effort. With ScreamingMedia's custom content solution, EVOTE can now provide high-quality, real-time election news in a cost-effective and efficient manner with no additional editorial staff. InteliHealth -- Using ScreamingMedia to Maximize Editorial Control. InteliHealth was looking for real-time, health-related news to supplement its already extensive database of high-quality content. InteliHealth chose ScreamingMedia because our Editor's Desk feature provided a mechanism for their news editors to effectively review, classify and hand-pick the articles they wanted. Additionally, our SiteWare(TM) software allowed them to publish content to their site, in a manner consistent with InteliHealth's own look and feel, with the click of a mouse. For InteliHealth, ScreamingMedia offered a solution that provided a large quantity of filtered content and offered full editorial control over the content they choose to publish on their Web site. CONTENT PROVIDERS We employ a specialized content acquisition team to build our network of content providers. As of January 31, 2000, this team was composed of 13 employees. Members of this department typically specialize in a particular type of source, such as newspapers, newswires, magazines or Web sites, or on major geographic or vertical markets. We intend to hire additional content acquisition staff as we expand. 27 32 We currently obtain content from over 390 publications from 119 content providers, ranging from traditional news syndication services to specialized media sources and including both domestic and international publications. A representative list is provided below: GENERAL NEWS SYNDICATION AP Online The Christian Science Monitor Knight-Ridder Tribune Medical Tribune News Service Newsbytes News Network The New York Times Syndicate Policy.com Scripps Howard News Service INTERNATIONAL/FOREIGN LANGUAGE Deutsche Presse - Agentur EFE Fut Brasil Latin Trade LIFESTYLES/ENTERTAINMENT/SPORTS AP Mega Sports Asimba.com Astrology.com Theatre.com ThirdAge.com TVData Features Syndicate BUSINESS AND INDUSTRY American Banker Biomedical Market Newsletter Financial Gazette Internet Wire IRA Info Microcap Stock Digest Mutual Funds Interactive/Brill.com Red Herring.com Total Stock Research.com LOCAL/REGIONAL Albuquerque Journal Arizona Republic Atlanta Journal - Constitution Knoxville News - Sentinel Las Vegas Review Journal MaineToday.com NETWORK SERVICES We provide real-time delivery of custom-filtered content to Web site customers. We provide a single-source solution that enables Web sites to cost-effectively obtain and integrate high-quality, targeted content. Our service employs two principal software applications: - the Content Engine(R), which resides on our servers, processes, filters and distributes incoming content; and - SiteWare(TM), which is installed on our customers' servers, is used to receive content from us and to integrate this content into the customer's Web site. The key features of our service are: - customization -- we work with our customers to create a series of custom filters that extract exactly the type of content the customer desires; - real-time delivery -- as soon as we receive content, our Content Engine(R) processes, filters and delivers it almost instantaneously to our customers' Web sites; - control -- customers can use the Editor's Desk feature of SiteWare(TM) to review the content we deliver and choose which items to display on their sites. Alternatively, customers can choose to have ScreamingMedia publish content directly to their Web sites without an intervening step; and - integration -- once a customer has chosen the desired content, SiteWare(TM) automatically integrates it into the customer's Web site. Customers can choose to receive content in most commonly-used formats, including ASCII text, XML, HTML, and database-ready formats. Our system enables content to appear on the customer's site in a manner consistent with the look and feel of the site. 28 33 In early 2000, we intend to begin offering a new packaged news product to Web sites. This product will offer customers a lower-cost, pre-edited news solution available for purchase from our Web site. Customers will be able to choose one or more of a number of topical content packages, which will be composed of items selected daily by our editors. This content will be sent to customers over the Internet and will automatically be integrated into the look and feel of the customer's Web site. TECHNOLOGY ScreamingMedia's proprietary software platform is designed for flexibility, scalability and reliability. The primary elements consist of SiteWare(TM) software that is installed on each customer's Internet server computer and the Content Engine(R) that resides on our own server computers. Key features of the technology include: Object-Oriented Multi-Tiered Architecture. Our software is based on the distributed object model, allowing virtually any digital data to be encapsulated and transferred through our network -- for example, text, photo, video and audio based content. The modularity resulting from our multi-tiered architecture enhances our ability to modify and upgrade the network without interruption to our services. Both of these features contribute to the scalability of our platform. Robust Processing and Filtering Technology. The algorithms employed in our Content Engine(R) software allow real-time processing and custom filtering of all incoming content. Our proprietary pre-processing algorithms normalize all incoming content prior to the filtering stage. Our filtering technology uses regular expression pattern matching, allowing a high degree of customization and control. The Content Engine(R) currently houses over 5,000 custom filters. Platform Independent Java Application. Our SiteWare(TM) software is written entirely in Java. Using Java allows the software to function on any type of operating system for which a Java run-time environment is available, making the software platform-independent. Compatibility With Evolving Technologies. Our technology enables us to both deliver content to and aggregate content from a variety of Web platforms and in a variety of standard and legacy data formats. SiteWare(TM) can deliver content to Web sites in most commonly-used formats, including ASCII text, binary data, XML, HTML, and database-ready formats. Our content aggregation system can access content through a variety of delivery channels, including satellite, leased lines and the Internet. Content Engine(R) The Content Engine(R) resides on our servers and is a highly scalable server software solution that aggregates, normalizes, filters and disseminates content from various media sources. Incoming content undergoes a process of parsing and normalization to prepare it for further processing. Once data is normalized and indexed, the process of matching client-specific filters occurs. When a piece of content matches a client filter, that piece of content is copied into a customer-specific file. We deliver content by means of a proprietary TCP/IP socket communication protocol that communicates between the Content Engine(R) and SiteWare(TM), which is installed on the customer's server. SiteWare(TM) We provide our customers with our SiteWare(TM) software. SiteWare(TM) allows the customer access to our services and allows communication between the customer's server and the Content Engine(R). SiteWare(TM) houses each customer's unique integration configuration and, upon receiving data from the Content Engine(R), can immediately integrate that information into the customer's Web site in the manner desired. SiteWare(TM) includes a feature called the Editor's Desk that allows a customer to exercise complete control over the content they select and publish to their Web site. From the Editor's Desk, a customer can review articles and publish selected stories to pre-determined locations on their Web site with a single click of their mouse. Web sites that prefer to have "hands-free" content delivery can choose to have us publish content directly to their Web site without any further editorial involvement. 29 34 Scalable Network Infrastructure Our network infrastructure consists of multiple UNIX servers on a multi-tiered TCP/IP backbone, which allow for hardware and software scalability. All server applications are distributed across multiple server computers for maximum redundancy. SALES AND MARKETING Sales We sell our ScreamingMedia solution through a direct sales force. As of January 31, 2000, our sales force was composed of 37 employees. Our sales staff is currently located in New York, San Francisco and London. Our sales force is divided into teams focused on international markets and vertical categories, such as health, technology, finance and entertainment. We intend to hire additional sales people as we expand. Marketing Our marketing strategy is to build brand awareness and increase customer familiarity with ScreamingMedia and our services through online and traditional media advertising, public relations efforts and a presence at trade shows and other industry events. In addition, we use online and offline promotions and strategic marketing partnerships to help generate sales leads. Our Web site is also used as a marketing and sales tool, providing current and potential customers the ability to research and sample our services and to contact our sales staff. Alliance Partner Program To accelerate the growth of our digital content network, we have developed an alliance partner program. The program consists of a range of strategic partnerships with businesses that offer particular opportunities to market our products or to distribute our software. Our marketing partners, such as Agency.com, Concentric Networks, B2Bworks and Proxicom, recommend our products and services, where appropriate, as part of their overall service package. We work with our technology partners, such as Red Hat and Interwoven, to bundle SiteWare(TM) with their technology offerings. We believe these arrangements benefit our partners by enabling them to offer additional products and services to their customers, and will assist us in achieving our goal of having our products widely adopted as a standard content platform across the Internet. CUSTOMER SUPPORT We believe that a high level of customer support is critical to our success. We provide our customers and content providers with 24 hours a day, seven days a week support. As of January 31, 2000, our customer support staff was composed of 28 employees. We provide full life-cycle support, beginning with software configuration and installation assistance and filter building, and extending to ongoing technical support and account management. We also provide Web-based customer support. We intend to hire additional customer support personnel as our digital content network expands. COMPETITION The market for digital content aggregation and distribution on the Internet is new and rapidly evolving. We expect competition to increase significantly in the future as current competitors improve their offerings and as new participants enter the market. We believe that the principal competitive factors in our market are cost-effectiveness, ease of use, brand recognition, ease of integration, scalability and breadth, depth and timeliness of content. We currently compete with both traditional and online aggregators and distributors of content. Historically, traditional aggregators and distributors have delivered large volumes of content in proprietary formats. These services have typically been relatively expensive and inflexible and thus are less suitable for most Web site customers. 30 35 While many of the traditional content aggregators and distributors have not focused on the online marketplace, several now offer products that can be used by Web sites to obtain content. Many of these companies have longer operating histories, larger customer bases, greater brand recognition, and significantly greater financial, marketing and other resources than we do. We also compete with existing online aggregators and distributors of content, some of whom offer products similar to ours. Some of these companies offer different subscription models, delivery systems and types of content, and these differences could prove attractive to potential customers. In the future, these competitors or any other competitors might offer products that offer the features we now offer or other features desired by potential customers. Although we believe that we have competitive advantages over our current competitors and other potential entrants in our market, we may be unable to compete successfully against current and future competitors, which could adversely affect our business. INTELLECTUAL PROPERTY Our success will depend in part on our ability to protect our intellectual property and other proprietary rights in our software and other technology. To protect our proprietary rights, we rely on a combination of patent, trademark, copyright, and trade secret laws, confidentiality and license agreements with our employees, customers, partners, and others, and security features we have built into our technology. We have four pending U.S. patent applications, but presently do not have any issued patents. Unless and until patents are issued, no patent rights can be enforced. We have applied for registration in the United States for certain of our trademarks and service marks, including ScreamingMedia(SM), SiteWare(TM), Content Engine(R) and others, and we intend to pursue registration of certain marks internationally. Despite these protections, others still might be able to use our intellectual property without our authorization. In addition, the laws of some foreign countries do not protect proprietary rights to the same extent as do U.S. laws. Moreover, potential competitors might be able to develop technologies or services similar to ours without infringing our patents. In addition, if our agreements with employees, consultants and others who participate in product and service development activities are breached, we may not have adequate remedies, and our trade secrets may become known or independently developed by competitors. If we are unable to protect our intellectual property adequately, it could materially affect our financial performance. There can also be no assurance that other parties will not assert claims that our products or names infringe on their proprietary rights. A third-party infringement claim could be time-consuming to defend, result in costly litigation, divert management's attention and resources, cause product and service delays or require us to enter into royalty or licensing agreements. EMPLOYEES As of January 31, 2000, we had 141 full-time employees. Of these, 41 were employed in sales and business development, 28 in customer support, four in marketing, 13 in content acquisition, 20 in research and development and 35 in general and administrative positions. None of our employees is represented by a union. We believe that our relations with our employees are good. FACILITIES We are headquartered in New York City, where we lease approximately 25,000 square feet of space. This lease expires in March 2009. We have an option to lease an adjacent 4,608 square feet and have recently entered into an agreement to sublet a further adjacent 17,100 square feet. We also lease offices in London and San Francisco and are in the process of opening an office in Miami. LEGAL PROCEEDINGS We are not presently a party to any material legal proceedings. 31 36 MANAGEMENT Our executive officers, key employees and directors, and their ages and positions as of February 15, 2000 are as follows:
NAME AGE POSITION ---- --- -------- Jay Chiat................................. 68 Chairman of the Board of Directors Kevin C. Clark............................ 39 Chief Executive Officer and Director Alan S. Ellman............................ 36 President, Chief Operating Officer and Director Joseph F. Choti........................... 39 Chief Technical Officer Terry Waters.............................. 41 President, International Marianne Howatson......................... 51 Executive Vice President, Global Content Management Sean P. Morgan............................ 35 Senior Vice President of Sales Roy R. Boling............................. 42 Director of Financial Operations William P. Kelly.......................... 33 General Counsel, Secretary and Director James D. Robinson III..................... 64 Director Wm. Brian Little.......................... 57 Director Kenneth B. Lerer.......................... 47 Director Patrick J. McNeela........................ 51 Director
Jay Chiat has served as chairman of our board of directors since November 1999 and as a director since April 1997. Between November 1998 and November 1999, he also served as interim chief executive officer. Since 1995, Mr. Chiat has served as an advisor to several new media start-up businesses. Mr. Chiat is the founder of Chiat/Day Advertising, Inc., an international advertising agency for which he served as chairman from July 1968 to January 1995. Mr. Chiat is a director of Cybergold, Inc., the Hereditary Disease Foundation, Department 56, Inc. and SoftCom, Inc. Mr. Chiat has received numerous awards in the advertising industry and was elected to the AAF Advertising Hall of Fame in 1999. Kevin C. Clark has served as our chief executive officer since November 1999 and he has been a director since November 1998. From August 1998 until November 1999, Mr. Clark pursued Internet investment activities as chairman and chief executive officer of KMC Holdings LLC. Mr. Clark served as vice chairman of Modem Media.Poppe Tyson from May 1998 to August 1998. From May 1997 to May 1998, Mr. Clark served as chairman and chief executive officer of Poppe Tyson, a global digital marketing business. From March 1996 to May 1997, he served as a director of and advisor to Poppe Tyson. Mr. Clark founded Cross Country Staffing in 1986, and was chairman and chief executive officer from 1986 through 1994 and chairman from June 1994 through March 1996. Mr. Clark serves as a director of Healthmarket.com and Primary Knowledge, Inc. and as an advisor to the board of Ecommerce Solutions, LLC. Alan S. Ellman founded the company and has served as a director since 1993. Mr. Ellman has served as president since 1995 and he has served as president and chief operating officer since February 2000. From 1990 to 1993, Mr. Ellman was the director of finance at ABC Radio Networks in New York, where his responsibilities included managing domestic and international financial and accounting operations. Joseph F. Choti has served as chief technology officer since October 1999. From September 1998 to October 1999, Mr. Choti was chief technical officer of Real Time Data Inc. From May 1996 to September 1998, Mr. Choti was chief technical officer and director of product development at Applied Information Services, Inc. From 1994 to 1996 Mr. Choti worked in the enterprise systems research and development group of Bloomberg Financial Markets, LP. Terry Waters was appointed president, international in February 2000. From July 1999 to February 2000, Mr. Waters has pursued Internet investment and consulting activities as an independent consultant. From 32 37 September 1985 to June 1999, Mr. Waters was employed by Gartner Group, Inc., a NYSE listed company, most recently serving as senior vice president and managing director of Executive Programs. Prior to this, Mr. Waters was vice president, worldwide marketing from October 1990 to December 1993 and vice president, eastern region sales from March 1987 to October 1990. Mr. Waters was employed by the Xerox Corporation from September 1981 to August 1985. Marianne Howatson has served as our executive vice president of global content management since June 1999. From June 1998 through April 1999, Ms. Howatson served as an advisor to Emap plc, the British publisher of Elle, New Woman and Q magazines, on the acquisition by Emap plc of the Peterson Publishing Company. From April 1997 through March 1998, Ms. Howatson was executive vice president of Playboy Enterprises, Inc. and president of the Publishing Group of Playboy. In this position Ms. Howatson oversaw Playboy's domestic and overseas publishing businesses, including the U.S. edition of Playboy Magazine, its 15 foreign editions and new media business. From 1995 to April 1997, Ms. Howatson was an equity partner and general manager of Cardinal Business Media. Prior to that Ms. Howatson was group publisher at Gruner + Jahr USA Publishing and publisher of Conde Nast Publications' Self magazine and American Express' Travel and Leisure magazine. Sean P. Morgan has served as our senior vice president of sales since February 1997. Prior to joining us, Mr. Morgan founded Gravity Sports, a firm that created sports-based, cross-promotional events for companies, for which he served as president from 1991 to 1997. Prior to that, Mr. Morgan directed the Manhattan marketing operations for Community Quote Graphics Inc., a provider of data services for the commodities and futures markets. Roy R. Boling has served as director of financial operations since April 1999. Mr. Boling served as director of financial operations for RCN Corp. from July 1998 to April 1999. From May 1997 through July 1998, he served initially as controller and then as vice president/controller of Javanet, Inc., a regional Internet service provider that RCN Corp. acquired in July 1998. From June 1996 to May 1997, Mr. Boling served as a consultant for Polska Telewisa Kablowa, a Polish cable concern and a subsidiary of Chase Enterprises, a real estate and international cable company. From May 1991 through June 1996, Mr. Boling served first as business/operations manager of radio properties, then as station manager, for 1080 Corporation, an AM/FM radio station in Hartford, Connecticut, a subsidiary of Chase Enterprises. William P. Kelly has served as general counsel, director and secretary since April 1997. Since 1991, Mr. Kelly has been engaged in the practice of law in the area of complex civil litigation. Mr. Kelly was a founder in 1996 of the law firm of McCarthy & Kelly LLP, where he continues to practice. From 1995 to 1996, he was associated with the law firm of Condon & Forsyth. James D. Robinson III has served as a director of since April 1997. He is co-founder, chairman and chief executive officer of RRE Investors, LLC, a private information technology venture investment firm, and since 1996, he has been chairman of Violy, Byorum & Partners Holdings. Mr. Robinson served as chairman and chief executive officer of American Express Company from 1977 to 1993. Mr. Robinson is a director of The Coca-Cola Company, Bristol-Myers Squibb Company, First Data Corporation, Cambridge Technology Partners and Concur Technologies, Inc. He is a limited partner and advisor to International Equity Partners and serves on the boards of InfiCorp Holdings, Inc., Ibero-American Media Partners and Qpass Inc., all private companies. Mr. Robinson is a member of the Business Council and the Council on Foreign Relations. Wm. Brian Little has served as a director since June 1999. Since January 1995, Mr. Little has been a private investor. During 1994, Mr. Little was a special limited partner of Forstmann Little & Co. From 1978 through 1993, Mr. Little served as a founding general partner of Forstmann Little & Co. Mr. Little serves on the boards of directors of The Topps Company, Inc., Department 56 Inc. and Aldila, Inc. Kenneth B. Lerer has served as a director since November 1998. Mr. Lerer has served since May 1996 as the president and chief operating officer of Robinson, Lerer and Montgomery, a financial consulting firm providing services to Fortune 500 companies. In addition, Mr. Lerer has served as vice president of corporate communications at America Online since October 1999. From 1980 to 1996, Mr. Lerer was vice president of 33 38 corporate affairs at Warner Amex Cable. Mr. Lerer is chairman of the board of the Public Theater/New York Shakespeare Festival and is a director of Oxygen Media, Inc., an Internet and cable company. Patrick J. McNeela has served as a director since December 1999. Since December 1997, Mr. McNeela has served as vice president of General Electric Investment Company, Private Equity Group. From January 1995 to December 1997, he was senior vice president and manager of GE Capital Corporation, Equity Capital Group. CLASSES OF DIRECTORS Our certificate of incorporation divides our board of directors into three classes, denominated as Class I, Class II and Class III. Members of each class hold office for staggered three-year terms. At each annual meeting of our stockholders beginning in 2001, the successors to the directors whose term expires at that meeting will be elected to serve until the third annual meeting after their election or until their successor has been elected and qualified. will serve as Class I directors whose terms expire at the 2001 annual meeting of stockholders. will serve as Class II directors whose terms expire at the 2002 annual meeting of stockholders. will serve as Class III directors whose terms expire at the 2003 annual meeting of stockholders. With respect to each class, each director's term will be subject to the election and qualification of his or her successor, or his or her earlier death, resignation or removal. These provisions, when taken in conjunction with other provisions of our certificate of incorporation authorizing the board of directors to fill vacant directorships, may delay a stockholder from removing incumbent directors and simultaneously gaining control of the board of directors by filling the vacancies with its own nominees. BOARD COMMITTEES We have established an audit committee and a compensation committee. The audit committee reviews our internal accounting procedures and considers and reports to the board of directors with respect to other auditing and accounting matters, including the selection of our independent auditors, the scope of annual audits, fees to be paid to our independent auditors and the performance of our independent auditors. The audit committee consists of . The compensation committee reviews and recommends to the board of directors the salaries, benefits and stock option grants for all employees, consultants, directors and other individuals compensated by us. The compensation committee also administers our stock option and other employee benefit plans. The compensation committee consists of Jay Chiat, Wm. Brian Little and James D. Robinson III. COMPENSATION OF DIRECTORS We do not currently pay cash fees to our directors for attending board or committee meetings, but we reimburse directors for their reasonable expenses incurred in connection with attending these meetings. Directors are eligible for grants of awards under our stock equity plans, as described below under "Stock Plans." COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION No member of our compensation committee serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or compensation committee. See "Certain Relationship and Related Transactions" for a description of transactions between us and entities affiliated with members of the compensation committee. 34 39 EXECUTIVE COMPENSATION The following summary compensation table sets forth information concerning compensation earned in 1999 by both of the individuals who served as ScreamingMedia's chief executive officer during 1999 and the remaining four most highly compensated executive officers as of December 31, 1999 whose salary and bonus earned in 1999 exceeded $100,000. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ANNUAL COMPENSATION AWARDS ---------------------------------- ------------ OTHER SECURITIES ANNUAL UNDERLYING ALL OTHER NAME AND SALARY BONUS COMPENSATION OPTIONS COMPENSATION PRINCIPAL POSITION ($) ($) ($) (#) ($) ------------------ -------- -------- ------------ ------------ ------------ Jay Chiat................................ $ -- $ -- $20,870(5) -- $ -- Chairman of the Board(1) Kevin C. Clark(2)........................ 46,140 -- -- 900,000 -- Chief Executive Officer Alan S. Ellman........................... 95,870 100,000 -- -- -- President and Chief Operating Officer Gregoire Sentilhes(3).................... 59,222 -- -- 200,000(6) 80,000(7) Former President, International Marianne Howatson(4)..................... 103,930 70,000 -- 600,000 -- Executive Vice President, Global Content Management Sean P. Morgan........................... 85,890 100,250 -- -- -- Senior Vice President of Sales
- --------------- (1) Mr. Chiat was our interim chief executive officer until November 1999 but resigned from that position when Mr. Clark joined ScreamingMedia as our chief executive officer. Mr. Chiat was not paid any cash compensation for his services as chief executive officer. (2) Mr. Clark joined ScreamingMedia on November 8, 1999 at an annual salary of $300,000. (3) Mr. Sentilhes joined ScreamingMedia on September 1, 1999 at an annual salary of $175,000. Mr. Sentilhes left ScreamingMedia on February 8, 2000. (4) Ms. Howatson joined ScreamingMedia on June 7, 1999 at an annual salary of $180,000. (5) We maintain an apartment in New York City for business purposes. This amount represents the cost in 1999 of allowing Mr. Chiat to use the apartment for his personal use. (6) This number excludes 450,000 shares subject to unvested options that expired when Mr. Sentilhes left ScreamingMedia on February 8, 2000. (7) This amount represents consulting fees paid to Mr. Sentilhes in 1999 for work he did for us as a consultant before he became one of our officers. 35 40 OPTION GRANTS IN 1999 The following table sets forth information concerning individual grants of stock options made during 1999 to each of the executive officers named in the Summary Compensation Table. Potential realizable value is presented net of the option exercise price, but before any federal or state income taxes associated with exercise, and is calculated assuming that the fair market value on the date of the grant appreciates at the indicated annual rates, compounded annually, for the term of the option. The 0%, 5% and 10% assumed rates of appreciation are mandated by the rules of the SEC and do not represent our estimate or projection of future increases in the price of our common stock. Actual gains will be dependent on the future performance of our common stock and the option holder's continued employment throughout the vesting period. Accordingly, the amounts reflected in the following table may not actually be achieved.
PERCENT OF POTENTIAL REALIZABLE VALUE AT ASSUMED NUMBER OF TOTAL OPTIONS ANNUAL RATES OF STOCK PRICE SHARES GRANTED TO EXERCISE APPRECIATION FOR OPTION TERM UNDERLYING OPTIONS EMPLOYEES IN PRICE EXPIRATION ------------------------------------- NAME GRANTED FISCAL YEAR ($/SHARE) DATE 0% 5% 10% ---- ------------------ ------------- --------- ---------- ---------- ---------- ----------- Jay Chiat............ -- -- -- -- -- -- -- Kevin C. Clark....... 900,000 24.7% 3.25 11/08/04 $6,075,000 $8,561,534 $11,569,590 Alan S. Ellman....... -- -- -- -- -- -- -- Gregoire Sentilhes... 650,000(1) 17.9 1.80 09/01/04 2,106,000 3,011,098 4,106,031 Marianne Howatson.... 600,000 16.5 1.80 06/07/04 1,944,000 2,779,475 3,790,182 Sean P. Morgan....... -- -- -- -- -- -- --
- --------------- (1) This number includes 450,000 shares subject to unvested options that expired when Mr. Sentilhes left ScreamingMedia on February 8, 2000. 1999 OPTION EXERCISES AND OPTION VALUES The following table sets forth information concerning unexercised stock options held of December 31, 1999 by the executive officers named in the Summary Compensation Table. None of these persons exercised any options during 1999. The value of "in-the-money" options represents the difference between the exercise price of an option and the fair market value of our common stock as of December 31, 1999, which, solely for purposes of this calculation, we estimate to have been $20.00 per share.
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT OPTIONS AT DECEMBER 31, 1999 DECEMBER 31, 1999 NAME --------------------------- --------------------------- ---- EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE --------------------------- --------------------------- Jay Chiat................................... -- -- -- -- Kevin C. Clark.............................. 225,000 675,000 $3,768,750 $11,306,250 Alan S. Ellman.............................. -- -- -- Gregoire Sentilhes.......................... 200,000 450,000 (1) 3,640,000 8,190,000 Marianne Howatson........................... 100,000 500,000 1,820,000 9,100,000 Sean P. Morgan.............................. -- -- -- --
- --------------- (1) These 450,000 shares were subject to unvested options that expired when Mr. Sentilhes left ScreamingMedia on February 8, 2000. EMPLOYMENT AGREEMENTS Kevin C. Clark. We are a party to a three-year employment agreement with Kevin C. Clark, dated November 8, 1999. Pursuant to this agreement, he serves as our chief executive officer. Mr. Clark receives an annual salary of $300,000 per year, is eligible to participate in any bonus plans we have for our senior executives, and participates at the highest level in all of our benefit plans and fringe benefit arrangements. On his first day of employment, Mr. Clark received stock options to purchase 900,000 shares of our common stock at an exercise price of $3.25 per share. Of these options, 225,000 vested on December 1, 1999 and the 36 41 remainder will vest quarterly in equal installments over a two and one-half year period beginning November 8, 1999. Under the employment agreement, we are obligated to pay Mr. Clark a "gross-up" payment to reimburse him for any excise tax imposed under Section 4999 of the Internal Revenue Code on any payment, including any gross-up payments, made to Mr. Clark (whether under his employment agreement or otherwise). If Mr. Clark is terminated without cause or he quits for good reason, he will receive his base salary, medical and other insurance benefits for six months following termination. In addition, all options held by Mr. Clark that would have vested within one year after termination, had he been employed for that period, will automatically vest on the date of his termination. Mr. Clark is subject to six-month post-termination noncompetition and nonsolicitation covenants. Marianne Howatson. We are party to an employment agreement with Marianne Howatson, dated June 7, 1999. Pursuant to this agreement, she was paid a signing bonus of $70,000 and receives an annual salary of $180,000. In addition, Ms. Howatson was granted options to purchase 600,000 shares of our common stock at an exercise price of $1.80 per share. These options vest in 36 substantially equal monthly installments, as long as Ms. Howatson remains employed with us. Ms. Howatson participates in our standard benefit plans. STOCK PLANS 1999 Stock Option Plan General. We have reserved for issuance 5,000,000 shares of common stock under our 1999 stock option plan, subject to adjustment in the event of a reorganization, merger, consolidation, recapitalization, reclassification, stock split or other similar corporate event. If an option expires, terminates or becomes unexercisable for any reason without having been exercised in full, the unpurchased shares will again be available for future option grants under the plan. Options granted under the plan may be incentive stock options within the meaning of Section 422 of the Internal Revenue Code or non-qualified stock options. Administration. The plan is administered by our compensation committee. The committee has the authority to adopt, amend and rescind rules and regulations as it determines advisable for administration of the plan. The committee also has the sole authority to determine who will be granted options and to determine the terms of the options, including the number of shares and the exercise price of the option. Eligibility. Options may be granted under the plan to our officers, employees, directors, consultants, advisors and representatives, but incentive stock options may be granted only to our employees. Terms and Conditions of Options. The number of shares of common stock to be subject to an option and the option's exercise price are determined by the committee. Incentive stock options may not be granted at an exercise price less than 100% of the fair market value of the common stock on the date of grant. Non-qualified options may not be granted under the plan at an exercise price less than 85% of the fair market value of the common stock on the date of grant. Options granted under the plan become exercisable at the times and upon the conditions that the committee may determine, as reflected in the applicable option agreement. The committee determines the term of the option, which generally may not exceed ten years from the date of grant. If there is a sale of substantially all of our property and assets or if a change in control occurs, the purchaser of our assets or common stock may, in its discretion, deliver to the optionees the same kind of consideration that is delivered to our stockholders as a result of the sale or change in control that has a value equal to the option had it been exercised in full and no shares had been sold prior to the sale or change in control. The committee also has the authority, but not the obligation, to accelerate the exercisability of any options granted under the plan upon a merger, consolidation, sale of substantially all of our property and assets or upon a change in control. If there is a hostile change in control, each option outstanding under the plan will automatically accelerate in full and unvested shares will vest in full immediately. If we are dissolved or liquidated, all options outstanding under the plan will terminate, but each optionee, if then 37 42 employed by us or any of our subsidiaries, will have the right to exercise his or her options immediately before the dissolution or liquidation. The option exercise price must be paid in full at the time of exercise, and is payable by any one of the following methods or a combination thereof: - in cash; - by delivery of a promissory note, provided that a note may be used only under the circumstances and according to the terms established by the committee; or - by delivery of previously acquired shares of common stock. Termination of Employment or Service. If an optionee's employment or service terminates because of disability or death, the optionee's options will terminate on the last day of the twelfth month from the date of cessation of employment or service. If an optionee's employment or service terminates within six months of the date on which there occurs a hostile change of control, any options held by the optionee will immediately accelerate, and any shares which are not vested at the time of termination will automatically vest in full and may be exercised during the three-month period after the date of cessation of employment or service. The committee also has the authority to permit post-termination exercise of an option under other circumstances. In any event, no option may be exercised after the original exercise period has expired. Amendment, Termination of Plan. Unless earlier terminated by the board of directors, the plan will terminate ten years from the date of its adoption. The board of directors may terminate, modify or amend the plan at any time, except that an amendment will be subject to stockholder approval if the amendment would increase the maximum number of shares reserved for the plan or change the class of persons eligible to receive options, or make any other change that requires stockholder approval under applicable law or regulations. The committee generally may terminate, amend or modify any outstanding option without the optionee's consent, except that the committee cannot change the number of shares subject to the option, its exercise price or its term without the optionee's consent. Since the amount of benefits to be received by any plan participant is determined by the committee, the amount of future benefits allocated to any employee or group of employees in any particular year is not determinable. 2000 Equity Incentive Plan General. We have reserved for issuance a maximum of shares of common stock under our 2000 equity incentive plan. If an award granted under the plan expires or is terminated, the shares of common stock underlying the award will again be available under the plan. Types of Awards. The following awards may be granted under the plan: - stock options, including incentive stock options and non-qualified stock options; - restricted stock; - phantom stock; - stock bonuses; and/or - other stock-based awards. Administration. The plan will initially be administered by the compensation committee, although it may be administered by either our full board of directors or any other committee designated by the board. The committee may, subject to the provisions of the plan, determine the persons to whom awards will be granted, determine the type of award to be granted, the number of shares to be made subject to awards, the exercise price and other terms and conditions of the awards, and to interpret the plan and prescribe, amend and rescind rules and regulations relating to the plan. The committee may delegate to any of our senior 38 43 management the authority to make grants of awards to our employees who are not our executive officers or directors. Eligibility. Awards may be granted under the plan to employees, directors and advisors, as selected by the committee. Terms and Conditions of Options. Stock options may be either "incentive stock options," as that term is defined in Section 422 of the Internal Revenue Code, or non-qualified stock options. The exercise price of a stock option granted under the plan is determined by the committee at the time the option is granted, but the exercise price of an incentive stock option may not be less than the market value per share of common stock on the date of grant. Stock options are exercisable at the times and upon the conditions that the committee may determine, as reflected in the applicable option agreement. The committee will determine the term of the option, which generally may not exceed ten years from the date of grant. The option exercise price must be paid in full at the time of exercise, and is payable by any one of the following methods or a combination thereof: - in cash or cash equivalents; - the surrender of previously acquired shares of common stock that have been held by the participant for at least six months prior to the date of surrender; - if so determined by the committee as of the grant date, authorization for us to withhold a number of shares otherwise payable pursuant to the exercise of an option; or - through a "broker cashless exercise" procedure approved by us. The committee may, in its sole discretion, authorize ScreamingMedia to make or guarantee loans to a participant to assist the participant in exercising options. At the time of grant of an option, the committee may provide that the participant may elect to exercise all or any part of the option before it becomes vested and exercisable. If the participant elects to exercise all or part of a non-vested option, the participant will be issued shares of restricted stock which will vest in accordance with the vesting schedule set forth in the original option agreement. The restricted shares will be subject to our right to repurchase the shares following termination of the participant's employment or service with us. Restricted Stock. The plan provides for awards of common stock that are subject to restrictions on transferability and others imposed by the committee. Except as provided for under the award agreement relating to the restricted stock, a participant granted restricted stock will have all of the rights of a stockholder. Phantom Stock. The plan provides for awards of phantom stock which, upon vesting, entitle the participant to receive an amount in cash equal to the fair market value of the number of shares. Vesting of all or a portion of a phantom stock award may be subject to various conditions established by the committee. Stock Bonuses; Other Awards. The plan provides that the committee, in its discretion, may award shares of common stock to employees. In addition, the committee may grant other awards valued in whole or in part, by reference to, or otherwise based on, common stock. Termination of Employment or Service. Generally, unless otherwise determined by the committee, the termination of a participant's employment or service will immediately cancel any unvested portion of awards granted under the plan. However, if a participant's employment or service terminates other than because of death, disability or retirement, all options that are exercisable at the time of termination may be exercised by the participant for no longer than 90 days after the date of termination. If a participant's employment or service terminates for cause, all options held by the participant will immediately terminate. If a participant's employment or service terminates as a result of death, all options that are exercisable at the time of death may be exercised by the participant's heirs or distributees for one year. If a participant's employment or service terminates because of disability or retirement, all options that are exercisable at the time of 39 44 termination may be exercised for a period of one year. In no case may an option after it expires be exercised in accordance with its terms. Amendment, Termination of Plan. The board of directors may modify or terminate the plan or any portion of the plan at any time, except that an amendment that requires stockholder approval in order for the plan to continue to comply with any law, regulation or stock exchange requirement will not be effective unless approved by the requisite vote of our stockholders. No options may be granted under the plan after the day prior to the tenth anniversary of its adoption date. Since the amount of benefits to be received by any employee plan participant is determined by the committee, the amount of future benefits allocated to any employee or group of employees in any particular year is not determinable. Management Incentive Plan Prior to the completion of this offering, we intend to adopt a management incentive plan. The plan will be administered by the compensation committee who will have the authority to determine the plan's participants, as well as the terms and conditions of incentive awards. The payment of bonuses under the management incentive plan will be based upon the achievement of certain performance goals set by the compensation committee, which may include any, all or none of the following: - pre-tax income or after-tax income; - earnings or book value per share; - sales or revenue; - operating expenses; - increases in the market price of common stock; - implementation or completion of critical projects or processes; - comparison of actual performance during a performance period against budget for such period; - growth of revenue; or - reductions in expenses. Minimum bonuses will be based on achievement of 80% of the performance goals and maximum bonuses will be based on achievement of 150% of the performance goals. A bonus will be paid only if the participant is employed by ScreamingMedia.com, Inc. or its affiliates on the day the bonus is to be paid. Under the plan, no payment may be made to one of our executive officers that exceeds 150% of the officer's annual base salary. In the event of a change in control, the performance period in effect at the time of the change in control will be deemed to have been completed, the maximum targets will be deemed to have been attained, and a pro rata portion of the award will be paid in cash to the participant. LIMITATION OF LIABILITY OF DIRECTORS AND INDEMNIFICATION OF DIRECTORS AND OFFICERS As permitted by the Delaware General Corporation Law (the "DGCL"), our certificate of incorporation provides that our directors shall not be liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director to the fullest extent permitted by the DGCL as it now exists or as it may be amended. As of the date of this prospectus, the DGCL permits limitations of liability for a director's breach of fiduciary duty other than liability (1) for any breach of the director's duty of loyalty to a company or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) under Section 174 of the DGCL or (4) for any transaction from which the director derived an improper personal benefit. In addition, our bylaws provide that we must indemnify all of our directors, officers, employees and agents for acts performed on our behalf in such capacity. 40 45 RELATED PARTY TRANSACTIONS CONVERTIBLE LOANS TO THE COMPANY BY OFFICERS AND DIRECTORS Between October 1998 and March 1999, certain of our officers, directors and related persons lent us an aggregate of $550,000 ($250,000 from Mr. Chiat, $100,000 from Mr. Clark and $50,000 each from Brian Cavanaugh, Messrs. Lerer and Robinson and his spouse). Our obligation to repay these loans was evidenced by convertible promissory notes of terms between 32 and 36 months (collectively, the "Notes"). The Notes bore interest at 9.5% per annum, payable quarterly. The Notes were convertible into our common stock upon and after the earlier of (1) raising at least $1,000,000 in an equity financing and (2) a trigger date, which ranged from April 30, 1999 to August 15, 1999. The completion of our Series A preferred stock financing triggered conversion of the Notes in March 1999. The number of shares receivable upon conversion of each Note was determined by dividing the outstanding principal by a discounted per-share price determined by reference to the per-share price of our Series A preferred stock offering, which was 7%. Upon conversion of the Notes in March 1999, all of the outstanding principal amount of the Notes was converted into an aggregate 328,562 shares of common stock. In 1996, we entered into a promissory note with our president for $19,350 that we repaid during 1999. RETENTION OF ROBINSON, LERER & MONTGOMERY In April 1999, we executed an agreement employing the firm of Robinson, Lerer & Montgomery ("RL&M") for corporate communications services for a monthly fee of $20,000. The contract is cancelable at any time without advance notice. Kenneth Lerer, a principal of RL&M is one of our directors. Linda Robinson, another principal of RL&M, is the spouse of James Robinson III, who is one of our directors and principal stockholders. INVESTMENT IN SOFTCOM, INC. In May 1999, we invested $150,000 to purchase 384,615 shares of Series A preferred stock of SoftCom, Inc. The SoftCom shares are convertible on a one-for-one basis into SoftCom common stock. We also hold a warrant that expires May 14, 2004 for purchase of up to 19,231 additional shares of Series A preferred stock of SoftCom at an exercise price of $0.39 per share. Jay Chiat, our chairman and former interim chief executive officer, is a director of SoftCom. 41 46 PRINCIPAL STOCKHOLDERS The following table sets forth certain information regarding the beneficial ownership of our common stock as of January 31, 2000 by: - each of our executive officers and directors; - each person, entity or group known by us to own beneficially more than 5% of our outstanding common stock; and - all of our executive officers and directors as a group. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities and include shares of common stock issuable upon the exercise of stock options or warrants that are immediately exercisable or exercisable within 60 days. Unless otherwise indicated, the persons or entities identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them, subject to applicable community property laws. Percentage ownership calculations are based on 18,725,076 shares outstanding as of January 31, 2000, which includes shares of common stock that will be issued on the conversion of outstanding shares of convertible preferred stock on completion of this offering.
NUMBER OF PERCENTAGE SHARES BENEFICIALLY OWNED BENEFICIALLY --------------------- OWNED BEFORE AFTER NAME PRIOR TO OFFERING OFFERING OFFERING ---- ----------------- -------- --------- Jay Chiat................................................. 2,019,344 10.8% Kevin C. Clark(1)......................................... 552,238 2.9 Alan S. Ellman............................................ 3,100,000 16.6 Gregoire Sentilhes(2)..................................... 200,000 1.1 Marianne Howatson(3)...................................... 150,000 * Sean P. Morgan............................................ 400,000 2.1 William P. Kelly.......................................... 498,000 2.7 James D. Robinson III(4).................................. 1,829,740 9.8 Wm. Brian Little(5)....................................... 198,868 1.1 Kenneth B. Lerer.......................................... 229,870 1.2 Patrick J. McNeela(6)..................................... -- -- All executive officers and directors as a group (12 persons)................................................ 9,178,060 49.0%
- --------------- * Represents less than 1% of outstanding shares of common stock. (1) Includes options to purchase 292,500 shares of common stock. (2) Consists of options to purchase 200,000 shares of common stock. (3) Consists of options to purchase 150,000 shares of common stock. (4) Includes 129,870 shares of common stock held by members of Mr. Robinson's family. Mr. Robinson disclaims beneficial ownership of these shares. (5) Includes options to purchase 43,164 shares of common stock. Also includes 155,704 shares of common stock that will be issued upon the automatic conversion of our convertible preferred stock on closing of this offering, which are beneficially owned by Mr. Little through AMCITO Partners, L.P. (6) Excludes 893,056 shares of common stock that will be issued upon the automatic conversion of our convertible preferred stock on closing of this offering, which are held by General Electric Pension Trust. Mr. McNeela is a vice president of General Electric Investment Corporation, the investment manager of General Electric Pension Trust. 42 47 DESCRIPTION OF CAPITAL STOCK Under our certificate of incorporation, we are authorized to issue 100,000,000 shares of common stock and 5,000,000 shares of preferred stock. Shares of each class have a par value of $0.01 per share. The following description summarizes the material provisions of our capital stock. COMMON STOCK As of January 31, 2000, there were 9,246,562 shares of common stock outstanding, which were held of record by 14 shareholders. An additional 8,411,314 shares of common stock will be issued to approximately 80 shareholders at the time the registration statement for this offering becomes effective and on closing, respectively, in each case as the result of mandatory conversion of our outstanding preferred stock. Each share of our common stock entitles the holder to one vote on all matters submitted to a vote of stockholders, including the election of directors. Subject to any preference rights of holders of preferred stock, the holders of common stock are entitled to receive dividends, if any, declared from time to time by the directors out of legally available funds. In the event of our liquidation, dissolution or winding up, the holders of common stock are entitled to share ratably in all assets remaining after the payment of liabilities, subject to any rights of holders of preferred stock to prior distribution. The common stock has no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are fully paid and nonassessable and the shares of common stock to be issued on completion of this offering will be fully paid and nonassessable. PREFERRED STOCK The board of directors has the authority, without action by the stockholders, to designate and issue preferred stock and to designate the rights, preferences and privileges of each series of preferred stock, which may be greater than the rights attached to the common stock. It will not be possible to state the actual effect of the issuance of any shares of preferred stock on the rights of holders of common stock until the board of directors determines the specific rights attached to that preferred stock. The effects of issuing preferred stock could include one or more of the following: - restricting dividends on the common stock; - diluting the voting power of the common stock; - impairing the liquidation rights of the common stock; or - delaying or preventing a change of control of ScreamingMedia. There are currently 4,205,657 shares of preferred stock outstanding, comprising 1,527,085 shares of Series A preferred stock and 2,678,572 shares of Series B preferred stock. On January 31, 2000, the preferred stock was held of record by approximately 80 holders. The Series A preferred stock will automatically convert into 3,054,170 shares of common stock at the time the registration statement for this offering becomes effective. The Series B preferred stock will automatically convert into 5,357,144 shares of common stock on closing of this offering. Following these conversions, there will be no preferred stock outstanding, and we have no current plans to issue any shares of preferred stock. WARRANTS As of January 31, 2000, we had the following warrants to purchase shares of common stock outstanding: - Carter, Ledyard, Milburn, LLP holds a warrant for the issue of 14,286 shares at an exercise price of $3.50 per share; - Hut Sachs Studio holds a warrant for the issue of 14,286 shares at an exercise price of $3.50 per share; and 43 48 - Deutsche Bank Securities Inc. holds a warrant for the issue of 241,070 shares at an exercise price of $5.60 per share. OPTIONS As of January 31, 2000, options to purchase a total of 3,769,928 shares of common stock were outstanding, of which 915,255 have vested. The exercise prices of the vested options range from $0.50 to $3.25. ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF DELAWARE LAW AND OUR CERTIFICATE OF INCORPORATION AND BYLAWS Some provisions of our certificate of incorporation and bylaws may be deemed to have an anti-takeover effect and may delay or prevent a tender offer or takeover attempt that a stockholder might consider in its best interest, including those attempts that might result in a premium over the market price for the shares held by stockholders. Classified Board of Directors Our board of directors is divided into three classes of directors serving staggered three-year terms. As a result, approximately one-third of the board of directors is elected each year. These provisions, when coupled with the provision of our certificate of incorporation authorizing the board of directors to fill vacant directorships or increase the size of the board of directors, may deter a stockholder from removing incumbent directors and simultaneously gaining control of the board of directors by filling the vacancies created by such removal with its own nominees. Cumulative Voting Our certificate of incorporation expressly denies our stockholders the right to cumulative voting in the election of directors. Stockholder Action; Special Meeting of Stockholders Our certificate of incorporation eliminates the ability of stockholders to act by written consent. It further provides that special meetings of our stockholders may be called only by the chairman of the board of directors, the president or a majority of the board of directors. ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTORS NOMINATIONS Our bylaws provide that stockholders seeking to bring business before an annual meeting of stockholders, or to nominate candidates for election as directors at an annual meeting of stockholders, must provide timely notice in writing. To be timely, a stockholder's notice must be delivered to or mailed and received at our principal executive offices not less than 90 days prior to the anniversary date of the immediately preceding annual meeting of stockholders. However, in the event that the annual meeting is called for a date that is not within 30 days before or after such anniversary date, notice by the stockholder in order to be timely must be received not later than the close of business on the tenth day following the date on which notice of the date of the annual meeting was mailed to stockholders or made public, whichever first occurs. Our bylaws also specify requirements as to the form and content of a stockholder's notice. These provisions may preclude stockholders from bringing matters before an annual meeting of stockholders or from making nominations for directors at an annual meeting of stockholders. AUTHORIZED BUT UNISSUED SHARES The authorized but unissued shares of common stock and preferred stock will be available for future issuance without stockholder approval. These additional shares may be utilized for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee 44 49 benefit plans. The existence of authorized but unissued shares of common stock and preferred stock could render more difficult or discourage an attempt to obtain control of ScreamingMedia by means of a proxy contest, tender offer, merger or otherwise. AMENDMENTS; SUPERMAJORITY VOTE REQUIREMENTS The Delaware General Corporation Law provides generally that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporation's certificate of incorporation or by-laws, unless either a corporation's certificate of incorporation or bylaws require a greater percentage. Our certificate of incorporation imposes supermajority vote requirements in connection with business combination transactions and the amendment of provisions of our certificate of incorporation and bylaws, including those provisions relating to the classified board of directors, action by written consent and the ability of stockholders to call special meetings. RIGHTS AGREEMENT Under Delaware law, every corporation may create and issue rights entitling the holders of such rights to purchase from the corporation shares of its capital stock of any class or classes, subject to any provisions in its certificate of incorporation. The price and terms of such shares must be stated in the certificate of incorporation or in a resolution adopted by the board of directors for the creation or issuance of such rights. We have entered into a stockholder rights agreement. As with most stockholder rights agreements, the terms of our rights agreement are complex and not easily summarized, particularly as they relate to the acquisition of our common stock and to exercisability. This summary may not contain all of the information that is important to you. Accordingly, if you require more information, you should carefully read our rights agreement, which has been filed as an exhibit to the registration statement of which this prospectus forms a part. Our rights agreement provides that each share of our common stock outstanding after this offering will have one right to purchase one-hundredth of a preferred share attached to it. The purchase price for one one-hundredth of a preferred share will be the price of our common stock for the first five days of trading after the consummation of this offering. Initially, the rights under our rights agreement are attached to outstanding certificates representing our common stock and no separate certificates representing the rights will be distributed. The rights will separate from our common stock and be represented by separate certificates approximately 10 days after someone acquires or commences a tender offer for 5% of our outstanding common stock. After the rights separate from our common stock, certificates representing the rights will be mailed to record holders of our common stock. Once distributed, the rights certificates alone will represent the rights. All shares of our common stock issued prior to the date the rights separate from the common stock will be issued with the rights attached. The rights are not exercisable until the date the rights separate from the common stock. The rights will expire on the tenth anniversary of the date of the completion of this offering unless earlier redeemed or exchanged by us. If an acquirer obtains or has the rights to obtain 15% or more of our common stock, then each right will entitle the holder to purchase a number of shares of our common stock equal to two times the purchase price of each right. Each right will entitle the holder to purchase a number of shares of common stock of the acquirer having a then current market value of twice the purchase price if an acquirer obtains 15% or more of our common stock and any of the following occurs: - we merge into another entity; - an acquiring entity merges into us; or - we sell more than 50% of our assets or earning power. 45 50 Under our rights agreement, any rights that are or were owned by an acquirer of more than 15% of our outstanding common stock will be null and void. Our rights agreement contains exchange provisions which provide that after an acquirer obtains 15% or more, but less than 50% of our outstanding common stock, our board of directors may, at its option, exchange all or part of the then outstanding and exercisable rights for shares of our common stock. In such an event, the exchange ratio is one common share per right, adjusted to reflect any stock split, stock dividend or similar transaction. Our board of directors may redeem all of the outstanding rights under our rights agreement prior to the earlier of (1) the time that an acquirer obtains 15% or more of our outstanding common stock or (2) the final expiration date of the rights agreement. The redemption price under our rights agreement is $0.01 per right, subject to adjustment. The right to exercise the rights will terminate upon the action of our board ordering the redemption of the rights and the only right of the holders of the rights will be to receive the redemption price. Holders of the rights will have no rights as our stockholders including the right to vote or receive dividends, simply by virtue of holding the rights. Our rights agreement provides that the provisions of the rights agreement may be amended by the board of directors prior to 10 days after someone acquires or commences a tender offer for 15% of our outstanding common stock without the approval of the holders of the rights. However, after that date, the rights agreement may not be amended in any manner which would adversely effect the interests of the holders of the rights, excluding the interests of any acquirer. In addition, our rights agreement provides that no amendment may be made to adjust the time period governing redemption at a time when the rights are not redeemable. Our rights agreement contains rights that have anti-takeover effects. The rights may cause substantial dilution to a person or group that attempts to acquire us without conditioning the offer on a substantial number of rights being acquired. Accordingly, the existence of the rights may deter acquirers from making takeover proposals or tender offers. However, the rights are not intended to prevent a takeover, but rather are designed to enhance the ability of our board to negotiate with an acquirer on behalf of all the stockholders. In addition, the rights should not interfere with a proxy contest. TRANSFER AGENT REGISTRAR The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company. Its address is 40 Wall Street, New York, New York 10005. LISTING We expect our common stock to be approved for quotation on The Nasdaq National Market under the symbol "SCRM." 46 51 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no market for our common stock. We cannot assure you that a significant public market for our common stock will develop or will be sustained after the offering. Future sales in the public markets of substantial amounts of common stock (including shares issued on the exercise of outstanding options and warrants) could adversely affect the market prices prevailing from time to time for the common stock. It could also impair our ability to raise capital through future sales of equity securities. After completion of this offering, we will have shares of common stock outstanding (assuming no exercise of the underwriters' over-allotment option and no exercise of outstanding options). All of the shares of common stock sold in this offering will be freely transferable without restriction or further registration under the Securities Act, except for any of the shares that are acquired by "affiliates" as that term is defined in Rule 144 under the Securities Act. Shares acquired by affiliates and the remaining shares held by existing shareholders are "restricted securities" as that term is defined in Rule 144 under the Securities Act. Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Rule 144, which is summarized below. The following table illustrates the shares eligible for sale in the public market assuming Credit Suisse First Boston Corporation does not release any portion of the shares subject to lock-up agreements described below and under "Underwriting".
NUMBER OF SHARES DATE - ---------------- ---- After the date of this prospectus After 180 days from the date of this prospectus (subject, in some cases, to volume limitations) At various times after 180 days after the date of this prospectus
LOCK-UP We have agreed that, without the prior written consent of Credit Suisse First Boston, we will not, directly or indirectly, offer, sell or otherwise dispose of any shares of capital stock or any securities that may be converted into or exchanged for shares of capital stock for a period of 180 days from the date of this prospectus. Each of our officers, directors and all of our existing stockholders and warrant holders have also entered into an agreement to the same effect. RULE 144 In general, Rule 144 has the effect that, beginning 90 days after the date of this prospectus, a person who has beneficially owned ordinary shares for at least one year would be entitled to sell within any three month period a number of shares that does not exceed the greater of: - 1% of the total number of shares of common stock then outstanding; or - the average weekly trading volume of the common stock on The Nasdaq National Market during the four calendar weeks preceding the filing of notice on Form 144 with respect to the sale. Sales under Rule 144 are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us. RULE 144(k) Under Rule 144(k), a person who is not deemed to have been one of our affiliates at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years (including the holding period of any prior owner which was not an affiliate) is entitled to sell the shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Therefore, unless otherwise restricted, "144(k)" shares may be sold immediately on completion of this offering. 47 52 RULE 701 In general, under Rule 701, any of our employees, directors, officers, consultants or advisors who purchases ordinary shares from us in connection with a compensatory stock or option plan or other written agreement before the effective date of this prospectus is entitled to resell those shares 90 days after the effective date of this prospectus in reliance on Rule 144, without having to comply with certain restrictions (including the holding period) contained in Rule 144. Rule 701 permits affiliates to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. It permits non-affiliates to sell their Rule 701 shares in reliance on Rule 144 without having to comply with the holding period, public information, volume limitation or notice provisions of Rule 144. All holders of Rule 701 shares are required to wait until 90 days after the date of this prospectus before selling those shares. STOCK OPTIONS Following the completion of this offering, we intend to file a registration statement on Form S-8 under the Securities Act covering shares of common stock issued or reserved for issuance under our various stock option plans. The registration statement will become effective automatically upon filing. As of January 31, 2000, options to purchase 3,769,928 shares of common stock were issued and outstanding, of which 915,255 shares have vested. Accordingly, shares registered under the registration statement will, subject to vesting provisions and Rule 144 volume limitations applicable to our affiliates, be available for sale in the open market immediately after the 180-day lock-up agreements expire. REGISTRATION RIGHTS Within the six months following the closing of this offering, the holders of the common stock issued on conversion of our Series B preferred stock may require us on up to two occasions to use our best efforts to file a registration statement covering the public sale of part of that common stock having an aggregate offering price of more that $10 million. We have the right to delay any registration required by up to 90 days. In addition to this right, the holders are also entitled to require us to register their shares on any registration that we initiate, and we are obliged to undertake three registrations per year on Form S-3, provided that a minimum of $3 million worth of shares of common stock are offered on each registration. U.S. FEDERAL TAX CONSIDERATIONS FOR NON-U.S. HOLDERS The following is a general discussion of the principal U.S. federal income and estate tax consequences of the ownership and disposition of our common stock by a Non-U.S. Holder. As used in this prospectus, the term "Non-U.S. Holder" is a person that is not: - a citizen or individual resident of the United States for U.S. federal income tax purposes; - a corporation or other entity taxable as a corporation created or organized in or under the laws of the United States or of any political subdivision of the United States; - an estate whose income is includible in gross income for U.S. federal income tax purposes regardless of its source; or - a trust, in general, if it is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons. An individual may, subject to certain exceptions, be treated as a resident of the United States for U.S. federal income tax purposes, instead of a nonresident, by, among other things, being present in the United States for at least 31 days in the calendar year and for an aggregate of at least 183 days during a three-year period ending in the current calendar year -- counting for these purposes all of the days present in the current year, one-third of the days present in the immediately preceding year and one-sixth of the days present in the second preceding year. Residents are subject to U.S. federal taxes as if they were U.S. citizens. 48 53 This discussion does not consider: - U.S. state and local or non-U.S. tax consequences; - specific facts and circumstances that may be relevant to a particular Non-U.S. Holder's tax position, including, if the Non-U.S. Holder is a partnership, that the U.S. tax consequences of holding and disposing of our common stock may be affected by certain determinations made at the partner level; - the tax consequences for the shareholders, partners or beneficiaries of a Non-U.S. Holder; - special tax rules that may apply to certain Non-U.S. Holders, including without limitation, banks, insurance companies, dealers in securities and traders in securities; or - special tax rules that may apply to a Non-U.S. Holder that holds our common stock as part of a "straddle," "hedge" or "conversion transaction." The following discussion is based on provisions of the U.S. Internal Revenue Code of 1986, applicable Treasury regulations, and administrative and judicial interpretations, all as of the date of this prospectus, and all of which may change, retroactively or prospectively. The following summary is for general information. Accordingly, each Non-U.S. Holder should consult a tax advisor regarding the U.S. federal, state, local and non-U.S. income and other tax consequences of acquiring, holding and disposing of shares of our common stock. DIVIDENDS We do not anticipate paying cash dividends on our common stock in the foreseeable future. In the event, however, that dividends are paid on shares of common stock, dividends paid to a Non-U.S. Holder of common stock generally will be subject to withholding of U.S. federal income tax at a 30% rate, or a lower rate as may be provided by an applicable income tax treaty. Canadian holders of the common stock, for example, will generally be subject to a reduced rate of 15% under the Canada-U.S. Income Tax Treaty. Non-U.S. Holders should consult their tax advisors regarding their entitlement to benefits under a relevant income tax treaty. Dividends that are effectively connected with a Non-U.S. Holder's conduct of a trade or business in the United States or, if an income tax treaty applies, attributable to a permanent establishment, or in the case of an individual, a "fixed base," in the United States, as provided in that treaty ("U.S. trade or business income"), are generally subject to U.S. federal income tax on a net income basis at regular graduated rates, but are not generally subject to the 30% withholding tax if the Non-U.S. Holder files the appropriate U.S. Internal Revenue Service form with the payor. Any U.S. trade or business income received by a Non-U.S. Holder that is a corporation may also, under certain circumstances, be subject to an additional "branch profits tax" at a 30% rate or a lower rate as specified by an applicable income tax treaty. Dividends paid prior to 2001 to an address in a foreign country are presumed, absent actual knowledge to the contrary, to be paid to a resident of that country for purposes of the withholding discussed above and for purposes of determining the applicability of a tax treaty rate. For dividends paid after December 31, 2000: - a Non-U.S. Holder of common stock who claims the benefit of an applicable income tax treaty rate generally will be required to satisfy applicable certification and other requirements; - in the case of common stock held by a foreign partnership, the certification requirement will generally be applied to the partners of the partnership and the partnership will be required to provide certain information, including a U.S. taxpayer identification number; and - look-through rules will apply for tiered partnerships. A Non-U.S. Holder of common stock that is eligible for a reduced rate of U.S. withholding tax under an income tax treaty may obtain a refund or credit of any excess amounts withheld by filing an appropriate claim for a refund with the IRS. 49 54 GAIN ON DISPOSITION OF COMMON STOCK A Non-U.S. Holder generally will not be subject to U.S. federal income tax in respect of gain recognized on a disposition of common stock unless: - the gain is U.S. trade or business income, in which case, the branch profits tax described above may also apply to a corporate Non-U.S. Holder; - the Non-U.S. Holder is an individual who holds the common stock as a capital asset within the meaning of Section 1221 of the Internal Revenue Code, is present in the United States for more than 182 days in the taxable year of the disposition and meets other requirements; - the Non-U.S. Holder is subject to tax pursuant to the provisions of the U.S. tax law applicable to some U.S. expatriates; or - we are or have been a "U.S. real property holding corporation" for U.S. federal income tax purposes at any time during the shorter of the five-year period ending on the date of disposition or period that the Non-U.S. Holder held our common stock. Generally, a corporation is a "U.S. real property holding corporation" if the fair market value of its "U.S. real property interests" equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests plus its other assets used or held for use in trade or business. We believe that we have not been, are not currently, and do not anticipate becoming, a "U.S. real property holding corporation," and thus we believe that the effects which could arise if we were ever a "U.S. real property holding corporation" will not apply to a Non-U.S. Holder. Even if we were, or were to become, a "U.S. real property holding corporation," no adverse tax consequences would apply to a Non-U.S. Holder whose holdings, direct and indirect, at all times during the applicable period, constituted 5% or less of our common stock, provided that our common stock was regularly traded on an established securities market. FEDERAL ESTATE TAX Common stock owned or treated as owned by an individual who is a Non-U.S. Holder at the time of death will be included in the individual's gross estate for U.S. federal estate tax purposes, unless an applicable estate tax or other treaty provides otherwise and, therefore, may be subject to U.S. federal estate tax. INFORMATION REPORTING AND BACKUP WITHHOLDING TAX We must report annually to the IRS and to each Non-U.S. Holder the amount of dividends paid to that holder and the tax withheld with respect to those dividends. Copies of the information returns reporting those dividends and withholding may also be made available to the tax authorities in the country in which the Non-U.S. Holder is a resident under the provisions of an applicable income tax treaty or agreement. Under some circumstances, U.S. Treasury Regulations require information reporting and backup withholding at a rate of 31% on certain payments on common stock. Under currently applicable law, Non-U.S. Holders of common stock generally will be exempt from these information reporting requirements and from backup withholding on dividends prior to 2001 to an address outside the United States. For dividends paid after December 31, 2000, however, a Non-U.S. Holder of common stock that fails to certify its Non-U.S. Holder status in accordance with applicable U.S. Treasury Regulations may be subject to backup withholding at a rate of 31% on payments of dividends. The payment of the proceeds of the disposition of common stock by a holder to or through the U.S. office of a broker through a non-U.S. branch of a U.S. broker generally will be subject to information reporting and backup withholding at a rate of 31% unless the holder either certifies its status as a Non-U.S. Holder under penalties of perjury or otherwise establishes an exemption. The payment of the proceeds of the disposition by a Non-U.S. Holder of common stock to or through a non-U.S. office of non-U.S. broker will not be subject to backup withholding or information reporting unless the non-U.S. broker is a "U.S. related person." In the case of the payment of proceeds from the disposition of common stock by or through a non- 50 55 U.S. office of a broker that is a U.S. person or a "U.S. related person," information reporting, but currently not backup withholding, on the payment applies unless the broker receives a statement from the owner, signed under penalty of perjury, certifying its non-U.S. status or the broker has documentary evidence in its files that the holder is a Non-U.S. Holder and the broker has no actual knowledge to the contrary. For this purpose, a "U.S. related person" is: - a "controlled foreign corporation" for U.S. federal income tax purposes; - a foreign person, 50% or more of whose gross income from all sources for the three-year period ending with the close of its taxable year preceding the payment, or for such part of the period that the broker has been in existence, is derived from activities that are effectively connected with the conduct of a U.S. trade or business; or - effective after December 31, 2000, a foreign partnership if, at any time during the taxable year, (A) at least 50% of the capital or profits interest in the partnership is owned by U.S. persons or (B) the partnership is engaged in a U.S. trade or business. Effective after December 31, 2000, backup withholding may apply to the payment of disposition proceeds by or through a non-U.S. office of a broker that is a U.S. person or a "U.S. related person" unless certification requirements are satisfied or an exemption is otherwise established and the broker has no actual knowledge that the holder is a U.S. person. Non-U.S. Holders should consult their own tax advisors regarding the application of the information reporting and backup withholding rules to them, including changes to these rules that will become effective after December 31, 2000. Any amounts withheld under the backup withholding rules from a payment to a Non-U.S. Holder will be refunded, or credited against the holder's U.S. federal income tax liability, if any, provided that the required information is furnished to the IRS. 51 56 UNDERWRITING Under the terms and subject to the conditions contained in an underwriting agreement dated , 2000, we have agreed to sell to the underwriters named below, for whom Credit Suisse First Boston Corporation, Deutsche Bank Securities Inc. and Thomas Weisel Partners LLC are acting as representatives, the following respective numbers of shares of our common stock:
NUMBER OF UNDERWRITER SHARES ----------- --------- Credit Suisse First Boston Corporation...................... Deutsche Bank Securities Inc................................ Thomas Weisel Partners LLC.................................. -------- Total............................................. ========
The underwriting agreement provides that the underwriters are obligated to purchase all the shares of common stock in this offering if any are purchased, other than those shares covered by the over-allotment option described below. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may be increased or the offering of common stock may be terminated. We have granted to the underwriters a 30-day option to purchase on a pro rata basis up to additional shares of our common stock at the initial public offering price less the underwriting discounts and commissions. The option may be exercised only to cover any over-allotments of common stock. The underwriters propose to offer the shares of common stock initially at the public offering price on the cover page of this prospectus and to the selling group members at that price less a concession of $ per share. The underwriters and the selling group members may allow a discount of $ per share on sales to other broker/dealers. After the initial public offering, the public offering price and concession and discount to dealers may be changed by the representatives. The following table summarizes the compensation and estimated expenses we will pay.
PER SHARE TOTAL ------------------------------- ------------------------------- WITHOUT WITH WITHOUT WITH OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT -------------- -------------- -------------- -------------- Underwriting discounts and commissions paid by us............................ $ $ $ $ Expenses payable by us.................. $ $ $ $
The underwriters have informed us that they do not expect discretionary sales to exceed 5% of the shares of common stock being offered. We have agreed that we will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement under the Securities Act relating to, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, or publicly disclose the intention to make any such offer, sale, pledge, disposition or filing, without the prior written consent of Credit Suisse First Boston Corporation for a period of 180 days after the date of this prospectus, except for grants of employees stock options pursuant to the terms of any plan in effect on the date of this prospectus, issuances of securities pursuant to the exercise of employee stock options outstanding on the date of this prospectus, employee stock purchases pursuant to the term of any plan in effect on the date of this prospectus or the issuance of shares pursuant to the exercise of any warrants outstanding on the date of this prospectus. Our officers and directors and all our existing stockholders and warrant holders have agreed that they will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common 52 57 stock, enter into a transaction which would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of our common stock, whether any such transaction is to be settled by delivery of our common stock or such other securities, in cash or otherwise, or publicly disclose the intention to make any such offer, sale, pledge or disposition, or to enter into any such transaction, swap, hedge or other arrangement, without, in each case, the prior written consent of Credit Suisse First Boston Corporation for a period of 180 days after the date of this prospectus. The underwriters have reserved for sale, at the initial public offering price, up to shares of common stock for our employees and certain other persons associated with us who have expressed an interest in purchasing common stock in the offering. The number of shares of common stock available for sale to the general public in the offering will be reduced to the extent these persons purchase these reserved shares. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same terms as the other shares. We have agreed to indemnify the underwriters against liabilities under the Securities Act or contribute to payments which the underwriters may be required to make in that respect. We have applied to list the shares of common stock listed on The Nasdaq Stock Market's National Market under the symbol "SCRM." Prior to this offering, there has been no public market for our common stock. The initial public offering price will be determined by negotiation between us and the representatives, and may not reflect the market price for our common stock that may prevail following this offering. We will consider, among others, the following principal factors in determining the initial public offering price: - the information in this prospectus and otherwise available to the representatives; - market conditions for initial public offerings; - the history of and prospects for the industry in which we will compete; - our past and present operations; - our past and present earnings and current financial position; - the ability of our management; - our prospects for future earnings; - the present state of our development and our current financial condition; - the recent prices of, and the demand for, publicly traded common stock of generally comparable companies; and - the general condition of the securities markets at the time of this offering. We can offer no assurance that the initial public offering price will correspond to the price at which our common stock will trade in the public market subsequent to this offering or that an active trading market for our common stock will develop and continue after this offering. The representatives may engage in over-allotment, stabilizing transactions, syndicate covering transactions and penalty bids in accordance with Regulation M under the Exchange Act. - Over-allotment involves syndicate sales in excess of the offering size, which creates a syndicate short position. - Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. - Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions. 53 58 - Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by that syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions. These stabilizing transactions, syndicate covering transactions and penalty bids may cause the price of our common stock to be higher than it would otherwise be in the absence of these transactions. These transactions may be effected on The Nasdaq National Market or otherwise and, if commenced, may be discontinued at any time. Thomas Weisel Partners, LLC, one of the representatives of the underwriters, was organized and registered as a broker-dealer in December 1998. Since December 1998, Thomas Weisel Partners has been named as a lead or co-manager on numerous public offerings of equity securities. Thomas Weisel Partners does not have any material relationship with us or any of our officers, directors or other controlling persons, except with respect to its contractual relationship with us pursuant to the underwriting agreement entered into in connection with this offering. In connection with the placement of 2,678,572 shares of Series B preferred stock in our October 1999 private placement, we issued Deutsche Bank Securities Inc., one of the representatives of the underwriters, a warrant to purchase 241,070 shares of our common stock. This warrant is exercisable at a price of $5.60 per share. NOTICE TO CANADIAN RESIDENTS RESALE RESTRICTIONS The distribution of the common stock in Canada is being made only on a private placement basis exempt from the requirement that we prepare and file a prospectus with the securities regulatory authorities in each province where trades of common stock are effected. Accordingly, any resale of the common stock in Canada must be made in accordance with applicable securities laws which will vary depending on the relevant jurisdiction, and which may require resales to be made in accordance with available statutory exemptions or pursuant to a discretionary exemption granted by the applicable Canadian securities regulatory authority. Purchasers are advised to seek legal advice prior to any resale of the common stock. REPRESENTATIONS OF PURCHASERS Each purchaser of common stock in Canada who receives a purchase confirmation will be deemed to represent to us and the dealer from whom such purchase confirmation is received that (1) such purchaser is entitled under applicable provincial securities laws to purchase such common stock without the benefit of a prospectus qualified under such securities laws, (2) where required by law, that such purchaser is purchasing as principal and not as agent, and (3) such purchaser has reviewed the text above under "Resale Restrictions." RIGHTS OF ACTION (ONTARIO PURCHASERS) The securities being offered are those of a foreign issuer and Ontario purchasers will not receive the contractual right of action prescribed by Ontario securities law. As a result, Ontario purchasers must rely on other remedies that may be available, including common law rights of action for damages or rescission or rights of action under the civil liability provisions of the U.S. federal securities laws. ENFORCEMENT OF LEGAL RIGHTS All of the issuer's directors and officers as well as the experts named herein may be located outside of Canada and, as a result, it may not be possible for Canadian purchasers to effect service of process within Canada. All or a substantial portion of the assets of the issuer and such persons may be located outside of Canada and, as a result, it may not be possible to satisfy a judgment against the issuer or such persons in 54 59 Canada or to enforce a judgment obtained in Canadian courts against such issuer or persons outside of Canada. NOTICE TO BRITISH COLUMBIA RESIDENTS A purchaser of common stock to whom the Securities Act (British Columbia) applies is advised that such purchaser is required to file with the British Columbia Securities Commission a report within ten days of the sale of any common stock acquired by such purchaser in this offering. Such report must be in the form attached to British Columbia Securities Commission Blanket Order BOR #95/17, a copy of which may be obtained from us. Only one such report must be filed in respect of common stock acquired on the same date and under the same prospectus exemption. TAXATION AND ELIGIBILITY FOR INVESTMENT Canadian purchasers of common stock should consult their own legal and tax advisors with respect to the tax consequences of any investment in the common stock in their particular circumstances and with respect to the eligibility of the common stock for investment by the purchaser under relevant Canadian legislation. LEGAL MATTERS The validity of the common stock offered by this prospectus will be passed upon for us by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York. Certain legal matters in connection with the offering will be passed upon for the underwriters by Cravath, Swaine & Moore, New York, New York. EXPERTS The financial statements of ScreamingMedia.com, Inc. as of December 31, 1998 and 1999 and for the years ended December 31, 1999 and 1998, included in this prospectus, have been audited by Deloitte and Touche LLP, independent auditors, as stated in their report appearing in this prospectus and are included in reliance upon the report of that firm given upon their authority as experts in accounting and auditing. Our financial statements for the year ended December 31, 1997 included in this prospectus and in the registration statement have been audited by David Tarlow & Co., P.C., independent auditors, as stated in their report appearing in this prospectus, and are included in reliance upon the report of that firm given upon their authority as experts in accounting and auditing. CHANGE IN ACCOUNTANTS Effective June 16, 1999, Deloitte & Touche LLP was engaged as our independent auditors and replaced David Tarlow & Co., P.C. who had previously served as our independent auditors. The decision to change independent auditors was approved by our board of directors. In the period from January 1, 1997 to December 31, 1998, David Tarlow & Co., P.C. issued no audit report that was qualified or modified as to uncertainty, audit scope or accounting principles, no adverse opinions or disclaimers of opinion on any of our financial statements, and there were no disagreements with David Tarlow & Co., P.C. on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures. Prior to June 16, 1999, we had not consulted with Deloitte & Touche LLP on items which involved our accounting principles or the form of audit opinion to be issued on our financial statements. 55 60 WHERE YOU CAN FIND MORE INFORMATION This prospectus is a part of a registration statement on Form S-1 that we have filed with the Securities and Exchange Commission under the Securities Act, with respect to the common stock offered in this prospectus. This prospectus does not contain all the information which is in the registration statement. Certain parts of the registration statement are omitted as allowed by the rules and regulations of the SEC. We refer you to the registration statement for further information about our company and the securities offered in this prospectus. Statements contained in this prospectus concerning the provisions of documents filed as exhibits are not necessarily complete, and reference is made to the copy so filed, each such statement being qualified in all respects by such reference. You can inspect and copy the registration statement and the reports and other information we file with the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You can obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. The same information will be available for inspection and copying at the regional offices of the SEC located at 7 World Trade Center, 13(th) Floor, New York, N.Y. 10048 and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You can also obtain copies of this material from the public reference room of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The SEC also maintains a Web site which provides on-line access to reports, proxy and information statements and other information regarding registrants that file electronically with the SEC at the address http://www.sec.gov. Upon the effectiveness of the registration statement, we will become subject to the information requirements of the Exchange Act. We will then file reports, proxy statements and other information under the Exchange Act with the SEC. You can inspect and copy these reports and other information of our company at the locations set forth above or download these reports from the SEC's Web site. We have applied to have our common stock approved for quotation on The Nasdaq National Market. Reports, proxy statements and other information concerning us can be inspected at the National Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006. 56 61 INDEX TO FINANCIAL STATEMENTS
PAGE ---- Independent Auditors' Report................................ F-2 Independent Auditors' Report................................ F-3 Balance Sheets as of December 31, 1998 and 1999............. F-4 Statements of Operations for the years ended December 31, 1997, 1998 and 1999....................................... F-6 Statements of Stockholders' Equity (deficiency) for the years ended December 31, 1997, 1998 and 1999.......................... F-7 Statements of Cash Flows for the years ended December 31, 1997, 1998 and 1999....................................... F-8 Notes to Financial Statements............................... F-9
F-1 62 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Screaming Media.com Inc. We have audited the accompanying balance sheets of Screaming Media.com Inc. (the "Company") as of December 31, 1998 and 1999, and the related statements of operations, stockholders' equity (deficiency) and cash flows for each of the two years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 1998 and 1999, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 1999 in conformity with generally accepted accounting principles. Deloitte & Touche LLP New York, New York January 19, 2000 (February 1, 2000 as to Note 12) F-2 63 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Screaming Media.com Inc. New York, New York We have audited the accompanying statements of operations, stockholders equity (deficiency) and cash flows of Screaming Media.com Inc. for the year ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on those financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Screaming Media.com Inc. for the year ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ DAVID TARLOW & CO., P.C. -------------------------------------- David Tarlow & Co., P.C. New York, New York December 28, 1999 F-3 64 SCREAMING MEDIA.COM INC. BALANCE SHEETS DECEMBER 31, 1998 AND 1999
PRO FORMA STOCKHOLDERS' EQUITY DECEMBER 31, 1998 1999 1999 ------------ ------------ ------------- (UNAUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents.......................... $ 120,357 $ 22,121,667 Accounts receivable, net of allowance for doubtful accounts of $10,000 and $138,802 as of December 31, 1998 and 1999, respectively.......................... 92,112 1,398,980 Prepaid expenses................................... -- 3,248,295 ------------ ------------ Total current assets....................... 212,469 26,768,942 PROPERTY AND EQUIPMENT -- Net of accumulated depreciation....................................... 41,333 4,552,495 INVESTMENTS.......................................... -- 349,987 OTHER ASSETS......................................... 20,232 698,751 ------------ ------------ TOTAL ASSETS............................... $ 274,034 $ 32,370,175 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) CURRENT LIABILITIES: Accounts payable and accrued expenses.............. $ 124,249 $ 3,273,527 Current portion of notes payable -- stockholder.... 19,351 -- Deferred revenue................................... 45,108 873,360 Current portion of capital lease obligations....... -- 691,643 ------------ ------------ Total current liabilities.................. 188,708 4,838,530 ------------ ------------ NONCURRENT LIABILITIES: Notes payable -- stockholders, less current portion......................................... 275,000 -- Capital lease obligations, less current portion.... -- 646,586 ------------ ------------ Total liabilities.......................... 463,708 5,485,116 ------------ ------------ COMMITMENTS REDEEMABLE CONVERTIBLE PREFERRED STOCK: Series B convertible preferred stock, $0.01 par value, no shares authorized, issued, and outstanding, 1998, 2,678,572 shares authorized, issued, and outstanding, 1999, no shares authorized, issued and outstanding 1999 -- pro forma........................................... -- 27,331,814 $ -- ------------ ------------ ------------ STOCKHOLDERS' EQUITY (DEFICIENCY): Preferred stock, $0.0001 par value, 4,000,000 shares authorized and issued, and 3,620,000 shares outstanding at December 31, 1998 and no shares authorized, issued, and outstanding at December 31, 1999 and 1999 -- pro forma......... 400 -- --
F-4 65 BALANCE SHEETS -- (CONTINUED) DECEMBER 31, 1998 AND 1999
PRO FORMA STOCKHOLDERS' EQUITY DECEMBER 31, 1998 1999 1999 ------------ ------------ ------------- (UNAUDITED) Series A convertible preferred stock, $0.01 par value, no shares authorized, issued, and outstanding, 1998, 1,527,085 shares authorized, issued, and outstanding at December 31, 1999 and no shares authorized, issued and outstanding at December 31, 1999 -- pro forma.................. -- 15,271 -- Common stock, $0.0001 par value, 2,000,000 shares authorized and issued, and 1,600,000 shares outstanding at December 31, 1998 and no shares authorized, issued and outstanding at December 31, 1999 and 1999 -- pro forma.................. 200 -- -- Common stock, $0.01 par value, no shares authorized, issued, and outstanding, 1998, 100,000,000 shares authorized and 10,406,562 and 18,817,876 issued and 9,246,562 and 17,657,876 outstanding at December 31, 1999 and 1999 -- pro forma, respectively............................. -- 104,066 188,179 Additional paid-in capital......................... 475,014 22,856,984 50,119,956 Warrants........................................... -- 787,000 787,000 Deferred compensation.............................. -- (10,379,049) (10,379,049) Treasury stock..................................... (19,311) (19,311) (19,311) Accumulated deficit................................ (645,977) (13,811,716) (13,811,716) ------------ ------------ ------------ Total stockholders' equity (deficiency).... (189,674) (446,755) $ 26,885,059 ------------ ------------ ============ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)....................................... $ 274,034 $ 32,370,175 ============ ============
See notes to financial statements. F-5 66 SCREAMING MEDIA.COM INC. STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
1997 1998 1999 --------- ---------- ------------ REVENUE: Network services....................................... $ 246,143 $ 308,661 $ 2,479,660 Set-up fee............................................. 40,865 67,582 492,360 Other.................................................. 287,090 190,564 13,170 --------- ---------- ------------ Total revenue.................................. 574,098 566,807 2,985,190 --------- ---------- ------------ OPERATING EXPENSES: Cost of services (excluding depreciation shown below).............................................. 69,801 130,111 973,518 Research and development (exclusive of stock-based compensation shown below)........................... 107,278 97,077 893,686 Sales and marketing (exclusive of stock-based compensation shown below)........................... 87,200 104,204 3,768,005 General and administrative (exclusive of stock-based compensation shown below)........................... 346,214 454,970 4,330,384 Depreciation and amortization.......................... 33,117 26,119 451,309 Stock-based compensation............................... 25,000 350,000 6,062,298 --------- ---------- ------------ Total operating expenses....................... 668,610 1,162,481 16,479,200 --------- ---------- ------------ OPERATING LOSS........................................... (94,512) (595,674) (13,494,010) --------- ---------- ------------ OTHER INCOME (EXPENSE): Interest income........................................ -- -- 381,373 Interest expense....................................... (449) (10,993) (53,102) Other expense.......................................... -- (3,160) -- --------- ---------- ------------ Total other income (expense)................... (449) (14,153) 328,271 --------- ---------- ------------ NET LOSS................................................. $ (94,961) $ (609,827) $(13,165,739) ========= ========== ============ BASIC NET LOSS PER SHARE................................. $ (0.08) $ (0.48) $ (1.44) ========= ========== ============ WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING............................................ 1,175,068 1,282,740 9,115,056 ========= ========== ============ Pro forma basic net loss per share (unaudited)........... $ (1.04) ============ Pro forma weighted average number of shares of common stock outstanding (unaudited).......................... 12,628,170 ============
See notes to financial statements. F-6 67 SCREAMING MEDIA.COM INC. STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
CONVERTIBLE PREFERRED STOCK ------------------- PREFERRED STOCK SERIES A COMMON STOCK COMMON STOCK ------------------- ------------------- ------------------- --------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ------ ------ ------ ------ ------ ------ ------ ------ BALANCE, JANUARY 1, 1997...... 3,250,000 $325 -- $ -- 1,900,000 $ 190 -- $ -- Stock issuance............... 750,000 75 -- -- 100,000 10 -- -- Net loss for the year ended December 31, 1997.......... -- -- -- -- -- -- -- -- ---------- ---- --------- ------- ---------- ----- ---------- -------- BALANCE, DECEMBER 31, 1997......................... 4,000,000 400 -- -- 2,000,000 200 -- -- Issuance of shares from treasury for directors' fees....................... -- -- -- -- -- -- -- -- Interest expense on convertible note........... -- -- -- -- -- -- -- -- Net loss for the year ended December 31, 1998......... -- -- -- -- -- -- -- -- ---------- ---- --------- ------- ---------- ----- ---------- -------- BALANCE, DECEMBER 31, 1998......................... 4,000,000 400 -- -- 2,000,000 200 -- -- Reincorporation.............. (4,000,000) (400) -- -- (2,000,000) (200) 10,000,000 100,000 Stock grants................. -- -- -- -- -- -- 78,000 780 Issuance of Series A preferred stock............ -- -- 1,527,085 15,271 -- -- -- -- Warrants granted to investment bankers......... -- -- -- -- -- -- -- -- Warrants granted for legal services................... -- -- -- -- -- -- -- -- Warrants granted for architectural services..... -- -- -- -- -- -- -- -- Conversion of notes into common stock............... -- -- -- -- -- -- 328,562 3,286 Interest expense on convertible notes.......... -- -- -- -- -- -- -- -- Issuance of stock options to employees.................. -- -- -- -- -- -- -- -- Amortization of deferred compensation............... -- -- -- -- -- -- -- -- Net loss..................... -- -- -- -- -- -- -- -- ---------- ---- --------- ------- ---------- ----- ---------- -------- BALANCE, DECEMBER 31, 1999.... -- $ -- 1,527,085 $15,271 -- $ -- 10,406,562 $104,066 ========== ==== ========= ======= ========== ===== ========== ======== TREASURY STOCK ------------------------------------------- ADDITIONAL COMMON STOCK PREFERRED STOCK PAID-IN DEFERRED --------------------- ------------------- ACCUMULATED CAPITAL WARRANTS COMPENSATION SHARES AMOUNT SHARES AMOUNT DEFICIT ---------- -------- ------------ ------ ------ ------ ------ ----------- BALANCE, JANUARY 1, 1997...... $ 100,485 $ -- $ -- (800,000) $(13,318) (380,000) $(12,652) $ 58,811 Stock issuance............... 24,915 -- -- -- -- -- -- -- Net loss for the year ended December 31, 1997.......... -- -- -- -- -- -- -- (94,961) ----------- -------- ------------ ---------- -------- -------- -------- ------------ BALANCE, DECEMBER 31, 1997......................... 125,400 -- -- (800,000) (13,318) (380,000) (12,652) (36,150) Issuance of shares from treasury for directors' fees....................... 343,341 -- -- 400,000 6,659 -- -- -- Interest expense on convertible note........... 6,273 -- -- -- -- -- -- -- Net loss for the year ended December 31, 1998......... -- -- -- -- -- -- -- (609,827) ----------- -------- ------------ ---------- -------- -------- -------- ------------ BALANCE, DECEMBER 31, 1998......................... 475,014 -- -- (400,000) (6,659) (380,000) (12,652) (645,977) Reincorporation.............. (99,400) -- -- (760,000) (12,652) 380,000 12,652 -- Stock grants................. 76,995 -- -- -- -- -- -- -- Issuance of Series A preferred stock............ 5,381,176 -- -- -- -- -- -- -- Warrants granted to investment bankers......... -- 687,000 -- -- -- -- -- -- Warrants granted for legal services................... -- 50,000 -- -- -- -- -- -- Warrants granted for architectural services..... -- 50,000 -- -- -- -- -- -- Conversion of notes into common stock............... 546,714 -- -- -- -- -- -- -- Interest expense on convertible notes.......... 35,138 -- -- -- -- -- -- -- Issuance of stock options to employees.................. 16,441,347 -- (16,441,347) -- -- -- -- -- Amortization of deferred compensation............... -- -- 6,062,298 -- -- -- -- -- Net loss..................... -- -- -- -- -- -- -- (13,165,739) ----------- -------- ------------ ---------- -------- -------- -------- ------------ BALANCE, DECEMBER 31, 1999.... $22,856,984 $787,000 $(10,379,049) (1,160,000) $(19,311) -- $ -- $(13,811,716) =========== ======== ============ ========== ======== ======== ======== ============ TOTAL ----- BALANCE, JANUARY 1, 1997...... $ 133,841 Stock issuance............... 25,000 Net loss for the year ended December 31, 1997.......... (94,961) ------------ BALANCE, DECEMBER 31, 1997......................... 63,880 Issuance of shares from treasury for directors' fees....................... 350,000 Interest expense on convertible note........... 6,273 Net loss for the year ended December 31, 1998......... (609,827) ------------ BALANCE, DECEMBER 31, 1998......................... (189,674) Reincorporation.............. -- Stock grants................. 77,775 Issuance of Series A preferred stock............ 5,396,447 Warrants granted to investment bankers......... 687,000 Warrants granted for legal services................... 50,000 Warrants granted for architectural services..... 50,000 Conversion of notes into common stock............... 550,000 Interest expense on convertible notes.......... 35,138 Issuance of stock options to employees.................. -- Amortization of deferred compensation............... 6,062,298 Net loss..................... (13,165,739) ------------ BALANCE, DECEMBER 31, 1999.... $ (446,755) ============
See notes to financial statements F-7 68 SCREAMING MEDIA.COM INC. STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
1997 1998 1999 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss................................................. $(94,961) $(609,827) $(13,165,739) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization......................... 33,117 26,119 451,309 Stock/warrants issued for services.................... 25,000 350,000 105,400 Interest from beneficial conversion................... -- 6,273 35,138 Stock-based compensation.............................. -- -- 6,062,298 Changes in operating assets and liabilities: Decrease (increase) in account receivable........... 41,114 (5,898) (1,306,868) Increase in other assets............................ -- (1,000) (3,926,813) Increase in account payable and accrued expenses.... 19,448 79,210 3,149,277 Increase in deferred revenue........................ -- 45,108 828,252 -------- --------- ------------ Net cash provided by (used in) operating activities..................................... 23,718 (110,015) (7,767,746) -------- --------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment....................... (13,218) (6,675) (3,415,656) Purchase of investments.................................. -- -- (349,987) -------- --------- ------------ Net cash used in investing activities............ (13,218) (6,675) (3,765,643) -------- --------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the issuance of convertible preferred stock, net............................................ -- -- 28,018,814 Borrowings from company directors and officers........... -- 252,114 275,000 Repayments of loans to stockholders...................... (10,500) (15,067) (19,350) Repayment of capital lease obligation.................... -- -- (208,587) Proceeds from sale of stock.............................. -- -- 5,468,822 -------- --------- ------------ Net cash (used in) provided by financing activities..................................... (10,500) 237,047 33,534,699 -------- --------- ------------ NET INCREASE IN CASH....................................... -- 120,357 22,001,310 CASH, BEGINNING OF YEAR.................................... -- -- 120,357 -------- --------- ------------ CASH, END OF YEAR.......................................... $ -- $ 120,357 $ 22,121,667 ======== ========= ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest................................... $ 449 $ 35 $ 22,648 ======== ========= ============ Cash paid for income taxes............................... $ 688 $ 1,018 $ 1,171 ======== ========= ============ SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS: Fixed assets acquired under capital leases............ $ -- $ -- $ 1,531,418 ======== ========= ============ Conversion of promissory notes into common stock...... $ -- $ -- $ 550,000 ======== ========= ============ Warrant granted to investment bankers................. $ -- $ -- $ 687,000 ======== ========= ============ Warrant granted for legal services.................... $ -- $ -- $ 50,000 ======== ========= ============ Warrant granted for architectural services............ $ -- $ -- $ 50,000 ======== ========= ============
See notes to financial statements F-8 69 SCREAMING MEDIA.COM INC. NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 1. ORGANIZATION AND NATURE OF BUSINESS Screaming Media.com Inc. (formerly ScreamingMedia.net, Inc.) (the "Company") was incorporated in the state of Delaware on January 22, 1999, for the purpose of reincorporating The Interactive Connection, Inc. ("Interactive"), a corporation incorporated in the state of New York on August 16, 1993. On January 28, 1999, a merger took place between these two companies (under common control) with the Company being the surviving corporation. The merger was treated as if it were a pooling of interests (see Note 10). The Company's primary business is aggregating, processing, filtering and delivering content to its customers. The Company receives the data from various content providers, processes and filters it using customized software to meet individual customers' needs, and then distributes the content almost instantaneously to such customers. Prior to 1999, the Company derived revenue from other services, including Web hosting, server hosting and maintenance and Web design and consulting. 2. SIGNIFICANT ACCOUNTING POLICIES AND PROCEDURES BASIS OF PRESENTATION -- The financial statements of the Company have been prepared on the accrual basis of accounting. A summary of the major accounting policies followed in the preparation of the accompanying financial statements, which conform to generally accepted accounting principles, is presented below. USE OF ESTIMATES -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. CASH AND CASH EQUIVALENTS -- The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. PROPERTY AND EQUIPMENT AND RELATED DEPRECIATION AND AMORTIZATION -- Property and equipment are stated at cost, and in the case of equipment under capital leases, the present value of the future minimum lease payments, less accumulated depreciation and amortization. Depreciation and amortization is calculated using the straight-line method over the estimated useful lives of the depreciable assets, which range from three to seven years, or, if shorter, the lease term. Improvements are capitalized, while repair and maintenance costs are charged to operations as incurred. INVESTMENTS -- Investments of less than 20% of the voting interest of other companies are presented at cost. In the event that management identifies an impairment in the estimated fair value of an investment to an amount below cost (other than a temporary decline), such investment will be written down to fair market value. IMPAIRMENT OF ASSETS -- The Company's long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the net carrying amount may not be recoverable. When such events occur, the Company measures impairment by comparing the carrying value of the long-lived asset to the estimated undiscounted future cash flows expected to result from use of the assets and their eventual disposition. If the sum of the expected undiscounted future cash flows were less than the carrying amount of the assets, the Company would recognize an impairment loss. The impairment loss, if determined to be necessary, would be measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset. The Company determined that, as of December 31, 1998 and 1999, there had been no impairment in the carrying value of its long-lived assets. F-9 70 SCREAMING MEDIA.COM INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 2. SIGNIFICANT ACCOUNTING POLICIES AND PROCEDURES -- (CONTINUED) COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE -- As of January 1, 1999, costs of computer software developed or obtained for internal use are capitalized while in the application development stage and are expensed while in the preliminary stage and post-implementation stage. The Company amortizes these capitalized costs over the life of the systems, which is estimated to be two years. The Company capitalized approximately $1,314,000 of internal development and software purchase costs relating to its internal use software incurred during the application development stage. Prior to January 1, 1999, the Company had no significant costs related to software development. Normal maintenance of internal use software is expensed as incurred. DEFERRED REVENUES -- Deferred revenues represents amounts billed in excess of revenues recognized. Such deferred revenues relate to set-up fees. (See revenue recognition below.) Included in accounts receivable are amounts due (under contract) relating to deferred revenues. REVENUE RECOGNITION -- Income is derived primarily from the Company's network services and related set-up fees. Network services contracts have a minimum monthly charge. The minimum revenues from these services, net of rebates and allowances, are recognized on a straight-line basis, over the lives of the contracts, which are typically for terms of one year. Revenue amounts in addition to the minimum charge are recognized as the services are delivered. Revenue for set-up fees are recognized ratably over the initial term of the contract, commencing with the service start date specified in the contract. The Company has also derived revenue from its other Internet-related activities such as Web Site development, custom programming and hosting. Such revenue is recognized as earned over the term of each agreement. ADVERTISING COSTS -- The costs of advertising are expensed as incurred. INCOME TAXES -- The Company accounts for income taxes under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes, pursuant to which deferred income tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities, using enacted tax rates currently in effect. State and local taxes are based on factors other than income. NET LOSS PER COMMON SHARE -- Basic loss per common share was computed by dividing net loss by the weighted average number of shares of common stock outstanding. Diluted loss per share has not been presented since the impact of options, warrants and conversion of preferred shares would have been anti- dilutive (see Notes 9 and 10). UNAUDITED PRO FORMA NET LOSS PER SHARE AND UNAUDITED PRO FORMA STOCKHOLDERS' EQUITY -- Unaudited pro forma net loss per share has been computed in the same manner as net loss per common share as described above and also gives effect to the conversion of all convertible preferred stock that will automatically occur upon completion of the Company's initial public offering (using the if-converted method) (see Notes 9 and 10). If the offering contemplated by this prospectus is consummated, all of the convertible preferred stock outstanding as of December 31, 1999 will automatically be converted into an aggregate of 8,411,314 shares of common stock, based on the shares of all convertible preferred stock outstanding at December 31, 1999. Unaudited pro forma stockholders' equity at December 31, 1999, as adjusted for the F-10 71 SCREAMING MEDIA.COM INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 2. SIGNIFICANT ACCOUNTING POLICIES AND PROCEDURES -- (CONTINUED) conversion of all convertible preferred stock, is disclosed on the balance sheet. Pro forma basic net loss per share is as follows:
YEAR ENDED DECEMBER 31, 1999 ------------ Net loss.................................................... $(13,165,739) ============ Shares used in computing basic net loss per share........... 9,115,056 Adjusted to reflect the effect of the automatic conversion of all convertible preferred stock from the date of issuance.................................................. 3,513,114 ------------ Weighted average shares used in computing pro forma basic net loss per share........................................ 12,628,170 ============ Pro forma basic net loss per share.......................... $ (1.04) ============
STOCK DIVIDEND -- On December 22, 1999, the Board of Directors of the Company approved a 100% stock dividend (two-for-one stock split). The Company's financial statements have been retroactively adjusted to show the effect of this stock dividend for all periods presented. FAIR VALUE OF FINANCIAL INSTRUMENTS -- The Company's financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and notes payable, are carried at cost, which approximates their fair value because of the short-term maturity of these instruments and the relatively stable interest rate environment. RECENT ACCOUNTING PRONOUNCEMENTS -- Effective January 1, 1998, the Company adopted SFAS No. 131, Disclosure about Segments of an Enterprise and Related Information. SFAS No. 131 establishes standards for the way business enterprises report information about operating segments, as well as enterprise-wide disclosures about products and services, geographic areas and major customers. Management believes the Company operates in one segment. The Company's customers are located in eight countries around the world with the majority being in the United States. All of the Company's transactions have been conducted in United States dollars. The Company does not have any material revenues or assets outside of the United States. In 1999, one customer accounted for approximately 12% of net revenue. In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which establishes accounting and reporting standards for derivative instruments and hedging activities. Generally, it requires an entity to recognize all derivatives as either an asset or liability and to measure those instruments at fair value, as well as to identify the conditions for which a derivative may be specifically designated as a hedge. SFAS No. 133 is effective for fiscal years beginning after June 15, 2000. The Company does not currently engage or plan to engage in any derivative or hedging activities. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. This statement requires companies to capitalize qualifying computer software costs which are incurred during the application development stage and to amortize them over the software's estimated useful life. SOP 98-1 is effective for fiscal years beginning after December 15, 1998. The Company adopted the requirements of SOP 98-1 as of January 1, 1999. F-11 72 SCREAMING MEDIA.COM INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 3. CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and trade accounts receivable. The Company maintains cash and cash equivalents with two high credit quality domestic financial institutions. The Company performs periodic evaluations of the relative credit standing of these institutions. From time to time, the Company's cash balances with any one financial institution may exceed Federal Deposit Insurance Corporation insurance limits. The Company's customers are generally located in the United States. The Company performs ongoing credit evaluations and generally does not require collateral on accounts receivable. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of customers, historical trends and other information; to date, such losses have been within management's expectations. 4. INVESTMENTS In May 1999, the Company paid $150,000 to purchase 384,615 shares of Series A convertible preferred stock of SoftCom, Inc. ("SoftCom"), convertible on a one-for-one basis into SoftCom common stock. The Company also holds a warrant that expires on May 14, 2004, to purchase up to 19,231 additional shares of Series A convertible preferred stock of SoftCom at an exercise price of $0.39 per share. The Chairman of the Company's Board of Directors serves on the Board of Directors of SoftCom. In June 1999, the Company paid $199,987 to purchase 11,996 shares of Series A convertible preferred stock of i-Recall, Inc. ("i-Recall"), convertible on a one-for-one basis into i-Recall common stock. These investments represent ownership interest of less than 20% of SoftCom's and i-Recall's equity and are accounted for under the cost method. These securities are carried at cost since neither the SoftCom securities nor the i-Recall securities are traded on a public market and there are no other readily determinable fair values of such securities. 5. PROPERTY AND EQUIPMENT Major classifications of property and equipment at December 31, 1998 and 1999 are as follows:
1998 1999 --------- ---------- Software and computer equipment, including assets under capital leases................................ $ 144,440 $3,359,869 Construction in process............................... -- 103,240 Leasehold improvements................................ -- 1,117,907 Office furniture and equipment........................ 39,775 565,670 --------- ---------- 184,215 5,146,686 Less: accumulated depreciation and amortization....... (142,882) (594,191) --------- ---------- Property and equipment, net......................... $ 41,333 $4,552,495 ========= ==========
Depreciation expense (including assets under capital leases) amounted to $32,921, $26,119 and $451,309 for the years ended December 31, 1997, 1998 and 1999, respectively. 6. INCOME TAXES No provision for income taxes has been made because the Company has sustained cumulative losses since the commencement of operations. At December 31, 1999, the Company had net operating loss F-12 73 SCREAMING MEDIA.COM INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 6. INCOME TAXES -- (CONTINUED) carryforwards ("NOLs") of approximately $13,767,000, which will be available to reduce future taxable income. The NOLs are expected to expire in the following years (in thousands):
YEAR ENDING DECEMBER 31, ------------ 2008........................................................ $ 13 2010........................................................ 51 2012........................................................ 578 2013........................................................ 54 2014........................................................ 13,071 ------- $13,767 =======
In accordance with SFAS No. 109, the Company has computed the components of deferred income taxes as follows:
DECEMBER 31, ----------------------- 1998 1999 --------- ----------- Deferred tax assets.................................. $ 307,421 $ 6,549,864 Less valuation allowance............................. (307,421) (6,549,864) --------- ----------- Net deferred taxes................................... $ -- $ -- ========= ===========
The Company's NOLs primarily generated the deferred tax assets. At December 31, 1998 and 1999, a valuation allowance was provided as the realization of the deferred tax benefits is not likely. The effective tax rate varies from the U.S. Federal statutory tax rate for the years ended December 31, principally due to the following:
1999 1998 1997 ---- ---- ---- U.S. Federal statutory tax................................. 35% 35% 35% State and local taxes...................................... 12 12 12 Valuation allowance........................................ (47) (47) (47) --- --- --- Effective tax rate......................................... --% --% --% === === ===
7. COMMITMENTS OFFICE LEASES -- The Company leases office space in New York under noncancelable operating leases expiring on March 31, 2009. These leases contain provisions for escalations due to increases in real estate taxes and operating costs. F-13 74 SCREAMING MEDIA.COM INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 7. COMMITMENTS -- (CONTINUED) The following schedule reflects future required minimum lease payments.
YEAR ENDING DECEMBER 31, ------------ 2000........................................................ $ 580,875 2001........................................................ 581,636 2002........................................................ 572,852 2003........................................................ 576,334 2004........................................................ 576,334 Thereafter.................................................. 2,606,601 ---------- Total....................................................... $5,494,632 ==========
Rent expense under these leases was $65,505, $70,260 and $295,672 for the years ended December 31, 1997, 1998 and 1999, respectively. EQUIPMENT LEASES -- Fixed assets included assets acquired under capital leases of $0 and $1,531,418, at December 31, 1998 and 1999, respectively. The related accumulated amortization was $0 and $141,371 for the years ended December 31, 1998 and 1999, respectively. The Company is a lessee under several capital lease agreements expiring through 2002 with third parties for certain equipment. Future minimum lease payments under noncancelable capital leases, together with the present value of the net minimum payments as of December 31, 1999, are as follows:
YEAR ENDING DECEMBER 31, AMOUNT ------------ ---------- 2000........................................................ $ 768,163 2001........................................................ 523,047 2002........................................................ 162,280 ---------- Total minimum lease payments................................ 1,453,490 Less: amount representing interest.......................... (115,261) ---------- Present value of minimum capital lease payments............. 1,338,229 Less: current portion....................................... (691,643) ---------- Long-term capitalized lease obligations..................... $ 646,586 ==========
The assets and liabilities under capital leases are recorded at the present value of the minimum lease payments using effective interest rates ranging from 2.85% to 9.43% per annum. 8. RELATED PARTY TRANSACTIONS AND BALANCES In October 1998, the Company entered into a convertible promissory note due on October 19, 2001, with an officer of the Company whereby the Company received cash of $250,000. In addition, in 1999, the Company entered into five convertible promissory notes with certain directors, officers and the spouse of a director of the Company whereby the Company received cash totaling $300,000. During 1999, these notes were converted into 328,562 shares of the Company's common stock, which reflected a 7% discount from the then-fair value of the common stock as determined by reference to the per-share price of the Company's Series A Preferred Stock offering. The intrinsic value of this beneficial conversion feature has been recorded as interest expense ratably from the date of issuance to the earliest date on which the notes could be F-14 75 SCREAMING MEDIA.COM INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 8. RELATED PARTY TRANSACTIONS AND BALANCES -- (CONTINUED) converted into common stock, resulting in additional interest expense of $6,273 and $35,138 in 1998 and 1999, respectively. In 1996, the Company entered into a promissory note with its president for $19,350 that it repaid during 1999. In April 1999, the Company entered into an agreement with a corporate communications service firm ("Communications") for a monthly fee of $20,000. A principal of Communications is a director of the Company. Additionally, another principal of Communications is the spouse of a different director of the Company. The Company has determined that the terms of this agreement are at arms-length. 9. REDEEMABLE CONVERTIBLE PREFERRED STOCK In October 1999, the Company issued 2,678,572 shares of Series B Convertible Preferred Stock ("Series B Preferred Stock") through a private placement for $30,000,000 resulting in net proceeds to the Company of $28,018,814. Each share of Series B Preferred Stock is convertible, at any time, at the option of the holder, into two shares of common stock. The Series B Preferred Stock was recorded at $27,331,814 which reflects the face amount of the preferred stock reduced by all issuance costs, resulting in a discount of $2,668,186. The Company will be required to redeem all outstanding shares of Series B Preferred Stock on and after December 31, 2003, at $11.20 per share plus all declared but unpaid dividends, if any. If total net revenue for the year ending December 31, 2000, is less than $13,650,000, the conversion price will be reduced as follows: (a) to $9.82 if net revenues for the year ending December 31, 2000, are at least $11,600,000 but less than $13,650,000 or (b) to $8.09 if net revenues for the year ending December 31, 2000, are less than $11,600,000. The carrying value of the Series B Preferred Stock is equal to its redemption value, net of offering costs, as no dividends have been declared or paid on these shares. The Series B Preferred Stock will be automatically converted into two shares of common stock upon the earlier of: (a) completion by the Company of an initial public offering raising gross proceeds of at least $20,000,000 and at an offering price per share of at least 150% of the then applicable conversion price, or (b) obtaining the written consent of the holders of at least 66 2/3% of the shares of Series B Preferred Stock then outstanding. Holders of a majority of outstanding shares of Series B Preferred Stock may, at any time, have the Company redeem all then outstanding shares of Series B Preferred Stock at the original purchase price plus all cumulative and unpaid dividends and any declared but unpaid dividends. The Series B Preferred Stock is senior to the Series A Preferred Stock, which in turn is senior to the Common Stock with respect to payment of dividends, if any, and liquidation preference. Series B and Series A Preferred Stockholders are entitled to voting rights equal to the number of shares of Common Stock into which the preferred stock is convertible. The Series B and A holders have additional voting rights regarding matters that affect their respective series of preferred stock. Series B Preferred Stockholders have certain additional voting rights. The Company incurred fees and expenses of $1,981,186 relating to the placement of the Series B Preferred Stock and also issued a five year warrant on to the placement agent to purchase 241,070 shares of common stock at an exercise price of $5.60 per share until June 7, 2004. The Company calculated the value of such warrant to be $687,000 using the Black-Scholes valuation method and reduced additional paid-in capital by such amount. F-15 76 SCREAMING MEDIA.COM INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 10. STOCKHOLDERS' EQUITY (DEFICIENCY) In January 1999, the Company was reincorporated in the state of Delaware. Pursuant to that reorganization, common stockholders of Interactive received one share of common stock of the Company with a par value of $0.01 per share in exchange for each common share of Interactive with a par value of $0.0001 per share. In addition, each preferred stockholder of Interactive received two shares of the Company's common stock in exchange for each share of Interactive preferred stock owned. Shares of common treasury stock and shares of preferred treasury stock of Interactive common were replaced by shares of common treasury stock of the Company at exchange rates of one for one and two for one, respectively. PREFERRED STOCK -- The Company is authorized to issue up to 5,000,000 shares of preferred stock. In January 1999, the Company issued 1,527,085 shares of Series A Convertible Preferred Stock ("Series A Preferred Stock") through a private placement, in consideration of gross proceeds to the Company of $5,500,000. Each share of Series A Preferred Stock is convertible at any time at the election of the preferred stockholders into two shares of common stock, subject to the provisions set forth in the Company's Certificate of Incorporation. The preferred stockholders are entitled to voting rights equal to the number of shares of common stock into which the Series A Preferred Stock is convertible. The Series A Preferred Stock will automatically be convertible into common stock upon the effectiveness of the filing by the Company of a registration statement with Securities and Exchange Commission in connection with the Company's initial public offering. TREASURY STOCK -- At December 31, 1998 and 1999, common treasury stock was comprised of 400,000 and 1,160,000 shares of common stock with a cost basis of $6,659 and $19,311, respectively. At December 31, 1998 preferred treasury stock consisted of 380,000 shares of preferred stock with a cost basis of $12,652. In January 1999, pursuant to the reorganization of the Company, all of the shares of preferred stock held in treasury were converted to 760,000 shares of common stock held in treasury. There are no preferred shares of treasury stock at December 31, 1999. During October 1998, the Company issued 400,000 shares of common stock from shares held in treasury stock to two directors and recorded compensation expense of $350,000 in connection with such grants. Such compensation expense equaled the fair value of the stock at the time of grant. WARRANTS -- In June 1999, in connection with legal services provided, the Company issued a warrant to purchase up to 14,286 shares of Common Stock at an exercise price of $3.50 per share. The warrant was valued at $50,000, using the Black-Scholes options pricing model. The warrant may be exercised at any time prior to June 10, 2004. The exercise price and the number and type of securities for which the warrant is exercisable are subject to adjustment in the event the Company issues any stock dividends, combines or splits its Common Stock or issues rights to acquire Common Stock under certain circumstances. In June 1999, in connection with architectural services provided, the Company issued a warrant to purchase up to 14,286 shares of Common Stock at an exercise price of $3.50 per share. The warrant was valued at $50,000, which was the invoiced amount of the services provided. The warrant may be exercised at any time prior to June 15, 2004. The exercise price and the number and type of securities for which the warrant is exercisable are subject to adjustment in the event the Company issues any stock dividends, combines or splits its Common Stock or issues rights to acquire Common Stock under certain circumstances. F-16 77 SCREAMING MEDIA.COM INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 11. STOCK OPTION PLAN The Company has established the 1999 Stock Option Plan (the "Plan") to provide for the granting of nonqualified stock options and incentive stock options to employees, directors and advisors to reward them for service to the Company and to provide incentives for future service and enhancement of shareholder value. As amended in April 1999, the Plan authorized the issuance of stock options covering up to 5,000,000 shares of Common Stock. The options vest in accordance with the terms of the agreements entered into by the Company and the grantee of the options. A total of 3,821,340 options have been granted under this plan at December 31, 1999. The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations in accounting for its employee stock options. Transactions involving the incentive stock options granted are summarized as follows:
WEIGHTED NUMBER OF AVERAGE OPTIONS EXERCISE (IN SHARES) PRICE ----------- -------- Outstanding, January 1, 1999............................ -- $ -- Granted................................................. 3,821,340 $2.19 Exercised............................................... -- $ -- Forfeited............................................... (183,712) $0.83 --------- ----- Outstanding, December 31, 1999.......................... 3,637,628 $2.26 ========= =====
There were 873,032 options exercisable at December 31, 1999.
WEIGHTED AVERAGE REMAINING WEIGHTED WEIGHTED NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE RANGE OF OUTSTANDING LIFE EXERCISE EXERCISABLE EXERCISE EXERCISE PRICES (IN SHARES) (IN YEARS) PRICE (IN SHARES) PRICE --------------- ----------- ----------- -------- ----------- -------- $0.50..................................... 326,000 3.25 $0.50 103,860 $0.50 $1.80..................................... 1,978,842 3.25 $1.80 528,786 $1.80 $3.25-$3.50............................... 1,308,786 3.25 $3.33 240,386 $3.25 $5.50-$5.60............................... 24,000 3.25 $5.60 -- $ --
SFAS No. 123, "Accounting for Stock-Based Compensation," provides for a fair value based method of accounting for employee options and options granted to non-employees and measures compensation expense using an option valuation model that takes into account, as of the grant date, the exercise price and expected life of the option, the current price of the underlying stock and its expected volatility, expected dividends on the stock, and the risk-free interest rate for the expected term of the options. In connection with the issuance of certain options at prices below fair market value, the Company had recorded deferred compensation expense of $10,379,049 as of December 31, 1999, net of recognized compensation expense of $6,062,298 for the year ended December 31, 1999, representing the unamortized difference between the exercise price and the deemed fair market value of the Company's common stock at such date. Such amount is included as a reduction of stockholders' equity (deficiency) and is being amortized by charges to operations over the vesting period. F-17 78 SCREAMING MEDIA.COM INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 11. STOCK OPTION PLAN -- (CONTINUED) Pro forma disclosure as if the Company had adopted the cost recognition requirement under SFAS 123 is presented below for the year ended December 31, 1999. Net loss -- as reported..................................... $(13,165,739) Net loss -- pro forma....................................... $(13,909,885) Net loss per common share -- as reported.................... $ (1.44) Net loss per common share -- pro forma...................... $ (1.53)
The fair value of options granted under the Plan for the year ended December 31, 1999, in complying with SFAS No. 123, was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used: no dividend yield, a volatility factor of 50%, risk-free interest rate of 6.0% and expected lives of 3.25 years. 12. SUBSEQUENT EVENTS On February 4, 2000, the Company entered into an agreement with another tenant with contiguous space in the building to sublease the space with consent of the landlord. The lease expires on January 31, 2009, and results in additional straight line rent expense of $513,000 per year. The Company issued a warrant to the tenant allowing the tenant the right to purchase 50,000 shares of the Company's common stock at an exercise price of $5.60 per share. This warrant may be exercised at any time and expires on February 4, 2005. In addition, the tenant may require the Company to buy back the warrant at $14.40 per share. The fair market value of the common stock at the issuance date of the warrant is $20 per share. The value of the warrant has been determined to be $957,000; such value was derived by using the Black-Scholes option model. The value of the warrant will be amortized ratably over the life of the additional space. ****** F-18 79 [LOGO] 80 PART II ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table indicates the expenses to be incurred in connection with the offering described in this Registration Statement, other than underwriting discounts and commissions, all of which will be paid by the Company. All amounts are estimates, other than the registration fee and the NASD fee. Registration fee............................................ $19,800 NASD fee.................................................... 8,000 Nasdaq National Market application and listing fee.......... * Accounting fees and expenses................................ * Legal fees and expenses..................................... * Printing and engraving...................................... * Transfer Agent fees and expenses............................ * Blue sky fees and expenses.................................. * Miscellaneous expenses...................................... * ------- Total............................................. $ * =======
- --------------- * To be completed by amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 102 of the Delaware General Corporation Law ("DGCL") as amended allows a corporation to eliminate the personal liability of directors of a corporation to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except where the director breached his duty of loyalty, failed to act in good faith, engaged in intentional misconduct or knowingly violated a law, authorized the payment of a dividend or approved a stock repurchase in violation of Delaware corporate law or obtained an improper personal benefit. Section 145 of the DGCL provides, among other things, that we may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (other than an action by or in the right of ScreamingMedia) by reason of the fact that the person is or was a director, officer, agent or employee of the ScreamingMedia or is or was serving at our request as a director, officer, agent, or employee of another corporation, partnership, joint venture, trust or other enterprise against expenses, including attorneys' fees, judgment, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding. The power to indemnify applies (a) if such person is successful on the merits or otherwise in defense of any action, suit or proceeding, or (b) if such person acted in good faith and in a manner he reasonably believed to be in the best interest, or not opposed to the best interest, of ScreamingMedia, and with respect to any criminal action or proceeding had no reasonable cause to believe his conduct was unlawful. The power to indemnify applies to actions brought by or in the right of the ScreamingMedia as well but only to the extent of defense expenses (including attorneys' fees but excluding amounts paid in settlement) actually and reasonably incurred and not to any satisfaction of judgment or settlement of the claim itself, and with the further limitation that in such actions no indemnification shall be made in the event of any adjudication of negligence or misconduct in the performance of his duties to ScreamingMedia, unless the court believes that in light of all the circumstances indemnification should apply. Section 174 of the DGCL provides, among other things, that a director, who willfully or negligently approves of an unlawful payment of dividends or an unlawful stock purchase or redemption, may be held liable for such actions. A director who was either absent when the unlawful actions were approved or dissented at the time, may avoid liability by causing his or her dissent to such actions to be entered in the books containing the minutes of the meetings of the board of directors at the time such action occurred or immediately after such absent director receives notice of the unlawful acts. II-1 81 Our Amended and Restated Certificate of Incorporation includes a provision that eliminates the personal liability of its directors for monetary damages for breach of fiduciary duty as a director, except for liability: - for any breach of the director's duty of loyalty to ScreamingMedia or its stockholders; - for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; - under section 174 of the Delaware General Corporation Law regarding unlawful dividends and stock purchases; or - for any transaction from which the director derived an improper personal benefit. These provisions are permitted under Delaware law. Our Amended and Restated Bylaws provide that: - we must indemnify our directors and officers to the fullest extent permitted by Delaware law; - we may indemnify our other employees and agents to the same extent that we indemnified our officers and directors, unless otherwise determined by our Board of Directors; and - we must advance expenses, as incurred, to our directors and executive officers in connection with a legal proceeding to the fullest extent permitted by Delaware law. The indemnification provisions contained in our Amended and Restated Certificate of Incorporation and Amended and Restate Bylaws are not exclusive of any other rights to which a person may be entitled by law, agreement, vote of stockholders or disinterested directors or otherwise. In addition, we maintain insurance on behalf of its directors and executive officers insuring them against any liability asserted against them in their capacities as directors or officers or arising out of such status. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. Since its inception, ScreamingMedia.com has issued and sold the following securities: On October 20, 1998, ScreamingMedia.com's predecessor issued a convertible promissory note to Jay Chiat, in the amount of $250,000, due on October 19, 2001. This note was converted in April 1999 for 149,344 shares of Common Stock. On January 28, 1999, we issued a total of 2,075,000 shares of Common Stock to holders of our original common stock and preferred stock, in connection with our reorganization which included 75,000 shares of common stock to Brian Cavanaugh in exchange for services rendered to the Company and 400,000 shares of common stock to two members of the board of directors. On February 15, 1999, we issued convertible promissory notes to James D. Robinson, Linda Robinson, Ken Lerer and Kevin C. Clark for a total amount of $250,000, due on December 10, 2001. All notes were converted in April 1999 for a total of 149,344 shares of Common Stock. On March 9, 1999, we issued a convertible promissory note to Brian Cavanaugh, in the amount of $50,000, due on December 10, 2001. This note was converted in April 1999 for 29,870 shares of Common Stock. In March 1999, we issued and sold 1,107,366 shares of Series A Preferred Stock for gross proceeds of $4.0 million. In April 1999, we issued and sold an additional 419,719 shares of Series A Preferred Stock for gross proceeds of $1.5 million. In April 1999, we granted four members of our advisory board options to purchase an aggregate of 55,560 shares of Common Stock at $1.80 per share. In July 1999, we granted three members of our advisory board options to purchase an aggregate 41,670 shares of common stock at $1.80 per share. II-2 82 In July 1999, we granted Wm. Brian Little, a director of the Company, a five-year option to purchase 27,778 shares of Common Stock at $1.80 per share. All options granted to directors and advisors were fully vested upon grant. In August 1999, we issued 3,000 shares of common stock in consideration for consultancy services. On October 6, 1999, we issued and sold 2,678,572 shares of our Series B Convertible Preferred Stock at a price of $11.20 per share. On December 27, 1999, we granted a non-qualified stock option to Wm. Brian Little to purchase 15,386 shares of Common Stock at an exercise price of $3.25 per share. In addition, as of January 31, 2000, the Company has granted options to purchase a total of 3,769,928 shares of Common Stock to employees, including certain senior managers, at a weighted average exercise price of approximately $2.30 per share. The issuances described above in this Item 15 were deemed exempt from registration under the Securities Act in reliance on either: (1) Rule 701 promulgated under the Securities Act as offers and sales of securities pursuant to certain compensatory benefit plans and contracts relating to compensation in compliance with Rule 701; or (2) Section 4(2) of the Securities Act, including Regulation D thereunder, as transactions by an issuer not involving any public offering. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. a. Exhibits
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 1 Form of Underwriting Agreement.* 3.1 Amended and Restated Certificate of Incorporation of the Company.* 3.2 Amended and Restated By-laws of the Company.* 4.1 Form of ScreamingMedia's stock certificate.* 4.2 Form of ScreamingMedia's Rights Plan.* 5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP.* 10.1 Master Lease Agreement No. 13330 dated July 16, 1999 by and among the Registrant and Data General Corporation. 10.2 Master Agreement No. 2430 dated December 9, 1999 by and among the Registrant and Cisco Systems Capital Corporation.* 10.3 Master Lease Agreement No. 7345913 dated May 25, 1999 by and among the Registrant and Dell Financial Services L.P.* 10.4.1 Agreement of Lease dated March 31, 1999, by and among the Registrant and 601 West Associates LLC. 10.4.2 First Lease Modification Agreement dated June 18, 1999 by and among the Registrant and 601 West Associates LLC. 10.5 Sublease Agreement dated February 4, 2000 by and among the Registrant and Tomar Studio, Inc. 10.6 Warrant Agreement dated June 7, 1999, by and among the Registrant and Deutsche Bank Securities Inc. 10.7 Warrant Agreement dated June 10, 1999, by and among the Registrant and Carter, Ledyard, Milburn, LLP. 10.8 Warrant Agreement dated February 4, 2000 by and among the Registrant and Tomar Associates, Inc. 10.9 Letter Employment Agreement dated June 7, 1999 between the Registrant and Marianne Howatson. 10.10 Employment Agreement dated November 8, 1999, between the Registrant and Kevin C. Clark. 10.11 Series A Preferred Stock Purchase Agreement dated as of June 8, 1999 by and among the Registrant, the investors named therein and i-Recall, Inc.
II-3 83
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.12 Preferred Stock Purchase Agreement of Series A Preferred Stock dated as of May 14, 1999 by and among the Registrant and SoftCom, Inc. 10.13 1999 Stock Option Plan.* 10.14 Form of 2000 Equity Incentive Plan, dated , 2000.* 10.15 Form of ScreamingMedia.com Inc. Management Incentive Plan, dated , 2000.* 10.16 Agreement dated April 1999, by and among the Registrant and Robinson, Lerer & Montgomery. 10.17 Warrant Agreement dated June 15, 1999 by and among the Registrant and Hut Sachs Studio. 16 Letter regarding change in certifying accountant. 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of David Tarlow & Co., P.C. 23.3 Consent of Skadden, Arps, Slate, Meagher & Flom LLP.* 24 Power of Attorney (included on signature page of the Registration Statement).
- --------------- * To be filed by amendment. b. Financial Statement Schedules None. ITEM 17. UNDERTAKINGS. The undersigned registrants hereby undertake to provide to the underwriters at the closing certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the registrants pursuant to the provisions described in Item 14, or otherwise, the registrants have been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification by the registrants against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the registrants will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned registrants hereby undertake that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497 (h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 84 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on February 16, 2000. SCREAMING MEDIA.COM INC. By: /s/ KEVIN C. CLARK ------------------------------------ Name: Kevin C. Clark Title: Chief Executive Officer Each person whose signature appears below hereby constitutes and appoints Kevin C. Clark and William P. Kelly, and each of them, his true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution, for him and in his name, place, and stead, in any and all capacities, to sign any and all (1) amendments (including post-effective amendments) and additions to this Registration Statement and (2) Registration Statements, and any and all amendments thereto (including post-effective amendments), relating to the offering contemplated pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and hereby grants to such attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or his substitute or substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ JAY CHIAT Chairman of the Board February 16, 2000 - ------------------------------ Jay Chiat /s/ ALAN S. ELLMAN President Chief Operating Officer and Director February 16, 2000 - ------------------------------ Alan S. Ellman /s/ KEVIN C. CLARK Chief Executive Officer and Director February 16, 2000 - ------------------------------ Kevin C. Clark /s/ ROY R. BOLING Principal Accounting Officer February 16, 2000 - ------------------------------ Roy R. Boling /s/ WILLIAM P. KELLY General Counsel, Secretary and Director February 16, 2000 - ------------------------------ William P. Kelly /s/ JAMES D. ROBINSON III Director February 16, 2000 - ------------------------------ James D. Robinson III /s/ WM. BRIAN LITTLE Director February 16, 2000 - ------------------------------ Wm. Brian Little /s/ KENNETH B. LERER Director February 16, 2000 - ------------------------------ Kenneth B. Lerer /s/ PATRICK J. MCNEELA Director February 16, 2000 - ------------------------------ Patrick J. McNeela
II-5 85 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 1 Form of Underwriting Agreement.* 3.1 Amended and Restated Certificate of Incorporation of the Company.* 3.2 Amended and Restated By-laws of the Company.* 4.1 Form of ScreamingMedia's stock certificate.* 4.2 Form of ScreamingMedia's Rights Plan.* 5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP.* 10.1 Master Lease Agreement No. 13330 dated July 16, 1999 by and among the Registrant and Data General Corporation. 10.2 Master Agreement No. 2430 dated December 9, 1999 by and among the Registrant and Cisco Systems Capital Corporation.* 10.3 Master Lease Agreement No. 7345913 dated May 25, 1999 by and among the Registrant and Dell Financial Services, L.P.* 10.4.1 Agreement of Lease dated March 31, 1999, by and among the Registrant and 601 West Associates LLC. 10.4.2 First Lease Modification Agreement dated June 18, 1999 by and among the Registrant and 601 West Associates LLC. 10.5 Sublease Agreement dated February 4, 2000 by and among the Registrant and Tomar Studios, Inc. 10.6 Warrant Agreement dated June 7, 1999, by and among the Registrant and Deutsche Bank Securities Inc. 10.7 Warrant Agreement dated June 10, 1999, by and among the Registrant and Carter, Ledyard, Milburn, LLP. 10.8 Warrant Agreement dated February 4, 2000 by and among the Registrant and Tomar Studios, Inc. 10.9 Letter Employment Agreement date June 7, 1999 between the Registrant and Marianne Howatson. 10.10 Employment Agreement dated November 8, 1999, 2000 between the Registrant and Kevin C. Clark. 10.11 Series A Preferred Stock Purchase Agreement dated as of June 8, 1999 by and among the Registrant, the investors named therein and i-Recall, Inc. 10.12 Preferred Stock Purchase Agreement of Series A Preferred Stock dated as of May 14, 1999 by and among the Registrant and SoftCom, Inc. 10.13 1999 Stock Option Plan.* 10.14 Form of 2000 Equity Incentive Plan, dated , 2000.* 10.15 Form of ScreamingMedia.com Inc. Management Incentive Plan, dated , 2000.* 10.16 Agreement dated April 1999, by and among the Registrant and Robinson, Lerer & Montgomery. 10.17 Warrant Agreement dated June 15, 1999, by and among the Registrant and Hut Sachs Studio. 16 Letter regarding change in certifying accountant. 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of David Tarlow & Co., P.C. 23.3 Consent of Skadden, Arps, Slate, Meagher & Flom LLP.* 24 Power of Attorney (included on signature page of the Registration Statement).
- --------------- * To be filed by amendment. EX-10.1 2 MASTER LEASE AGREEMENT NO. 13330 1 Exhibit 10.1 MASTER LEASE AGREEMENT Rev. 6/97 Master Lease No. 13330 MASTER LEASE AGREEMENT ("Master Agreement") made as of July 16, 1999, between DATA GENERAL CORPORATION, a Delaware corporation with a principal place of business at 4400 Computer Drive, Westboro, MA 01580 ("Lessor") and Screaming Media, Inc., a New York Corporation with a principal place of business at 55 Broad Street, New York, NY 10004 ("Lessee"). 1. LEASE 1.1 Lessor leases to Lessee, and Lessee hires from Lessor, the equipment, software licenses and other tangible or intangible personal property described in each Lease Schedule executed under this Master Agreement. All such property is referred to as "Leased Property". When Leased Property is installed, the parties shall promptly complete and execute a Lease Schedule in the form attached. 1.2 Lessee assumes sole responsibility, based upon its own judgment, for the selection of the Leased Property and of its suppliers (including Data General Corporation), and disclaims any reliance on statements made by Lessor or its agents. 2. SCHEDULES 2.1 Each Lease Schedule shall evidence a separate "Lease Agreement" covering the Leased Property described therein and incorporating the terms of this Master Agreement and any additional terms agreed to in the Lease Schedule. 2.2 Each Lease Schedule shall be executed in two or more counterparts, each bearing a unique number, only one of which shall be "Counterpart No. 1". Each executed counterpart shall be deemed an original as between the parties, but if and to the extent that a Lease Schedule constitutes "chattel paper" as defined in the Uniform Commercial Code, no security interest in the Lease Schedule may be created through the transfer or possession of any counterpart other than Counterpart No. 1. This Master Agreement shall not itself be chattel paper. 3. TERM 3.1 This Master Agreement shall take effect when signed by both parties, and shall continue in effect so long as any Lease Agreement made hereunder remains in effect or, if no Lease Agreement is in effect, until either party gives a notice of cancellation to the other. 3.2 The Lease Term of each Lease Agreement shall have the commencement date and duration specified in the Lease Schedule. No Lease Agreement shall be cancelable or terminable by Lessee before the end of its Lease Term except as provided in this Master Agreement. 4. TITLE AND OWNERSHIP 4.1 Supply Contracts. Lessor shall acquire Leased Property pursuant to the sale and license terms ("Supply Contracts") of the respective suppliers. Except while there is an uncured Event of Default, Lessor, to the extent of its power to do so, assigns to Lessee, and Lessee shall have the benefit of, any warranties, service agreements and patent and copyright indemnities given to Lessor with respect to Leased Property under the Supply Contracts. Lessee's sole remedy for the breach of any such warranty, service agreement or indemnity shall be against the manufacturer, licensor or supplier by whom it was given (including, if applicable, Data General Corporation in its capacity as manufacturer, licensor or supplier) but not against Lessor, nor shall any such breach alter the respective obligations of Lessor and Lessee under this Master Agreement or any Lease Agreement. 4.2 Title. Lessee acknowledges Lessor's title to Leased Property. Lessee has only a lessee's interest and no other right, title or interest in Leased Property. At Lessee's cost, Lessee shall protect and defend Lessor's ownership against all claims, liens, charges and legal processes of Lessee, its creditors and all other persons, and take such action as may be necessary (a) to remove any such encumbrance, and (b) to prevent any third party from acquiring any interest in Leased Property including, without limitation, avoiding any action by which Leased Property may be deemed to be affixed to any real estate. At Lessor's request, Lessee shall obtain written waiver of the right to secure a lien on Leased Property from the owner, mortgagee and beneficiaries under deeds of trust of each Installation Location. 4.3 Security Interest. Lessee agrees that if any Lease Agreement made hereunder is determined to be other than a true lease, then to secure Lessee's promises under the Lease Agreement, Lessee grants Lessor a security interest in the Leased Property and in all proceeds thereof. Lessee grants Lessor power of attorney to sign financing statements for Lessee and, at Lessee's expense, to file them against Lessee. 4.4 Identification. Lessee shall, upon the request of Lessor at Lessee's expense, firmly affix to the Leased Property, in a conspicuous place, such identification as Lessor may supply showing Lessor as owner and lessor of the Leased Property. Lessee shall not remove any logos, marks or other such identification without the prior written consent of Lessor. 5. RENT AND PAYMENT OBLIGATIONS 5.1 Payments. Lessee shall pay Lessor the rental amounts specified in the pertinent Lease Schedule. 2 The first rental payment shall be due and payable on the payment date specified in the Lease Schedule. Subsequent rental payments shall be due on the same day of each succeeding month of the lease term, unless a longer interval is specified in the Lease Schedule. A pro-rata rental payment shall be made with and in addition to the first rental payment for the period, if any, from the acceptance date to the day preceding the first rental payment date. All rents and other payments shall be made to Lessor at the address specified in the Lease Schedule or at such other address as may be designated to Lessee in writing by Lessor or by an assignee of Lessor pursuant to Section 11. 5.2 Late Payments. Lessee agrees to pay a late charge on any periodic payment not paid within ten (10) days after its due date, equal to one and one-half percent (1.5%) of the overdue payment for each payment period that the payment remains unpaid. Collection of a late payment charge shall not prejudice any other remedies Lessor may have for default. 5.3 NET LEASE. EACH LEASE AGREEMENT SHALL BE A NET LEASE, AND LESSEE'S OBLIGATION TO PAY ALL RENT AND OTHER SUMS WHEN DUE AND TO PERFORM ALL OTHER OBLIGATIONS UNDER EACH LEASE AGREEMENT SHALL BE ABSOLUTE AND UNCONDITIONAL, AND SHALL NOT BE SUBJECT TO ANY ABATEMENT, REDUCTION, SET-OFF, DEFENSE, COUNTERCLAIM, INTERRUPTION, DEFERMENT OR RECOUPMENT WITHOUT THE PRIOR WRITTEN CONSENT OF THE LESSOR, WHICH CONSENT MAY BE WITHHELD IN LESSOR'S SOLE DISCRETION. No obligation of Lessee shall be affected by any defect in or damage to or loss or destruction of all or any part of the Leased Property from any cause whatsoever, or by any interference with Lessee's use of the Leased Property by any person or for any cause whatsoever. Any claims respecting the condition or operation of the Leased Property shall be made solely against the manufacturers, licensors and suppliers of the Leased Property, and Lessee shall nevertheless pay Lessor or its successors and assigns all amounts due and payable under the Lease Agreement. 5.4 Waivers. Lessee waives any rights which would allow Lessee to cancel or repudiate any Lease Agreement, to reject or revoke acceptance of Leased Property, to grant a security interest in Leased Property, to accept partial delivery of Leased Property, to "cover" by making any purchase or lease of substitute equipment, and to seek specific performance against Lessor. 6. TAXES 6.1 Lessee shall pay when due or reimburse to Lessor, and shall defend and indemnify Lessor against all sales, use, value add, excise, and other taxes, fees, assessments and all other charges (including interest and penalties) imposed by any governmental body or agency upon the purchase, ownership, license, possession, leasing, operation, use or disposition of any Leased Property, any Lease Agreement or the rentals or other payments, excluding only taxes on or measured by the net income of Lessor or its suppliers. Lessee shall prepare and file promptly with the appropriate offices any and all tax and similar returns required to be filed (sending copies to Lessor) or, if requested by Lessor, shall notify Lessor of such requirement and furnish Lessor with all information required by Lessor to effect such filing. Lessee's obligation under this Sub-section shall commence with the Acceptance Date of each Lease Agreement and shall survive the expiration or earlier termination of such Lease Agreement. 6.2 Taxable Status. Lessor disclaims all liability arising from Lessee's treatment of any Lease Agreement or rental payment for financial, accounting or tax purposes. Lessee represents that it is relying solely on its own legal counsel and accountants with respect to such matters. 7. MAINTENANCE AND ALTERATIONS Lessee, at its expense, shall keep all Leased Property in good condition and working order, ordinary wear and tear from proper use excepted. Lessee shall keep in force maintenance and support agreements with the suppliers of Leased Property or with other qualified service vendors reasonably acceptable to Lessor. Lessee shall not make or suffer any alteration or attachment which would violate the maintenance and support agreements or relieve the service vendors of their obligations. Lessor's consent shall be required for all alterations and attachments except those which do not impair the commercial value or usefulness of the Leased Property and which can be readily removed without causing damage. All attachments and alterations requiring Lessor's consent shall be removed by Lessee before the return of the Leased Property. All attachments and alterations not removed shall constitute accessions to the Leased Property owned by Lessor. 8. USE AND LOCATION Lessee shall use Leased Property only in the ordinary conduct of its business, operated by qualified employees adhering to instructions of the manufacturers, licensors and suppliers applicable to operation, condition and maintenance of the Leased Property. Lessee shall obtain all permits and licenses necessary for the operation of the Leased Property and comply with all other applicable laws and regulations. Lessee shall not relocate Leased Property from its Installation Location, or part with possession or control of Leased Property, without Lessor's prior written consent. Lessee shall be responsible for all charges and expenses of such relocation. Lessor shall have the right to inspect Leased Property during normal business hours any time after delivery. 9. RETURN Unless Lessee exercises a purchase or renewal option provided in the Lease Agreement, Lessee shall at its expense return the Leased Property to the location specified by Lessor within the contiguous forty-eight United States or the District of Columbia upon the termination of the Lease Term, unencumbered and in the same condition and repair as when it was first installed, ordinary Master Lease Agreement Page 2 of 6. 3 wear and tear from proper use excepted. Lessee further agrees that the Leased Property may remain on Lessee's premises for a reasonable period after termination or expiration of the Lease Term at no charge to Lessor for the purposes of repair, refurbishing and storage pending return shipment. Lessor and its representatives may enter upon Lessee's premises for these purposes. 10. LIMITATION OF WARRANTY AND LIABILITY 10.1 Quiet Enjoyment. Lessor warrants that so long as no event of default has occurred, neither Lessor nor its successors or assigns nor anyone claiming by, under, or through Lessor will interfere with Lessee's quiet enjoyment and use of Leased Property. 10.2 DISCLAIMER. LESSOR LEASES THE LEASED PROPERTY "AS IS". EXCEPT FOR LESSOR'S WARRANTY OF QUIET ENJOYMENT, LESSOR MAKES NO WARRANTIES, EXPRESS OR IMPLIED, CONCERNING THE LEASED PROPERTY, AND DISCLAIMS ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE OR OF MERCHANTABILITY. 10.3 WAIVER OF CLAIMS. LESSEE HEREBY WAIVES ALL CLAIMS WHICH LESSEE MIGHT HAVE AGAINST LESSOR FOR ANY LOSS OR DAMAGES, INCLUDING INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, WHETHER BASED ON STRICT OR ABSOLUTE LIABILITY IN TORT. 11. ASSIGNMENT BY LESSOR 11.1 LESSOR'S RIGHTS, TITLE AND INTEREST IN AND TO THIS MASTER AGREEMENT, OR ANY LEASE AGREEMENT OR LEASED PROPERTY MAY BE TRANSFERRED AND ASSIGNED BY LESSOR WITHOUT NOTICE, AND LESSOR'S ASSIGNEE SHALL HAVE ALL THE RIGHTS, POWERS, PRIVILEGES AND REMEDIES OF LESSOR UNDER THIS MASTER AGREEMENT. LESSEE AGREES THAT ANY ASSIGNMENT BY LESSOR WOULD NOT MATERIALLY CHANGE ITS OBLIGATIONS UNDER ANY LEASE AGREEMENT OR SUBSTANTIALLY INCREASE LESSEE'S BURDENS OR RISKS, OR CONSTITUTE A DELEGATION OF MATERIAL PERFORMANCE. LESSEE ALSO AGREES AND CONSENTS TO FURTHER ASSIGNMENTS OR SALES BY THE THEN ASSIGNEE. 11.2 LESSEE AGREES NOT TO ASSERT AGAINST ANY ASSIGNEE ANY DEFENSE, SET-OFF, RECOUPMENT, CLAIM OR COUNTERCLAIM WHICH LESSEE MAY HAVE AGAINST LESSOR, WHETHER ARISING UNDER A LEASE AGREEMENT OR OTHERWISE. ALL SUCH ASSIGNEES ARE INDEPENDENT CONTRACTORS AND NONE SHALL BE DEEMED TO BE THE PRINCIPAL, AGENT, REPRESENTATIVE, PARTNER OR JOINT VENTURER OF LESSOR. 11.3 LESSEE SHALL NOT BE ENTITLED TO TERMINATE, AMEND OR ASSIGN THIS MASTER AGREEMENT OR ANY LEASE AGREEMENT WITHOUT THE WRITTEN CONSENT OF SUCH ASSIGNEE. 12. ADDITIONAL ASSURANCES At Lessor's request, Lessee shall execute, acknowledge and deliver such documents and take such action as Lessor deems necessary to more effectively evidence Lessor's title to the Leased Property covered by each Lease Agreement and protect Lessor's interests therein, in accordance with the Uniform Commercial Code or other applicable law including, without limitation, the filing of financing and continuation statements. Where permitted by law, Lessee authorizes Lessor to make such filings without Lessee's signature. 13. LESSOR'S PERFORMANCE OF LESSEE'S OBLIGATIONS If Lessee shall fail to perform its obligations under this Master Agreement or any Lease Agreement, Lessor or any assignee of Lessor may, at its option, perform the obligation for the account of Lessee without waiving the default and without discharging Lessee from the obligation. All expenses paid or incurred by Lessor in such performance shall be payable by Lessee on demand in addition to rental payments, together with interest at the rate of one and one-half percent (1.5%) per month or the highest lawful rate, whichever is less. 14. REPORTS 14.1 Lessee agrees to deliver to Lessor, within ninety (90) days of the close of each fiscal year of Lessee, Lessee's current Annual Report or other financial statements satisfactory to Lessor, certified by certified public accountants. Lessee represents such reports shall be a true and complete statement of Lessee's financial condition which Lessor may show to financial institutions of Lessor's choice on a confidential basis. 15. INDEMNITY 15.1 Lessee shall indemnify, defend and hold harmless Lessor, its successors and assigns from and against all losses, damages, injuries, claims, fines, liabilities, demands, and expenses, including attorney's fees and court costs, arising out of or pertaining to any Lease Agreement or Leased Property, including the purchase, ownership, transportation, delivery, installation, leasing, possession, use, operation, maintenance, storage and return of the Leased Property, except any liability resulting from the gross negligence or willful misconduct of Lessor. Lessee and Lessor each agree to give the other prompt written notice of any claim or liability indemnified against. This indemnity shall survive the expiration or termination of this Master Agreement or any Lease Agreement. 16. RISK OF LOSS From the delivery of Leased Property until its return pursuant to Section 9, Lessee shall bear the entire risk of loss, damage, theft or destruction of Leased Property from any and every cause, and no such event shall relieve Lessee of its obligation to pay rent or perform its other obligations under any Lease Agreement. In the event of damage to Leased Property, Lessee shall at its own expense repair the damage and restore the Leased Master Lease Agreement Page 3 of 6. 4 Property to its previous condition. If any Leased Property is lost, stolen or damaged beyond repair, Lessee shall promptly notify Lessor and shall, at Lessor's option (a) replace the Leased Property with like property in good condition and working order acceptable to Lessor, and transfer title to the replacement property to Lessor, free and clear of all liens, claims and encumbrances, which replacements shall then be subject to the applicable Lease Agreement; or (b) pay Lessor an amount determined in accordance with Sub-section 19.5, whereupon the Lease Agreement shall terminate as to such Leased Property and Lessor's interest therein shall pass to Lessee on an "as is" basis, without recourse or warranty. 17. INSURANCE 17.1 From the delivery of Leased Property until its return pursuant to Section 9 Lessee shall, at its expense, carry and maintain the insurance coverage specified in paragraphs 17.2 and 17.3, with insurance companies reasonably satisfactory to Lessor; 17.2 Property insurance providing "all risk" coverage in an amount not less than the replacement cost of the Leased Property; 17.3 General liability insurance covering liability for damage to property, and for death or bodily injury, in amounts satisfactory to Lessor. Such insurance shall name Lessor (or any successor, assignee or secured party of Lessor who requests it) as loss payee for the property insurance and as an additional insured for the liability insurance, and provide thirty (30) days' written notice to Lessor of any lapse, cancellation or material change of coverage. Lessee will promptly provide to Lessor evidence of insurance coverage at the commencement of each Lease Agreement and annually thereafter. As long as no Event of Default is uncured, Lessor shall remit all risk insurance proceeds to Lessee when Lessee either provides satisfactory evidence of restoration or pays Lessor the amount due upon an event of loss under Section 16. At Lessee's option, coverage under a DGC Business Recovery On-Site Service Addendum will be acceptable in lieu of the coverage required by paragraph 17.2. 18. DEFAULT Each of the following shall be deemed an Event of Default: 18.1 Lessee shall default in the payment when due of any rental payment or other sums payable under any Lease Agreement; or 18.2 Lessee shall default in the observance or performance of any other obligation in this Master Agreement or any Lease Agreement and such default shall continue for a period of fifteen (15) days; or 18.3 Lessee shall sell, mortgage, assign, transfer, sub-lease, lend, relinquish possession of or encumber any Leased Property, or permit or attempt any of such acts without Lessor's prior written consent; or 18.4 Lessee shall default in the performance of any obligation or in the payment of any sum due to Lessor under any other Lease Agreement; or 18.5 Lessee (which term, for purposes of this Sub-section and Subsections 18.5, 18.6 and 18.7 below shall mean Lessee and any guarantor or other person liable upon Lessee's obligations under this Lease) shall dissolve or become insolvent or bankrupt, commit any act of bankruptcy, make an assignment for the benefit of creditors, suspend the transaction of its usual business or consent to the appointment of a trustee or receiver, or a trustee or a receiver shall be appointed for Lessee or for a substantial part of its property, or bankruptcy, reorganization, insolvency or similar proceedings shall be instituted by or against Lessee; or 18.6 An order, judgment, or decree shall be issued by a court of competent jurisdiction, in connection with any action or proceeding against Lessee or its property, by which a substantial part of Lessee's property may be taken or restrained; or 18.7 An attachment, levy, writ, or execution is threatened or levied upon or against Leased Property; or 18.8 Any warranty, representation or statement made in writing by Lessee is found to be incorrect or misleading in any material respect as of the date made; or 18.9 Any insurance carrier cancels the insurance on the Leased Property and Lessee fails to replace such coverage within the notice period specified in Section 17; or 18.10 The Leased Property or any part of it is abused, illegally used, or misused; or 18.11 Any indebtedness of Lessee for borrowed money shall become due and payable by acceleration of its maturity. In any such event, Lessor may, by written notice to Lessee, and to the extent permitted by law, exercise any one or more of the remedies listed in Section 19 below, as Lessor shall lawfully elect in order to protect the interests and reasonably expected profits and bargains of Lessor. 19. REMEDIES Lessor's remedies for the events of default listed in Section 18 are as follows: 19.1 Upon notice by Lessor, terminate any Lease Agreement, either in its entirety or as to such items of Leased Property as Lessor shall specify in the notice. Any Lease Agreement not terminated in its entirety shall continue in effect as to the remaining items. 19.2 Declare immediately due and payable each and all rental payments and other amounts due and to become due, including any renewal or purchase obligations. 19.3 Require Lessee, at its expense, to promptly return Leased Property to Lessor, or Lessor may enter Master Lease Agreement Page 4 of 6. 5 the premises where Leased Property is located and take possession of or disable any part or all of the Leased Property without demand or notice, without any court order or other process of law and without liability for any damage occasioned by taking possession. Such return or taking of possession shall not constitute a termination of any Lease Agreement unless Lessor expressly so notifies Lessee in writing. Lessee agrees that Lessor is not required to repossess or to remarket the Leased Property, and Lessee waives its rights under any law that provides otherwise. 19.4 Proceed by appropriate court action or actions, either at law or in equity, to enforce performance by Lessee of the applicable covenants of any Lease Agreement or to recover damages for its breach. 19.5 With or without terminating any Lease Agreement, recover from Lessee, not as a penalty, but as liquidated damages, an amount equal to the sum of (a) any rent accrued and unpaid under the Lease Agreement as of the date of entry of judgment in favor of Lessor plus interest at the rate of eighteen percent (18%) per annum or the maximum rate allowed by law, whichever is less; (b) the present value discounted at four percent (4%) of all future rentals reserved in the Lease Agreement and contracted to be paid over the unexpired term of the Lease Agreement; (c) all commercially reasonable costs and expenses, including reasonable attorney's fees and costs, incurred by Lessor in any repossession, recovery, storage, or repair, sale, re-lease or other disposition of the Leased Property in connection with or otherwise resulting from Lessee's default; (d) the estimated residual value of the Leased Property as of the expiration of the Lease Agreement or any renewal thereof; and (e) any indemnity, if then determinable, plus interest at eighteen percent (18%) per annum or the maximum rate allowed by law, whichever is less. 19.6 In Lessor's sole discretion, re-lease or sell any or all of the Leased Property at a public or private sale on such terms and notice as Lessor shall deem reasonable and recover from Lessee, not as a penalty, but as liquidated damages, an amount equal to the sum of (a) any accrued and unpaid rent as of the "Default Date" (which shall be the later of the date of default or the date that Lessor obtains possession of the Leased Property, but not later than the date Lessee makes an effective tender of possession of the Leased Property back to Lessor) plus rent at the rate provided for in the Lease Agreement for an "Additional Period", (which shall be the period commencing on the Default Date and ending on the earlier of the date all the Leased Property is resold or re-let by Lessor or the date of entry of judgment in favor of Lessor) (b) the present value discounted at four percent (4%) of all future rentals reserved in the Lease Agreement and contracted to be paid over the unexpired term of the Lease Agreement, and the present value discounted at four percent (4%) of the estimated residual value of the Leased Property as of the expiration of the Lease Agreement or any renewal thereof, (c) all commercially reasonable costs and expenses, including reasonable attorney's fees and costs, incurred by Lessor in any repossession, recovery, storage, or repair, sale, release or other disposition of the Leased Property in connection with or otherwise resulting from Lessee's default, and (d) any indemnity, if then determinable, plus interest at eighteen percent (18%) per annum or the maximum rate allowed by law, whichever is less; LESS the amount received by Lessor upon public or private sale or re-lease of the Leased Property, if any. The remedies under this provision are not intended to be exclusive, but shall be cumulative, and in addition to any other remedy available to Lessor at law or in equity. Lessee shall in all events continue to be liable for all indemnities under this Master Agreement and any Lease Agreement, and for all Lessor's legal fees and other costs and expenses resulting from any event of default or incurred in the enforcement of any right or remedy under this Master Lease Agreement. 20. MISCELLANEOUS 20.1 Headings used in this Master Agreement or any Lease Schedule are for reference purposes only and shall not be given any substantive effect. 20.2 Failure of a party to insist in any instance upon strict performance by the other party of any of the provisions of this Master Agreement or any Lease Agreement shall not be construed or deemed to be a permanent waiver of that or any other provision. 20.3 All notices issued in connection with this Master Agreement or any Lease Agreement shall be in writing and shall be sent (unless otherwise specifically provided in the Lease Schedule) by (a) certified or registered mail, postage prepaid; or (b) overnight express courier with receipted delivery. Notices shall be addressed as follows: If to Lessor: Data General Corporation Attn.: Director, Data General Leasing 4400 Computer Drive, Mail Stop E-111 Westboro, Massachusetts 01580 If to Lessee: the billing address specified on the pertinent Lease Schedule. Either party may change its address for notification purposes by notice given to the other party. All notices shall be effective on the third business day after issuance unless a different period is specified elsewhere in this Master Agreement. 20.4 Each Lease Agreement and this Master Agreement shall be construed in accordance with and governed by the laws of the Commonwealth of Massachusetts excluding its conflict of law rules. 20.5 Any provision of this Master Agreement or any Lease Agreement which is invalid under the law of any state shall, to the extent of such prohibition, be ineffective in such state only, without invalidating the remaining provisions of this Master Agreement in such state. Master Lease Agreement Page 5 of 6. 6 20.6 Each Lease Agreement, including this Master Agreement, constitutes the complete and exclusive statement of the agreement of the parties and supersedes all prior oral and written communications, agreements, representations, statements, negotiations and undertakings between the parties relating to the subject matter of that Lease Agreement. No modification, termination, extension, renewal or waiver of any provision of this Master Agreement or any Lease Agreement shall be binding upon a party unless made in writing and signed by an authorized representative of that party. If more than one Lessee is named in this Master Agreement, their liability shall be joint and several. LESSOR AND LESSEE ACKNOWLEDGE THAT THEY HAVE READ THIS MASTER AGREEMENT, UNDERSTAND IT, AND AGREE TO BE BOUND BY IT AS OF THE DATE FIRST ABOVE WRITTEN, BUT ONLY AFTER ITS EXECUTION BY THEIR AUTHORIZED REPRESENTATIVES. LESSEE FURTHER ACKNOWLEDGES RECEIPT FROM LESSOR OF A TRUE COPY OF THIS MASTER AGREEMENT. DATA GENERAL CORPORATION, Lessor SCREAMING MEDIA, INC., Lessee Signature: /s/ Jane M. Weissman Signature: /s/ Roy Boling ------------------------ ------------------------ Authorized Representative Authorized Representative Title: OPERATIONS MANAGER Title: Director Financial Operations DATA GENERAL LEASING ----------------------------- ------------------------ Date: 8/30/99 Date: 8/4/99 ------------------------ ------------------------ Master Lease Agreement Page 6 of 6. 7 OFFICER'S CERTIFICATE The undersigned, Secretary, of Screaming Media, Inc. a New York corporation hereby certifies as follows to Data General Corporation ("DGC"), issued pursuant to Master Lease dated July 16, 1999, between Screaming Media, Inc. as Lessee and DGC as Lessor. The following persons are, and have been at all times since July 16, 1999, duly qualified and acting officers or authorized agents of the Corporation, duly elected or appointed to the offices or positions set forth opposite their respective names, and are authorized to execute on behalf of the Corporation the Master Lease Agreement with Exhibits and Riders, and all related documents. PERSON SIGNING CONTRACT PLEASE COMPLETE BELOW: Name/Title (Typed) Signatures Roy Boling - Director Financial Ops /s/ Roy Boling - ----------------------------------- -------------- William P. Kelly /s/ William P. Kelly - ----------------------------------- -------------------- IN WITNESS WHEREOF, the undersigned officer has executed this Certificate as of the 4th day of August, 1999. --- ------- PERSON CERTIFYING ABOVE SIGNATURE - SIGN BELOW: Corporate /s/ William P. Kelly Seal ----------------------------- Secretary Signature ----------------------------- Title (If other than Secretary) ***SIGNER MAY NOT CERTIFY THEIR OWN SIGNATURE*** ------------------------------------------------ EX-10.4.1 3 AGREEMENT OF LEASE 1 2/94 Exhibit 10.4.1 STANDARD FORM OF LOFT LEASE The Real Estate Board of New York, Inc. Agreement of Lease, made as of this ___________ day of ________________ 1999 between 601 WEST ASSOCIATES LLC, HAVING AN ADDRESS AT 601 WEST 26th STREET, SUITE 900, NEW YORK, NEW YORK 10001, Party of the first part, hereinafter referred to as OWNER, and SCREAMINGMEDIA.NET, INC, HAVING AN ADDRESS AT 601 WEST 26th STREET NEW YORK, NEW YORK 10001, party of the second part, hereinafter referred to as TENANT, Witnesseth: Owner hereby leases to Tenant and Tenant hereby hires from Owner THE SPACE KNOWN AS NINTH FLOOR NORTHEAST AS SHOWN ON EXHIBIT A ATTACHED HERETO (THE "PREMISES") in the building known as 601 WEST 26th STREET in the Borough of MANHATTAN, City of New York, for the term of TEN (10) YEARS (or until such term shall sooner and cease and expire as hereinafter provided) to commence on the COMMENCEMENT DATE* and to end on the 31st day of MARCH, TWO THOUSAND NINE and both dates inclusive, at an annual rental rate *(HEREINAFTER DEFINED) SEE ARTICLE 43 OF THE RIDER ANNEXED HERETO AND MADE A PART 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 on 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 covenant 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 provided such use in accordance with the certificate of occupancy for the building, if any, and for no other purposes. Alterations: 3. Tenant shall make no changes in or to the demised premises of any nature without Owner's prior written consent. Subject to the prior written consent. 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 nonstructural and which do not affect utility services or plumbing and electrical lines, in or to the interior of the demised premises using contractors or mechanics first approved in each instance by Owner. Tenant shall, at its expense, before making any alterations, additions, installations or improvements, obtain all permits, approval and certificates required by any governmental or quasi-governmental bodies and (upon completion) certificates of final approval thereof 2 and shall deliver promptly duplicates of all such permits, approvals and certificates to Owner. Tenant agrees to carry and will cause Tenant's contractors and sub-contractors to carry such workman's compensation, general liability, personal and property damage insurance as Owner may require. If any mechanic's lien is 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 actual notice thereof at Tenant's expense, by payment or filing the bond required by law or otherwise. All fixtures (other than Tenant's trade fixtures) and all paneling, partitions, railings and like installations, installed in the premises at any time, either by Tenant or by Owner on Tenant's behalf, shall, upon installation, become the property of Owner and shall remain upon and be surrendered with the demised premises unless Owner, by notice to Tenant no later than twenty days prior to the date fixed as the termination of this lease, elects to relinquish Owner's right thereto and to have them removed by Tenant, in which event the same shall be removed from the demised premises by Tenant prior to the expiration of the lease, at Tenant's expense. Nothing in this Article shall be construed to give Owner title to or to prevent Tenant's removal of trade fixtures, moveable office furniture and equipment, but upon removal of any such from the premises or upon removal of other installations as may be required by Owner, Tenant shall immediately and at its expense, repair and restore the premises to the condition existing prior to installation and repair any damage to the demised premises or the building due to such removal. All property permitted or required to be removed by Tenant at the end of the term remaining 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 removed form the premises by Owner, at Tenant's expense. Repairs: 4. Through the term of this Lease, Owner shall maintain and repair the structural exterior of and the public portions of the building including, without limitation, the roof, foundation, footings, exterior, walls, load-bearing walls, columns, beams, structural floor slabs and all building systems up to the connection point of the same of the demised premises. Tenant shall, throughout the term of this lease, take good care of the demised premises including the bathrooms and lavatory facilities (if the demised premises encompass the entire floor of the building) and the windows and window frames and, the fixtures and appurtenances therein and at Tenant's sole cost and expense promptly make all repairs thereto and to the building, whether structural or nonstructural in nature, caused by or resulting from the carelessness, omission, neglect or improper conduct of Tenant, Tenant's servants, employees, invitees, or licenses, and whether or not arising from such Tenant conduct or omission, when required by other provisions of this lease, including Article 6. Tenant shall also repair all damage to the building and the demised premises caused by the moving of Tenant's fixtures, furniture or equipment. All the aforesaid repairs shall be of quality or class equal to the original work or construction. If Tenant fails, after ten days notice, to proceed with due diligence to make repairs required to be made by Tenant, the same may be made by the Owner at the expense of Tenant, and the expenses thereof incurred by Owner shall be collectible, as additional rent, after rendition of a bill or statement therefor. If the demised premises be or become infested with vermin, Tenant shall, at its expense, cause the same to be exterminated. Tenant shall give Owner prompt notice of any defective condition in any plumbing, heating system or electrical lines located in the demised premises and following such notice, Owner shall remedy the condition with due diligence, but at the expense of Tenant, if repairs are necessitated by damage or injury attributable to Tenant. Tenant's servants, agents, employees, invitees or licensees as aforesaid. Except as specifically provided in Article 9 or elsewhere in this lease, there shall be no allowance to the Tenant for a diminution of rental value and no liability on the part of Owner by reason of inconvenience, annoyance or injury to business 2 3 arising from Owner, Tenant or others making or failing to make any repairs, alterations, additions or improvements in or to any portion of the building or the demised premises or in and to the fixtures, appurtenances or equipment thereof. It is specifically agreed that Tenant shall not be entitled to any set off 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 any action for damages for breach of contract. The provisions of this Article 4 with respect to the making of repairs shall not apply in the case of fire or other casualty with regard to which Article 9 hereof shall apply. Window Cleaning: 5. Tenant will not clean nor require, permit, suffer or allow any window in the demised premises to be cleaned from the outside in violation of Section 202 of the New York State Labor Law or any other applicable law or of the Rules of the Board of Standards and Appeals, or of any other Board or body having or asserting jurisdiction. Requirements of Law; Fire Insurance: 6. Prior to the commencement of the lease term, if Tenant is then in possession, and at all times thereafter Tenant shall, at Tenant's sole cost and expense, promptly comply with all present and future laws, orders and regulations of all state, federal, municipal and local governments, departments, commissions and boards and any direction of any public officer pursuant to law, and all orders, rules and regulations of the New York Board of Fire Underwriters, or the Insurance Services Office, or any similar body which shall impose any violation, order or duty upon Owner or Tenant with respect to the demised premises, arising out of Tenant's use or manner of use thereof, or, with respect to the building, if arising out of Tenant's use or manner of use of the demised premises of the building (including the use permitted under the lease). Except as provided in Article 30 hereof, nothing herein shall require Tenant to make structural repairs or alterations unless Tenant has, by its manner of use of the demised premises or method of operation therein, violated any such laws, ordinances, orders, rules, regulations or requirements with respect thereto. Tenant shall not do or permit any act or thing to be done in or to the demised premises which is contrary to law, or which will invalidate or be in conflict with public liability, fire or other policies of insurance at any time carried by or for the benefit of Owner. Tenant shall not keep anything in the demised premises except as now or hereafter permitted by the Fire Department, Board of Fire Underwriters, Fire Insurance Rating Organization and other authority having jurisdiction, and then only in such manner and such quantity so as not to increase the rate for fire insurance applicable to the building, nor use the premises in a manner which will increase the insurance rate for the building or any property located therein over that in effect prior to the commencement of Tenant's occupancy. If by reason or failure to comply with the foregoing the fire insurance rate shall, at the beginning of this lease or at any time thereafter, be higher than it otherwise would be, then Tenant shall reimburse Owner, as additional rent hereunder, for that portion of all fire insurance premiums thereafter paid by Owner which shall have been charged because of such failure by Tenant. In any action or proceeding wherein Owner and Tenant and parties, a schedule. or "make-up" or rate for the building or demised premises issued by a body making fire insurance rates applicable to said premises shall be conclusive evidence of the facts therein stated and of the several items and changes 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 for which it was designed to carry and which is allowed by law. Owner reserves the right to prescribe the weight and position of all safes, business machines and mechanical equipment. Such installations shall be placed and maintained by Tenant, at Tenant's expense, in settings sufficient in Owner's judgment, to absorb and prevent unreasonable vibration, noise and annoyance. 3 4 Subordination: 7. This lease is subject and subordinate to all ground or underlying leases and to all mortgages which may now or hereafter affect such leases or the real property of which demised premises are a part and to all renewals, modifications, consolidations, replacements and extensions of any such underlying leases and mortgages. This clause shall be self-operative and no further instrument or subordination shall be required by any ground or underlying lessor or by any mortgagee, affecting any lease or the real property of which the demised promises are a part. In confirmation of such subordination, Tenant shall from time to time, execute promptly any certificate that Owner may reasonably request. Tenant's Liability Insurance Property Loss, Damage, Indemnity: 8. Owner or its agents shall not be liable for any damage to property of Tenant or of others entrusted to employees of the building, nor for loss of or damage to any property of Tenant by theft or otherwise, nor for injury or damage to persons or property resulting from any cause of whatsoever nature, unless caused by or due to the negligence of Owner, its agents, servants or employees; Owner or its agents shall not be liable for any damage caused by other Tenants or persons in, upon or about said building or caused by operations in connection of any private, public or quasi public work. If at any time any windows of the demised premises are temporarily closed, darkened or bricked 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. Tenant shall indemnify and save harmless Owner against and from all liabilities, obligations, damages, penalties, claims, costs and expenses for which Owner shall not be reimbursed by insurance, including reasonable attorney's fees, paid, suffered or incurred as a result of any breach by Tenant, Tenant's agents, contractors, employees, invitees, or licensees, of any covenant or condition of this lease, or the carelessness, negligence or improper conduct of Tenant, Tenant's agents, contractors, employees, invitees or licensees. Tenant's liability under this lease extends to the acts and omissions of any sub-tenant, and any agent, contractor, employee, invitee or licencee of any sub-tenant. In case any action or proceeding is brought against Owner by reason of any such claim, Tenant, upon written notice from Owner, will, at Tenant's expense, resist or defend such action or proceeding by counsel approved by Owner in writing, such approval not to be unreasonably withheld. Destruction, Fire and Other Casualty: 9. (a) If the demised premises or any part thereof shall be damaged by fire or other casualty, Tenant shall give immediate notice thereof to Owner and this lease shall continue in full force and effect except as hereinafter set forth. (b) If the demised premises are partially damaged or rendered partially unusable by fire or other casualty, the damages thereto shall be repaired by and at the expense of Owner and the rent and other items of additional rent, until such repair shall be substantially completed, shall be apportioned from the day following the casualty according to the part of the premises, which is usable. (c) If the demised premises are totally damaged or rendered wholly unusable by fire or other casualty, then the rent and other items of additional rent as hereinafter expressly provided shall be proportionately paid up to the time of casualty and thenceforth shall cease until the date when the premises shall have been repaired and restored by Owner (or sooner reoccupied in part by Tenant then rent shall be apportioned as provided in subsection (b) above), 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 4 5 this lease by written notice to Tenant, given within 90 days after such fire or casualty, or 30 days after adjustment of the insurance claim for such fire or casualty, whichever is sooner, specifying a date for the expiration of the lease, which date shall not be more than 60 days after the giving of such notice, and upon the date specified in such notice the term of this lease shall expire as fully and completely as if such date were the date set forth above for the termination of this lease and Tenant shall forthwith quit, surrender and vacate the premises without prejudice however, to Owner's rights and remedies against Tenant under the 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 herein above shall relieve Tenant from liability that may exist as a result or damage from fire or other casualty. Notwithstanding the foregoing, including Owner's obligation to restore under subparagraph (b) above, 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 with respect to subparagraphs (b), (d) and (e) above, against the other or any one claiming through or under each of them by way of subrogation or otherwise. The release and waiver herein referred to shall be deemed to include any loss or damage to the demised premises and/or to any personal property, equipment, trade fixtures, goods and merchandise located therein. 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 wavier 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 wavier 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. Notwithstanding the foregoing or anything to the contrary contained herein, Tenant shall have the right to terminate this lease upon ten (10) days' written notice to Landlord, if (i) twenty percent (20%) or more of the demised premises shall be damaged by fire or casualty and if such damage or destruction shall occur during the last two (2) years of the term of this lease or any renewal term, or (ii) such damage or destruction is reasonably estimated to take in excess of one hundred eighty (180) days to complete. 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 the title vesting in such proceeding and Tenant shall have no claim for the value of any unexpired term of said lease. Tenant shall have the right to make an independent claim to the condemning authority for the value of Tenant's moving expenses and personal property, trade fixtures and equipment, provided Tenant is entitled pursuant to the terms of the lease to remove such property, trade fixtures and equipment at the end of the term and provided further such claim does not reduce Owner's award. 5 6 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 or the majority partnership interest of a partnership Tenant shall be deemed an assignment. If this lease be assigned, or if the demised premises or any part thereof be underlet or occupied by anybody other than Tenant, Owner may, after default by Tenant, collect rent from the assignee, under-tenant or occupant, and apply the net amount collected to the rent herein reserved, but no such assignment, underletting, occupancy or collection shall be deemed a waiver of this covenant, or the acceptance of the assignee, under-tenant or occupant as tenant, or a release of Tenant from the further performance by Tenant of covenants on the part of Tenant herein contained. The consent by Owner to an assignment or underletting shall not in any wise be construed to relieve Tenant from obtaining the express consent in writing of Owner to any further assignment or underletting. Electric Current: 12. Rates and conditions in respect to submetering or rent inclusion, as the case may be, to be added in RIDER attached hereto. Tenant covenants and agrees that at all times its use of electric current shall not exceed the capacity of existing feeders to the building or the risers or wiring installation and Tenant may not use any electrical current 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, upon prior notice to Tenant, to examine the same and to make such repairs, replacements and improvements as Owner may deem necessary and reasonably desirable to any portion of the building or which Owner may elect to perform in the premises after Tenant's failure to make repairs or perform any work which Tenant is obligated to perform under this lease, or for the purpose of complying with laws, regulations and other directions of governmental authorities. Tenant shall permit Owner to use and maintain and replace pipes and conduits in and through the demised premises and to erect new pipes therein provided, wherever possible, they are within walls or otherwise concealed. Owner may, during the progress of any work in the demised premises, take all necessary materials and equipment into said premises without the same constituting an eviction nor shall the Tenant be entitled to any abatement of rent while such work is in progress nor to any damages by reason of loss or interruption of business or otherwise. Landlord shall exercise reasonable efforts to minimize any inconvenience to Tenant or interference with Tenant's use and enjoyment of the Demised Premises and its business operations in connection with any repairs or other work, repairs, replacements and/or improvements performed by Landlord under the Lease, or in connection with any rights of access permitted to Landlord under the Lease, and Landlord shall carry out such repairs, replacements, improvements or other work promptly and diligently. Landlord acknowledges that such repairs, work or other access may be intrusive to Tenant's patrons, and agrees, with respect to work within the Premises, except in case of emergency, to (i) consult with Tenant, and (ii) make reasonable efforts to schedule any such repairs, work or other access in such manner, at such times, and in such locations as to create the least practicable interference with Tenant's business operations. Throughout the term hereof, Owner shall have the right to enter the demised premises at reasonable hours for the purpose of showing the same to prospective 6 7 purchasers or mortgagees of the building, and during the last six months of the term for the purpose of showing the same to prospective tenants and may, during said six months period, place upon the demised premises the usual notices "To Let" and "For Sale" which notices Tenant shall permit to remain thereon without molestation. If Tenant is not present to open and permit an entry into the demised premises, Owner or Owner's agents may enter the same in the event of an emergency by master key or forcibly and provided reasonable care is exercised to safeguard Tenant's property, such entry shall not render Owner or its agents liable therefor, nor in any event shall the obligations of Tenant hereunder be affected. If during the last month of the term Tenant shall have removed all or substantially all of Tenant's property therefrom. Owner may immediately enter, alter, renovate or redecorate the demised premises without limitation or abatement of rent, or incurring liability to Tenant for any compensation arid such act shall have no effect on this lease or Tenant's obligation hereunder. 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, of anything contained elsewhere in this lease to the contrary notwithstanding. Owner makes no representation as to the location of the property line of the building. All vaults and vault space and all such areas not within the property line of the building, which Tenant may be permitted to use and/ or occupy, is to be used and/or occupied under a revocable license, and if any such license be revoked, or if the amount of such space or area be diminished or required by any federal, state or municipal authority or public utility, Owner shall not be subject to any liability nor shall Tenant be entitled to any compensation or diminution or abatement of rent, nor shall such revocation, diminution or requisition be deemed constructive or actual eviction. Any tax, fee or charge of municipal authorities for such vault or area shall be paid by Tenant, if used by Tenant, whether or not specifically stated hereunder. Occupancy: 15. Tenant will not at any time use or occupy the demised premises in violation of the certificate of occupancy issued for the building of which the demised premises are a part. Tenant has inspected the premises and accepts them as is, subject to the riders annexed hereto with respect to Owner's work, if any. In any event, Owner makes no representation as to the condition of the premises and Tenant agrees to accept the same subject to violations, whether or not of record. If any governmental license or permit shall be required for the proper and lawful conduct of Tenant's business, Tenant shall be responsible for and shall procure and maintain such license or permit. Bankruptcy: 16. (a) Anything elsewhere in this lease to the contrary notwithstanding, this lease may be cancelled by Owner by sending of a written notice to Tenant within a reasonable time after the happening of any one or more of the following events: (1) the commencement of a case in bankruptcy or under the laws of any state naming Tenant as the debtor; or (2) the making by Tenant of an assignment or any other arrangement for the benefit of creditors under any state statute. Neither Tenant nor any person claiming through or under Tenant, or by reason of any statute or order of court, shall thereafter be entitled to possession of the premises demised but shall forthwith quit and surrender the premises. If this lease shall be assigned in accordance with its terms, the provisions of this Article 16 shall be applicable only to the party then owning Tenant's interest in this lease. (b) It is stipulated and agreed that in the event of the 7 8 termination of this lease pursuant to (a) hereof, Owner shall forthwith, notwithstanding any other provisions of this lease to the contrary, be entitled to recover from Tenant as and for liquidated damages an amount equal to the difference between the rental reserved hereunder for 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 relet during the term of the reletting. Nothing herein contained shall limit or prejudice the right of the Owner to prove for and obtain as liquidated damages by reason of such termination, an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, such damages are to be proved, whether or not such amount be greater, equal to, or less than the amount of the difference referred to above. Default: 17. (1) If Tenant defaults in fulfilling any of the covenants of this lease other than the covenants the payment of rent or additional rent; or if the demised premises becomes vacant or deserted "or if this lease be rejected under Section 235 of Title 11 of the U.S. Code (bankruptcy code);" or if any execution or attachment shall be issued against Tenant or any of Tenant's property whereupon the demised premises shall be taken or occupied by someone other than Tenant; or if Tenant shall make default with respect to any other lease between Owner and Tenant; or if Tenant shall have failed, after five (5) days written notice, to redeposit with Owner any portion of the security deposited hereunder which Owner has applied to the payment of any rent and additional rent due and payable hereunder or failed to move into or take possession of the premises within thirty (30) days after the Commencement Date of which fact Owner shall be the sole judge; then in any one or more of such events, upon Owner serving a written fifteen (15) days notice upon Tenant specifying the nature of said default and upon the expiration of said fifteen (15) 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 fifteen (15) day period, and if Tenant shall not have diligently commenced during such default within such fifteen (15) day period, and shall not thereafter with reasonable diligence and in good faith, proceed to remedy or cure such default, then Owner may serve a written five (5) days' notice of cancellation of this lease upon Tenant, and upon the expiration of said five (5) days this lease and the term thereunder shall end and expire as fully and completely as if the expiration of such five (5) day period were the day herein definitely fixed for the end and expiration of this lease and the term thereof and Tenant shall then quit and surrender the demised premises to 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 of any item of additional rent herein mentioned or any part of either or in making any other payment herein required; then in any of such events Owner may without notice, re-enter the demised premises either by force or otherwise, and dispossess 8 9 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, and additional rent, shall become due thereupon, and be paid up to the time of such re-entry, dispossess and/or expiration, (b) Owner may relet 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 rent than that in this lease, (c) Tenant or the legal representatives of Tenant shall also pay Owner as liquidated damages for the failure of Tenant to observe and perform said Tenant's covenants herein contained, any deficiency between the rent hereby reserved and/or covenanted to be paid and the net amount, if any, of the rents collected on account of the subsequent lease or leases of the demised premises for each month of the period which would otherwise have constituted the balance of the term of the lease. The failure of Owner to relet the premises or any part or part 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 reletting, such as legal expenses, reasonable attorneys' fees, brokerage, advertising and for keeping the demised premises in good order or for preparing the same, for reletting. Any such liquidated damages shall be paid in monthly installments by Tenant on the rent day specified in this lease and any suit brought to collect the amount of the deficiency for any month shall not prejudice in any way the rights of Owner to collect the deficiency for any subsequent month by a similar proceeding. Owner, in putting the demised premises in good order or preparing the same for re-rental may, at Owner's option, make such alterations, repairs, replacements, and/or decorations in the demised premises as Owner, in Owner's sole judgment, considers advisable and necessary for the purpose of reletting 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 foresaid. Owner shall in no event be liable in any way whatsoever for failure to re1et the demised premises, or in the event that the demised premises are relet for failure to collect the rent thereof under such reletting, 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 nor 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. Fees and Expenses: 19. If Tenant shall default in the observance or performance of any term or covenant on Tenant's part to be observed or performed under or by virtue of any of the terms or provisions in any article of this lease, after notice if required and upon expiration of any applicable grace period if any, (except in an emergency), 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 9 10 payment of money, including but not limited to reasonable attorney's fees, in instituting, prosecuting or defending any action or proceedings, and prevails in any such action or proceeding, then Tenant will reimburse Owner for such claims 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 ten (10) 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. 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 Tenant making any repairs in the building or any such alterations, additions and improvements. Furthermore, Tenant shall not have any claim against Owner by reason of Owner's imposition of any controls of the manner of access to the building by Tenant's social or business visitors as the Owner may deem necessary for the security of the building and its occupants. No Representations by Owner: 21. Neither Owner nor Owner's agents have made any representations or promises with respect to the physical condition of the building, the land upon which it is erected or the demised premises, the rents, leases, expenses of operation or any other matter or thing affecting or related to the demised premises or the building except as herein expressly set forth and no rights, easements or licenses are 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" on the date possession is tendered and acknowledges that this 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 from the demised premises. Tenant's obligation to observe or perform this covenant shall survive the expiration or other termination of this lease. If the last day of the term of this lease, or any renewal thereof, falls on Sunday, this lease shall expire at noon on the proceeding 10 11 Saturday unless it be a legal holiday in which case it shall expire at noon on the preceding business day. Quiet Enjoyment: 23. Owner covenants and agrees with Tenant that upon Tenant paying the rent and additional rent and observing and performing all the terms, covenants and conditions on Tenant's part to be observed and performed, Tenant may peaceably and quietly enjoy the premises hereby demised, subject, nevertheless, to the terms and conditions of this lease including, but not limited to, Article 34 hereof and to the ground leases, underlying leases and mortgages hereinbefore mentioned. Failure to Give Possession: 24. If Owner is unable to give possession of the demised premises on date of the Commencement Date because of the fact that a certificate of occupancy has not been procured or if Owner has not completed any work required to be performed by Owner, Owner shall not be subject to any liability for failure to give possession on said date and the validity of the lease shall not be impaired under such circumstances, nor shall the same be construed in any wise to extend the term of this lease, but the rent payable hereunder shall be abated (provided Tenant is not responsible for Owner's inability to obtain possession or complete any work required) until after Owner shall have given Tenant notice that Owner is able to deliver possession in the condition required by this lease. 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 possession and/or occupancy shall be deemed to be under all the terms, covenants, conditions and provisions of this lease, except the obligation to pay the fixed annual rent set forth in page one of this lease. 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 of rent with knowledge of the breach of any covenant of this lease shall not be deemed a waiver of such breach and no provision of this lease shall be deemed to have been waived by Owner unless such waiver be in writing signed by Owner. No payment by Tenant or receipt by Owner of a lesser amount than the monthly rent herein stipulated shall be deemed to be other than on account of the earliest stipulated rent, nor shall any endorsement or statement of any check or any letter accompanying any check or payment as rent be deemed an accord and satisfaction, and Owner may accept such check or payment without prejudice to Owner's right to recover the balance of such rent or pursue any other remedy in this lease provided. All checks tendered to Owner as and for the rent of the demised premises shall be deemed payments for the account of Tenant. Acceptance by Owner of rent from anyone other than Tenant shall not be deemed to operate as an allotment to Owner by the payor of such rent or as a consent by Owner to an assignment or subletting by Tenant of the demised premises to such payor, or as a modification of the provisions of this lease. No act or thing done by Owner or Owner's agents during the term hereby demised shall be deemed an acceptance of a surrender of said premises and no agreement to accept such surrender shall be valid unless in writing signed by Owner. No employee of Owner or 11 12 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 proceeding or action for possession including a 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 except for statutory mandatory counterclaims. 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, fixtures or other materials if Owner is prevented or delayed from doing so by reason of strike or labor troubles or any cause whatsoever beyond Owner's sole control including, but not limited to, government preemption or restrictions or by reason of any rule, order or regulation of any department or subdivision thereof or any government agency or by reason of the conditions which have been or are affected, either directly or indirectly, 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, delivered to Tenant personally or sent by registered or certified mail addressed to Tenant in accordance with Article 63 of the Rider and the time of the rendition of such bill or statement and of the giving of such notice or communication shall be deemed to be the time when the same is delivered to Tenant, mailed, or left at the premises as herein provided. Any notice by Tenant to Owner must be served by registered or certified mail addressed to Owner in accordance with Article 63 of the Rider or at such other address as Owner shall designate by written notice. Sprinklers: 30. Anything elsewhere in this lease to the contrary notwithstanding, if the New York Board of Fire Underwriters or the New York Fire Insurance Exchange or any bureau, department or official of the federal, state or city government recommend or require the installation of a sprinkler system or that any changes, modifications, alterations, or additional sprinkler heads or other equipment be made or supplied in an existing sprinkler system by reason of Tenant's business, or the location of partitions, trade 12 13 fixtures, or other contents of the demised premises, or for any other reason, or if any such sprinkler system installations, modifications, alterations, additional sprinkler heads or other such equipment, become necessary to prevent the imposition of a penalty or charge against the full allowance for a sprinkler system in the fire insurance rate set by any said Exchange or by any fire insurance company, Tenant shall, at Tenant's expense promptly make such sprinkler system installations, changes, modifications, alterations, and supply additional sprinkler heads or other equipment as required whether the work involved shall be structural or nonstructural in nature. See Article 49. Elevators, Heat, Cleaning: 31. As long as Tenant is not in default under any of the covenants of this lease beyond the applicable grace period provided in this lease for the curing of such defaults, Owner shall: (a) provide necessary passenger elevator facilities on business days from 8 a .m. to 6 p.m. and on Saturdays from 8 a.m. to 1 p.m.; (b) if freight elevator service is provided, same shall be provided only on regular business days Monday through Friday inclusive, and on those days only between the hours of 9 a.m. and 12 noon and between 1 p.m. and 5 p.m.; (c) furnish heat, water and other services supplied by Owner to the demised premises, when and as required by law, on business days from 8 a.m. to 6 p.m. and on Saturdays from 8 a.m. to 1 p.m.; (d) clean the public halls and public portions of the building which are used in common by all tenants. Tenant shall, at Tenant's expense, keep the demised premises, including the windows, clean and in order, to the reasonable satisfaction of Owner, and for that purpose shall employ the person or persons, or corporation approved by Owner. Tenant shall pay to Owner the cost of removal of any of Tenant's refuse and rubbish from the building. Bills for the same shall be rendered by Owner to Tenant at such time as Owner may elect and shall be due and payable hereunder, and the amount of such bills shall be deemed to be, and be paid as, additional rent. Tenant shall, however, have the option of independently contracting for the removal of such rubbish and refuse in the event that Tenant does not wish to have same done by employees of Owner. Under such circumstances, however, the removal of such refuse and rubbish by others shall be subject to such rules and regulations as, in the judgment of Owner, are necessary for the proper operation of the building. Owner reserves the right to stop service of the heating, elevator, plumbing and electric systems, when necessary, by reason of accident, or emergency, or for repairs, alterations, replacements or improvements, in the judgment of Owner desirable or necessary to be made, until said repairs, alterations, replacements or improvements shall have been completed. If the building of which the demised premises are a part supplies manually operated elevator service, Owner may proceed diligently with alterations necessary to substitute automatic control elevator service without in any way affecting the obligations of Tenant hereunder. Captions: 33. The captions are inserted only as a matter of convenience and for reference and in no way define, limit or describe the scope of this lease nor the intent of any provision thereof. Definitions: 34. The term "Owner" as used in this lease means only the owner of the fee or of the leasehold of the building, or the mortgage 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, and it shall be deemed and construed without further agreement between the parties or their successors in interest, or between 13 14 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 lessee of the building has assumed and agreed to carry out any and all covenants and obligations of Owner hereunder. The words "re-enter" and "re-entry" as used in this lease are not restricted to their technical legal meaning. The term "rent" includes the annual rental rate whether so expressed or expressed in monthly installments, and "additional rent." "Additional rent" means all sums which shall be due to Owner from Tenant under this lease, in addition to the annual rental rate. The term 'business days" as used in this lease, shall exclude, Saturdays, 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. Wherever it is expressly provided in this lease that consent shall not be unreasonably withheld, such consent shall not be unreasonably delayed. Adjacent Excavation Shoring: 35. If an excavation shall be made upon land adjacent to the demised premises, or shall be authorized to be made, Tenant shall afford to the person causing or authorized to cause such excavation, license to enter upon the demised premises for the purpose of doing such work as said person shall deem necessary to preserve the wall or the building of which demised premises 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: 36. Tenant and Tenant's servants, employees, agents, visitors, and licensees shall observe faithfully, and comply strictly with, the Rules and Regulations annexed hereto and such other and further reasonable Rules and Regulations as Owner or Owner's agents may from time to time adopt. Notice or any additional rules or regulations shall be given in such manner as Owner may elect. In case Tenant disputes the reasonableness of any additional Rule or Regulation hereafter made or adopted by Owner or Owner's agents, the parties hereto agree to submit the question of the reasonableness of such Rule or Regulation for decision to the New York office of the American Arbitration Association, whose determination shall be final and conclusive upon the parties hereto. The right to dispute the reasonableness of any additional Rule or Regulation upon Tenant's part shall be deemed waived unless the same shall be asserted by service of a notice, in writing upon Owner within fifteen (15) 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. Glass: 37. Owner shall replace, at the expense of the Tenant, any and all plate and other glass damaged or broken from any cause whatsoever in and about the demised premises. Owner may insure, and keep insured, at Tenant's expense, all plate and other glass in the demised premises for and in the name of the Owner. Bills for the premiums therefor shall be rendered by Owner to Tenant at such times as Owner may elect, and shall be due, from, and payable by, Tenant when rendered, and the amount thereof shall be deemed to be, and be paid, as additional rent. 14 15 Estoppel Certificate: 38. Tenant, at any time, and from time to time, upon at least 10 days' prior notice by Owner, shall execute, acknowledge and deliver to Owner, and/or to any other person, firm or corporation specified by Owner, a statement certifying that this lease is unmodified in full force and effect (or, if there have been modifications, that the same is in full force and effect as modified and stating the modifications), stating the dates to which the rent and additional rent have been paid, and stating whether or not there exists any default by Owner under this lease, and, if so, specifying each such default. Directory Board Listing: 39. If, at the request of and as accommodation to Tenant, Owner shall place upon the directory board in the lobby of the building, one or more names of persons other than Tenant, such directory board listing shall not be construed as the consent by Owner to an assignment or subletting by Tenant to such person or persons. Successors and Assigns: 40. The covenants, conditions and agreements contained in this lease shall bind and inure to the benefit of Owner and Tenant and their respective heirs, distributees, executors, administrators, successors, and except as otherwise provided in this lease, their assigns. Tenant shall look only to Owner's estate and interest in the land and building for the satisfaction of Tenant's remedies for the collection of a judgement (or other judicial process) against Owner in the event of any default by Owner hereunder, and no other property or assets of such Owner (or any partner, member, officer or director thereof, disclosed or undisclosed), shall be subject to levy, execution or other enforcement procedure for the satisfaction of Tenant's remedies under or with respect to this lease, the relationship of Owner and Tenant hereunder, or Tenant's use and occupancy of the demised premises. In Witness Whereof, Owner and Tenant have respectively signed and sealed this lease as of the day and year first above written. Witness for Owner: 601 WEST ASSOCIATES LLC _____________________________ BY: ______________________ [L.S.] Name: Title: Witness for Tenant: SCREAMINGMEDIA.NET, INC. _____________________________ BY: ______________________ [L.S.] Name: Title: 15 16 17 ACKNOWLEDGMENTS 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 is was so affixed by order of the Board of Directors of said corporation, and that he signed his name thereto by like order. INDIVIDUAL TENANT STATE OF NEW YORK, SS.: County of On this day of , 19 , before me personally came to be 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. IMPORTANT -- PLEASE READ RULES AND REGULATIONS ATTACHED TO AND MADE A PART OF THIS LEASE IN ACCORDANCE WITH ARTICLE 36. 1. The sidewalks, entrances, driveways, passages, courts, elevators, vestibules, stairways, corridors or halls shall not be obstructed 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 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 of halls, elevators, or out of the doors or windows or stairways of the building and Tenant shall not use, keep or permit to be used or kept any foul or noxious gas or substance in the demised premises, or permit or suffer the demised premises to be occupied or used in a manner offensive or objectionable to Owner or other occupants of the buildings by reason of noise, odors, and or vibrations, or interfere in any way, with other Tenants or those having business therein, nor shall any bicycles, vehicles, animals, fish, 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 of which these Rules and Regulations are a part. 9. No tenant shall obtain for use upon the demised premises ice, drinking water, towel and other similar services, or accept barbering or bootblacking services in the demised premises, except from persons authorized by Owner, and at hours and under regulations fixed by Owner. Canvassing, soliciting and peddling in the building is prohibited and each Tenant shall cooperate to prevent the same. 10. Owner reserves the right to exclude from the building all persons who do not present a pass to the building signed by Owner. Owner will furnish passes to persons for whom any Tenant requests same in writing. Each tenant shall be responsible for all persons for whom he requests such pass and shall be liable to Owner for all acts of such persons. Notwithstanding the foregoing, Owner shall not be required to allow Tenant or any person to enter or remain in the building, except on business days from 8:00 a.m. to 6:00 p.m. and on Saturdays from 8:00 a.m. to 1:00 p.m. Tenant shall not have a claim against Owner by reason of Owner excluding from the building any person who does not present such pass. 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 loft building, and upon written notice from Owner, Tenant shall refrain from or discontinue such advertising. 12. Tenant shall not bring or permit to be brought or kept in or on the demised promises, any inflammable, combustible, or explosive, or hazardous fluid, material, chemical or substance, or cause or permit any odors of cooking or other processes, or any unusual or other objectionable odors to permute in or emanate from the demised premises. 13. Tenant shall not use the demised premises in a manner which disturbs or interferes with other Tenants in the beneficial use of their premises. SEE SUPPLEMENTAL RULES AND REGULATIONS PURSUANT TO ARTICLE 36 ANNEXED HERETO AND HEREBY MADE A PART HEREOF TO WHICH TENANT AGREES TO BE BOUND BY EXECUTION OF THIS LEASE. 16 18 RIDER ANNEXED TO LEASE DATED AS OF MARCH __, 1999 BETWEEN 601 WEST ASSOCIATES, LLC, AS LANDLORD AND SCREAMINGMEDIA.NET, INC., AS TENANT 41. RIDER PROVISIONS PREVAIL. If and to the extent that any of the provisions of this Rider conflict or are otherwise inconsistent with any of the preceding printed provisions of this Lease, or of the Rules and Regulations attached to this Lease, whether or not such inconsistency is expressly noted in this Rider, the provisions of this Rider shall prevail, and in case of inconsistency with said Rules and Regulations, shall be deemed a waiver of such Rules and Regulations. 42. COMMENCEMENT OF TERM. The commencement date of the term of this Lease ("Commencement Date") shall be the earliest to occur of (i) the date on which Landlord's Work (as hereinafter defined) to be performed in the Premises is substantially completed (as hereinafter defined), or (ii) the date on which Landlord's Work in the Premises would have been substantially completed but for Tenant's Delay (as hereinafter defined) or, (iii) the date Tenant or anyone claiming under or through Tenant first occupies the Premises for the conduct of its business. 43. FIXED RENTAL AND ADDITIONAL RENTAL. 43.1 Tenant covenants to pay Landlord, at the above address, or at such other address as Landlord shall designate: 43.1.1 A fixed rental ("Fixed Rental") at an annual rate of: (i) $210,000.00 per year ($17,500.00 per month) for the lease year commencing on the Commencement Date (defined in Article 42 above and continuing thereafter to and including March 31, 2002; (ii) $231,000.00 per year ($19,250.00 per month) for the lease year commencing April 1, 2002, and continuing thereafter to and including March 31, 2006; (iii) $252,000.00 per year ($21,000.00 per month) for the lease year commencing April 1, 2006, and continuing thereafter to and including March 31, 2009 (the "Termination Date"). Fixed Rental shall be payable by Tenant by check drawn on a bank which is a member of the New York City Clearing House Association, having an office in the City of New York, in lawful money of the United States, in equal monthly installments in advance at the office of Landlord without previous demand therefor and without any setoff or deduction whatsoever, on the first day of each and every calendar month throughout the term of this Lease, except that the first monthly installment of Fixed Rental due hereunder shall be paid on the execution of this Lease. Provided that Landlord countersigns and delivers a fully executed copy of this Lease, Landlord may deposit the first monthly payment of rent. So long as Tenant is not in default hereunder at the time that the Fixed Rental becomes due and payable, the payment made on this date shall be applied to the first installment of Fixed Rental due; otherwise, the same shall be applied to the damages, if any, to which Landlord is entitled upon Tenant's breach of this Lease. If the payment made on the date of this Lease is uncollectible, the Lease shall, at Landlord's option, be of no force and effect, ab initio, whether or not Tenant shall have entered into possession of the Premises. If the Commencement Date (as defined in Article 42 above) occurs on a day other than the first day of a calendar month, the Fixed Rental for such calendar month shall be prorated, and the balance of the first month's Fixed Rental theretofore paid shall be credited against the next monthly installment of Fixed Rental. Tenant's obligation to pay for the cost of electricity for the Premises shall commence on the Commencement Date, 43.1.2 Additional rental ("Additional Rental"), consisting of all such monies other than Fixed Rental as shall be due and payable under this lease by Tenant. 43.2 Provided that Tenant is not then in default under the terms of this Lease, Tenant shall be entitled to a one-time, nonrecurring credit against the obligation to pay Fixed Rental, in the amount of $87,500.00, (the "Credit") to be applied as follows: (i) $52,500.00 against the Fixed Rental due commencing on the Commencement Date and continuing thereafter through the end of the third month following the Commencement Date. If the Commencement Date is a date other than the first day of a month, then this portion of the Credit shall be prorated, and the balance shall be applied against the Fixed Rental due for the fourth month following the Commencement Date, (ii) $17,500.00 against the Fixed Rental due for March 2000, and (iii) $17,500.00 against the Fixed Rental due for April 2000. Notwithstanding the foregoing, the Credit shall not be applied against any Additional Rental, electricity charges, or other like sums from time to time payable by Tenant pursuant to this Lease, which amounts shall be paid without abatement in accordance with the terms of this Lease, 44. RENT ESCALATION -- CONSUMER PRICE INDEX. 44.1 Definitions: For the purposes of this Article, the following definitions shall apply: (a) The term "Price Index" shall mean the "Consumer Price Index" published by the bureau of Labor Statistics of the U.S. Department of Labor, All Urban Consumers ("CPI-U") New York-Northern New Jersey-Long Island-All Items (1982-84 = 100) or a successor or substitute index appropriately adjusted. (b) The term "Base Price Index" shall mean the Price Index for the month of February 1999. 17 19 44.2 Effective as of each April 1 (the "Change Date") throughout the term of this Lease, commencing April 1, 2000, there shall be made cost of living adjustments of the Fixed Rental payable hereunder. The adjustment shall be based on the percentage difference between the Price Index for the applicable preceding month of February and the Base Price Index. (a) In the event the Price Index for February in any calendar year during the term of this Lease reflects an increase over the Base Price Index, then the Fixed Rental herein provided to be paid as of the April 1st following such month of February shall be multiplied by the percentage increase between the Price Index for February of such applicable calendar year and the Base Price Index, and the resulting sum shall be added to such annual Fixed Rental, effective as of April 1st. Said adjusted Fixed Rental shall thereafter he payable hereunder in equal monthly installments, until it is readjusted pursuant to the terms of this Lease. Landlord agrees that the adjusted Fixed Rental in any one-lease year shall not be greater than One Hundred Four Percent (104%) of the adjusted Fixed Rental for the previous lease year. (b) The following illustrates the intentions of the parties hereto as to the computation of the aforementioned cost of living adjustment in the annual Fixed Rental payable hereunder, Assuming that said annual Fixed Rental is $10,000, that the Base Price Index was 102.0 and that the Price Index for the month of February 2000 was 105.0, then the percentage increase thus reflected, i.e., 2.94% (3.0/102.0 multiplied by 100), would be multiplied by $10,000, and said annual Fixed Rental would be increased by $294.00 effective as of April 1, 2000 (paid in equal monthly installments). 44.3 In the event that the Price Index ceases to use 1982-84 = 100 as the basis of calculation, or if a substantial change is made in the terms or number of items contained in the Price Index, then the Price Index shall be adjusted to the figure that would have been arrived at had the manner of computing the Price Index in effect at the date of this Lease not been altered. In the event such Price Index (or a successor or substitute index) is not available, a reliable governmental or other nonpartisan publication evaluating the information theretofore used in determining the Price Index shall be used. 44.4 No adjustments or recomputations, retroactive or otherwise, shall be made due to any revision which may later be made in the first published figure of the Price Index for any month. 44.5 Landlord will cause statements of the cost of living adjustments provided for in Section 44.2 to be prepared in reasonable detail and delivered to Tenant. 44.6 In no event shall the Fixed Rental provided to be paid under this Lease (as increased pursuant to this Article 44) be reduced by virtue of the provisions of this Article. 44.7 Any delay or failure of Landlord, in computing or billing for the rent adjustments herein above provided, shall not constitute a waiver of or in any way impair the continuing obligation of Tenant to pay such rent adjustments hereunder. 44.8 Notwithstanding any expiration or termination of this Lease prior to the expiration date (except in the case of a cancellation by mutual agreement) Tenant's obligation to pay Fixed Rental as adjusted under this Article shall continue and shall cover all periods up to the expiration date, and shall survive any expiration of this Lease. 45. AS IS CONDITION; LANDLORD'S WORK. 45.1 Tenant has thoroughly examined the Premises (including the terrace) and is fully familiar with the condition thereof, and, except as specifically set forth in this Lease, neither Landlord nor Landlord's agents have made any representations, warranties or promises, either express or implied, with regard to the physical condition of the Building, or the Premises, the use or uses to which the Premises may be put, or the condition of any mechanical, plumbing, electrical, flue, ventilation or exhaust systems servicing the Premises. It is expressly understood that Landlord shall not be liable for any latent or patent defects in the Premises. Tenant agrees to accept the Premises "as is" and in such condition as the same may be in at the Commencement Date, and, except for the work set forth on Exhibit B attached hereto, Landlord shall not be obligated or required to do any work or to make any alterations or decorations or install any fixtures, equipment or improvements, or make any repairs or replacements to or in the Premises to prepare or fit the same for Tenant's use or for any other reason whatsoever. Unless specifically agreed otherwise, all Landlord's Work shall be of material, design, finish and color of the building standard adopted from time to time by Landlord. The installations, facilities, materials and work so to be furnished, installed and performed in the Premises by Landlord at its expense are hereinafter and in Exhibit B referred to as "Landlord's Work." All other installations, facilities, materials and work which may be undertaken by or for the account of Tenant to prepare, equip, decorate and furnish the Premises for Tenant's occupancy, shall be at Tenant's expense, and are hereinafter called "Tenant's Work." In the event specific locations or dimensions are not provided for the furnishing or installation of any particular item of Landlord's Work, the judgment of Landlord reasonably exercised shall be binding on Tenant. In no event shall Landlord be required to provide any material, work or installation not specifically described or included in Landlord's Work. 46. SUBSTANTIAL COMPLETION. 46.1 The Premises shall be deemed ready for occupancy on the date that Landlord's Work in the Premises shall have been substantially completed. The Premises shall be substantially completed when all major items of construction have been substantially completed and the Premises is accessible and reasonably usable, notwithstanding the fact (i) that minor or insubstantial details of construction, mechanical adjustment or decoration remain to be performed, the noncompletion of which do not materially interfere with Tenant's use of the Premises (so-called "punch-list" items), and (ii) that Landlord's Work has been substantially completed except for portions thereof which shall be completed upon the completion of Tenant's Work. 46.2 If the completion of Landlord's Work shall be delayed due to any act or omission of Tenant or any of its employees, agents or contractors or any failure to plan or to execute Tenant's Work diligently and expeditiously, for which Landlord shall give Tenant five (5) days' written notice ("Tenant's Delay"), the Premises shall be deemed ready for occupancy on the date when they would have been ready but for the Tenant's Delay. 18 20 46.3 If and when Tenant shall take actual possession of the Premises, it shall be conclusively presumed that the same were in satisfactory condition as of the date of such taking of possession, unless within ten (10) days after such date Tenant shall give Landlord notice specifying the respects in which the Premises were not in satisfactory condition. 47. TENANT'S INITIAL INSTALLATIONS. 47.1 Tenant agrees, at Tenant's sole cost and expense, to cause the Premises to be improved in accordance with the plans approved by Landlord in writing ("Approved Plan") (which improvement is hereinafter referred to as "Tenant's Initial Installations"), which approval shall not be unreasonably withheld or delayed. Tenant's obligation hereunder shall include, without limitation, the obligation to pay for all soft costs, environmental and other investigatory expenses, construction expenses, filings, architectural fees, engineering fees and other like items necessary in order to lawfully complete Tenant's Initial Installations. Tenant's performance of Tenant's Initial Installations shall be performed with due diligence and in a good and workmanlike manner so that the same shall be completed (subject to delays beyond the reasonable control of Tenant; provided that in the event of such delay(s) Tenant shall use its reasonable efforts to minimize the effect of such delay and shall resume performance promptly after the cause of such delay has been eliminated and thereafter shall carry out Tenant's Initial Installations with due diligence to completion) not later than ninety (90) days following the date on which Landlord shall have consented to the Approved Plans. Tenant's Initial Installations shall be performed and the quality, materials and appearance of Tenant's Initial Installations shall, unless otherwise specifically agreed to by Landlord, be equivalent to or exceed in all respects, the Building standard installations of Landlord. Tenant, upon request, shall be provided with a list of building standard specifications, standards and materials; however, Tenant's failure to request the same shall not excuse Tenant from compliance with the foregoing requirement. 47.2 During the period following the date of this Lease and during the performance by Landlord of Landlord's Work, if any, Tenant agrees to submit to Landlord for Landlord's review and approval all items mentioned in Article 69 below of this Lease with respect to Alterations as the same may pertain to Tenant's Initial Installations. Landlord shall either approve or comment on Tenant's submissions within ten (10) calendar days after receipt, which approval or comments shall not be unreasonably withheld, delayed, or conditioned (in the case of an approval). If any of Tenant's submissions are not approved by Landlord, Tenant shall resubmit any disapproved items within five (5) business days after receipt of Landlord's comments. Tenant's Initial Installations shall be commenced promptly after receipt by Tenant of all permits and approvals necessary for the same to be legally carried out and after delivery to Landlord of all items that must be delivered prior to the commencement of any Alterations. All of Tenant's Initial Installations shall be performed in accordance with the provisions of Article 69 below of this Lease. 47.3 Landlord approves T. Lee Contracting, Inc., having an address at 156 Attorney Street, New York, New York 10002, as the contractor for Tenant's Initial Installations. 47.4 Tenant agrees to maintain, at Tenant's sole cost and expense, William Vittaco for the purpose of expediting the filing of building plans and obtaining its building permit in connection with Tenant's Initial Installation. 48. ESCALATIONS FOR INCREASE IN REAL ESTATE TAXES. 48.1 For each Tax Year or portion thereof occurring in whole or in part during the term or any renewal term of this Lease, Tenant shall pay, as Additional Rental, the Tax Payment (hereafter defined) for such Tax Year or portion thereof. 48.2 "Taxes" shall mean the total of all real estate taxes and assessments and special assessments, business improvement district charges, and other levies of a similar nature levied, assessed or imposed upon or against the land, the Landlord and/or Building located at 601 West 26th Street, New York, New York (individually referred to hereinafter as the "Land" and the "Building"). If at any time during the term of this Lease the methods of taxation prevailing at the commencement of the term hereof shall be altered so that if and to the extent that in lieu of or as a substitute for the whole or any part of the taxes, assessments, levies or impositions of charges now levied, assessed or imposed on real estate and the improvements thereon, there shall be levied, assessed or imposed: (i) a tax, assessment, levy, imposition or charge wholly or partially as capital levy or otherwise on the rents received therefrom; (ii) a tax, assessment, levy, imposition or charge measured by or based in whole or in part upon the Building or the Land or the Premises and imposed upon Landlord; (iii) a license fee measured by the rents payable by Tenant to Landlord; or (iv) any additional or substitute tax assessment, levy, imposition or charges against the Land and/or the Building; then all such taxes, assessments, levies, impositions or charges or part thereof so measured or based, shall be deemed to be included with the term "Taxes." Notwithstanding the provisions of this Article 48 to the contrary, the term "Taxes" shall not include corporation, franchise, income, profit or capital levy taxes, or inheritance, succession, estate, gift or transfer taxes. Landlord shall use its best efforts to minimize Taxes, including, without limitation, contesting same. 48.3 "Tax Year" shall mean the fiscal year for which Taxes are levied by the applicable governmental authority. 48.4 "Base Tax" shall mean the Taxes payable in the fiscal year commencing July 1, 1999 and ending June 30, 2000 (such fiscal year being hereinafter referred to as the "Base Tax Year"). 48.5 "Tenant's Proportionate Share" shall mean 0.50%. 48.6 If the Taxes for any Tax Year occurring wholly or partially within the term of this Lease or any renewal or extension thereof shall be greater than the Base Tax, Tenant shall pay as Additional Rental for such Tax Year a sum equal to Tenant's Proportionate Share of the amount by which the Taxes for such Tax Year are greater than the Base Tax (which amount is hereinafter called the "Tax Payment"). Should this Lease commence or terminate prior to the expiration of a Tax Year, such Tax Payment shall be prorated to correspond with that portion of a Tax Year occurring within the term of this Lease. Tenant's obligation to pay such Additional Rental and Landlord's obligation to refund pursuant to Paragraph 48.7 below, as the case may be, shall survive the termination or sooner expiration of this Lease. 48.7 Only Landlord shall be eligible to institute proceedings to contest the Taxes or reduce the assessed valuation of the Land and Building. Landlord shall be under no obligation to contest the Taxes or the assessed valuation of the Land and Building for any Tax Year or to refrain from contesting the same, and may settle any such contest on such terms as Landlord in its sole judgment considers proper. If Landlord shall receive a refund for any Tax Year for which a Tax Payment shall have been made by Tenant pursuant to Paragraph 48.6 above, Landlord shall repay to Tenant, with reasonable promptness, Tenant's Proportionate Share of such refund after deducting from such refund Tenant's Proportionate Share of the reasonable costs and expenses (including experts' and attorneys' fees) of obtaining such refund. If the assessment for the Base Tax Year shall be reduced from the amount originally imposed after Landlord shall have rendered a comparative statement (as provided in Paragraph 48.8 below) to Tenant with respect to a Tax Year, the amount of each Tax Payment shall be retroactively adjusted in accordance with 19 21 such change, and Tenant, on Landlord's demand, shall pay any retroactive increase in Additional Rental resulting from such adjustment. 48.8 Landlord shall render to Tenant a comparative statement, with a copy of the then current tax bill, showing the amount of the Base Tax, the amount of the Taxes for the then current Tax Year, and the Tax Payment, if any, due from Tenant for such Tax Year. The Tax Payment shown on such comparative statement shall be paid in full by Tenant to Landlord within ten (10) days after Tenant's receipt of such comparative statement, or, at Landlord's option, shall be paid in two (2) installments on July 1 and January 1 of each Tax Year. At the election of Landlord, the Tax Payment may be billed by Landlord and paid by Tenant in equal monthly installments, together with installments of Fixed Rental payable under this Lease. Tenant shall pay the amount of the Tax Payment shown on such comparative statement (or the balance of a proportionate installment thereof, if only an installment is involved) concurrently with the installment of Fixed Rental then or next due, or if such statement shall be rendered at or after the termination of this Lease, within ten (10) days after such rendition. Each comparative statement shall be conclusive and binding on Tenant, unless within ten (10) days after receipt of such comparative statement, Tenant shall notify Landlord of any discrepancy in specific detail. Pending the determination of such dispute, by agreement or otherwise, Tenant shall pay the Tax Payment set forth on the comparative statement. 49. WATER, SEWER AND SPRINKLER CHARGES. Tenant shall pay to Landlord, as additional rent hereunder, Tenant's Proportionate Share of (i) any and all water meter and/or frontage charges and sewer rents levied, assessed or imposed against the Building and the Land and (ii) all charges paid by Landlord for sprinkler supervisory services for the Building. The amounts payable to Tenant under the preceding sentence shall be payable on the first day of each and every month during the term of this Lease commencing from and after the Commencement Date. 50. ALL ADDITIONAL RENTAL PAYMENTS. 50.1 Landlord's delay or failure during the term of this Lease to prepare and deliver any statements or bills required to be delivered to Tenant under Articles 48, 49 and 50 shall not in any way be deemed to be a waiver of, or cause Landlord to forfeit or surrender its rights to collect any Additional Rental which may have become due pursuant to these Articles during the term of this Lease. Tenant's liability for Additional Rental due under Articles 48, 49 and 50 shall continue unabated during the remainder of the term of this Lease and shall survive the expiration or sooner termination of this Lease. 50.2 In no event shall any adjustment of any payments payable by Tenant in accordance with the provisions of Articles 48, 49 and 50 result in a decrease in the Fixed Rental or any Additional Rental theretofore payable by Tenant pursuant to these Articles. 50.3 If any Additional Rental is payable with respect to any period that shall end after the expiration or termination of this Lease, the Additional Rental payable by Tenant in respect thereof shall be prorated to correspond to that portion of such Escalation Year occurring within the term of this Lease. 51. ASSIGNMENT AND SUBLETTING. 51.1 Tenant, for itself, its heirs, distributees, executors, administrators, legal representatives, successors and assigns, expressly covenants that it shall not assign, mortgage or encumber this Lease or any of its rights or estates hereunder, sublet the Premises or any part thereof, or permit the Premises, or any part thereof to be used or occupied by others, pursuant to a management agreement, license agreement or otherwise, without the prior written consent of Landlord in each instance. If this Lease be assigned, or if the Premises or any part thereof be sublet or occupied by anybody other than Tenant, Landlord may, after default by Tenant, collect rent from the assignee, subtenant or occupant, and apply the net amount collected to the rent herein reserved, but no assignment, subletting, occupancy or collection shall be deemed a waiver of the provisions hereof, the acceptance of the assignee, subtenant or occupant as tenant, or a release of Tenant from the further performance by Tenant of covenants on the part of Tenant herein contained. Landlord's consent to an assignment or subletting shall not, in any wise, be construed to relieve Tenant from obtaining Landlord's express written consent to any further assignment or subletting. In no event shall any permitted sublessee assign or encumber its sublease, further sublet all or any portion of its sublet space or otherwise suffer to permit the sublet space, or any part thereof, to be used or occupied by others, without Landlord's prior written consent in each instance. A modification, amendment or extension of a sublease shall be deemed to be a subletting. 51.2 If Tenant shall, at any time or times during the term of this Lease, desire to assign this Lease or sublet all or part of the Premises, Tenant shall give notice thereof to Landlord, which notice shall be accompanied by: (a) a conformed or photostatic copy of the proposed assignment or sublease, the effective or commencement date of which shall be not less than fifteen (15) nor more than forty-five (45) days after the giving of such notice; (b) a statement setting forth, in reasonable detail, the identity of the proposed assignee or subtenant and its principals, the nature of its business and its proposed use of the Premises; and (c) current financial information with respect to the proposed assignee or subtenant and its principals, including its (and their) most recent financial report(s). 51.3 No assignment or subletting shall be made: 11.3.1 by the legal representatives of Tenant or by any person to whom Tenant's interest under this Lease passes by operation of law, except in compliance with the provisions of this Article; or 51.3.2 to any person or entity for the conduct of a business which is not in keeping with the Certificate of Occupancy and applicable zoning laws. 51.4 The sublease shall expressly prohibit the use of the Premises or any part thereof for any use other than the use set forth in paragraph 2 of the prefixed printed form. 51.5 In the event that Tenant fails to execute and deliver the assignment or sublease to which Landlord consented within ninety (90) days after the giving of such consent, then Tenant shall again comply with all of the provisions and conditions of Article 51.2 before assigning this Lease or subletting all or part of the Premises. 51.6 Each subletting pursuant to this Article shall be subject to all of the applicable covenants, agreements, terms, provisions and conditions contained in this Lease. Notwithstanding any such subletting and/or acceptance of rent or additional rent by Landlord from any subtenant, Tenant shall and will remain fully liable for the payment of the Fixed Rental 20 22 and Additional Rental due, and to become due, hereunder, for the performance of all of the covenants, agreements, terms, provisions and conditions contained in this Lease on the part of Tenant to be performed and for all acts and omissions of any licensee, subtenant, or any other person claiming under or through any subtenant that shall be in violation of any of the obligations of this Lease, and any such violation shall be deemed to be a violation by Tenant. Tenant further agrees that, notwithstanding any such subletting, no other and further subletting of the Premises by Tenant, or any person claiming through or under Tenant shall, or will be made, except upon compliance with, and subject to, the provisions of this Article. If Landlord shall decline to give its consent to any proposed assignment or sublease, Tenant shall indemnify, defend and hold Landlord harmless from and against any and all losses, liabilities, damages, costs and expenses (including reasonable counsel fees) resulting from any claims that may be made against Landlord by the proposed assignee or subtenant or by any brokers or other persons claiming a commission or similar compensation in connection with the proposed assignment or sublease. 51.7 With respect to each and every sublease or subletting, it is further agreed that: 51.7.1 no subletting shall be for a term ending later than one day prior to the expiration date of the term of this Lease; 51.7.2 no sublease shall be valid, and no subtenant shall take possession of the Premises or any part thereof, until an executed counterpart of such sublease has been delivered to Landlord; 51.7.3 each sublease shall provide that it is subject and subordinate to this Lease and to the matters to which this Lease is or shall be subordinate, and that, in the event of termination, 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 sublandlord 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: (a) be liable for any previous act or omission of Tenant under such sublease; (b) be subject to any offset, not expressly provided in such sublease, that theretofore accrued to such subtenant against Tenant; or (c) be bound by any previous modification of such sublease or by any previous prepayment of more than one month's fixed rent or any additional rent then due. 51.8 Any assignment or transfer 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 all of the obligations of this Lease on the part of Tenant to be performed or observed and whereby the assignee shall agree that the provisions contained in Article 51.1 shall, notwithstanding such assignment or transfer, continue to be binding upon it in respect of all future assignments and transfers. The original named Tenant covenants that, notwithstanding any assignment or transfer, whether or not in violation of the provisions of this Lease, and notwithstanding the acceptance of fixed rent and/or additional rent by Landlord from an assignee, transferee, or any other party, the original named Tenant shall remain fully liable for the payment of Fixed Rental and Additional Rental and for the other obligations of this Lease on the part of the Tenant to be performed or observed. 51.9 In no event shall Tenant be entitled to make, nor shall Tenant make, any claim, and Tenant hereby waives any claims, for money damages (nor shall Tenant claim any money damages by way of set-off counterclaim or defense) based upon any claim or assertion by Tenant that Landlord has unreasonably withheld or unreasonably delayed its consent or approval to a proposed assignment or subletting as provided for in this Article. Tenant's sole remedy shall be an action or proceeding to enforce any such provision, or for specific performance, injunction or declaratory judgment. 51.10 If applicable, one or more sales or transfers, by operation of law or otherwise, or creation of new stock, partnership, membership or voting interests, aggregating in excess of fifty percent (5 0%) of (i) the voting stock of any corporate tenant, or (ii) the limited or general partnership interest in any partnership tenant, or (iii) the membership interests in any limited liability company tenant, whether in a single transaction or in a series of transactions, shall be deemed an assignment within the meaning of this Article and shall require Landlord's prior written consent. From time to time, if applicable, at Landlord's request, Tenant shall provide Landlord with a statement of Tenant, certified by Tenant's Secretary, of its then current shareholders and persons having a beneficial interest in the shares of stock of Tenant, the names of such shareholders and beneficial interest holders, and the percentage of shares held by each of them. 51.11 The joint and several liability of Tenant and any immediate or remote successor in interest to 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. 51.12 The listing of any name other than that of Tenant, whether on the doors of the Premises, or otherwise, shall not operate to vest any right or interest in this Lease or in the Premises, nor shall it be deemed to be the consent of Landlord to any assignment or transfer of this Lease, to any sublease of the Premises, or to the use or occupancy thereof by others. 51.13 If Tenant shall enter into any subleases, assignments or other agreements for the occupancy of the Premises or any portion thereof, or if there is a transfer of this Lease by operation of law, or otherwise, and if Tenant shall receive any consideration from its assignee, subtenant or licensee for or in connection with the assignment or the subletting, as the case may be, or, if Tenant shall sublet or otherwise permit occupancy of the Premises at a rental rate (including Additional Rental) or other periodic aggregate consideration, Tenant shall pay to Landlord, upon receipt, as Additional Rental hereunder, one-half of such consideration or excess. 51.14 [IN ORDER TO CHANGE, NEED INSERT] As long as Interactive Media is the Tenant, Tenant shall have the right, subject to the terms and conditions hereinafter set forth, without the consent of Landlord, but subject to Tenant's satisfaction of the conditions set forth in Articles 51.2, 51.3 and 51.8 above, to assign its interest in this Lease (i) to any corporation which is a successor to Tenant either by merger or by consolidation, (ii) to a purchaser of all or substantially all of Tenant's assets (provided such purchaser shall have also assumed substantially all of Tenant's liabilities), or (iii) to an entity which shall control, be under the control of, or be under common control with Tenant (any such entity referred to in this clause (iii) being a Related Entity). 52. LIMITATION OF LIABILITY. 12.1 If Landlord shall be an individual, joint venture, tenancy in common, co-partnership, limited liability company, unincorporated association, or other unincorporated aggregate of individuals and/or entities or a corporation, Tenant shall look only to such Landlord's estate and property in the 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 by Landlord in the event of any default by Landlord hereunder, and no other property or assets of Landlord or any member, partner or principal of Landlord shall be 21 23 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 Premises. 52.2 If Tenant shall request Landlord's consent or approval pursuant to any of the provisions of this Lease or otherwise, and Landlord shall fail or refuse to give, or shall delay in giving, such consent or approval, including, but not limited to, Article 51 above, Tenant shall in no event make, or be entitled to make, any claim for damages (nor shall Tenant assert, or be entitled to assert, any such claim by way of defense, set-off, or counterclaim) based upon any claim or assertion by Tenant that Landlord unreasonably withheld or delayed its consent or approval, and Tenant hereby waives any and all rights that it may have from whatever source derived, to make or assert any such claim. Tenant's sole remedy for any such failure, refusal, or delay shall be an action for a declaratory judgment, specific performance, or injunction, and such remedies shall be available only in those instances where Landlord has expressly agreed in writing not to unreasonably withhold or delay its consent or approval or where, as a matter of law, Landlord may not unreasonably withhold or delay the same. 53. INDEMNIFICATION. Tenant shall, at all times and at its sole cost and expense, indemnify, defend and hold Landlord, any holder of a Superior Mortgage (defined below), and any lessor under a Superior Lease (defined below), together with their respective agents, affiliates, employees, partners, members, officers, directors and shareholders (collectively, the "Indemnitees") harmless from and against any and all claims, suits, actions, damages, fines, charges, penalties, losses, liens, fees, costs, court costs, expenses (including, but not limited to, all reasonable fees and disbursements of attorneys, architects, engineers and other professionals engaged by one or more Indemnitees) and liabilities which may be incurred by or imposed on any Indemnitee or which may arise in connection with any claims, suits or actions, the investigation thereof or the defense of any action or proceeding brought thereon, or from the enforcement of this indemnity, or from and against any orders, judgments and/or decrees which may be entered or which may arise, wholly or in part, with respect to or on account of: (a) any personal injury, bodily injury, loss of life and/or damage to property that may occur or be claimed by or with respect to any person(s) or property on or about the Premises or the appurtenances thereto or upon the adjacent vaults (if any), sidewalks, ramps, curbs or streets, and resulting from the use, misuse, occupancy, operation and/or management of the Premises by Tenant, its successors, permitted assigns or any subcontractors, or by other persons or entities claiming by, through or under Tenant, or by their respective agents, employees, contractors, licensees, invitees, guests or other such persons or entities, except to the extent such injury, loss and/or damage is due to Landlord's willful or grossly negligent acts or omissions, (b) the breach of any term, covenant or condition of this Lease by Tenant, its successors, permitted assigns or any subcontractors, or by other persons or entities claiming by, through or under Tenant, or by their respective agents, employees, contractors, licensees, invitees, guests or other such persons or entities, (c) the filing of any mechanic's or materialmen's lien or of any other attachment or encumbrance against the Land and/or the Building due to work done by or on behalf of Tenant, (d) the condition of the Premises, including any repairs, replacements, changes or Alterations which Tenant has or will perform or fail to perform therein, or (e) Tenant's use or storage of any Hazardous Materials (defined below). All such actions, suits, claims, damages and/or proceedings shall be resisted and defended by Tenant at its sole cost and expense. Landlord shall in no event be liable for any injury or damage to the Premises or to Tenant or any successors, permitted assigns or subcontractors, or other persons claiming by, through or under Tenant or their respective agents, employees, licensees, invitees, business visitors and guests or other such persons, or to any property of any such persons. Tenant shall promptly reimburse each Indemnitee for any and all expenditures covered by this indemnity and hold harmless. 54. INSURANCE. 54.1 Tenant shall obtain and keep in full force and effect during the term of this Lease: 54.1.1 a policy of commercial general public liability insurance, including bodily injury and property damage coverage, with a broad form contractual liability endorsement or its equivalent, naming Tenant as insured and protecting Landlord, Landlord's employees and managing agent, and any mortgagees or lessors having an interest in the Building, as additional insureds (issued on an "occurrence" basis and not a "claims made" basis) against claims for personal injury, death and/or third-party property damage occurring in or about the Premises or the Building, and under which the insurer agrees to waive any right of recovery such insurer may have had against Landlord, Landlord's employees and managing agent, and any mortgagees or lessors having an interest in the Building and to indemnify, defend and hold Landlord harmless from and against, among other things, all cost, expense and/or liability (including, without limitation, reasonable attorneys' fees) arising out of or based upon any and all claims, accidents, injuries and damages occurring in, on or about the Premises (whether or not such claims, accidents, injuries and damages occurred as a result of Landlord's negligence). Such policy shall contain a provision that no act or omission of Tenant shall affect or limit the obligation of the insurance company to pay the amount of any loss sustained to Landlord. The minimum limits of liability applicable exclusively to the Premises shall be a combined single limit with respect to each occurrence in an amount of not less than $1,000,000.00 (or in any increased amount (or in the form of an umbrella liability policy for "excess" liability coverage) required by Landlord in the exercise of Landlord's commercially reasonable discretion); and 54.1.2 insurance against loss or damage by fire and such other risks and hazards (including burglary, theft, vandalism, sprinkler leakage, water damage, explosion, breakage of glass within the Premises and, if the Premises are located at or below grade, broad form flood insurance) as are insurable under then available standard forms of "all risk" insurance policies to Tenant's personal property and business equipment and fixtures (hereinafter, "Tenant's Property") and, whether or not such alterations or tenant improvements had been paid for or performed by Tenant, any alterations and tenant improvements in and to the Premises (hereinafter, "Tenant's Work") for the full replacement cost value thereof (with such policy having a deductible not in excess of an amount to be determined by Landlord in the exercise of Landlord's commercially reasonable discretion) protecting Tenant, Landlord, Landlord's employees and managing agent, and any mortgagees or lessors having an interest in the Building; and 54.1.3 business interruption insurance in an amount sufficient to cover Tenant's lost profits and continuing expenses during the period Tenant is unable to do business in the Premises. 54.2 Prior to the time such insurance is first required to be carried by Tenant and thereafter, at least thirty (30) days prior to the expiration or other termination of any such policies, Tenant agrees to deliver to Landlord evidence of payment for the policies and true and complete copies of the actual policies together with certificates evidencing such insurance. All such policies shall contain endorsements that (a) such insurance may not be modified or cancelled or allowed to lapse except upon thirty (30) days' written notice to Landlord by certified mail, return receipt requested, containing the policy number and the names of the insured and the certificate holder, and (b) Tenant shall be solely responsible for payment of all premiums under such policies and Landlord shall have no obligation for the payment thereof notwithstanding that Landlord is or may be named as an additional insured. 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. All insurance required to be carried by Tenant pursuant to the terms of this Lease shall be effected under valid and enforceable policies issued by reputable and independent insurers permitted to do business in the State of New York which rate, in Best's Insurance Guide, or any successor thereto (or if there be none, an organization having a national reputation), as having a general policy-holder rating of "A" and a financial rating of at least "XIII." Tenant shall not carry separate or additional insurance, whether concurrent or contributing, in the event of any loss or damage, with any insurance required to be obtained by Tenant under this Lease. 54.3 All policies to be maintained by Tenant hereunder and by Landlord with respect to the Building shall contain a provision that no act or omission of Landlord or Tenant, as the case may be, shall affect or limit the obligation of the insurer to pay the amount of any loss sustained. 54.4 The parties hereto shall procure an appropriate clause in, or endorsement on, any "all risk" or fire or extended coverage insurance covering the Premises, the Building, the personal property, fixtures or equipment located thereon or therein, pursuant to which the insurance companies waive subrogation or consent to a waiver of right of recovery by the insured prior to any loss. The waiver of subrogation or permission for waiver of the right of recovery in favor of Tenant shall also extend to all other persons or entities occupying or using the Premises in accordance with the terms of the Lease. If the payment of an additional premium is required for the inclusion of such waiver of subrogation provisions or consent to a waiver of right of recovery, each party shall advise the other of the amount of any such additional premiums by written notice and the other party shall pay the same or shall be deemed to have agreed that the party obtaining the insurance coverage in question shall be free of any further obligations under the provisions hereof relating to such waiver or consent. It is expressly understood and agreed that Landlord will not be obligated to carry insurance on Tenant's Property or Tenant's Work or insurance against interruption of Tenant's business. 54.5 Each party hereby waives all rights of recovery, claim, action, cause of action and releases the other party with respect to any claim (including a claim for negligence) which it might otherwise have against the other party for loss, damage or destruction with respect to its property (including rental value or business interruption) occurring during the term of this Lease to the extent to which such party is insured under a policy containing a waiver of subrogation or naming the other party as an additional assured, as provided in this Article. If notwithstanding the recovery of insurance proceeds by either party for loss, damage or destruction of its property (or rental value or business interruption) the other party is liable to the first party with respect thereto or is obligated under this Lease to make replacement, repair or restoration, then provided the first party's right of full recovery under its insurance policies is not thereby prejudiced or otherwise adversely affected, the amount of the net proceeds of the first party's insurance against such loss, damage or destruction shall be offset against the second party's liability to the first party therefor, or shall be made available to the second party to pay for the replacement, repair or restoration, as the case may be. Tenant shall advise insurers of the foregoing and such waiver shall be part of each policy maintained by Tenant which applies to the Premises, any part of the Premises or Tenant's use and occupancy of any part thereof. 55. ELECTRIC CURRENT. 55.1 Tenant agrees that Tenant shall not make any electrical or mechanical installations, alterations, additions or changes to the electrical equipment or appliances in the Premises (except that Tenant may connect standard office equipment without Landlord's consent) without the prior written consent of Landlord, in each such instance and Tenant will at all times comply with the rules and regulations applicable to the service, equipment, wiring and requirements of Landlord and of the utility company supplying electricity to the Building. Tenant covenants and agrees that at all times its use of electricity will not exceed the capacity of existing feeders to the Building or the risers or wiring installations therein and Tenant shall not use any electrical equipment which, in Landlord's sole reasonable judgment, will overload such installations or interfere with the use thereof by other tenants in the Building. In the event that Tenant's electrical requirements above those needed for normal office use necessitate installation of an additional riser, risers or other proper and necessary equipment or services, including additional ventilating or air conditioning, the same shall be provided or installed by Landlord at Tenant's sole expense, provided Tenant's proposed installations shall be reasonably accommodated in the Building and shall not be detrimental, in Landlord's sole judgment, to the 22 24 proper and economic functioning of the Building or the use and enjoyment by other tenants therein. Any such installations shall be paid for by Tenant prior to Landlord's commencement of the work therefor, such charges shall be chargeable and collectible as additional rent. In all electrical installations, rigid conduits only will be allowed. If either the quantity or character of the electrical service is changed by the utility company supplying electrical service to the Building or is no longer available or suitable for Tenant's requirements, no such change, unavailability or unsuitability shall constitute an actual or constructive eviction, in whole or in part, or entitle Tenant to any abatement or diminution of Fixed Rental or Additional Rental, or relieve Tenant from any of its obligations under this Lease or impose any liability upon Landlord, or its agents, by reason of inconvenience or annoyance to Tenant, or injury to or interruption of Tenant's business, or otherwise, unless such change, unavailability or unsuitability is due to Landlord's negligence or wrongful act, 55.2 Electricity shall be furnished by Landlord to Tenant on a "submetering" basis, as follows: 55.2.1 If not already installed, Landlord shall, at its sole cost and expense, install a meter or meters for the purpose of measuring the electric current consumed in the Premises; and With respect to the Premises and/or any portion(s) thereof that constitute less than a full floor of the Building, Landlord may, at its option, either: 55.2.2 Install a meter to measure the amount of Usage (hereinafter defined) with respect solely to the Premises and/or to such, portion(s); or 55.2.3 Measure the amount of Usage with respect thereto through common meter(s). Landlord shall, from time to time, furnish 'Tenant with a statement indicating the appropriate period during which the Usage was measured and the amount of Tenant's Cost payable by Tenant to Landlord for furnishing electrical current. Within ten (10) days after receipt of each such statement, Tenant shall pay to Landlord as Additional Rental hereunder, the amount of Tenant's Cost as set forth thereon, plus an amount equal to the actual out-of-pocket costs and expenses incurred by Landlord in connection with reading such meters and preparing bills therefor, failing which Landlord may, upon ten (10) days' written notice to Tenant, discontinue the service of electric current to the Premises without releasing Tenant from any liability under this Lease and without Landlord or Landlord's agent incurring any liability to Tenant from any damage or loss sustained by Tenant by reason of such discontinuance of service. For the purposes of this subsection, "Usage" shall mean the number of kilowatt hours of electric current consumed in the Premises, as measured by a meter or meters through which the electric current supplied to the Premises is drawn, for each calendar month or such other period as Landlord shall determine during the term of this Lease. In the event that all or a portion of the Premises is serviced by a meter that also services other space in the Building, then Usage with respect to the Premises or the portion thereof serviced by a common meter, as the case may be, shall be deemed to be an amount equal to the product of: (x) The number of kilowatt hours measured by such meter, multiplied by (y) The result (hereinafter called "Tenant's Electric Share") of: (1) The rentable area of the Premises divided by (2) The aggregate rentable area of the premises serviced by such meter. "Rate" shall mean the amount per kilowatt hour that would be charged, at the time in question, by the public utility company supplying electric current to the Building, at the rate schedule payable by Landlord from time to time, including, without limitation, all applicable surcharges, demand charges, time-of-day charges, energy charges, fuel adjustment charges, rate adjustment charges, taxes, and other sums payable in respect thereof. "Tenant's Cost" shall mean an amount equal to 110% of the product of the Rate multiplied by the Usage. If any tax is imposed upon Landlord's receipt from the sale or resale of electrical energy or gas or telephone service to Tenant by any Federal, State or Municipal Authority, Tenant covenants and agrees that where permitted by law, Tenant's pro-rata share of such taxes shall be passed on to, and in included in the bill of, and paid by, Tenant to Landlord. 55.3 Landlord reserves the right to terminate the furnishing of electricity on a submetering basis upon thirty (30) days' written notice to Tenant, in which event, Tenant shall not be released from any liability under this Lease and Tenant may make application directly to the public utility for the Tenant's entire separate supply of electric current and Landlord shall permit its wire and conduits, to the extent available and safely compatible, to be used for such purpose. Any meters, risers or other equipment or connections necessary to enable Tenant to obtain electric current directly from such utility, shall be installed at Tenant's sole cost and expense. Rigid conduits only will be allowed. Landlord, upon the expiration of the aforementioned thirty (30) days' written notice to Tenant, may discontinue furnishing the electric current, but this Lease shall otherwise remain in full force and effect on all of its terms. 55.4 Any meter(s) installed by Landlord pursuant to this Article shall be maintained and repaired by Tenant at Tenant's sole cost and expense. 56. BROKER. Tenant represents and warrants to Landlord that Tenant neither consulted nor negotiated with any broker or finder with regard to the rental of the Premises from Landlord, other than New mark & Company and S.L. Realty Corp., whose commission shall be paid by Landlord pursuant to Landlord's separate agreement with said broker. The parties agree to indemnify and hold each other harmless from any damages, costs and expenses (including reasonable attorneys' fees incurred in defending an action or claim or enforcing this indemnity) suffered by the other party by reason of any claim or action for a commission by any other person, partnership or corporation. The provisions of this Article shall survive the expiration or earlier termination of this Lease. 57. BINDING EFFECT. 23 25 It is specifically understood and agreed that this Lease is offered to Tenant for signature by the managing agent of the Building solely in its capacity as such agent and subject to Landlord's acceptance and approval, and that Tenant shall have affixed its signature hereto with the understanding that such act shall not, in any way, bind Landlord or its agent until such time as this Lease shall have been executed by Landlord and delivered to Tenant. 58. LATE FEE. In the event that any payment to be made by Tenant hereunder shall become overdue for a period in excess of seven (7) days, a "late charge" equal to Three Percent (3%) of the overdue payment may be charged by Landlord and shall be payable by Tenant as Additional Rental on the 1st day of the month following Landlord's demand therefor. 59. SECURITY. 59.1 It is agreed that in the event Tenant defaults under the terms of this Lease beyond the expiration of all grace and notice periods, Landlord may (but shall not be required to) use, apply or return the whole or any part of the security so deposited for any sum Landlord may expend by reason of Tenant's default, or for the payment of any past-due rental. In the event Landlord shall apply all or any portion of Tenant's security in accordance with this lease, Tenant shall promptly deposit with Landlord an amount sufficient to restore such security to the amount set forth in Article 34. If Landlord retains or applies all or a portion of Tenant's security deposit as a result of Tenant's default in the payment of Fixed Rental or Additional Rental and Tenant fails to restore the same as aforesaid, Tenant's failure to restore such security deposit shall be deemed to be a default in the payment of Additional Rental, for default in the payment of which Landlord shall have the same remedies as for a default in the payment of Fixed Rental. 59.2 In the event of a sale or lease of the Building, Landlord shall have the right to transfer the security to the purchaser, and, to the extent such funds (or letter of credit, if applicable) are or is actually transferred by Landlord, Landlord shall thereupon be released by Tenant from all liability for the return of such security. 59.3 Tenant agrees that it shall not assign or encumber the funds deposited as security hereunder. 59.4 In lieu of depositing all cash for the security deposit hereunder, Tenant may deliver cash security in the amount of $70,000 and a clean, irrevocable and unconditional letter of credit issued by and drawn upon a commercial bank which is a member of the New York Clearing House Association (hereinafter referred to as the "Issuing Bank") with offices for banking purposes in the City of New York and having a net worth of not less than $100,000,000, which letter of credit shall have a term of not less than one year, be in form and content satisfactory to Landlord, be for the account of Landlord, and initially be in the amount of $70,000. If Tenant elects to provide a letter of credit, the letter of credit shall provide that: 59.4.1 The Issuing Bank shall pay to Landlord or its duly authorized representative an amount up to the face amount of the letter of credit upon presentation of the letter of credit and a sight draft in the amount to be drawn, together with a certificate executed on behalf of Landlord., stating that as of the date of such certificate, Tenant is in default under this Lease beyond any applicable period of notice and/or cure and that the amount drawn by Landlord represents funds that are due and payable to Landlord under the Lease; 59.4.2 The letter of credit shall be deemed to be automatically renewed, without amendment (except as provided below with respect to reduction in face amount), for consecutive periods of one year each during the entire term of this Lease (the last such automatic renewal to expire not earlier than a date which is one (1) month after the expiration date of the term of this Lease) unless the Issuing Bank sends written notice (hereinafter called the "Non-Renewal Notice") to Landlord by certified or registered mail, return receipt requested, not less than thirty (30) days next preceding the then expiration date of the letter of credit, that it elects not to have such letter of credit renewed; 59.4.3 Landlord, after receipt of the Non-Renewal, Notice, shall have the right, exercisable by a sight draft and an affidavit indicating that Tenant is still obligated under the Lease, to receive the monies represented by the letter of credit (which monies shall be held as a cash security deposit pursuant to the provisions of Article 32 and this Article); and 59.4.4 Upon Landlord's sale of the Building, or the transfer of Landlord's interest therein, or a leasing of the Building, the letter of credit shall be transferable by Landlord to the purchaser, vendee or transferee, and all expenses of such transfer shall be paid by Landlord. 60. HOLDOVER. Tenant expressly waives, for itself and for any person claiming through or under Tenant, any rights which Tenant or any such person may have under the provisions of Section 2201 of the New York Civil Practice Law and Rules and of any similar or successor law of same import then in force, in connection with any holdover proceedings which Landlord may institute to enforce the provisions of this Lease. If the Premises are not surrendered upon the termination of this Lease, Tenant hereby indemnifies Landlord against liability resulting from the delay by Tenant in so surrendering the Premises, including any claims made by any succeeding tenant or prospective tenant founded upon such delay. In the event Tenant remains in possession of the Premises after the termination of this Lease, without the execution of a new lease, Tenant, at the option of Landlord, shall be deemed to be occupying the Premises as a tenant from month to month, at a monthly rental equal to two (2) times the Fixed Rental and Additional Rental payable during the last month of the term, subject to all of the other terms of this Lease insofar as the same are applicable to a month-to-month tenancy. Tenant's obligations under this Paragraph shall survive the termination of this Lease. 61. APPLICABLE LAW. This Lease shall be governed in all respects by the laws of the State of New York. Tenant hereby specifically consents to jurisdiction in the State of New York in any action or proceeding arising out of this Lease and/or the use and occupation of the Premises and waives any right to trial by jury and the right to interpose any counterclaim in any summary proceeding commenced by Landlord. If Tenant at any time after date of execution hereof or during the term hereof shall not be a New York partnership or a New York corporation or a foreign corporation qualified to do business in New York State, Tenant shall designate in writing an agent in New York County for service under the laws of the State of New York for the entry of a personal judgment against Tenant. Tenant, by notice to Landlord, shall have the right to change such agent, provided that at all times there shall be an agent in New York County for service. In the event of any revocation by Tenant of such agency, such revocation shall be void and have no force and effect unless and until a new agent has been designated for service and Landlord notified to such effect. If any such agency designation shall require a filing in the office of the Clerk of the County of New York, same shall be promptly accomplished by Tenant, at its expense, and a certified copy transmitted to Landlord. 24 26 62. HAZARDOUS MATERIALS. Tenant shall not cause or permit any Hazardous Materials (hereinafter defined) to be used, stored, transported, released, handled, produced or installed in, on or from the Premises or the Building. "Hazardous Materials," as used herein, shall mean any flammables, explosives, radioactive materials, hazardous wastes, hazardous and toxic substances or related materials, asbestos or any material containing asbestos, or any other substance or material as defined by any federal, state or local environmental law, ordinance, rule or regulation, including, without limitation, the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, the Hazardous Materials Transportation Act, as amended, the Resource Conservation and Recovery Act, as amended, and in the regulations adopted and publications promulgated pursuant to each of the foregoing. Landlord represents and warrants to Tenant that as of the date hereof, Landlord has not received notification of any kind from any regulatory agency stating, and has no knowledge or belief, that the Building is targeted for a Hazardous Materials cleanup. Landlord shall be fully and completely liable for any and all clean-up costs and any and all other charges, fees and penalties (civil and criminal) imposed by any governmental authority with respect to the presence, use, disposal, transportation, generation or sale of Hazardous Materials on the Premises by any person or entity other than Tenant or Tenant's agents, employees, licensees or contractors. For the purpose of this provision, "Hazardous Materials" means and includes any hazardous, toxic or dangerous waste, substance or material defined as such in (or for purposes of) the Comprehensive Environmental Response and Liability Act, any so-called "Superfund" or "Superlien" law, or any other requirement or any governmental authority regulating, relating to, or imposing liability or standards of conduct concerning, any asbestos, hazardous, radioactive, toxic or dangerous waste, substance or material as not or at any time hereafter in effect. 63. NOTICES. Any notice or demand which, under the terms of this Lease or under any statute, must or may be given or made by the parties hereto, shall be in writing, and shall be given or made by mailing the same by certified mail, return receipt requested, or by personal delivery, addressed to the parties at their respective addresses herein above mentioned, with a copy of any notice to Landlord to be delivered simultaneously in the same manner to Landlord's attorneys, Greenstein Starr Gerstein & Rinaldi LLP, 57 West 38th Street, New York, New York 10018, Attention: Victor Gerstein, Esq., and with a copy of any notice to Tenant to be delivered simultaneously in the same manner to Tenant's attorneys, Donovan & Giannuzzi, 405 Park Avenue, New York, New York 10022, Attention: Nicholas T. Donovan, Esq. Either party, however, may designate in writing such new or other address to which such notice or demand shall thereafter be so given, made or mailed. Any notice given hereunder shall be deemed delivered on the third (3rd) day after the notice is deposited in a United States General branch post office, maintained by the United States Government in the City of New York, enclosed in a certified, prepaid wrapper addressed as hereinbefore provided, or, if sent by hand, on the date the same is actually delivered. 64. ADDENDUM TO ARTICLE 16- BANKRUPTCY. 64.1 If Tenant assumes this Lease and proposes to assign the same pursuant to the provisions of the Bankruptcy Code, 11 U.S.C. 101 et seq. (the "Bankruptcy Code") to any person or entity who shall have made a bona fide offer to accept an assignment of this Lease on terms acceptable to Tenant, then notice of such proposed assignment, setting forth (i) the name and address of such person, (ii) all of the terms and conditions of such offer, and (iii) the adequate assurance to be provided Landlord to assure such person's future performance under the Lease, including, without limitation, the assurance referred to in Section 365(b)(3) of the Bankruptcy Code, shall be given to Landlord by Tenant not later than twenty (20) days after receipt by Tenant, but in no event later than ten (10) days prior to the date that Tenant shall make application to a court of competent jurisdiction for authority and approval to enter into such assignment and assumption, and Landlord shall thereupon have the prior right and option, to be exercised by notice to Tenant given at any time prior to the effective date of such proposed assignment, to accept an assignment of this Lease upon the same terms and conditions and for the same consideration, if any, as the bona fide offer made by such person, less any brokerage commissions which may be paid by such person for the assignment of this Lease. 64.2 Any person or entity to which this Lease is assigned pursuant to the provisions of the Bankruptcy Code shall be deemed without further act or deed to have assumed all of the obligations arising under this Lease on and after the date of such assignment. Any such assignee shall, upon demand, execute and deliver to Landlord an instrument confirming such assumption. 64.3 Nothing contained in this Article shall, in any way, constitute a waiver of the provisions of this Lease relating to assignment. Tenant shall not, by virtue of this Article, have any further rights relating to assignment other than those granted in the Bankruptcy Code. 64.4 Notwithstanding anything in this Lease to the contrary, all amounts payable by Tenant to or on behalf of Landlord under 'this Lease, whether or not expressly denominated as rent, shall constitute rent for the purposes of Section 502(b)(7) of the Bankruptcy Code. 64.5 The term "Tenant," as used in this Article, includes any trustee, debtor in possession, receiver, custodian or other similar officer. 65. RENT CONTROL. In the event the Fixed Rental or Additional Rental or any part thereof provided to be paid by Tenant under the provisions of this Lease during the demised term shall become uncollectible or shall be reduced or required to be reduced or refunded by virtue of any federal, state, county or city law, order or regulation, or by any direction of a public officer or body pursuant to law, or the orders, rules, code or regulations of any organization or entity formed pursuant to law, whether such organization or entity be public or private, then Landlord, at its option, may at any time thereafter terminate this Lease by not less than thirty (30) days' written notice to Tenant, on a date set forth in said notice, in which event this Lease and the term hereof shall terminate and come to an end on the date fixed in said notice as if the said date were the Expiration Date. Landlord shall not have the right to so terminate this Lease if Tenant, within such period of thirty (30) days, shall, in writing, lawfully agree that the rentals herein reserved are a reasonable rental and agrees to continue to pay said rentals, and if such agreement by Tenant shall then be legally enforceable by Landlord. 66. REPAIRS. 66.1 Notwithstanding anything contained in Articles 3, 4, 6 or elsewhere in this Lease, all repairs and other work which Tenant is required to perform under any provision of this Lease may be performed by Landlord at Tenant's cost, provided, however, that Tenant shall have ten (10) days' notice prior to Landlord's undertaking of any non-emergency repair which Landlord 25 27 intends to undertake. Tenant shall be permitted to perform such non-emergency repair if it diligently pursues the undertaking thereof within such ten (10) day period. Landlord shall exercise reasonable efforts to minimize any inconvenience to Tenant or interference with Tenant's use and enjoyment of the Demised Premises, and Landlord shall carry out such repairs, replacements, improvements or other work promptly and diligently. Tenant shall pay the cost of such repairs and other work, as Additional Rental, within ten (10) days after rendition of a statement therefor by Landlord. 66.2 In addition to Tenant's obligations under Article 4, Tenant, at its sole cost and expense, shall take good care of the Premises and all improvements and personal property located therein, including, without limitation, all furniture, fixtures, machinery, equipment and all other personal property and stock purchased by Tenant and used in connection with the operation of its business at the Premises (all of the foregoing being hereinafter collectively referred to as "Tenant's Property"), and Tenant shall make all necessary repairs to the Premises and/or Tenant's Property in accordance with the provisions contained herein, whether ordinary, extraordinary, foreseen, or unforeseen, provided, however, that Tenant shall not be obligated to make any repairs to the extent that the same is necessitated by the negligent acts or omissions of Landlord, its agents, employees or contractors. Nevertheless, any damage to the Building (including, without limitation, the Premises and the roof), interior and exterior, arising from or caused by the negligence or omissions of Tenant (or its agents, servants, employees, invitees or contractors) shall be the liability of Tenant. 66.3 When used in this Article, the term "repairs" shall include replacements and substitutions of all property when necessary, of a quality, class and value at least equal to the property replaced or substituted. 66.4 Anything contained in this Lease to the contrary notwithstanding, Tenant acknowledges that it shall be Tenant's responsibility to clean, maintain and repair (subject to applicable legal requirements, including the requirements of the New York City Landmarks Preservation Commission) the windows and window frames in the Premises and any and all interior bathrooms within the Premises at Tenant's sole cost and expense. 66.5 Nothing contained herein shall obligate Tenant to make any structural repairs to the Premises except if caused by or resulting from the carelessness, omission, neglect or improper conduct of Tenant, Tenant's employees, contractors, invitees or licensees. Tenant acknowledges that it shall be Tenant's responsibility to repair any leaks in the bathrooms or emanating through the windows in the Premises. The obligation to repair any other leaks in the pipes servicing the Premises shall be that of Landlord, except if the same are caused by or resulting from the carelessness, omission, neglect or improper conduct of Tenant, Tenant's employees, contractors, invitees or licensees. 67. CONDITIONAL LIMITATION. If Tenant shall default in the payment of the rent reserved herein, or any items of Additional Rental herein mentioned, or any part of either, during any two (2) months, whether or not consecutive, in any twelve (12) month period, and Landlord served upon Tenant petitions and notices of petition to dispossess Tenant by summary proceedings in each such instance, then, notwithstanding that such defaults may have been cured prior to the entry of a judgment against Tenant, any further default in the payment of any moneys due Landlord hereunder which shall continue for more than ten (10) days shall be deemed to be deliberate, and Landlord may thereafter serve a written ten (10) days' notice of cancellation of this Lease, and the term hereunder shall end and expire as fully and completely as if the expiration of such ten (10) 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 Premises to Landlord, but Tenant shall remain liable as elsewhere provided in this Lease. 68. LANDLORD'S SERVICES. 68.1 Landlord shall furnish Tenant with the following services: 68.1.1 Non-exclusive passenger elevator service during regular hours (that is, between the hours of 8:00 a.m. and 6:00 p.m.) of business days (which term is used to mean all days except Saturdays, Sundays, those days that are observed by the State or Federal governments as legal holidays, and those days designated as holidays by the applicable building service union employees' contract) through the year ("Regular Hours"). At all other times, Landlord shall have one elevator subject to call. 27.1.2 Non-exclusive freight elevator service during Regular Hours (that is, between the hours of 8:00 a.m. and 6:00 p.m.) of business days (which term is used to mean all days except Saturdays, Sundays, those days that are observed by the State or Federal governments as legal holidays, and those days designated as holidays by the applicable building service union employees' contract) through the year ("Regular Hours"). Use of the freight elevator shall be arranged by Tenant on not less than twenty-four (24) hours prior notice and shall be provided by Landlord to the extent that no conflict exists with other tenants or other parties requesting such usage (all such conflicts to be resolved by Landlord, in Landlord's sole discretion) and Tenant shall reimburse Landlord for all costs relating thereto. If Tenant's initial occupancy or relocation into or out of the Building requires the use of the freight elevator or other standard services at times other than Regular Hours, Tenant shall reimburse Landlord for all costs relating to such elevator usage or other services. 68.2 All waste and garbage shall be removed from the Premises to the outside of the Building, at Tenant's sole cost and expense, on a daily basis, by a private sanitation company independently contracted for and paid for by Tenant. Tenant shall not store any garbage, cartons or inventory outside of the Premises. Tenant covenants and agrees, at its sole cost and expense, to comply with all present and future laws, orders and regulations of all state, federal, municipal and local governmental, departments, commissions and boards regarding the collection, sorting, separation and recycling of waste products, garbage, refuse and trash. Tenant shall sort and separate such waste products, garbage, refuse and trash into such categories as provided by law. 68.3 Landlord reserves the right, without any liability to Tenant (except as otherwise expressly provided in this Lease), to stop operating any of the heating, ventilating, electric, sanitary, elevator, or other Building systems serving the Premises, and to stop the rendition of any of the other services required of Landlord under this Lease, whenever and for so long as may be necessary by reason of accidents, emergencies, strikes, or the making of' repairs or changes that Landlord is required by this Lease or by law to make or in good faith deems necessary, by reason of difficulty in securing proper supplies of fuel, steam, water, electricity, labor, or supplies, or by reason of any other cause beyond Landlord's reasonable control. 69. TENANT'S ALTERATIONS. 69.1 Tenant may, without the consent of Landlord, from time to time during the term of this lease and at Tenant's sole expense, make such alterations, additions, installations, substitutions, improvements and decorations (hereinafter collectively 26 28 called changes and, as applied to changes provided for in this Article, Tenant's Changes) in and to the Premises, the estimated cost of which does not exceed $40,000.00 as Tenant may reasonably consider necessary for the conduct of its business therein, on the following conditions: 69.1.1 the outside appearance or strength of the Building, or of any of its structural parts, shall not be materially and adversely affected; 69.1.2 no part of the Building outside of the Premises shall be physically affected; 69.1.3 the proper functioning of any of the mechanical, electrical, sanitary and other service systems of the Building and/or the Premises shall not be adversely affected, and the usage of such systems by Tenant shall not be increased, subject to Tenant's right to upgrade the electrical capacity servicing the Premises; 69.1.4 before proceeding with any change either costing in excess of $40,000.00 (exclusive of the costs of decorating work and of any architect's and engineer's fees), or involving any change to the mechanical, electrical, sanitary, HVAC and/or other service systems, irrespective of cost, Tenant shall submit to Landlord, for Landlord's prior approval, plans and specifications for the work to be done, drawn by a registered architect or duly licensed engineer. Without limiting the generality of the foregoing, Tenant shall cause to be prepared all drawings, plans and specifications, and all other reports, applications and materials, required by the Department of Buildings of the City of New York, the Department of Labor and any other governmental authorities having jurisdiction with respect to Tenant's Changes and any permits and special licenses which may be required for or in connection with Tenant's Changes or the permitted use. Any and all filings of such drawings, plans, specifications, reports, applications and other materials with the Department of Buildings of the City of New York, the Department of Labor and any other governmental authorities having jurisdiction shall be made solely by Tenant at Tenant's sole cost and expense. Landlord shall reasonably cooperate with Tenant in connection with the execution and delivery of documents necessary to obtain work permits. Nothing herein shall be deemed to, or operate to create any liability or other obligation on the part of Landlord in the event that any such filings shall not be approved by the Department of Buildings of the City of New York or any other governmental authority having jurisdiction, unless caused by Landlord's failure to reasonably cooperate with Tenant's requests. Landlord may, as a condition of its consent, require Tenant to reimburse Landlord for Landlord's out-of-pocket cost for an independent architect or engineer to review the plans and specifications and make revisions in and to the plans and specifications. 69.2 Tenant shall, at its expense, obtain all necessary governmental licenses, permits and certificates for the commencement and prosecution of Tenant's Changes, and, upon completion, obtain all necessary signoffs and certificates of acceptance and completion which may be required from such governmental authorities, and Tenant shall cause Tenant's Changes to be performed in compliance with such licenses, permits and certificates, as well as with all applicable laws, codes, ordinances, regulations and requirements of public authorities (including, without limitation, the New York City Landmarks Commissions [the "Landmarks Commission"]) and all applicable standards and requirements of insurance bodies, the New York Board of Fire Underwriters, the National Electric Code, the Occupational Safety and Health Administration, the American Society of Heating, Refrigeration and Air Conditioning Engineers, I.S.O., and any similar or successor bodies thereto, in a good and workmanlike manner, using new materials and equipment of a quality and class at least equal to the original installations in the Premises. Tenant's Changes shall be performed during the hours of 9:00 a.m. to 5:00 p.m. on days other than Saturdays, Sundays and holidays in such a manner as not to unreasonably interfere with or delay, and (unless Tenant shall indemnify Landlord therefor to the latter's reasonable satisfaction) so as not to impose any additional expense upon Landlord in the maintenance or operation of the Premises, and so as not to interfere with the safety, use, occupancy, comfort or quiet enjoyment of any other tenant or occupant of the Building. If Landlord incurs any costs or expenses in connection with the performance of Tenant's Changes, other than those set forth in the previous sentence, Tenant shall reimburse Landlord for the actual costs and expenses incurred by Landlord. Throughout the performance of Tenant's Changes, Tenant shall, at its expense, carry, or cause to be carried, builder's risk insurance, insuring against loss from fire, vandalism or other risks as are customarily covered by a broad-form extended coverage endorsement on a completed value basis for the full insurable value at all times, workers' compensation insurance in statutory limits, and general liability insurance for any occurrence in or about the Building, all as set forth in, and written by insurance companies described in, Article 54 hereof. All such insurance policies (other than the workers' compensation) shall name Landlord and its agents as additional parties insured, and shall be in such limits as Landlord may reasonably prescribe and be placed with insurers satisfactory to Landlord. Tenant shall furnish Landlord with satisfactory evidence that such insurance is in effect at or before the commencement of Tenant's Changes and, on request, at reasonable intervals thereafter during the continuance of Tenant's Changes. Tenant shall not cause damage to the Building, building systems or any personal property of Landlord or any other tenant or occupant of the Building, and in the event of any such damage will promptly repair any such damage to Landlord's satisfaction. If any of Tenant's Changes shall involve the removal of any fixtures, equipment, or other property in the Premises that are not Tenant's property, such fixtures, equipment, or other property shall be, upon Landlord's request, stored and preserved, and returned to Landlord upon the expiration or sooner termination of this lease. All electrical and plumbing work in connection with Tenant's Changes shall be performed by contractors or subcontractors licensed therefor by all governmental agencies having or asserting jurisdiction and satisfactory to Landlord. 69.3 For the purposes of this Article 69, Tenant shall select and use general contractors and subcontractors, and electrical engineers and plumbers, from a list of those pre-approved by Landlord. In the event Tenant desires to use a general contractor or subcontractor, or electrical engineer or plumber, not on Landlord's list, Tenant shall (a) obtain Landlord's prior written consent, and (b) pay to Landlord, as Additional Rental, a supervisory/administrative fee in an amount equal to Ten Percent (10%) of the "hard" costs of the construction. 69.4 Tenant, at its sole cost and expense, shall: (i) furnish evidence satisfactory to Landlord that all of Tenant's Changes have been completed and paid for in full and that any and all liens therefor that have been or might be filed have been discharged of record (by payment, bond, order of a court of competent jurisdiction, or otherwise) or waived, and that no security interests relating thereto are outstanding; (ii) pay Landlord for the cost of any Tenant's Changes done for Tenant by Landlord, and all other charges due hereunder; (iii) to the extent not previously provided, furnish to Landlord the insurance and certificates required by this Lease; and (iv) if an architect has been used, furnish an affidavit in the form recommended by the American Institute of Architects from Tenant's registered architect certifying that all work performed in the Premises is substantially in accordance with the plans and specifications. 69.5 Tenant shall, at its expense and with diligence and dispatch, procure the cancellation or discharge of all notices of violation arising from, or otherwise connected with, Tenant's Changes that shall be issued by the Department of Buildings of the City of New York, the Landmarks Commission, or any other public or quasi-public authority having or asserting jurisdiction. Tenant shall defend, indemnify and save Landlord harmless from and against any and all notices of violation and mechanic's and other liens filed in connection with Tenant's Changes, including the liens of any security interest in, conditional 27 29 sales of, or chattel mortgages upon, any materials, fixtures, or articles so installed in and constituting part of the Premises, and against all costs, expenses and liabilities incurred in connection with any such lien, security interest, conditional sale, or chattel mortgage or any action or proceeding brought thereon. Tenant, at its expense, shall procure the satisfaction or discharge of, by bonding, payment or otherwise, all such liens within thirty (30) days after Landlord makes written demand therefor. Notice is hereby given that neither Landlord, Landlord's agents, nor any mortgagee shall be liable for any labor or materials furnished or to be furnished to Tenant upon credit, and that no mechanic's or other lien for such labor or materials shall attach to or affect any estate or interest of Landlord, or any mortgagee in and to the Premises or the Building. 69.6 Tenant agrees that the exercise of its rights pursuant to the provisions of this Article shall not be done in a manner that would, in the reasonable judgment of Landlord: (a) create any work stoppage, picketing, labor disruption, or dispute; or (b) violate the Building's union contracts affecting the Land and/or Building or Landlord's union and/or service contracts, if any, affecting the Premises. In the event of the occurrence of any condition described above arising from Tenant's exercise of any of its rights pursuant to the provisions of this subparagraph 69.7, Tenant shall, immediately upon notice from Landlord, cease the manner of exercise of such right giving rise to such condition. In the event that Tenant fails to cease such manner of exercise of its rights as aforesaid, Landlord, in addition to any rights available to it under this lease and pursuant to law, shall have the right to seek an injunction. 69.7 Any approval or consent by Landlord shall in no way obligate Landlord in any manner whatsoever in respect to the finished product designed and/or constructed by Tenant, nor be deemed a representation of warranty of Landlord as to the adequacy or sufficiency of any matter approved or consented to for Tenant's purposes or otherwise. Any deficiency in design or construction, although approved by Landlord, shall be solely the responsibility of Tenant. 69.8 Landlord shall have the right to inspect Tenant's Work at any time to verify compliance by Tenant with the provisions of this Article. 69.9 Subject to the terms of this Article, Tenant may, at its sole cost and expense (i) install a heating, ventilation and air conditioning unit, in a location to be approved by landlord, (ii) install restrooms in accordance with plans prepared or approved by Landlord and (iii) install additional telecommunication infrastructures. 70. SUBORDINATION AND ATTORNMENT. 70.1 This Lease and all rights of Tenant hereunder are, and shall be, subject and subordinate to: (i) all mortgages and building loan agreements, including leasehold mortgages and spreader and consolidation agreements, which may now or hereafter affect the Land or the Building (collectively, including the applicable items set forth in subparagraphs 70.4 and 70.5 below, the "Superior Mortgage") whether or not the Superior Mortgage shall also cover other lands or buildings or leases, (ii) each advance made or to be made under the Superior Mortgage; and (iii) all amendments, modifications, supplements, renewals, substitutions, refinancings and extensions of the Superior Mortgage and all spreaders and consolidations of the Superior Mortgage. The provisions of this Article shall be self-operative and no further instrument of subordination shall be required. Tenant shall promptly execute and deliver, at its own expense, any instrument, in recordable form, if requested, that Landlord or the Superior Mortgagee may reasonably request at any time and from time to time to evidence such subordination; and if Tenant fails to execute, acknowledge or deliver any such instrument within fifteen (15) days after request therefor, Tenant hereby irrevocably constitutes and appoints Landlord as Tenant's attorney-in-fact, coupled with an interest, to execute, acknowledge and deliver any such instruments for, and on behalf of, Tenant. The Superior Mortgagee may elect that this Lease shall be deemed to have priority over such Superior Mortgage, whether this Lease is dated prior to, or subsequent to, the date of such Superior Mortgage. 70.2 Landlord shall use its best efforts to obtain from the holder of any Superior Mortgage an agreement in recordable form between the holder of the Superior Mortgage and Tenant providing in substance that so long as Tenant shall not be in default under this lease beyond any period of time given to Tenant to cure such default and shall be in actual occupancy of the Premises, that the holder of such Superior Mortgage shall not name or join Tenant as a party defendant or otherwise in any suit, proceeding or action to enforce, nor will this Lease be terminated by enforcement of any rights given to such holder of the Superior Mortgage or its successors or assigns pursuant to the terms, covenants or conditions contained in the Superior Mortgage (including the foreclosure of the same) or otherwise disturb the right of Tenant to the quiet enjoyment of the Premises in the event of the enforcement of the terms of the Superior Mortgage by such holder (including the foreclosure of the same); except that to the extent required by law, Tenant may be named in such proceeding so long as the relief requested does not contravene the provisions of this Section, Provided Landlord shall have used its best efforts to obtain such agreement, Landlord shall have no liability to Tenant in the event the holder of a Superior Mortgage shall fail or refuse to issue the agreement referred to in this Section or shall fail to comply with the terms and provisions thereof. Tenant shall join in any agreement issued by the holder of the Superior Mortgage to evidence its agreement and consent thereto and to any other such terms as may be reasonably required by the holder of the Superior Mortgage as a condition to its issuance of such agreement, provided that any such agreement shall not increase the obligations or reduce the rights of Tenant under this Lease. In connection with Landlord's attempts to obtain a non-disturbance agreement, Landlord shall in no event be required to (x) make any payment to the holder of any Superior Mortgage or incur any expense other than reasonable attorneys' fees in connection with such holder's review of this Lease and the preparation of such agreement, or (y) alter any of the terms of any existing or future Superior Mortgage, or (z) commence any action against any holder of a Superior Mortgage. 70.3 Landlord hereby notifies Tenant that this Lease may not be cancelled or surrendered, or modified or amended so as to reduce the Rentals, shorten the term or adversely affect in any other respect, to any material extent, the rights of Landlord hereunder, and that Landlord may not accept prepayments of any installments of Fixed Rental or Additional Rental except for prepayments in the nature of security for the performance of Tenant's obligations hereunder without the consent of any Superior Mortgagee in each instance, except that said consent shall not be required for the prosecution of any action or proceedings against Tenant by reason of a default on the part of Tenant under the terms of this Lease. 70.4 If, at any time prior to the termination of this Lease, any Superior Mortgagee or any other person or the successors or assigns of the foregoing (collectively referred to as "Successor Landlord") shall succeed to the rights of Landlord under this Lease, Tenant agrees, at the election and upon request of any such Successor Landlord, to fully and completely attorn to and recognize any such Successor Landlord, as Tenant's Landlord under this Lease upon the then executory terms of this Lease, provided such Successor Landlord shall agree in writing to accept Tenant's attornment. The foregoing provisions of this subparagraph shall inure to the benefit of any such Successor Landlord, shall be self-operative upon any such demand, and no further instrument shall be required to give effect to said provisions. Upon the request of any such Successor Landlord, Tenant shall execute and deliver, from time to time, instruments satisfactory to any such Successor Landlord in recordable form, if requested, to evidence and confirm the foregoing provisions of this subparagraph, acknowledging such attornment and setting 28 30 forth the terms and conditions of its tenancy. Tenant hereby constitutes and appoints Landlord attorney-in-fact for Tenant to execute any such instrument, for and on behalf of Tenant, such appointment being coupled with an interest. Upon such attornment this Lease shall continue in full force and effect as a direct Lease between such Successor Landlord and Tenant upon all of the then executory terms of this Lease except that such Successor Landlord shall not be: (i) liable for any previous act or omission or negligence of Landlord under this Lease; (ii) subject to any counterclaim, defense or offset, not expressly provided for in this Lease and asserted with reasonable promptness, which theretofore shall have accrued to Tenant against Landlord; (iii) bound by any previous modification or amendment of this Lease made after the granting of such senior interest, or by any previous prepayment of more than one month's Fixed Rental or Additional Rental, unless such modification or prepayment shall have been approved in writing by any Superior Mortgagee through or by reason of which the Successor Landlord shall have succeeded to the rights of Landlord under this Lease; (iv) obligated to repair the Premises or the Building or any part thereof, in the event of total or substantial damage beyond such repair as can reasonably be completed with the net proceeds of insurance actually made available to Successor Landlord, provided all insurance to be maintained by the Landlord hereunder is thus maintained; or (v) obligated to repair the Premises or the Building or any part thereof, in the event of partial condemnation beyond such repair as can reasonably be completed with the net proceeds of any award actually made available to Successor Landlord, or consequential damages allocable to the part of the Premises or the Building not taken. Nothing contained in this subparagraph shall be construed to impair any right otherwise exercisable by any such Successor Landlord. 70.5 If any act or omission by Landlord would give Tenant the right, immediately or after lapse of time, to cancel or terminate this Lease or to claim a partial or total eviction, Tenant will not exercise any such right until (i) it has given written notice of such act or omission to each Superior Mortgagee, whose name and address shall have previously been furnished to Tenant, by delivering notice of such act of omission addressed to each such party at its last address so furnished, and (ii) a reasonable period for remedying such act or omission shall have elapsed following such giving of notice and following the time when such Superior Mortgagee shall have become entitled under such Superior Mortgage, as the case may be, to remedy the same (which shall in no event be less than the period to which Landlord would be entitled under this Lease to effect such remedy) provided such Superior Mortgagee shall, with reasonable diligence, give Tenant notice of its intention to remedy such act or omission and shall commence and continue to act upon such intention. 71. MISCELLANEOUS. 71.1 Tenant hereby agrees to pay, as Additional Rental, all attorneys' fees and disbursements (and all other court costs or expenses of legal proceedings) which Landlord may incur or pay out by reason of, or in connection with: 71.1.1 Any action or proceeding by Landlord to terminate this Lease for reasonable cause; 71.1.2 Any other action or proceeding by Landlord against Tenant (including, but not limited to, any arbitration proceeding); 71.1.3 Any action or proceeding brought by Tenant against Landlord (or any officer, partner or employee of Landlord) in which Tenant fails to secure a final unappealable judgment against Landlord; and 71.1.4 Any other appearance by Landlord (or any officer, partner or employee of Landlord) as a witness or otherwise in any action or proceeding whatsoever involving or affecting Tenant or this Lease. Tenant's obligations under this Paragraph shall survive the expiration of the term hereof or any other termination of this Lease. This Paragraph is intended to supplement, and not to limit, other provisions of this Lease pertaining to indemnities and/or attorneys' fees. 71.2 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. 71.3 No agreement to accept a surrender of all or any part of the Premises shall be valid unless in writing and signed by Landlord. The delivery of keys to an employee of Landlord or of its agent shall not operate as a termination of this Lease or a surrender of the Premises. If Tenant shall, at any time, request Landlord to sublet the Premises for Tenant's account, Landlord or its agent is authorized to receive said keys for such purposes without releasing Tenant from any of its obligations under this Lease, and Tenant hereby releases Landlord from any liability for loss or damage to any of Tenant's property in connection with such subletting. 71.4 The receipt by Landlord of rent with knowledge of breach of any obligation of this Lease shall not be deemed a waiver of such breach. 71.5 No payment by Tenant, or receipt by Landlord, of a lesser amount than the correct Fixed Rental or Additional Rental due hereunder shall be deemed to be other than a payment on account, nor shall any endorsement or statement on any check or payment be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance or pursue any other remedy in this Lease or at law provided. 71.6 The terms "person" and "persons" as used in this Lease shall be deemed to include natural persons, firms, corporations, associations and any other private or public entities. 71.7 If Tenant is in arrears in the payment of Fixed Rental or Additional Rental, Tenant waives its right, if any, to designate the items in arrears against which any payments made by Tenant are to be credited, and Landlord may apply any of such payments to any such items in arrears as Landlord, in its sole discretion, shall determine, irrespective of any designation or request by Tenant as to the items against which any such payments shall be credited. 71.8 The terms "Owner" and "Landlord" as used in this Lease are interchangeable. The terms "Article" and "Paragraph" as used in this Lease are interchangeable. 71.9 If Tenant is a corporation, the person executing this Lease on behalf of Tenant hereby covenants, represents and warrants that Tenant is duly incorporated and is authorized to do business in New York State and that the person executing this Lease on behalf of Tenant is an officer of the corporation authorized to execute this Lease. 29 31 72. LEASE NOT BINDING UNLESS EXECUTED. Submission by Landlord of this Lease for execution by Tenant shall confer no rights nor impose any obligations on either party unless and until (i) Tenant shall have submitted to Landlord (a) at least four copies of this Lease to Landlord, duly executed by or on behalf of Tenant (and in the case that Tenant is a corporation, Tenant shall submit to Landlord a duly executed resolution of Tenant's board of directors authorizing this Lease), (b) separate checks payable to the direct order of Landlord on a bank account in Tenant's name in the amount of the first monthly installment of Fixed Rental payable upon the execution of this Lease and the security deposit, (c) a certificate of insurance in form required in this Lease and (d) any other deliveries specifically called for under this Lease to be submitted to Landlord on or prior to the commencement date of the Term and (ii) Landlord shall have countersigned this Lease and duplicate originals thereof shall have been delivered by Landlord to Tenant. In the event Landlord countersigns and delivers this Lease to Tenant at a time when any of the aforementioned deliveries have not been received by Landlord or are not in proper form, this Lease shall be effective, but Tenant shall remain obligated to provide such deliveries, the same not being waived by Landlord, unless Landlord specifically waives receipt of the same in writing. 73. SUBMISSION TO JURISDICTION. This Lease shall be deemed to have been made in New York County, City and State of New York, and shall be construed in accordance with the laws of the State of New York. All actions or proceedings relating, directly or indirectly, to this Lease, shall be litigated only in courts located within the County of New York. Tenant, any guarantor of the performance of its obligations hereunder, and their successors and assigns, hereby subject themselves to the jurisdiction of any state or federal court located within such county, waive personal service of any process upon them in any action or proceeding therein, and consent that such process be served by certified or registered mail, return receipt requested, directed to the Tenant and any successor at Tenant's address herein above set forth, or to Guarantor and any successor at the address set forth in the instrument of guaranty and to any assignee at the address set forth in the instrument of assignment. Such service shall be deemed made three (3) days after such process is so mailed. 74. QUALIFICATIONS AS TO USE. Tenant shall not suffer or permit the Premises or any part thereof to be used in any manner or anything to be done therein, or suffer or permit anything to be brought into or kept therein, which would in any way, (i) violate any of the provisions of any Superior Mortgage or Superior Lease, or the requirements of public authorities, (ii) make void or voidable any fire or liability insurance policy, then in force with respect to the Building; (iii) make unobtainable from reputable insurance companies authorized to do business in the State of New York any fire insurance with extended coverage, or liability, elevator, boiler, or other insurance required o be furnished by Landlord under the terms of any Superior Mortgage or Superior Lease at standard rates, if obtainable at such rates prior to the execution and delivery of this Lease; (iv) cause or in Landlord's reasonable opinion be likely to cause physical damage to the Building or any part thereof; (v) constitute a public or private nuisance or otherwise violate any law relating to the protection of the environment or requiring manufacture, treatment or disposal of any material used by Tenant at the Premises in any particular manner; (vi) impair, in the sole opinion of Landlord, the appearance, character or reputation of the Building; (vii) discharge objectionable fumes, vapors or odors into the Building air conditioning system or into the Building flues or vents not designed to receive them or otherwise in a manner as may offend other tenants or occupants of the Building; (viii) impair or interfere with any of the Building services or the proper and economic heating, cleaning, air conditioning or other servicing of the Building or the Premises, or impair or interfere with or tend to impair or interfere with the use of any of the other areas of the Building by, or occasion discomfort, annoyance or inconvenience to, Landlord or any of the other tenants or occupants of the Building, any such impairment or interference to be in the sole judgment of Landlord; (ix) violate any provision of law pursuant to which Landlord may incur civil or criminal liability as a result of Tenant's action, including, without limitation, civil or criminal forfeiture, padlocking or other restraint of the Premises or the Building by governmental authority; (x) increase the pedestrian traffic in and out of the Premises and/or the Building above an ordinary level or (xi.) engage in the sale of any product from the Premises or the Building in violation of 15 U.S.C.A. Section 1051 et seq. or any similar federal or state law. Landlord shall not be liable for the violation by any tenant or other party of the rules and regulations of the Building or for such other party's breach of its lease. 75. PARTNERSHIP TENANT. If Tenant is a partnership (or is comprised of two [2] or more persons, individually and as co-partners of a partnership), or if Tenant's interest in this Lease shall be assigned to a partnership (or to two [2] or more persons, individually and as co-partners of a partnership) pursuant to Article 51 (any such partnership and such persons are referred to in this Article as "Partnership Tenant"), the following provisions of this Article shall apply to such Partnership Tenant: (i) the liability of each of the parties comprising Partnership Tenant shall be joint and several, and (ii) each of the parties comprising Partnership Tenant hereby consents in advance to, and agrees to be bound by, any written instrument which may hereafter be executed, changing, modifying or discharging this Lease, in whole or in part, or surrendering all or any part of the Premises to Landlord, and by any notices, demands, requests or other communications which may hereafter be given by Partnership Tenant or by any of the parties comprising Partnership Tenant, and (iii) any bills, statements, notices, demands, requests or other communications given or rendered to Partnership Tenant and all such parties shall be binding upon Partnership Tenant and all such parties, and (iv) if Partnership Tenant shall admit new partners, all of such new partners shall, by their admission to Partnership Tenant, be deemed to have assumed performance of all of the terms, covenants and conditions of this Lease on Tenant's part to be observed and performed, and (v) Partnership Tenant shall give prompt notice to Landlord of the admission of any such new partners, and upon demand of Landlord, shall cause each such new partner to execute and deliver to Landlord an agreement in form satisfactory to Landlord, wherein each such new partner shall assume performance of all the terms, covenants and conditions of this Lease on Tenant's part to be observed and performed (but neither Landlord's failure to request any such agreement nor the failure of any such new partner to execute or deliver any such agreement to Landlord shall vitiate the provisions of subdivision (iv) of this Article). 76. CERTIFICATE OF OCCUPANCY. Tenant shall not at any time use or occupy the Premises in violation of the Certificate of Occupancy issued for the Premises or for the Building, and in the event that any department of the City or State of New York shall hereafter at any time contend and/or declare by notice, violation, order or in any other manner whatsoever that the Premises are used for a purpose which is a violation of such Certificate of Occupancy, Tenant shall, upon ten (10) days' written notice from Landlord, immediately discontinue such use of the Premises. Failure by Tenant to discontinue such use after such notice shall be considered a default in the fulfillment of a covenant of this Lease, and Landlord shall have the right to terminate this Lease immediately, and in addition thereto shall have the right to exercise any and all rights and privileges and remedies given to Landlord by and pursuant to the provisions of Articles 17 and 18 hereof. 30 32 77. ACCESS TO PREMISES Tenant understands and agrees that all parts (except surfaces facing the interior of the Premises) of all walls, windows and doors bounding the Premises (including exterior Building walls, core corridor walls, doors and entrances), all balconies, terraces and roofs adjacent. to the Premises, all space in or adjacent to the Premises used for shafts, stacks, stairways, chutes, pipes, conduits, ducts, fan rooms, heating, air cooling, plumbing and other mechanical facilities, service closets and other Building facilities are not part of the Premises, and Landlord shall have the use thereof, as well as access thereto, subject to Article 13 of this Lease, through the Premises for the purposes of operation, maintenance, alteration and repair. 78. USE OF PREMISES. Supplementing Article 2, under no circumstances whatsoever shall the Premises or any part thereof be used: (1) as a multiple tenancy; (2) by a foreign or domestic governmental agency; (3) as a betting parlor or gambling casino; (4) by a utility company; (5) as a restaurant, luncheonette or coffee shop; (6) for the on-premises or off-premises sale of alcoholic beverages or as a catering or events facility; (7) for the sale of candy or cigarettes; (8) as an amusement arcade or for use of video games, pinball machines or other customer-attracting devices; (9) for the playing of amplified music, for live entertainment, for dancing or as a discotheque or club; (10) for the sale, display or rental of "adult" or pornographic books, magazines or videos; (11) as a medical, psychiatric, abortion, drug or alcohol clinic; (12) as an employment agency or search firm; (13) for retail, manufacturing or residential use; and/or (14) for any use other than the use set forth in Article 2. 79. EXCLUSION OF PERSONS FROM PREMISE AND DELIVERY SYSTEMS. Landlord reserves the right to exclude from all portions of the Building at any time or times during the term hereof, all messengers, couriers and delivery people other than those who are employees of Tenant. In such event Landlord shall accept on behalf of Tenant all deliveries of mail, air courier packages, express packages and other packages sent by similar means (including any hand deliveries of such mail and packages), shall permit messengers and couriers to pick up mail or packages left by Tenant, and shall provide an area to be used for such purposes to which Tenant's employees shall deliver mail and packages to be picked up by others and from which such employees shall pick up and distribute mail and packages to be delivered to Tenant, provided, however, that Landlord may elect to provide such distribution to Tenant at Tenant's expense. Tenant shall comply with Landlord's rules relating to such area and services. Neither Landlord nor Landlord's agents or security personnel shall be liable to Tenant or Tenant's agents, employees, contractors, customers, clients, invitees or licensees or to any other person for, and Tenant hereby indemnifies Landlord and Landlord's agents and security personnel against, liability in connection with or arising out of damage to mail or packages, or the performance or non-performance by Landlord or any person acting by, through or under the direction of Landlord of the services set forth in this Paragraph (including any liability in respect of the property of such persons), unless due to the gross negligence or willful misconduct of Landlord or Landlord's agents or security personnel. No representation, guaranty or warranty is made or assurance given that the communications or security systems, devices or procedures of the Building will be effective to prevent injury to Tenant or any other person or damage to, or loss (by theft or otherwise) of, any property of Tenant or of any other person, and Landlord reserves the right to discontinue or modify at any time such communications or security systems or procedure without liability to Tenant. 80. ADDENDUM TO RULES AND REGULATIONS. The following additional Rules and Regulations are hereby incorporated into and made a part of the Rules and Regulations set forth at the end of the printed form of the Lease: 80.1 Fire exits and stairways are for emergency use only, and they shall not be used for any other purpose by Tenant or Tenant's employees, licensees or invitees. Landlord reserves the right to control and operate the public portions of the Building and the public facilities, as well as facilities furnished for the common use of the tenants, in such manner as it deems best for the benefit of the tenants generally. 80.2 Notwithstanding anything provided to the contrary in this Lease, Tenant shall not cause any machinery, equipment, sign, banner, or any other thing to protrude from the Premises to the exterior of the Building beyond the horizontal plane of the exterior windows of the Premises or beyond the Premises within the interior of the Building. 80.3 Attached hereto as Exhibit C is a copy of additional Rules and Regulations for the Building. 81. SCAFFOLDING. In the event Landlord shall desire (or becomes obligated) to modify portions of the Building or to alter or renovate the same or clean, repair or waterproof the Building's facade (whether at Landlord's option or to comply with law), Landlord may erect scaffolding, "bridges" and other temporary structures to accomplish the same, notwithstanding that such structures may obscure signs or windows forming a part of the Premises, and notwithstanding that access to portions of the Premises may be temporarily diverted or partially obstructed, provided, however, that Landlord agrees to use reasonable efforts to minimize impairment of access to the Premises. Landlord shall not be liable to Tenant or any party claiming through Tenant for loss of business or other consequential damages arising out of any change in the Building or temporary diversion or partial obstruction resulting from such alteration, renovation, repair or cleaning, out of the foregoing structures, or out of any noise, dust and debris from the performance of work in connection therewith, nor out of the disruption of Tenant's business or access to the Premises necessary to perform such repairs, nor shall any matter arising out of any of the foregoing be deemed a breach of Landlord's covenant of quiet enjoyment or entitle Tenant to any abatement of rent. 82. TENANT'S CANCELLATION OPTION: Provided that Tenant is not then in default in respect of all of its material obligations hereunder, Tenant shall have the one-time option (the "Termination Option") to cancel this Lease effective as of March 31, 2005 (the "Option Termination Date") exercisable by Tenant's giving irrevocable written notice ("Tenant's Notice") to Landlord of Tenant's exercise on or before December 1, 2004 (time being of the essence as to Tenant's obligation to give Tenant's Notice by such date). If Tenant duly and timely serves the Termination Notice and on the further condition that (i) Tenant shall pay to Landlord when due Fixed Rental and Additional Rental through the Option Termination, (ii) Tenant shall pay to Landlord in certified or bank funds the sum of $70,000.00, and (iii) Tenant shall surrender vacant and broom-clean possession of the Premises to Landlord on the Option Termination Date in accordance with the provisions of this Lease, free and clear of all tenancies, subtenancies and occupancy rights, then this Lease shall cease and expire on the Option Termination Date with the same force and effect as if the Option 31 33 Termination Date were the Termination Date. After delivery of Tenant's Notice, Landlord shall not be obligated to thereafter offer to Tenant the right to lease the Other Space. 83. ACCOMMODATION RIGHT OF FIRST OFFER. Provided this Lease is in full force and effect and Tenant is not in material default in respect of its obligations hereunder after notice and beyond any applicable period of grace, if at any time Landlord determines that space on the ninth (or seventh if landlord exercises its option under Article 84 below) floor of the Building (the "Other Space") will be offered for lease, Landlord shall send a notice to Tenant specifying the rent at which and the other terms and conditions upon which the Other Space is being offered. Tenant shall then have the right, exercisable within thirty (30) days after the date of Landlord's notice, to notify Landlord in writing of Tenant's desire to lease the Other Space for the rent and on the other terms and conditions set forth in Landlord's notice, in which event Landlord and Tenant shall promptly execute a lease (or a modification of this Lease) for such space at the rent and other terms and conditions specified in Landlord's notice. In the event Tenant fails to exercise its option for the space specified in the notice, within such thirty (30) day period, or if Tenant exercises such option within such thirty (30) day period but Landlord and Tenant have not entered into a lease (or a modification of this Lease) within thirty (30) days after the date of Tenant's notice of exercise because of Tenant's unwillingness or failure so to do, then Landlord shall thereafter be free to lease the Other Space to any third party at such rent and upon such conditions as Landlord may determine in its sole discretion. 84. THE PREMISES. Landlord shall have the right, in its sole discretion, to substitute the Demised Premises for a space on the seventh floor of the northeast portion of the Building, which right Landlord shall exercise by written notice delivered to Tenant within thirty (30) days of the date of this Lease, time being of the essence, provided, however, that Landlord fulfills the following obligations: 84.1 the Alternate Space shall be substantially the same size and quality of the Demised Premises set forth on Exhibit A, and Landlord otherwise complies with the terms of this Lease; 84.2 the Alternate Space is delivered to Tenant in the manner, and on the date, set forth in this Lease; 84.3 the Base Rent payable by Tenant shall be reduced by $1.00 per rentable square foot of the Alternate Space throughout the Term of the Lease; and 84.4 all of the remaining terms and conditions of this Lease shall apply to the Alternate Space. 85. LANDLORD'S WORK TO COMMON AREAS 85.1 Landlord shall complete the following work to the common areas of the Building within twenty-four (24) months from the date of this Lease: 85.1.1 Build a new common corridor on the 9th Floor by April 30, 1999; 85.1.2 Renovate the lobby of the Building by July 30, 2001; and 85.1.3 Install new elevators serving the 9th Floor by July 30, 2001. 85.2 In the event any of the above listed items of work is not substantially completed within six (6) months of the respective dates set forth in Section 85.1 (except 'for the work described in Section 85.1.1, which abatement will commence on the date which is two (2) months after April 1, 1999), then Tenant shall be entitled to an abatement against its obligation to pay Fixed Rent only for the item of work not so completed, in an amount equal to five percent (5%) of the Fixed Rent (prorated on a daily basis). Each abatement (to the extent Tenant is entitled to same) shall commence on the date which is six months after the date by which the item of work was to have been completed (except for the work described in Section 85.1.1, which abatement will commence on the date which is two (2) months after April 1, 1999) and shall terminate on the date the work is substantially completed, as determined by Landlord. In no event (i) shall Tenant be entitled to an abatement greater than fifteen percent (15%) of the Fixed Rental or (ii) shall Tenant be entitled to an abatement for any item of work if it is completed within six (6) months of the date provided in 85.1 above. 86. TENANT ACCESS TO BUILDING CONDUIT To the extent present in the Building, and to the extent accessible from the Premises, and provided Tenant and Landlord do not incur any costs in connection therewith, Landlord shall permit Tenant to have access for the purpose of connecting to the fiber optic lines and copper telecommunications lines in the Building. Tenant shall obtain all necessary consents from Bell Atlantic for the connection to the lines, and Landlord shall not charge Tenant a usage fee for use of the lines. LANDLORD 601 WEST ASSOCIATES, LLC BY: SLB MANAGER, LLC BY: /s/ SLB MANAGER, LLC -------------------- Name: Title: TENANT: SCREAMINGMEDIA.NET, INC., BY: /s/ Alan S. Ellman -------------------- Name: Alan S. Ellman Title: President 32 34 EXHIBIT A DESCRIPTION OF PREMISES [This drawing of the Premises is only an approximation of the space demised, and Landlord makes no representation that the dimensions indicated on this drawing are the actual dimensions of the Premises.] 33 35 EXHIBIT B TO LEASE BETWEEN 601 WEST ASSOCIATES, LLC, AS LANDLORD, AND SCREAMINGMEDIA.NET, INC., AS TENANT LANDLORD'S WORK 1. Paint entire Premises. 2. Acid clean all windows and paint all window frames. 3. Repair, re-putty or replace any damaged window panes. 4. Erect demising wall or walls necessary to create the Premises in "shell" condition. 5. Install a heating, ventilation and air conditioning unit to serve the Premises. Tenant shall be responsible and shall pay for the installation of ductwork. 6. Provide electric lines to connection point of the Premises. 7. Provide 300 amps of electricity servicing the Premises to the connection point thereof. 34 36 EXHIBIT C ADDITIONAL RULES & REGULATIONS OF BUILDING 35 37 STARRETT LEHIGH BUILDING 601 West 26th Street New York, New York 10001 ------------------------ SUPPLEMENTAL RULES AND REGULATIONS PURSUANT TO LEASE ARTICLE 36 Note: The following constitute SUPPLEMENTAL RULES AND REGULATIONS (collectively "SUPPLEMENTAL Rules ") pursuant to Article 36 of each Tenant's lease ("Lease"). These SUPPLEMENTAL RULES are in addition to Rules and Regulations 1 through 13, which are set forth on the Lease form itself, and are intended to and shall remain in full force and effect notwithstanding the promulgation of these SUPPLEMENTAL RULES. 14. No Tenant shall sponsor or hold an Event (as hereinafter defined) in the Building without (i) the express prior written consent of the Owner, (ii) the payment, in advance, of any and all expenses, costs and fees specified by the Owner in connection therewith, and (iii) otherwise in conformity with these SUPPLEMENTAL RULES. As used in these SUPPLEMENTAL RULES, the term "Event" shall include a show, party, reception, or other gathering of people, held solely in accordance with the "use" clause for Tenant's premises as set forth in Tenant's lease, which has been consented to by Owner in accordance herewith, at which any of the following occur: invitations are issued; the Event is the subject of pre-Event publicity in trade or general news media; music or any other form of entertainment is presented; a sound system is employed; food and/or liquor is served, or more than fifty (50) people are present. Any request for Owner's consent to an Event shall be on such form(s) and accompanied by such documentation establishing compliance with these SUPPLEMENTAL RULES and applicable provisions of law as Owner may from time-to-time prescribe or require. 15. No Tenant shall sponsor or hold an Event in the Building (A) which is not permitted under the Certificate of Occupancy for the Building or is otherwise in violation of any applicable law, and (B) without first obtaining (i) a Temporary Place of Assembly Permit from The New York City Department of Buildings, and (ii) a Temporary On-Premises Liquor or Caterer's License from the New York State Liquor Authority. Any prior written consent of the Owner to any proposed Event shall be deemed conditioned upon Tenant obtaining such Temporary Place of Assembly Permit and Temporary On-Premises Liquor License, and compliance by Tenant in all other respects with all applicable provisions of law and these SUPPLEMENTAL RULES. 16. An Event shall be held only in the space demised to the Tenant under the Lease or in such other space within the Building, if any, as may be expressly designated by Owner in writing. Ingress and egress to/from the Building for an Event shall only be through the main entrance/exit to/from the Building and common areas (such as the lobby, passenger elevator, and directly connecting hallways), or such other entrance/exit and interior portions of the Building, if any, as may be expressly designated by Owner. 17. Owner may condition consent to an Event upon the Event being attended by a maximum number of people fixed by Owner, fewer than the maximum number permitted by law. 18. No Event shall be held or sponsored by a Tenant which in army way, shape, manner or form (A) constitutes a nuisance or danger of any kind, (B) gives rise to a hazardous condition of any kind, or (C) violates Temporary Place of Assemble Permit, the Temporary On-Premises Liquor or Caterer's License, the New York City Building Code, the New York City Fire Code, the New York Alcoholic Beverage Control Law, the New York Penal Law, or any other applicable provision of law. Without in any way limiting the generality of the foregoing, no Tenant shall: (i) invite or permit a greater number of people to attend an Event than the greatest number permitted under (a) the Temporary Place of Assembly Permit or any other applicable provision of law, and without (b) the Owner's consent; (ii) hold or sponsor an Event which includes the use of open flames to cook food, or for any other purpose; nor (iii) hold or sponsor an Event which (a) involves the playing of music (whether live or produced or broadcast through any medium) on weekdays, prior to 9:00 A.M. or after 6:00 P.M., or on weekends and legal holidays, prior to 9:00 A.M. or after 6:00 P.M., (b) results in loud or offensive noises of any kind; and (c) involves or results in the illegal use of sale of controlled substances or the illegal serving of alcohol to minors within the Building 19. Any Tenant holding or sponsoring an Event in the Building shall be responsible for all clean-up and restoration to pre-Event condition of all Building common areas used for the Event. Such clean-up and restoration shall be completed with three (3) hours after the conclusion of the Event, but in no case later than 8:00 A.M. the following morning. 36 38 20. An Event may be attended only by Tenant's employees, independent contractors and invitees. Tenant shall not suffer or permit any of its invitees to trespass into areas of the Building in which the Event is not being held or which are not designated by the Owner for ingress/egress to/from the Event. Any Tenant holding or sponsoring an Event in the Building shall arrange for an adequate number of professional licensed Security personnel to be continuously present at the Building, from no later than one (1) hour prior to the scheduled starting time of the Event; to no earlier than one (1) hour after the scheduled ending time of the Event, for the purposes of limiting attendance to Tenant's employees, independent contractors and invitees, preventing trespassing, crowd control, and to insure compliance with these SUPPLEMENTAL RULES and applicable law. Such arrangements shall include (A) one security guard at each entrance/exit to the Building to be utilized in connection with the Event, one (1) security guard stationed at the Event itself; and one (1) security guard to patrol the elevator and hallways to be used in connection with the Event, and (B) such additional number of security personnel as shall be appropriate taking into account the nature of the Event, the number of invitees, the extent of Event publicity and any and all other relevant circumstances. 21. No Tenant holding or sponsoring an Event in the Building shall use the words "Starrett," "Lehigh" or "Starrett-Lehigh" (or any abbreviation or variation thereof) on any invitation to, or publicity for, or advertisement of, such Event without the express prior written consent of the Owner. 22. No Tenant shall hold or sponsor an Event in the Building without first obtaining and delivering to Owner a Certificate of Insurance (or other proof of insurance acceptable to Owner) with respect to such Event, naming Owner as an additional insured thereunder and otherwise acceptable to Owner in form and substance, and with such coverage limits as Owner determines to be acceptable taking into account the nature of the Event, the number of invitees, the extent of pre-Event publicity and any and all other relevant circumstances. 23. Any Tenant who holds or sponsors an Event in the Building shall be fully responsible for any and all injury or damages caused by, or arising out of or in connection with, the Event, including but not limited to personal injury and property damage. In the case of physical damage to the Building, other than damage in the premises demised to Tenant under the Lease, Owner shall have the exclusive right (but not the obligation) to have such damage repaired, in which case Tenant shall pay or reimburse Owner for the cost of such repair(s) within three (3) business days of demand therefor accompanied by a copy of the bill for the repair(s). No Tenant shall hold or sponsor an Event in the Building without first executing and delivering to Owner a duly executed waiver, release and indemnity and hold harmless agreement, in a form acceptable to Owner, providing that Tenant waives and releases Owner with respect to, and agrees to indemnify, defend and hold Owner free and harmless from and against any and all costs, demands, claims, suits, actions, proceedings, orders, judgments, writs, decrees, forfeitures, subpoenas, warrants, and the like, arising out of or in connection with the Event (collectively "Claims"), including but not limited to demands for the payment of principal sums, interest and penalties, and including but not limited to the legal expenses incurred by Owner (including legal fees, costs, disbursements, and expenses) in enforcing rights against Tenant or defending against any such Claim through counsel of Owner's choice. 24. No Tenant shall hold or sponsor an Event in the Building without first delivering to Owner, in a form acceptable to Owner, a duly executed and acknowledged statement that violation of these SUPPLEMENTAL RULES shall be deemed a material breach of the Lease. 25. No noise or other activity, including the playing of musical instruments, radio, television or other sound reproduction system, which would, in Owner's judgment, disturb other tenants in the Building, shall be made or permitted by Tenant. 26. The Owner may refuse admission to the Building outside of ordinary business hours (8:00 A.M. to 6:00 P.M.) to any person not having a pass issued by the Owner or not properly identified, and may require all persons admitted to or leaving the Building, outside of ordinary business hours, to register. 27. All entrance doors in Tenant's demised premises shall be left locked by Tenant when the demised premises are not in use. Entrance doors shall be kept closed at all times. 28. All locks affording access to Tenant's demised premises and to circulation within the demised premises shall be conformed to Owner's master key system. 29. The requirements of Tenant will be attended to only upon application to the Building Superintendent at his office in the Building. Building employees shall not be requested by Tenant, and will not be permitted, to perform any work or services specifically for Tenant, unless expressly authorized to do so by the Building Superintendent. 37 39 30. Tenant shall not at any time store or keep any material, supplies, furniture, furnishings or equipment of any kind in any machine room or in any mechanical or electrical equipment room in the Building whether such room be within or outside the demised premises. 31. Owner may charge Tenant for changes to the Building's directory(ies) subsequent to the initial listings. All requests for directory listings shall be in writing on Tenant's letterhead signed by an authorized officer of Tenant. 32. In no event and under no circumstances shall freight, furniture, business equipment and bulky matters of any description be brought into or used in any passenger elevators in the Building, it being understood that such items shall be moved into and, out of the Building and between floors therein only on the freight elevator and otherwise in accordance with other applicable Rules. 33. All Tenant's employees, will be issued Building ID cards. Replacement cards are $10.00 each. Cards can be obtained at the Building Manager's office during regular office hours. All cards will be numbered and controlled by the Building Manager. 34. Effective 9:00 A.M., November 23, 1998, loading dock and freight elevator hours are from 8:00 A.M. to 6:00 P.M., Monday through Friday. The use of a freight elevator at any other time shall be subject to Owner's prior written consent and shall be conditioned Upon payment of overtime charges therefor at such hourly rate and minimum hours as Owner may specify. 35. Effective January 1, 1999: (a) All major deliveries must be coordinated with the Building Manager to insure proper handling. (b) No messengers or deliveries of any kind will be allowed beyond the Concierge Desk at the main Building entrance on 26th Street during Off hours. The Tenant will be notified of the delivery and must come to the lobby and accept or refuse the package. (c) All messengers must register in the Lobby at the Building Entrance on 26th Street prior to making delivery to Tenant. (d) Hand trucks and luggage carriers must only use freight elevator. (e) No equipment, furniture, typewriters, etc. may be removed from the Building at any time unless a pass authorizing such removal has been signed by the Tenant's authorized officer. Passes may be in the form of written authorization on Tenant's letterhead and signed by an authorized official or on a Building pass. (f) Trucks entering the Building or using the freight elevator shall be limited to a maximum length of twenty (20) feet bumper-to-bumper. 36. At no time shall animals be brought or kept in the Building. 37. At no time shall bicycles be brought or kept in the Building, nor shall roller blades and/or roller skates be used in any portion of the Building. 38. No smoking shall be allowed in any public areas of this Building. 39. Owner reserves the right to rescind, alter, waive, expand or add any rule or regulation at any time prescribed for the Building when, in its judgment, it deems it necessary, desirable or proper for its best interest and for the best interests of the tenants thereof, and no alteration or waiver of any rule or regulation in favor of one tenant shall operate as an alteration or waiver in favor of any other tenant. Owner shall not be responsible to Tenant for the non-observance or violation by any other tenant of any of' the rules and regulations at any time prescribed for the Building. 40. If attendance of Owner's personnel and/or service contractors shall be required, as determined by Owner in its sole discretion, in connection with the use by Tenant of freight elevators or other Building services or equipment, Tenant shall pay to Owner on demand, as additional rent, such amount as Owner shall determine to be appropriate as a charge for Owner's personnel and/or service contractors but there shall be no charge for Tenant's initial move into the Building. 38 40 41. These SUPPLEMENTAL RULES shall be effective on the date hereof. Dated: New York, New York November 20, 1998 601 WEST ASSOCIATES LLC, OWNER 601 West 26th Street New York, New York 10001 39 41 The City of New York DEPARTMENT OF BUILDINGS Executive Offices 60 Hudson Street, New York 10013\ SATISH K. BABBAR, R.A. Assistant Commissioner Technical Affairs (212) 312-8324 -------------------------- TECHNICAL POLICY AND PROCEDURE NOTICE #7/96 -------------------------- TO Distribution FROM: Satish K. Babbar, R.A. Assistant Commissioner DATE: June 24, 1996 SUBJECT: Temporary Places of Assembly EFFECTIVE: immediately PURPOSE: To establish uniform requirements for the issuance of a letter of acceptance to have a temporary place assembly. SPECIFICS: The following procedure shall be implemented: I. The applicant, a Professional Engineer or Registered Architect (P.E./RA), should submit a request letter for a Temporary Place of Assembly permit at least ten (10) business days in advance of the planned event at the respective borough office. A request received less than three (3) business days prior to the event cannot be assured review and acceptance. The following documents shall be submitted: A. The request letter shall be filed in the Borough Commissioner's Office and include: event description, date(s), time(s), place of event, maximum occupancy and owner's authorization for the use of the premises. B. Plans in triplicate, which shall include: 1. Seal & signature of the P.E./R.A. 2. Layout details showing seating, aisles, travel distances, exits, etc. 3. Construction details for tent(s), bleacher(s), booth(s), stage(s), structure(s), etc. (DOB application for construction shall also be filed in this case). 4. Fire protection to be available at the premises, such as sprinklers, standpipes, hand fire extinguishers, and location of nearest fire hydrants. 5. Emergency measures such as emergency lighting, emergency generator, fire alarm system, etc. 6. Parking area location and layout, when necessary. 40 42 7. Sanitary facilities unless waived by the Borough Commissioner. 8. Provisions for access to and use of the premises by people with physical disabilities. C. A description of the safety measures to be provided for review by the Borough Commissioner: 1. F.D. N.Y. Certified Fire Guards 2. Communication lines to be made available during the event to the Fire and Police Departments. D. A Signed and Sealed Statement by the P.E.-R.A. ensuring that the premises will be in accordance with the accepted plans. E. Controlled Inspections, where required by the Borough Commissioner must be hand delivered or faxed to the Department during business hours prior to the event. II. The Borough Office shall: A. Charge a fee of two hundred fifty dollars ($250) For processing of the request received at least ten (10) business days prior to the scheduled event. Additional charge of one hundred dollars ($100) per day will be due for each day that the request letter is received less than the ten (10) business days prior to the event. B. For a major event, through the Chief Plan Examiner or higher level staff consult the Fire arid Police Departments and other emergency services prior to acceptance, as appropriate. C. Retain the original documents filed. D. Return two copies of the accepted documents to the P.E./R.A., of which one copy shall be made available at the site before and during the event for consultation by the appropriate authorities. E. Fax copies of the acceptance letter to the: 1. Local police precinct and firehouse. 2. Emergency Response Team 60 Hudson Street, 14th Floor Attn.: James O'Malley (212) 312-8013 - Fax (212) 312-8012 3. New York City Police Department One Police Plaza Operations Division, 8th Floor New York, New York 10038 Attn.: Inspector Thomas Mullen, Commanding Officer (212) 374-5500 Fax (212) 374-3840 (for events with over 500 people) 41 43 STARRETT LEHIGH BUILDING EVENT APPROVAL APPLICATION TO: 601 WEST ASSOCIATES, LLC PURSUANT TO THE SUPPLEMENTAL RULES OF THE STARRETT LEHIGH BUILDING (BUILDING) CONCERNING EVENTS HELD IN THE BUILDING. THE TENANT IDENTIFIED BELOW HEREBY REQUESTS THE CONSENT OF THE OWNER TO THE EVENT DESCRIBE BELOW. ALL ITALICIZED TERMS HAVE THE SAME MEANING AS IN THE SUPPLEMENTAL RULES ATTACHED TO AND WHICH FORM PART OF THE TENANT'S LEASE. Name of Tenant _________________________________________________________________ Leased Space # ______ Name of Responsible Individual ___________________________ Tenant's Telephone # ____ __________ Tenant's FAX # ____________________________ Date of Proposed Event _______________ Time of Proposed Event __________________ Nature of Proposed Event _______________________ # of invitees _________________ Proposed Location of Event within Building: Tenant's Space ___ Other (specify)__ ________________________________________________________________________________ Has Tenant obtained a Temporary Place of Assembly Permit from the NYC Dept. of Buildings? ____ Yes _____ No. If yes, attach copy of NYC Dept. of Buildings Permit Application and Permit to this application. If no, NYC Dept. of Buildings Permit Application and Permit MUST be submitted to Owner prior to approval of application. Will liquor be served at the proposed Event? ____Yes ____ No. If yes, has Tenant obtained a Temporary On-Premises Liquor or Caterer's License from the NYS Liquor Authority? ___ Yes ____ No. If yes, attach to application. If no, License MUST be submitted to Owner prior to approval of application. Has Tenant prepared a detailed Statement of the type(s) and source(s) of all food to be served at the proposed Event (or Statement that no food will be service)? ___Yes ___No If yes, attach to application. If no, Statement MUST be submitted to Owner prior to approval of application. Has Tenant prepared an accurate Plan showing all means of ingress and egress (including designation of corridors and other common areas) proposed to be utilized in connection with the proposed Event? ___Yes ____ No If yes, attach to application. If no, Plan MUST be submitted to Owner prior to approval of application. Has Tenant obtained a Certificate of Insurance with respect to the proposed Event? ____ Yes ____ No If yes, attach to application. If no, Certificate MUST be submitted to Owner prior to approval of application. Has Tenant arranged for professional licensed security personnel to be present at the Building in connection with the proposed Event? ____Yes ____No If yes, attach a copy of Tenant Contract with the security agency or personnel, together with proof of licensing. If no, the Contract and proof of licensing MUST be submitted to Owner prior to approval of application. Has Tenant executed an Indemnification of Owner with respect to the proposed Event on the form prescribed by Owner for that purpose? ____Yes ____No If yes, attach to application. If no, Indemnification MUST be submitted to Owner prior to approval of application. Tenant acknowledges and agrees to pay the following fees and costs of Owner in connection with the proposed Event. Non-Refundable Application Processing Fee - $500; Maintenance/Clean Up Crew Fee - $200 minimum plus $50/hour for each hour (or part thereof) after 4 hour's; Elevator Overtime (6 PM - 9 AM) - $300 minimum plus $75/hour for Maintenance/Clean Up Crew Fee -$200 minimum plus $50/hour for each hour (or part thereof) after 4 hours; Elevator Overtime (6 PM - 9 AM) - $300 minimum plus $75/hour for each hour (or part thereof) after 4 hours; Building Security Overtime (6 PM - 9 AM) - $200 minimum plus $50/hour for each hour (or part thereof) after 4 hours. Is the Non-Refundable Application Processing Fee being paid by Tenant at this time? ___Yes ____ No If yes, attach to application. If no, Fee MUST be paid prior to processing of application by Owner. Does Tenant anticipate incurring Overtime expenses? ____Yes ____No If yes, Tenant acknowledge that approval of application, is expressly conditional upon payment, of minimum costs and fees of $700 in accordance with above schedule, prior to date of 42 44 proposed Event. If no, Tenant acknowledges that approval of application, is expressly conditional upon payment of minimum costs and fees of $200 in accordance with above schedule, prior to date of proposed Event. Such minimum fees and costs are in addition to the Non-Refundable Application Processing Fee. Tenant shall have no right to hold or sponsor the Event if such fees and costs are not paid. Tenant agrees that additional fees and costs, over and above the minimum fees and costs set forth above, if any, shall be paid as follows: if ascertainable and billed by Owner prior to the proposed Event. Immediately upon billing and in any event prior to the Event; if not ascertainable prior to the proposed Event, as soon as practicable after being ascertained and billed, and in any event not later than the 1st day of the month immediately following the month in which such fees and costs are billed by Owner to Tenant (Fees and costs billed alter the Event shall be deemed additional rent under the Lease.) Tenant certifies that it has read and is familiar with the Supplemental Rules; that it agrees that the proposed Event shall in all respects be governed by the same; and that violation of the Supplemental Rules shall be deemed a material breach of Tenant's Lease. Tenant acknowledges that Owner retains no rights to approve or disapprove submissions and/or this application, as the case may be, in accordance with the Supplemental Rules and applicable Law. Date of Application: _____________________ AUTHORIZED SIGNATORY FOR TENANT/APPLICANT: __________________________________________ PRINT NAME & TITLE BELOW: __________________________________________ FOR OWNER: Date: _________________________ ____ APPROVED _____ DISAPPROVED ____ APPROVED ON CONDITION THAT TENANT ______________________ ______________________________________________________________ AUTHORIZED SIGNATORY FOR OWNER: __________________________________________ PRINT NAME & TITLE BELOW: __________________________________________ 43 45 INDEMNIFICATION To induce 601 West Associates LLC, Owner ("Owner") of the Starrett Lehigh Building, located at 601 West 26th Street, New York, New York 10001 ("Building") to accept process and approve an application by _________________ ____________________ ("Tenant") to hold an event in the Building on _________ _______ ("Event"), pursuant to the Supplemental Rules and Regulations of the Building attached to and part of Tenant's Lease, Tenant hereby agrees to waive and release Owner with respect to, and indemnify, defend and hold Owner harmless from and against, any and all costs, demands, claims, suits, actions, proceedings, orders, judgments, writs, decrees, forfeitures, subpoenas, warrants, and the like, arising out of or in connection with the Event (collectively, "Claims"), including but not Limited to demands for the payment of principal sums, interest and penalties, and including but not limited to the legal expenses incurred by Owner (including legal fees, costs, disbursements and expenses) in enforcing rights against Tenant or defending against any such Claim through counsel of Owner's choice. IN WITNESS WHEREOF, the undersigned has executed this Indemnification at New York, New York on the ___ day of ___________, _____. ________________________________________ TYPE/PRINT NAME OF TENANT By: ____________________________________ (Authorized Signatory) (Title) ________________________________________ TYPE/PRINT NAME OF AUTH. SIGN. 44 46 Acknowledgment - Individual STATE OF NEW YORK ) : ss.: COUNTY OF NEW YORK ) On the _____day of ______________ before me personally appeared _________ _______, known to me, who, being by me duly sworn, did depose and say that (s)he is the Tenant named in and who executed the foregoing indemnification. ________________________________________ Notary Public STATE OF NEW YORK ) : ss.: COUNTY OF NEW YORK ) On the _____day of ______________ before me personally appeared _________ _______, known to me, who, being by me duly sworn, did depose and say that (s)he resides at _________________________; that (s)he is the ____________________ of __________________________________, the Tenant named in and on behalf of whom/which (s)he executed the foregoing Indemnification that (s)he signed his/her name thereto by order of the Tenant; and that if the Tenant is a corporation the scale of which has been affixed to the foregoing instrument, that the same is by order of the Board of Directors of such corporation. ________________________________________ Notary Public 45 47 TABLE OF CONTENTS 1. RIDER PROVISIONS PREVAIL.................................................................. 18 2. COMMENCEMENT OF TERM...................................................................... 18 3. FIXED RENTAL AND ADDITIONAL RENTAL........................................................ 18 4. RENT ESCALATION -CONSUMER PRICE INDEX..................................................... 18 5. AS IS CONDITION; LANDLORD'S WORK.......................................................... 19 6. SUBSTANTIAL COMPLETION.................................................................... 19 7. TENANT'S INITIAL INSTALLATIONS............................................................ 20 8. ESCALATIONS FOR INCREASE IN REAL ESTATE TAXES............................................. 20 9. WATER, SEWER AND SPRINKLER CHARGES........................................................ 21 10. ALL ADDITIONAL RENTAL PAYMENTS............................................................ 21 11. ASSIGNMENT AND SUBLETTING................................................................. 21 12. LIMITATION OF LIABILITY................................................................... 23 13. INDEMNIFICATION........................................................................... 23 14. ELECTRIC CURRENT.......................................................................... 23 15. BROKER.................................................................................... 24 16. BINDING EFFECT............................................................................ 25 17. LATE FEE.................................................................................. 25 18. SECURITY.................................................................................. 25 19. HOLDOVER.................................................................................. 25 20. APPLICABLE LAW. .......................................................................... 25 21. HAZARDOUS MATERIALS....................................................................... 26 22. NOTICES................................................................................... 26 23. ADDENDUM TO ARTICLE 16-BANKRUPTCY......................................................... 26 24. RENT CONTROL.............................................................................. 26 25. REPAIRS................................................................................... 27 26. CONDITIONAL LIMITATION.................................................................... 27 27. LANDLORD'S SERVICES....................................................................... 27 28. TENANT'S ALTERATIONS...................................................................... 28
46 48 29. SUBORDINATION AND ATTORNMENT.............................................................. 29 30. MISCELLANEOUS............................................................................. 30 31. LEASE NOT BINDING UNLESS EXECUTED......................................................... 31 32. SUBMISSION TO JURISDICTION................................................................ 31 33. QUALIFICATIONS AS TO USE.................................................................. 31 34. PARTNERSHIP TENANT........................................................................ 31 35. CERTIFICATE OF OCCUPANCY.................................................................. 31 36. ACCESS TO PREMISES........................................................................ 32 37. USE OF PREMISES........................................................................... 32 38. EXCLUSION OF PERSONS FROM PREMISE AND DELIVERY SYSTEMS.................................... 32 39. ADDENDUM TO RULES AND REGULATIONS......................................................... 32 40. SCAFFOLDING............................................................................... 32 41. TENANT'S CANCELLATION OPTION.............................................................. 32 42. ACCOMMODATION RIGHT OF FIRST OFFER........................................................ 33 43. THE PREMISES.............................................................................. 33 44. LANDLORD'S WORK TO COMMON AREAS........................................................... 33 45. TENANT ACCESS TO BUILDING CONDUIT......................................................... 33
47 EX-10.4.2 4 FIRST LEASE MODIFICATION AGREEMENT 1 Exhibit 10.4.2 FIRST LEASE MODIFICATION AGREEMENT AGREEMENT, made as of the 18th day of June, 1999, by and between 601 West Associates LLC, having an address at 601 West 26th Street, Suite 900, New York, New York 10001 ("Lessor"), and Screamingmedia.com, Inc., having an address c/o 55 Broad St., 23rd Floor, New York, New York 10004 ("Lessee"). W I T N E S S E T H: By lease dated _______, 1999 (which lease, together with all exhibits thereto are hereinafter referred to as the "Lease"), Lessor leased to Lessee the following space: Ninth Floor North East (the "Premises") in the building known as 601 West 26th Street, New York, New York (the "Building"). Lessee desires to rent the space known as 13 North East Columns 1 through 10 instead of Ninth Floor North East. NOW, THEREFORE, in consideration of the mutual covenants herein contained, and other good and valuable consideration by each party to the other paid, the receipt and sufficiency whereof are hereby acknowledged, the parties hereby covenant and agree as follows: 1. Landlord hereby leases to Tenant the following space: 13th Floor North East Columns 1-10 (as shown on Exhibit A attached hereto), so that as of this date the term "Premises" or "Demised Premises" in the "Witnesseth" section of the Lease shall mean 13th Floor North East Columns 1-10. Tenant hereby surrenders any and all rights it may have had in and to the Ninth Floor North East space. 2. Article 43 of the Lease is hereby amended so that Sections 43.1.1 (i) through (iii) and 43.2 are deleted and replaced with the following: 43.1.1 A fixed rental ("Fixed Rental") at an annual rate of: (i) $523,940.00 per lease year ($43,661.67 per month) for each lease year during the period commencing on the Commencement Date (defined in Article 42 above) arid continuing thereafter to and including March 31, 2002; 2 (ii) $576,334.00 per lease year ($48,027.83 per month) for each lease year during the period commencing April 1, 2002 and continuing thereafter to and including March 31, 2006; (iii) $628,728.00 per lease year ($52,394.00 per month) for each lease year during the period commencing April 1, 2006 and continuing thereafter to and including March 31, 2009 (the "Termination Date"). 43.2 Provided that Tenant is not then in default under the terms of this Lease, Tenant shall be entitled to a one-time, non-recurring credit against the obligation to pay Fixed Rental, in the amount of $238,308.35 (the "Credit"), to be applied as follows: (i) $130,985.01 against the Fixed Rental due commencing on the Commencement Date and continuing thereafter through the end of the third month following the Commencement Date. If the Commencement Date is a date other than the first day of a month, then this portion of the Credit shall be prorated, and the balance shall be applied against the Fixed Rental due for the fourth month following the Commencement Date, (ii) $43,661.67 against the Fixed Rental due for March 2000, (iii) $43,661.67 against the Fixed Rental due for April 2000, and (iv) $20,000.00 against the Fixed Rental due for May 2000. Notwithstanding the foregoing, the Credit shall not be applied against any Additional Rental, electricity charges, or other like sums from time to time payable by Tenant pursuant to this Lease, which amounts shall be paid without abatement in accordance with the terms of this Lease. 3. Tenant hereby authorizes and directs Greenstein Starr Gerstein & Rinaldi LLP to release from escrow and deliver to Landlord a check in the amount of $57,500.00 payable to Hellerstein, Inc. in consideration of Hellerstein, Inc. surrendering its lease for part of the Premises. Landlord shall not deliver the check to Hellerstein, Inc. until such time as Hellerstein, Inc. has delivered to Landlord a fully executed surrender of lease for the portion of the Premises occupied by it. 4. The definition of Tenants Proportionate Share at Article 48, Section 48.5 is hereby changed from 0.50% to 1.25%. 3 5. The amount of the security deposit required under Article 32 is $174,646. Simultaneously herewith, Tenant shall deliver to Landlord either a check or a letter of credit in the amount of $104,646 representing the difference between the new security deposit, and the amount of the security already held by Landlord. 6. The Other Space defined in Article 83 of the Lease shall mean space on the thirteenth floor of the Building, and not the ninth floor. 7. Tenant shall deliver to Landlord, as Additional Rent, the sum of Eighteen Thousand Dollars ($18,000.00) in exchange for which Landlord shall pay for acquiring and installing a water cooled air conditioning unit or units aggregating 60 tons in the Premises and for bringing a condenser water line from Landlord's facility to the Premises. The Landlord's installation shall include the electrical, plumbing and condenser water hookups. Tenant shall be responsible, at its sole cost and expense for the distribution of the cooled air throughout the Premises, and for the installation of all ductwork. Landlord shall supply the Premises with temporary air conditioning service commencing August 1, 1999. 8. Item 7 of Exhibit B "Landlord's Work" is hereby modified to provide that Landlord shall increase the electrical service to the Premises from 300 amperes to 600 amperes. 9. Item number 5 of Exhibit B "Landlord's Work" is hereby deleted in its entirety. 10. Tenant shall pay to Landlord as Additional Rent for the use of Landlord's condenser water, an annual fee of $250.00 per ton capacity of the HVAC unit. The fee shall be payable on April 1st of each year during the term of this Lease. The fee for the first lease year shall be paid April 1,2000. 11. Tenant shall not core drill at Column 2 of the Premises, or from any point east of said Column. 12. Except as herein specifically modified, all of the terms, covenants and conditions of the Lease are and shall remain the same, in full force and effect, and are hereby ratified and confirmed. 4 13. This First Lease Modification Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, successors and assigns. 14. A facsimile copy of the signatures of the parties hereto shall be binding. IN WITNESS WHEREOF, the parties hereto have executed this Second Lease Modification Agreement as of the day and year first above written. LESSOR: 601 WEST ASSOCIATES LLC BY: SLB MANAGER LLC, A NY LIMITED LIABILITY COMPANY By: /s/ Mark Karasick Name: Mark Karasick Title: Managing Member LESSEE: SCREAMINGMEDIA.NET, INC. By: /s/ Alan S. Ellman Name: Alan S. Ellman Title: President 5 EXHIBIT A --------- DEXCRIPTION OF PERMISES EX-10.5 5 SUBLEASE AGREEMENT 1 Exhibit 10.5 SUBLEASE This SUBLEASE made as of February 4, 2000 (this "Sublease") by and between Tomar Studios, Inc., a New York corporation having an address at 601 West 26th Street, 13th Floor, New York, New York 10001, as sublandlord ("Sublandlord"), and Screaming Media.com, Inc., a Delaware corporation having an address at 601 West 26th Street, 13th Floor, New York, New York 10001, as subtenant ("Subtenant"). Sublandlord is a party to that certain Agreement of Lease, dated December 30, 1998, between 601 West Associates LLC, as landlord ("Landlord," which term shall include any successor to the interests of Landlord in the Premises), and Sublandlord, as tenant (the "Agreement of Lease"), as supplemented by that certain letter agreement, dated December 29, 1998, between the Landlord and the Sublandlord (the "Letter Agreement"), and as modified by that certain Lease Modification and Extension Agreement, dated as of April 28, 1999, between Landlord and Sublandlord (the "Modification") (the Agreement of Lease, as so supplemented and so modified (and including the Rules and Regulations referred to in Paragraphs 36 and 79 of the Agreement of Lease as such Rules and Regulations may be modified from time to time as provided in Paragraph 36 of the Agreement of Lease), the "Master Lease"), with regard to certain premises known as Suite SE1-7 on the thirteenth (13th) floor of the building known as 601 West 26th Street, in the Borough of Manhattan, City of New York (the "Building"), all as more fully set forth in the Master Lease (such premises the "Premises"). A copy of the Master Lease is attached to this Sublease as Exhibit A. Sublandlord wishes to sublease to Subtenant, and Subtenant wishes to sublease from Sublandlord, the Premises. The Premises are approximately as shown on Exhibit B to this Sublease. Accordingly, Sublandlord and Subtenant, for themselves and their successors and assigns, hereby agree as follows: 1. AGREEMENT. Sublandlord subleases the Premises to Subtenant, and Subtenant subleases the Premises from Sublandlord, upon the terms and conditions set forth in this Sublease. Subject to the exception set forth at the beginning of the second sentence of Paragraph 10 hereof and except for those terms, covenants, conditions and other provisions of the Master Lease referred to in the last sentence of Paragraph 10 hereof, the terms, covenants, conditions and 2 other provisions of the Master Lease (including, without limitation, the terms, covenants, conditions and other provisions of Paragraph 52 thereof), are incorporated into this Sublease as the agreement of Sublandlord and Subtenant as though Sublandlord were Landlord as the landlord under the Master Lease and Subtenant were Sublandlord as the tenant under the Master Lease, all as more fully set forth in Paragraph 10 hereof (provided that any references in the Master Lease to any subtenant shall also refer to Subtenant and any references in Paragraph 52,53 or 69 of the Master Lease to Landlord shall be deemed to be references to both Landlord and Sublandlord). 2. TERM. The term of this Sublease will begin on the date hereof (such date the "Commencement Date") and will end on the day immediately preceding the last day of the term of the Master Lease, inclusive, unless sooner terminated pursuant to any of the terms, covenants or conditions of this Sublease or pursuant to law. The term referred to in the preceding sentence (whether ending on the day immediately preceding the last day of the term of the Master Lease or sooner because sooner terminated pursuant to any of the terms, covenants or conditions of this Sublease or pursuant to law) is referred to herein as the "Term." 3. RENT (a) Rent. As used in this Sublease, the term "Rent" shall mean and include all Base Rent (as defined in subparagraph (b) of this Paragraph 3, and all Additional Rent (as defined in subparagraph (c) of this Paragraph 3). (b) Base Rent (i) Amount. Subtenant will pay Sublandlord as base rent (the "Base Rent") for the Premises in each year during the term hereof the annual amount set forth on Exhibit C hereto. (ii) Base Rent Payable Monthly In Advance. All amounts of Base Rent shall be payable in equal monthly installments as set forth on Exhibit C hereto without notice, demand, offset, or counterclaim, each such installment of Base Rent to be paid in advance on the first day of each month (except that the Base Rent for the month beginning on the Commencement Date shall be payable simultaneously with the execution and delivery hereof by Subtenant). (iii) Pro-Ration. If the Commencement Date hereof shall occur on other than the first day of a month, any payment of Base Rent payable with respect to any partial calendar month will be prorated on a per diem basis. 3 (c) Additional Rent. (i) Items Constituting Additional Rent. Subtenant shall pay as additional rent the following amounts (the "Additional Rent"), each such amount of Additional Rent to be paid as and when indicated: (A) all amounts payable by Sublandlord to Landlord under the Master Lease in respect of increases in "Taxes" (as defined in Paragraph 46 of the Master Lease) over the amount of such Taxes for the tax year commencing on July 1, 1999 and ending on June 30, 2000, any such amount to be payable by Subtenant to Sublandlord as and when the same is payable by Sublandlord pursuant to the Master Lease; (B) all amounts from time to time payable by Sublandlord under the Master Lease in respect of the water, sprinkler and sewer charges, such amounts to be payable as and when installments of Base Rent are payable hereunder, and such amounts to be subject to increase in the event of any increase in the corresponding amount payable under the Master Lease; (C) all amounts payable by Sublandlord for electricity furnished to the Premises, any such amount to be payable by Subtenant to Sublandlord upon Sublandlord's presentation to Subtenant of a copy of any bill showing any amount payable by Sublandlord for electricity furnished to the Premises; (D) all amounts payable under the lease and maintenance agreement with respect to the alarm system in the Premises, such amounts to be payable as and when payments are required to be made by Subtenant under such agreement; provided, that Subtenant shall be have the option, by notice to such effect given to Sublandlord not later than the sixtieth (60th) day after the Commencement Date, to elect to discontinue its use of such alarm system not later than such sixtieth (60th) day, whereupon (provided that Subtenant in fact discontinues such use) Subtenant shall have no further obligation to make payments with respect to such alarm system for any period after such date of discontinuance; and provided, further, that Subtenant hereby agrees that in the event that Subtenant shall not give the notice referred to above in this subparagraph (D) to Sublandlord by the sixtieth (60th) day after the Commencement Date, then Subtenant shall be substituted for Sublandlord as a party under such agreement and Subtenant shall 4 assume all of Sublandlord's obligations under such agreement; (E) all amounts payable under the lease and maintenance agreement with respect to the telephone system in the Premises, such amounts to be payable as and when payments are required to be made by Subtenant under such agreement; provided, that Subtenant shall be have the option, by notice to such effect given to Sublandlord not later than the sixtieth (60th) day after the Commencement Date, to elect to discontinue its use of such telephone system not later than such sixtieth (60th) day, whereupon (provided that Subtenant in fact discontinues such use) Subtenant shall have no further obligation to make payments with respect to such telephone system for any period after such date of discontinuance; and provided, further, that Subtenant hereby agrees that in the event that Subtenant shall not give the notice referred to above in this subparagraph (E) to Sublandlord by the sixtieth (60th) day after the Commencement Date, then Subtenant shall be substituted for Sublandlord as a party under such agreement and Subtenant shall assume all of Sublandlord's obligations under such agreement; (F) all amounts payable to BellAtlantic with respect to all BellAtlantic lines serving the Premises, such amounts to be payable as and when payments are required to be made by Subtenant to BellAtlantic; provided, that Subtenant shall be have the option, by notice to such effect given to Sublandlord not later than the sixtieth (60th) day after the Commencement Date, to elect to discontinue its use of such lines not later than such sixtieth (60th) day, whereupon (provided that Subtenant in fact discontinues such use) Subtenant shall have no further obligation to make payments with respect to such lines for any period after such date of discontinuance; and provided, further, that Subtenant hereby agrees that in the event that Subtenant shall not give the notice referred to above in this subparagraph (B) to Sublandlord by the sixtieth (60th) day after the Commencement Date, then Subtenant shall assume all of Sublandlord's obligations to BellAtlantic with respect to such lines; and (G) if, pursuant to the provisions of the Master Lease, Sublandlord is charged for additional rent or other amounts other than the amounts referred to above in subparagraphs (i)(A), (B), (C), (D), (B) and (F) of this Paragraph 3 (including, without limitation, any amounts payable in respect of any additional services procured by Subtenant from Landlord), then, in addition to such amounts referred to in such subparagraphs, Subtenant will be liable for such additional rent or other amounts, such additional rent or other amounts to be paid to the Sublandlord as Additional Rent. 5 (ii) Pro-Ration. If the Commencement Date shall occur on other than the first day of a month, any payment of Additional Rent payable with respect to any partial calender month will be prorated on a per diem basis. 4. SECURITY DEPOSIT. Subtenant has deposited with Sublandlord the sum of One Hundred Twenty-Eight Thousand Two Hundred Fifty Dollars ($128,250.00) which Sublandlord will hold in an interest bearing account as a security deposit in accordance with, and subject to the terms and provisions of, Paragraphs 32 and 58 of the Master Lease. In the event that Sublandlord shall at any time apply any of such security deposit as provided herein or in the Master Lease, then, upon the request of Sublandlord to Subtenant specifying the amount so applied, Subtenant shall immediately deposit with Sublandlord, as an additional security deposit, the amount so applied, so that the security deposit held by Sublandlord shall at all times during the term hereof be equal to One Hundred Twenty-Eight Thousand Two Hundred Fifty Dollars ($128,250.00). Sublandlord shall pay subtenant the interest earned on such amount, less the one percent (1%) administrative fee referred to in Section 7-103 of the General Obligations Law, at the end of the term of the Sublease (subject to application of such interest as provided in paragraph 2 of Section 7-103 of the General Obligations Law). In the event that this Sublease is terminated (a) due to a default by Sublandlord under this Sublease or (b) due to a default by Landlord or Sublandlord under the Master Lease, then Sublandlord shall immediately return to Subtenant any unapplied portion of the Security Deposit and any unapplied portion of prepaid rent along with all accrued interest thereon (but less the one percent (1%) administrative fee referred to in Section 7-103 of the General Obligations Law). Sublandlord agrees to take such actions as may reasonably be requested by Sublandlord to provide that all amounts of interest earned on the security deposit (less the one percent (1%) administrative fee retained by Sublandlord) shall be deemed to be income of the Subtenant for all income tax purposes. 5. USE OF PREMISES. Subtenant shall use the Premises for the purposes permitted under the Master Lease and for such additional purposes as may be consented to by Landlord, and for no other purposes. Under no circumstances shall Subtenant use the Premises or permit the Premises to be used for manufacturing or for the creation, display or distribution of pornographic materials. 6. ACCEPTANCE OF PREMISES. Subject only to the fourth sentence of this Paragraph 6, Subtenant acknowledges that it has inspected the Premises and that it accepts the Premises in their present condition. Without limiting the generality of the 6 foregoing, Subtenant acknowledges that it or its consultants have determined that the electrical service in the Premises will meet the Subtenant's needs. Sublandlord makes no representation as to the suitability or adequacy of the Building or the Premises (including, without limitation, the electrical service in the Building or the Premises) for any use to be made of the Premises by Subtenant. Notwithstanding the foregoing in this Paragraph 6, but subject to the last sentence of this Paragraph 6, Sublandlord hereby indemnifies Subtenant and holds Subtenant harmless from and against, and agrees to pay for, all costs or expenses whatsoever which Subtenant may incur in order to correct any latent defect in work performed by Sublandlord on the Premises that caused such work not to be in compliance with applicable law as in effect on the date upon which such work was completed (such a latent defect, hereinafter, a "Latent Defect"); provided, however, that such indemnity shall cover only such costs and expenses as must necessarily be incurred in order to render the work affected by a Latent Defect in compliance with applicable law as in effect on the date upon which such work was completed. Nothing in the immediately preceding sentence shall be deemed to provide for indemnification of Subtenant by Sublandlord against any costs or expenses incurred by Subtenant (a) with respect to any Latent Defect that arises as a result of any alternations made to the Premises by Subtenant, (b) with respect to any Latent Defect that arises as a result of any use of the Premises by Subtenant that differs from Sublandlord's use of the Premises, (c) in connection with any inspection of the work performed by Sublandlord on the Premises, (d) for attorneys' fees or expenses; (e) in connection with obtaining any permit (including, without limitation, any building permit) or any certificate of occupancy (except for those costs and expenses incurred in correcting a Latent Defect so as to render the work affected thereby in compliance with applicable law as in effect on the date upon which such work was completed); or (f) in connection with any patent defect in any work performed by Sublandlord. 7. SERVICES; RESTORATION OF PREMISES AFTER FIRE OR OTHER CASUALTY (a) Services. Sublandlord shall provide to Subtenant such services as are provided to it by Landlord pursuant to the Master Lease, to the extent of Landlord's provision of such services from time to time. Subtenant shall have the right, at its sole cost and expense, in its name or in the name of Sublandlord, to take any action, as provided in the Master Lease or by law, to enforce the rights of Subtenant as the tenant under the Master Lease as against the Landlord and Sublandlord shall execute any and all documents which may be reasonably necessary in order to enable Subtenant to enforce such rights under this Paragraph 7(a). 7 (b) Fire or Other Casualty. In the event that the Premises shall be damaged by fire or other casualty, Sublandlord shall have no liability for repair or restoration of the Premises. In the event that the occurrence of such fire or other casualty shall give rise to a right of Sublandlord to elect to terminate the Master Lease, Subtenant shall have the same right as against Sublandlord (but Subtenant shall have no right to exercise such right of Sublandlord under the Master Lease). In the event that the occurrence of such fire or other casualty shall give rise to a right of Sublandlord to reoccupy the Premises upon the restoration thereof, and Subtenant desires to repossess the Premises upon the restoration thereof, then Subtenant shall have the right to exercise Sublandlord's right to elect to reoccupy the Premises. (c) Abatement. For any period in which Rent or other charges are abated under the Master Lease for fire, other casualty, or disruption of services, Rent of the same type under this Sublease and charges of the same type under this Sublease shall abate for the same period. 8. INSURANCE. Without limiting the generality of Paragraph 1 or Paragraph 10 hereof, the Subtenant shall at all times during the term hereof carry the policies of insurance referred to in Paragraph 53 of the Master Lease, all references to "Landlord" in such Paragraph 53 shall be deemed to be references to both Landlord and Sublandlord, and both the Landlord and the Sublandlord shall be named as additional insured parties (or loss payees, if Paragraph 53 provides in a particular instance that Landlord shall be designated a loss payee) under the policies referred to in such Paragraph 53. In addition to the insurance referred to in such Paragraph 53, throughout the term hereof Subtenant shall maintain with insurers of the type described in such Paragraph 53 a policy or policies of "special form" insurance covering any alterations made on the Premises on or after the date hereof and covering all personal property (whether or not affixed and whether belonging to Landlord, Sublandlord or Subtenant) located from time to time in or upon the Premises, in an amount sufficient to cover the full replacement value of such alterations and such property. The Landlord and the Sublandlord shall be loss payees under such "special form" polies or policies, as their interests may appear, and any such policy shall provide that it shall not be canceled without thirty (30) days written notice to Landlord and Sublandlord. Upon the request of Landlord or Sublandlord, Subtenant shall obtain waivers of subrogation with respect to any liability or "special form" policy or policies referred to in this Paragraph 8. 9. PERMITS AND CERTIFICATES 8 (a) Certificate of Occupancy. Subtenant acknowledges that Sublandlord has not obtained a certificate of occupancy with respect to or in connection with Sublandlord's alterations to, or Sublandlord' s installation of leasehold improvements in, the Premises and Subtenant agrees that Sublandlord shall have no obligation to apply for or to obtain, or to pay any amount in connection with Subtenant's application for or Subtenant's obtaining, any such certificate of occupancy. Subtenant acknowledges that it is familiar with the certificate of occupancy applicable to the Premises and Subtenant agrees that Sublandlord shall have no obligation to apply for or to obtain, or to pay any amount in connection with Subtenant's application for or Subtenant's obtaining, any changes to such certificate of occupancy. (b) Air Conditioner Permit. Subtenant acknowledges that Sublandlord has not obtained any permits in connection with Sublandlord's installation of the air conditioning system in the Premises and Subtenant agrees that Sublandlord shall have no obligation to apply for or to obtain, or to pay any amount in connection with Subtenant's application for or Subtenant's obtaining, any such permit(s). (c) Public Assembly Permit. Subtenant acknowledges that no public assembly permit has been issued with respect to the Premises and Subtenant agrees that Sublandlord shall have no obligation to apply for or to obtain or to pay any amount in connection with Subtenant's application for or Subtenant's obtaining, any such public assembly permit. 10. MASTER LEASE (a) Sublease and Master Lease. This Sublease is subject and subordinate to the Master Lease. Except for those provisions of the Master Lease that conflict with provisions hereof, except as provided in the last sentence of this Paragraph 10 and except that in no event shall Subtenant have any grace or other cure period with respect to defaults in the payment of Rent or of any other amounts payable under this Sublease, all of the terms, covenants, conditions and other provisions of the Master Lease (including, without limitation, the terms, covenants, conditions and other provisions of Paragraph 52 thereof) are incorporated into this Sublease as the agreement of Sublandlord and Subtenant as though Sublandlord were Landlord as the landlord under the Master Lease and Subtenant were Sublandlord as the tenant under the Master Lease (provided that any references in the Master Lease to any subtenant shall also refer to Subtenant and any references in Paragraph, 52, 53 9 or 69 of the Master Lease to Landlord shall be deemed to be references to both Landlord and Sublandlord); provided that Subtenant shall make no alterations to the Premises that would under the Master Lease require the consent of Landlord without the prior written consent of Landlord and Sublandlord (the consent of Sublandlord not to be unreasonably withheld). Notwithstanding the foregoing, provided that Sublandlord promptly gives Subtenant a copy of any notice from Landlord with respect to any default under the Master Lease that relates to any action or inaction of Subtenant and advises Subtenant of the date upon which such notice was given to Sublandlord, then any cure period (if any) afforded Subtenant with respect to such default shall be deemed to have commenced upon the date upon which Sublandlord received such notice. Subtenant has received a copy of the Master Lease and Subtenant represents that it has read and is familiar with the terms of the Master Lease. Subtenant will not cause or allow to be caused any default under the Master Lease, and Subtenant will comply with and perform all applicable terms and conditions of the Master Lease to be complied with or performed by Sublandlord. References in specific instances herein to the Master Lease shall not be construed as limiting the generality of Paragraph 1 hereof or of the first or third sentences of this Paragraph 10. Without limiting the generality of the exception set forth at the beginning of the second sentence of this subparagraph (a), the following provisions and parts of the Master Lease shall not be applicable to this Sublease: Paragraphs 42, 43, 44 (other than the first sentence of such Paragraph 44), 45, 50 (other than subparagraph 50.12 of such Paragraph 50), 55 or 83 of the Agreement of Lease; the entire Letter Agreement; and the entire Modification. (b) Subtenant's Right to Enforce Master Lease. Except to the extent of Subtenant's obligation to pay rent hereunder and except as otherwise provided in subparagraph (b) of Paragraph 7 hereof, and subject to the terms and conditions of this Sublease, Subtenant shall be entitled to enforce all the rights of the Sublandlord provided for in the Master Lease, Sublandlord hereby agreeing to cooperate fully with Subtenant in the enforcement thereof. (c) Sublandlord's Compliance with Master Lease. Sublandlord shall not do any act, matter or thing, or fail to do any act, matter or thing, if such action or failure to act would result in, or constitute a violation or breach by Sublandlord as tenant under the Master Lease of or a default under, the Master Lease or otherwise result in the disturbance of Subtenant's possession of the Premises. (d) Subtenant's Right to Make Payments to Landlord. Provided that Subtenant is not in default hereunder, in the event that Sublandlord fails to make 10 payments of rent or any other charges due under the Master Lease (unless Sublandlord shall be permitted under the Master Lease or by law to withhold such payments of rent or other charges), Subtenant shall be entitled to make any such payments directly to Landlord and deduct any amounts paid from its Rent and other charges due under this Sublease. (e) Sublandlord's Indemnity in the Event that Subtenant Cures Default of Subtenant under Master Lease. In the event that the Master Lease would have been terminated by reason of Sublandlord's default thereunder but for the fact that Subtenant cured such default, Sublandlord shall indemnify Subtenant and hold Subtenant harmless from and against all loss, damage or expense incurred by Subtenant in effecting such cure, including, without limitation, reasonable attorneys' fees and the additional monies by way of rent or otherwise expended by Subtenant. (f) Termination of Master Lease. In the event that the Master Lease is terminated, then, as between Sublandlord and Subtenant, this Sublease shall terminate at the same time without any liability on the part of Sublandlord to Subtenant. (g) Default under Warrant Default Hereunder. In the event that Subtenant shall default in making any payment referred to in Section 7 of the Warrant of even date herewith of Subtenant in favor of Sublandlord, then, at the option of Sublandlord exercisable by notice to such effect given to Subtenant, such default shall be deemed to be and shall be a payment default by Subtenant under this Sublease. (h) Commercial Rent Tax. Subtenant shall furnish to Sublandlord, upon the request of Sublandlord, such information and such copies of documents as Sublandlord may reasonably request in order to permit Sublandlord to receive a commercial rent tax credit for the commercial rent tax paid by Subtenant. 11. GUARANTY. The obligations of Subtenant hereunder shall be guaranteed by guaranty of Jay Chiat, the Chairman and Chief Executive Officer of Subtenant, in the form of Exhibit D. 12. CERTAIN DAMAGES; RESTORATION OF PREMISES BY SUBTENANT (a) Liquidated Damages upon Failure of Subtenant to Surrender Premises. In the event that Subtenant were to fail to surrender the Premises in the 11 manner provided in this Sublease upon the expiration or earlier termination of this Sublease, the amount of damages that Sublandlord would suffer would be difficult or impossible to ascertain. Therefore, the parties agree that in the event that Subtenant shall fail to surrender the Premises in the manner provided in this Sublease upon the expiration or earlier termination of this Sublease, then Subtenant shall pay to Sublandlord for each day on which Subtenant occupies the Premises after the expiration or earlier termination of this Sublease, as liquidated damages and in addition to any Additional Rent payable with respect to such period, Base Rent at a rate equal to twice the per diem rate at which Base Rent was payable on the day upon which the expiration or earlier termination of this Sublease occurred. The parties hereto acknowledge and agree that the liquidated damages provided for in this subparagraph represent a reasonable estimate by the parties of the damages that would be suffered by Sublandlord were Subtenant to fail to surrender the Premises in the manner provided in this Sublease upon the expiration or earlier termination of this Sublease and that they do not constitute a penalty. Nothing in this subparagraph shall limit any other damages to which Sublandlord may be entitled in respect of any breach of any term or provision of this Sublease by Subtenant. (b) Reimbursement of Costs of Enforcement. Without limiting the generality of Paragraph 52 of the Master Lease, Subtenant shall reimburse Sublandlord for all legal fees and disbursements incurred by Sublandlord in enforcing any provision of this Sublease. Sublandlord shall reimburse Subtenant for all legal fees and disbursements incurred by Subtenant in enforcing any provision of this Sublease. (c) Restoration of Premises by Subtenant. In the event that Subtenant shall close off or otherwise alter the door or doorway to the Premises or shall alter or remove the demising wall between the Premises and the premises that Subtenant presently occupies in the Building (which shall be subject to the consent of Sublandlord and Landlord), then, prior to its surrender of the Premises (whether upon the expiration or earlier termination of this Sublease), Subtenant shall, in addition to taking any action required to be taken by Subtenant under Paragraph 3 of the Master Lease, restore such door and doorway and such demising wall to the condition they were in on the Commencement Date. 13. BROKER. Each party represents and warrants to the other that in connection with the transactions contemplated by this Sublease it did not deal directly or indirectly with any broker or finder, the representation and warranty in this sentence to survive the expiration or earlier termination of this Sublease. Each 12 party hereby indemnifies the other and holds the other harmless from and against any and all damages, costs, losses, liabilities or expenses arising out of or related to claims arising out of any breach of the representation contained in this Paragraph 13, such indemnity and hold harmless to include, without limitation, the obligation to provide all costs of defense against any such claims. 14. ASSIGNMENT (a) Prohibition against Assignment or Subletting by Subtenant. Subtenant will not, without the prior written consent of Sublandlord and the prior written consent of Landlord, assign this Sublease or further sublet the Sublet Premises in whole or in part; nor will Subtenant permit Subtenant's interest in this Sublease to be vested in any third party by operation of law or otherwise. Without limiting the generality of the foregoing or of Paragraphs 1 and 10 hereof, Subtenant acknowledges that, in the event that Sublandlord and Landlord shall consent to any assignment hereof or further subletting of the Sublet Premises, such assignment or further subletting shall be subject to the terms and provisions of the Master Lease. (b) Sublandlord's Assignment of this Sublease. Sublandlord shall be permitted to assign this Sublease provided that prior to any assignment hereof the assignee hereof delivers to Subtenant an instrument whereby such assignee (i) agrees to recognize Subtenant's rights hereunder and (ii) expressly assumes all of Sublandlord's obligations hereunder. In connection with such assignment, Sublandlord and any assignee of this Sublease shall, with respect to the security deposit deposited with Sublandlord hereunder, comply with the provisions of Section 7-105 of the General Obligations Law regarding transfers of security deposits. (c) Sublandlord Released upon Assignment. In the event that Sublandlord shall surrender or otherwise voluntarily terminate the Master Lease, or shall assign this Sublease in compliance with subparagraph (b) of this Paragraph 14, then Sublandlord shall have no further duties or obligations whatsoever hereunder, and Landlord or the assignee hereof shall for all purposes be the Sublandlord hereunder. 15. MERGER; AMENDMENT. All prior understandings and agreements between Sublandlord and Subtenant are merged within this Sublease, which fully and completely sets forth their understanding. This Sublease may not be changed or terminated orally or in any other manner than by an agreement in writing signed by the party against which enforcement of the change or termination is sought. 13 16. NOTICES (a) Manner of Giving Notices. Any notice required or permitted to be given hereunder shall be in writing and may be given by telecopier, by certified mail, return receipt requested, or by personal delivery (including by reputable overnight courier service such as Federal Express). Any notice given by telecopier shall be deemed given when confirmation of transmission has been received, provided that if such notice is transmitted at any time other than during Normal Business Hours (as such term is defined below) such notice shall be deemed given at the next commencement of Normal Business Hours. Any notice given by certified mail, return receipt requested, shall be deemed given on the fourth (4th) day after the date upon which it is mailed, postage paid. Any notice given by personal delivery shall be deemed given when delivered, provided that if such notice is delivered at any time other than during Normal Business Hours such notice shall be deemed given at the next commencement of Normal Business Hours. As used in this Paragraph 16, the term "Normal Business Hours" means the hours between 9:00 a.m. and 4:30 p.m. in the time zone covering the recipient's address as set forth below, Monday through Friday, exclusive of any day that is not a Business Day (the term "Business Day" meaning any day other than a day when banks in the State of New York are required or permitted to be closed). Any notice given hereunder shall be given to Sublandlord or Subtenant, as the case may be, at the following address or telecopier number (and whether to an address or a telecopier number, to the attention of the person indicated): If to Sublandlord: Tomar Studios, Inc. 601 West 26th Street 13th Floor New York, New York 10001 Attn.: Tom Marrazza President Telecopier: (212) 627-1987 and from and after the Commencement Date: Tomar Studios, Inc. c/o Tom Marrazza 14 1 Irving Place Apartment V9A New York, New York 10003 with a copy to: Terrence M. Bennett Bennett & Samios, LLP 845 Third Avenue - 21st Floor New York, New York 10022 Telecopier: (212) 753-6262 If to Subtenant: Screaming Media.com, Inc. 601 West 26th Street New York, New York 10001 Attn.: William P. Kelly General Counsel Telecopier: (212) 422-1761 with a copy to: Alan J. Bernstein, Esq. Carter, Ledyard & Milburn 2 Wall Street New York, New York 10005 Telecopier: (212) 732-3232 (b) Change of Address for Notices. Either party may change its address for notices as set forth above by notice to such effect to the other party given in the manner provided in subsection (a) of this Paragraph 16. (c) Forwarding Copies of Notices from Landlord. Subtenant shall promptly give Sublandlord written notice, and a copy, of any notices served by Landlord upon Subtenant pursuant to the terms, conditions and provisions of the Master Lease. Sublandlord shall promptly give Subtenant written notice, and a copy, of any notice of default served by the Landlord upon Sublandlord pursuant to the terms, provisions and conditions of the Master Lease. Sublandlord shall promptly 15 forward to Subtenant any notices of changes in the building rules (as set forth in the Master Lease), unless at the time that Sublandlord receives any such notice Subtenant shall be in possession of premises in the Building other than the Premises. 17. GOVERNING LAW. This Sublease shall be governed by and construed in accordance with the law of the State of New York applicable to agreements made and to be performed wholly within the State of New York. 18. SUBMISSION TO JURISDICTION. The parties hereto agree that any action or proceeding arising out of or relating to this Sublease shall be brought only in a federal court sitting in New York City or a New York State court sitting in New York City, and each of the parties hereto submits to the jurisdiction of any such court in the event that such any such action or proceeding shall be brought. Each of the parties hereto agrees that all claims in respect of any such action or proceeding may be heard and determined in any such court and waives any objection that it may now or hereafter have as to the venue of any such action or proceeding brought in any such court or that any such court is an inconvenient forum. Each of the parties hereto consents to the service of process upon it in any such action or proceeding in any such court by the mailing of copies of such process to it, by certified or registered mail, return receipt requested, at its address specified in Paragraph 16. 19. BINDING EFFECT. Without limiting the effect of Paragraph 14 hereof, the covenants and agreements in this Sublease shall bind and inure to the benefit of Sublandlord and Subtenant and their successors and assigns. IN WITNESS WHEREOF, Sublandlord and Subtenant have executed this Sublease as of on the date first written above. TOMAR STUDIOS, INC. /s/ Terrence Bennett By: /s/ Tom Marrazza ______________________________ ____________________________ Witness Tom Marrazza Print Name: Terrence Bennett President SCREAMING MEDIA.COM INC. 16 /s/ William P. Kelly /s/ Jay Chiat _____________________________ By:______________________________ Witness Jay Chiat Print Name: William P. Kelly Chairman 17 Exhibit A Copy of Master Lease EX-10.6 6 WARRANT AGREEMENT 1 Exhibit 10.6 THESE SECURITIES HAVE BEEN ISSUED PURSUANT TO EXEMPTIONS FOR NONPUBLIC OFFERINGS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE RESOLD OR OTHERWISE DISPOSED OF UNLESS, IN THE OPINION OF COUNSEL FOR OR SATISFACTORY TO THE ISSUER, REGISTRATION UNDER THE APPLICABLE FEDERAL OR STATE SECURITIES LAWS IS NOT REQUIRED OR COMPLIANCE IS MADE WITH SUCH REGISTRATION REQUIREMENTS. Void after 5:00 p.m. New York Time, on June 7, 2004. WARRANT TO PURCHASE COMMON STOCK SCREAMING MEDIA.NET, INC. This is to certify that, FOR VALUE RECEIVED, DEUTSCHE BANK SECURITIES, INC. or its registered assigns pursuant to Section 4 hereof (the "Holder"), is entitled to purchase, subject to the provisions of this Warrant, from SCREAMING MEDIA.NET, INC., a Delaware corporation (the "Company"), ONE HUNDRED TWENTY THOUSAND FIVE HUNDRED THIRTY-FIVE (120,535) fully paid, validly issued and non-assessable shares of the Company's Common Stock, par value $.01 per share ("Common Stock"), at the exercise price of $11.20 per share until June 7, 2004. The number of shares of Common Stock to be received upon the exercise of this Warrant and the price to be paid for each share of Common Stock may be adjusted from time to time as hereinafter set forth. The shares of Common Stock deliverable upon such exercise, and as adjusted from time to time, are hereinafter sometimes referred to as "Warrant Shares," and the exercise price of a share of Common Stock as adjusted from time to time is hereinafter sometimes referred to as the "Exercise Price." 1. EXERCISE OF WARRANT; NOTIFICATION OF EXPIRATION DATE OF WARRANT. The Warrant may be exercised as to a minimum of 1,000 Warrant Shares, at any time or from time to time, until 5:00 p.m. New York City time on June 7, 2004 (the "Expiration Date"), provided, however, that if such day is a day on which banking institutions in the State of New York are authorized by law to close, then on the next succeeding day which shall not be such a day. The Warrant may be exercised by presentation and surrender hereof to the Company at its principal office, or at the office of its stock transfer agent, if any, with the Purchase Form annexed hereto duly executed (with signature guaranteed if required by the Company or its stock transfer agent) and accompanied by payment of the Exercise Price for the number of Warrant Shares specified in such form and any applicable taxes. The purchase price for any Warrant Shares purchased pursuant to the exercise of this Warrant shall be paid in full upon such exercise in cash or by certified or bank check or pursuant to a cashless exercise procedure whereby the Warrant Shares 2 issued upon exercise of this Warrant will be sold with the Holder receiving the difference between the aggregate Exercise Price and the aggregate sale price, in cash, and the Company receiving the aggregate Exercise Price for the Warrant Shares, in cash, or any combination of the foregoing methods of paying the Exercise Price. In the alternative, the Warrant may be exchanged for Warrant Shares as described herein. As soon as practicable after each such exercise of this Warrant, but not later than seven business days from the date of such exercise, the Company shall issue and deliver to the Holder a certificate or certificates for the Warrant Shares issuable upon such exercise, registered in the name of the Holder or the Holder's designee (except in the case of a cashless exercise). If the Warrant should be exercised in part only, the Company shall, upon surrender of the Warrant for cancellation, execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the Warrant Shares purchasable thereunder. In the event of a cash exercise, upon receipt by the Company of the Warrant at its office, or by the stock transfer agent of the Company at its office, in proper form for exercise, together with the exercise price thereof and taxes as aforesaid in cash or certified or bank check and the investment letter described below, the Holder shall be deemed to be the holder of record of the shares of Common Stock issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such shares of Common Stock shall not then be physically delivered to the Holder. In order to assure the availability of an exemption from registration under the federal or applicable state securities laws, the Company may condition the exercise of the Warrant upon the Holder delivering to the Company an investment letter in the form as customarily used by the Company from time to time in connection with the exercise of non-registered options and warrants that are issued by the Company. It is further understood that certificates for the Warrant Shares, if any, to be issued upon exercise of the Warrant may contain a restrictive legend in accordance with Section 9 hereof. Notwithstanding anything herein to the contrary, the Company shall mail to the Holder, by certified mail, return receipt requested, notice of the Expiration Date of the Warrant, no later than 60 days prior to the Expiration Date. To the extent the Company shall fail to send the required notice at the time and in the manner set forth in the preceding sentence, the Expiration Date of the Warrant shall be extended to a date 60 days following the date that a written notice of the Expiration Date of the Warrant from the Company is received by the Holder. 2. Reservation of Shares. The Company shall at all times reserve for issuance and/or delivery upon exercise of this Warrant such number of shares of its Common Stock as shall be required for issuance and delivery upon exercise hereof. If at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect such exercise, the Company shall take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. If the Common Stock is or becomes listed on any national securities exchange or Nasdaq, the Company shall also cause such shares to be listed on such exchange subject to notice of issuance or maintain the listing of its Common Stock on Nasdaq, as the case may be. 3 3. Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon exercise of this Warrant. With respect to any fraction of a share called for upon any exercise hereof, the Company shall pay to the Holder an amount in cash equal to such fraction multiplied by the current market value of a share, determined as follows: (i) if the Common Stock is listed on a national securities exchange or admitted to unlisted trading privileges on such exchange or listed for trading on Nasdaq, the current market value shall be the last reported sale price of the Common Stock on such exchange or system on the last business day prior to the date of exercise of this Warrant, or if no such sale is made on such day, the average closing bid and asked prices for such day on such exchange or system; (ii) if the Common Stock is not so listed or admitted to unlisted trading privileges, the current market value shall be the mean of the last reported bid and asked prices reported by the National Quotation Bureau, Inc. on the last business day prior to the date of the exercise of this Warrant; or (iii) if the Common Stock is not so listed or admitted to unlisted trading privileges and bid and asked prices are not so reported, the current market value shall be an amount, not less than the book value thereof as at the end of the most recent fiscal year of the Company ending prior to the date of the exercise of the Warrant, determined in such reasonable manner as may be prescribed by the Board of Directors of the Company. 4. Exchange, Transfer, Assignment or Loss of Warrant. The Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company or at the office of its stock transfer agent, if any, for other Warrants of different denominations entitling the Holder thereof to purchase in the aggregate the same number of shares of Common Stock purchasable hereunder. Subject to Section 9 hereof, the Holder may transfer or assign the Warrant, in whole or in part and from time to time. Upon surrender of this Warrant to the Company at its principal office or at the office of its stock transfer agent, if any, with the Assignment Form annexed hereto duly executed (with signature guaranteed, if required by the Company or its stock transfer agent) and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee or assignees named in such instrument of assignment, and this Warrant shall promptly be canceled. This Warrant may be divided by or combined with other Warrants that carry the same rights upon presentation hereof at the principal office of the Company or at the office of its stock transfer agent, if any, together with a written notice specifying the names and denominations in which new Warrants are to be issued, which notice shall be signed by the Holder hereof. The term "Warrant" as used herein includes any Warrants into which this Warrant may be divided or exchanged. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and in the case of loss, theft or destruction, of reasonable satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company will execute and deliver a new Warrant of like tenor, date and amount. Any such new Warrant executed and delivered shall constitute an additional 4 contractual obligation on the part of the Company, whether or not the original Warrant shall be at any time enforceable by anyone. 5. Rights of the Holder. The Holder shall not, by virtue hereof, be entitled to any rights of a stockholder in the Company, either at law or equity, and the rights of the Holder are limited to those expressed in the Warrant and are not enforceable against the Company except to the extent set forth herein. 6. Adjustment of Exercise Price and/or Number of Warrant Shares. So long as this Warrant shall be outstanding, the Exercise Price in effect at any time and the number and kind of securities purchasable upon the exercise hereof shall be subject to adjustment from time to time upon the happening of certain events as set forth in this Section 6. (a) Upon the happening of any of (i) the issuance of additional shares of Common Stock as a dividend or other distribution with respect to outstanding shares of Common Stock, (ii) the subdivision of outstanding shares of Common Stock into a greater number of shares of Common Stock, or (iii) the combination of outstanding shares of Common Stock into a smaller number of shares of Common Stock, in each case whether by reclassification of shares of Common Stock, recapitalization of the Company or otherwise (each an "Extraordinary Common Stock Event"), the Exercise Price shall, simultaneously with the happening of such Extraordinary Common Stock Event, be adjusted by multiplying the then-applicable Exercise Price by a fraction, the numerator of which shall be the number of shares of the Common Stock outstanding immediately prior to such Extraordinary Common Stock Event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such Extraordinary Common Stock Event. The Exercise Price, as so adjusted, shall be readjusted in the same manner upon the happening of any successive Extraordinary Common Stock Event or Events. Whenever the Exercise Price payable upon exercise of this Warrant is adjusted as provided in this paragraph, the number of Warrant Shares purchasable upon exercise of the Warrant shall simultaneously be adjusted to the number obtained by multiplying the number of Warrant Shares issuable upon exercise of this Warrant by the Exercise Price in effect on the date hereof and dividing the product so obtained by the Exercise Price, as adjusted pursuant hereto. (b) In the event that the Exercise Price is increased above the Exercise Price in effect on the date hereof for any reason (other than as contemplated by paragraph (a) above), the number of Warrant Shares purchasable upon the exercise hereof shall be increased to a number such that (i) the product of (x) such number multiplied by (y) the difference between the fair market value of a share of Common Stock and the Exercise Price (as so adjusted) is equal to (ii) the product of (x) the number of Warrant Shares purchasable upon the exercise hereof (without giving effect to such increase) multiplied by (y) the difference between the fair market value of a share of Common Stock and the Exercise Price in effect immediately prior to such increase. Such adjustment of the number of Warrant Shares purchasable upon the exercise hereof shall be effective as of the date of such increase in the Exercise Price. (c) Whenever the number of shares of Common Stock with respect to which this Warrant is exercisable is adjusted as provided in this Section 6, the Corporation shall 5 promptly mail to the Holder at its address, as the same shall appear on the books of the Company, a notice stating that the number of shares of Common Stock with respect to which this Warrant is exercisable has been adjusted and setting forth the new number of shares of Common Stock (or describing the new stock, securities, cash or other property) with respect to which this Warrant is exercisable as a result of such adjustment, a brief statement of the facts requiring such adjustment and the computation thereof, and when such adjustment became effective. (d) All calculations under this Section 6 shall be made to the nearest cent or to the nearest Warrant Share, as the case may be. (e) In the event that at any time, as a result of an adjustment made pursuant to this Section 6, the Holder of this Warrant thereafter shall become entitled to receive any shares of the Company other than Common Stock, thereafter the number of such other shares so receivable upon exercise of this Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained herein. (f) Irrespective of any adjustments in the Exercise Price or the number or kind of Warrant Shares purchasable upon exercise of this Warrant, this Warrant and any Warrant thereafter issued may continue to express the same price and number and kind of shares as are initially stated herein upon its issuance. 7. Notices to Warrant Holders. So long as this Warrant shall be outstanding, (i) if the Company shall pay any dividend or make any distribution upon the Common Stock, or (ii) if the Company shall offer to the holders of Common Stock for subscription or purchase by them any shares of any class or any other rights, or (iii) if any capital reorganization of the Company, reclassification of the capital stock of the Company, consolidation or merger of the Company with or into another corporation, sale, lease or exchange of all or substantially all of the property and assets of the Company in one transaction or as a part of a series of related transactions, or voluntary or involuntary dissolution, liquidation or winding-up of the Company shall be effected, then in any such case, the Company shall cause to be mailed by certified mail to the Holder, at least 20 days prior to the date specified in clause (x) or clause (y) below, as the case may be, a notice containing a brief description of the proposed action and stating the date on which (x) a record is to be taken for the purpose of such dividend, distribution or rights, or (y) such reclassification, reorganization, consolidation, merger, conveyance, lease, dissolution, liquidation or winding-up is to take place and the date, if any is to be fixed, as of which the holders of Common Stock or other securities shall receive cash or other property deliverable upon such reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding-up. 8. Reclassification, Reorganization or Merger. (a) If the shares of Common Stock issuable upon the exercise of this Warrant shall be changed into the same or a different number of shares of any other class or classes or series of capital stock of the Company, whether by recapitalization, reclassification or otherwise (other than pursuant to a merger, consolidation, share exchange, or sale, lease, exchange or transfer of property and assets described in paragraph 6 (b) below), then, and in each such event, the holder hereof shall have the right thereafter to exercise this Warrant with respect to the kind and amount of shares of capital stock and other securities and property receivable upon such reorganization, reclassification or other change by holders of the number of shares of the Common Stock with respect to which this Warrant could have been exercised immediately prior to such recapitalization, reclassification or other change. No adjustments or provision for adjustments shall be made with respect to the Exercise Price as a result of any of the events described in this paragraph (a). The provisions of this paragraph (a) shall apply similarly to any successive event of a type described in this paragraph. (b) If, at any time or from time to time, the Company shall be a party to a merger or consolidation of the Company with or into another person, then, as a condition to the consummation of such transaction, adequate provision shall be made so that the holder shall thereafter be entitled to purchase upon exercise of this Warrant (x) the number of shares of capital stock or other securities or property of the Company, or of the successor corporation, resulting from such merger or consolidation, that would have been received by such holder had this Warrant been exercised with respect to shares of Common Stock immediately prior to the consummation of such transaction multiplied by (y) the number of shares of Common Stock with respect to which this Warrant could have been exercised immediately prior to the consummation of such transaction. Except as provided in Section 6, no adjustments or provision for adjustments shall be made with respect to the Exercise Price as a result of any of the events described in this paragraph (b). The provisions of this paragraph (b) shall apply similarly to any successive event of a type described in this paragraph. 9. Securities Law Compliance. (a) The Holder of this Warrant, by acceptance hereof, acknowledges that the Warrant and the shares of Common Stock to be issued upon exercise hereof or conversion thereof are being acquired solely for the Holder's own account and not as a nominee for any other party, and for investment, and that the Holder will not offer, sell, transfer, assign or otherwise dispose of this Warrant or any shares of Common Stock to be issued upon exercise hereof or conversion thereof except under circumstances that will not result in a violation of the Act or any state securities laws. Upon exercise of the Warrant, the Holder shall, if requested by the Company, confirm in writing, in a form satisfactory to the Company, that the shares of Common Stock so purchased are being acquired solely for the Holder's own account and not as a nominee for any other party, for investment, and not with a view toward distribution or resale. (b) If appropriate, the Warrant and any Warrants issued upon exercise or substitution or upon assignment or transfer as provided herein and all shares of Common Stock issued upon exercise hereof shall be stamped or imprinted with legends setting forth the restrictions on transfer arising under applicable federal and state securities laws. 10. Registration Rights. (a) Commencing the date hereof, the Company shall advise the Holder of this Warrant and any Warrant Shares by written notice at least 21 days prior to the filing of any registration statement or post-effective amendment thereto ("Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), covering an underwritten public offering of equity securities of the Company and shall register in 7 any such Registration Statement the number of Warrant Shares that the Holder shall notify the Company it desires to register and shall include in any such Registration Statement such information as may be required to permit a public offering of such Warrant Shares by the Company's underwriter(s). The Company shall supply prospectuses and other documents as the Holder may reasonably request in order to facilitate the public sale or other disposition of such Warrant Shares. The Company shall bear the entire cost and expense of a registration of securities initiated by it under this paragraph (a). The Holder shall, however, bear the fees of its own counsel and any transfer taxes and underwriting discounts or commissions applicable to the Warrant Shares sold by it. The Company may include other securities in any such registration statement. The Company shall do any and all other acts and things which may be necessary or desirable to enable the Holder to consummate the public sale or other disposition of the Warrant Shares, and furnish indemnification in the manner as set forth in paragraph (b)(i) of this Section 10, but shall not be required to qualify as a foreign corporation to qualify the Warrant Shares for sale under the securities laws of any state. The Holder shall furnish information and indemnification as set forth in paragraph (b)(ii) of this Section 10. All decisions as to whether and when to proceed with any Registration Statement shall be made solely by the Company. Notwithstanding the foregoing paragraph, in the event that there is an underwritten offering of the Company's securities offered pursuant to said registration statement pursuant to the immediately preceding paragraph, the underwriter(s) shall have the right to refuse to permit any Warrant Shares, or to limit the amount of Warrant Shares, to be sold by the Holder to such underwriter(s) on the same basis as other holders of piggyback or other similar registration rights with respect to Common Stock, and the Holder shall refrain from selling such remainder of its Warrant Shares covered by such registration statement for the period of 90 days immediately following the effective date and shall also refrain at any time when notified by the Company that an amendment or supplement to the prospectus is required. The Company shall not be obligated to keep any Registration Statement effective for a total of more than 180 days. (b)(i) In the event of any registration of any securities of the Company under the Securities Act, the Company shall indemnify and hold harmless each Holder selling Warrant Shares, its officers and directors, each underwriter, broker or any other person acting on behalf of such seller and each other person, if any, who controls any of the foregoing persons within the meaning of the Securities Act against any losses, claims, damages or liabilities, joint or several, to which such seller or any such director or officer or underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such securities were registered under the Securities Act, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto or any document incident to registration or qualification of any Warrant Shares or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or, with respect to any prospectus, necessary to make the statements therein in light of the circumstances under which they were made not misleading, or any violation by the Company of the Securities Act or state securities or blue sky laws applicable 8 to the Company and relating to action or inaction required of the Company in connection with such registration or qualification under such state securities or blue sky laws; and the Company will reimburse such seller and each such director, officer, underwriter and controlling person for any legal or any other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, liability, action or proceeding; provided that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, any such preliminary prospectus, final prospectus, summary prospectus, amendment or supplement in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such seller, specifically stating that it is for use in the preparation thereof and, provided further, that the Company shall not be liable to any person who participates as an underwriter in the offering or sale of Warrant Shares or any other person, if any, who controls such underwriter within the meaning of the Securities Act, in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of such person's failure to send or give a copy of the final prospectus, as the same may be then supplemented or amended, to the person asserting an untrue statement or alleged untrue statement or omission or alleged omission at or prior to the written confirmation of the sale of Registrable Securities and/or the Common Stock to such person if such statement or omission was corrected in such final prospectus. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such seller or any such director, officer, underwriter or controlling person and shall survive the transfer of such securities by such seller. (ii) The Company may require, as a condition to including any Warrant Shares in any Registration Statement, that the Company shall have received an undertaking satisfactory to it from the prospective sellers of such securities, to indemnify and hold harmless (in the same manner and to the same extent as set forth in subparagraph (ii)) the Company, each director of the Company, each officer of the Company and each other person, if any, who controls the Company within the meaning of the Securities Act, with respect to any statement or alleged statement in or omission or alleged omission from such registration statement, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, if such statement or alleged statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such sellers specifically stating that it is for use in the preparation of such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement, provided that the obligation to indemnify shall be several, and not joint and several, among such sellers of and the liability of each such seller shall be in proportion to and limited to the net amount received by such seller from the sale of Warrant Shares pursuant to such registration statement. Such indemnity shall remain in full force and effect, regardless of any investigation made by or on behalf of the Company or any such director, officer or controlling person and shall survive the transfer of such securities by such seller. (iii) Promptly after receipt by an indemnified party of notice of the commencement of any action or proceeding involving a claim referred to in the preceding 9 subdivisions of this paragraph (b), such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action, provided that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under the preceding subdivisions of this paragraph (b), except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, unless in such indemnified party's reasonable judgement a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, the indemnifying party shall be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and alter notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable for any settlement made by the indemnified party without its consent (which consent will not be unreasonably withheld) or for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the consent of the indemnified party, consent to entry of any judgement or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. (iv) Indemnification similar to that specified in the preceding subdivisions of this paragraph (b) (with appropriate modifications) shall be given by the Company and each seller of Warrant Shares with respect to any required registration or other qualification of securities under any federal or state law or regulation of any governmental authority other than the Securities Act. (v) The indemnification required by this paragraph (b) shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or expense, loss, damage or liability is incurred. (c) If the indemnification provided for herein shall for any reason be unavailable or insufficient to an indemnified party under paragraph (b) hereof in respect of any loss, claim, damage or liability, or any action in respect thereof, or referred to therein, then each indemnifying party shall, in lieu of indemnifying such party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, in such proportion as shall be appropriate to reflect (i) the relative benefits received by the Company, on the one hand, and the holders of the Warrant Shares included in the offering, on the other hand, from the offering of the Warrant Shares and (ii) the relative fault of the Company, on the one hand, and the holders of the Warrant Shares included in offering, on the other hand, with respect to the statements or omissions which resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Company, on the one hand and the holders of the Warrant Shares, on the other hand, with respect to such offering shall be deemed to be in the same proportion as the sum of the total Exercise Price paid to the Company in respect of the Warrant Shares plus the total net proceeds from the offering of the securities (before deducting expenses) received by the Company bears to the amount by which the total net proceeds from the 10 offering of the securities (before deducting expenses) received by the holders of the Warrant Shares with respect to such offering exceeds the Subscription Price paid to the Company in respect of the Warrant Shares and in each case the net proceeds received from such offering shall be determined as set forth on the table of the cover page of the prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or the holders of the Warrant Shares, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the holders of the Warrant Shares agree that it would not be just and equitable if contribution pursuant to this paragraph (c) were to be determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to in this paragraph (c) shall be deemed to include, for purposes of this paragraph, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (d) The Company shall not effect or permit to occur any combination or subdivision of shares which would adversely affect the ability of the holders of Warrant Shares to include such Warrant Shares in any registration of its securities contemplated by this Section 10 or the marketability of such Warrant Shares under any such registration. (e) If the Company shall have filed a registration statement pursuant to the requirements of Section 12 of the Exchange Act or a registration statement pursuant to the requirements of the Securities Act, the Company shall file the reports required to be filed by it under the Securities Act and the Exchange Act (or, if the Company is not required to file such reports, shall, upon the request of any holder of Warrant Shares, make publicly available other information) and shall take such further action as any holder of Warrant Shares may reasonably request, all to the extent required from time to time to enable such holder to sell such holder's securities without registration under the Securities Act but within the limitations of the exemptions provided by (i) Rule 144, or (ii) any similar rule or regulation hereafter adopted by the Commission. Upon the request of any Holder, the Company shall deliver to such holder a written statement as to whether it has complied with such requirements. 11. Right to Convert Warrant into Common Stock. (a) The Holder shall have the right to require the Company to convert this Warrant provided in this Section 11, into Common Stock (the "Net Conversion Right"). Upon exercise of the Net Conversion Right, the Company shall deliver to the Holder (without payment by the Holder of any Exercise Price or of any other cash or consideration) that number of shares of Common Stock equal to the quotient obtained by dividing (x) the value of this Warrant (determined by multiplying (A) the number of Warrant Shares issuable upon exercise in full of this Warrant by (B) the difference between the fair market value of a share of Common Stock and the Exercise Price then in effect) at the time the Conversion Right is exercised (determined by subtracting the aggregate Exercise Price in 11 effect immediately prior to the exercise of the Conversion Right from the aggregate fair market value of the shares of Common Stock issuable upon exercise of this Warrant immediately prior to the exercise of the Conversion Right) by (y) the fair market value of one share of Common Stock immediately prior to the exercise of the Conversion Right. (b) The Net Conversion Right may be exercised by the Holder by the surrender of this Warrant at the principal office of the Company together with a written statement specifying that the Holder thereby intends to exercise the Net Conversion Right. Certificates for the shares of Common Stock issuable upon exercise of the Net Conversion Right shall be delivered to the Holder within five days following the Company's receipt of this Warrant together with the aforesaid written statement. (c) For purposes of this Section, fair market value of a share of Common Stock as of a particular date (the "Determination Date") shall be determined in accordance with Section 3 of this Warrant. 12. Amendments. Neither the Warrant nor any term hereof may be changed, waived, discharged or terminated without the prior written consent of Holder. 13. No Impairment. The Company will not avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may be necessary or appropriate in order to protect the rights of any Holder. 14. Governing Law. This Agreement shall be governed by and construed under the laws of the State of New York. 15. Notices. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by first class mail, postage prepaid, addressed as follows: (a) if to Holder, to Deutsche Bank Securities, Inc., One South Street, Baltimore, Maryland 21202, Attention: Donald Notman, or (b) if to the Company, to Screaming Media.Net, Inc., 601 West 26th Street, 13th Floor, New York, New York 10001, Attention: Alan Ellman, or at such other address as to the Company shall have furnished to the Holder in writing. 12 IN WITNESS WHEREOF, Screaming Media.Net, Inc. has caused this Warrant to be executed by its officer thereunto duly authorized. Dated as of June 7, 1999 SCREAMING MEDIA.NET, INC. By: /s/ Alan S. Ellman ------------------------------- Name: Alan S. Ellman Title: President 13 PURCHASE FORM Dated_______ The undersigned hereby irrevocably elects to exercise its rights pursuant to this Warrant to the extent of purchasing_______shares of Common Stock of Screaming Media.Net, Inc. and hereby makes payment of $______, in cash, in payment of the exercise price thereof. [The undersigned hereby irrevocably elects to exercise its rights pursuant to this Warrant to the extent of purchasing_______shares of Common Stock and hereby authorizes you to deliver such shares of Common Stock for sale to_____, and to retain from the proceeds of such sale $______, in cash, in payment of the exercise price thereof and to remit to the undersigned the balance of such proceeds.] ------------ INSTRUCTIONS FOR REGISTRATION OF STOCK -------------------------------------- Name: ---------------------------------------------------------- (Please type or print in block letters) Address: ------------------------------------------------------- Signature: ----------------------------------------------------- 14 ASSIGNMENT FORM FOR VALUE RECEIVED, hereby sells, ------------------------------------------ assigns and transfers unto Name: -------------------------------------------------------------------- (Please type or print in block letters) Address: ----------------------------------------------------------------- the right to purchase Common Stock of Screaming Media.Net, Inc. (the "Company"), represented by this Warrant to the extent of shares as --------- to which such right is exercisable and does hereby irrevocably constitute and appoint as Attorney, to transfer the same on the books of ---------------------- the Company with full power of substitution in the premises. Date: ----------- Signature: ------------------------- EX-10.7 7 WARRANT AGREEMENT 1 EXHIBIT 10.7 NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE REGISTERED HOLDER OF THIS WARRANT HAS AGREED THAT NO SALE, PLEDGE OR OTHER TRANSFER OF THIS WARRANT OR ANY OF SAID SHARES MAY BE MADE WITHOUT REGISTRATION UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW, UNLESS THE HOLDER SHALL DELIVER TO THE ISSUER AN OPINION (IN FORM SATISFACTORY TO THE ISSUER) OF COUNSEL SATISFACTORY TO THE ISSUER THAT NO SUCH REGISTRATION IS REQUIRED. SCREAMINGMEDIA.NET, INC. COMMON STOCK PURCHASE WARRANT Warrant No. 1 7,143 Shares This certifies that, for value received, CARTER, LEDYARD & MILBURN or its assigns, are entitled, subject to the terms and conditions hereinafter set forth, at or before 5:00 p.m., New York time, on June 10, 2004, but not thereafter, to purchase up to 7,143 shares (the "Shares") of Common Stock, par value $.01 per share ("Common Stock"), of ScreamingMedia.Net, Inc., a Delaware corporation (the "Company"). The purchase price payable upon the exercise of this Warrant shall initially be $7.00 per share, said amount being subject to adjustment as described herein (the "Warrant Price"). Upon delivery of this Warrant with the Purchase Form attached hereto duly executed, together with payment of the Warrant Price for the shares of Common Stock thereby purchased, at the principal office of the Company or at such other address as the Company may designate by notice in writing to the registered holder hereof (the "Holder"), the Holder shall be entitled to receive a certificate or certificates for the Shares so purchased. All Shares issued upon the exercise of this Warrant will, upon issuance, be paid and nonassessable and free from all taxes, liens and charges with respect thereto. This Warrant is subject to the following terms and conditions: 2 1. SECTION TRANSFERABILITY AND FORM OF WARRANT 1.1 Registration. This Warrant is numbered and registered on the books of the Company. The Company shall be entitled to treat the Holder as the sole owner of this Warrant for all purposes and shall not be bound to recognize any equitable or other claim to or interest in this Warrant on the part of any other person, and shall not be liable for any registration of transfer of this Warrant which is to be registered in the name of a fiduciary or the nominee of a fiduciary unless made with actual knowledge that a fiduciary or nominee is committing a breach of trust in requesting such registration of transfer. 1.2 Transfer. This Warrant shall be transferable only on the books of the Company maintained at its principal office in New York, New York, or wherever its principal office may then be located, upon delivery of this Warrant either duly endorsed by the Holder or by the Holder's duly authorized attorney or representative, or accompanied by proper evidence of succession, assignment, or authority to transfer. In all cases of transfer by an attorney, the original letter of attorney, duly approved, or an official copy thereof, duly certified, shall be deposited and remain with the Company. In case of transfer by executors, administrators, guardians or other legal representatives, duly authenticated evidence of their authority shall be produced, and may be required to be deposited and remain with the Company in its discretion. Upon any registration of transfer, the Company shall execute and deliver a new Warrant to the person entitled thereto. 2. SECTION EXCHANGE OF WARRANT CERTIFICATE This Warrant certificate may be exchanged for another certificate or certificates entitling the Holder to purchase a like aggregate number of Shares as this certificate then entitles the Holder to purchase. Any Holder of this Warrant desiring to exchange this Warrant certificate shall make such request in writing delivered to the Company, and shall surrender this certificate, properly endorsed, to the Company. Thereupon, the Company shall execute and deliver to the person entitled thereto a new Warrant certificate or certificates, as the case may be, as so requested. 3. SECTION TERM OF WARRANT; EXERCISE OF WARRANT Subject to the terms of this Warrant, the Holder shall have the right, at any time during the period commencing at 9:00 a.m., New York time, on the date hereof, until 5:00 p.m., New York time, on June 10, 2004 (the "Termination Date"), to purchase from the Company the number of fully paid and nonassessable Shares to which the Holder may at the time be entitled to purchase pursuant to this Warrant, upon surrender, to the Company at this principal office, of this Warrant certificate, together with the Purchase Form attached hereto duly completed and signed, and upon payment to the Company of the Warrant Price for the number of Shares in respect of which this Warrant is then being exercised. Payment of the aggregate Warrant Price shall be made in cash, or by certified or cashier's check, or by delivery of shares of Common Stock 3 valued at their Current Market Price (as hereinafter defined) on the date of exercise, or a combination thereof. In lieu of exercising this Warrant as provided above, the Holder may elect to receive Shares equal to value (as determined below) of any or all of the Warrants represented by this Warrant, upon surrender to Company, at its principal office, of all or a portion of this Warrant, together with notice of such election (a "Cashless Exercise"), in which event the Company shall issue to the Holder a number of Shares computed using the following formula: X = Y(A-B) A where X = the number of Shares to be issued pursuant to this paragraph. Y = the number of Shares issuable upon exercise of the surrendered Warrants. A = the Current Market Price, as defined in Section 8.1(d) hereof, on the date when this Warrant evidencing the surrendered Warrants is received by the Company at its principal office. B = the Warrant Price. Upon surrender of this Warrant and payment of the Warrant Price (or upon a Cashless Exercise) as aforesaid, the Company shall issue and cause to be delivered with all reasonable dispatch, to or upon the written order of the Holder and (subject to the restrictive Legend on the first page of this Warrant) in such name or names as the Holder may designate, a certificate or certificates for the number of full Shares so purchased upon the exercise of this Warrant, together with cash, as provided in Section 9 hereof; in respect of any fractional Shares otherwise issuable upon such surrender. Such certificate or certificates shall be deemed to have been issued and any person so designated to be named therein shall be deemed to have become a holder of record of such Shares as of the date of the surrender of this Warrant arid payment of the Warrant Price (or making of a Cashless Exercise) as aforesaid; provided that if, at the date of surrender of this Warrant and payment of such Warrant Price (or making of a Cashless Exercise), the transfer books for the Shares or other class of stock purchasable upon the exercise of this Warrant shall be closed, the certificates for the Shares in respect of which this Warrant is then exercised shall be issuable as of the date on which such books shall next be opened (whether before or after the Termination Date) and until such date the Company shall be under no duty to deliver any certificate for such Shares; and provided further that the transfer books of record, unless otherwise required by law, shall not be closed at any one time for a period longer than twenty days. The rights of purchase represented by this Warrant shall be exercisable, at the election of the Holder, either in full or from time to time in part and in the event that this Warrant is 3 4 exercised in respect of fewer than all of the Shares at any time prior to the date of expiration of this Warrant, a new Warrant certificate to purchase the remaining Shares will be issued. 4. SECTION PAYMENT OF TAXES The Company will pay all documentary stamp taxes, if any, attributable to the initial issuance of Shares upon the exercise of this Warrant provided that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in such issuance. 5. SECTION MUTILATED OR MISSING WARRANT In case the certificate evidencing this Warrant shall be mutilated, lost, stolen or destroyed, the Company may, in its discretion, issue and deliver in exchange and substitution for and upon cancellation of this certificate if it is mutilated, or in lieu of and substitution for this certificate if it is lost, stolen or destroyed, a new Warrant certificate of like tenor and representing an equivalent right or interest, but only upon receipt of evidence satisfactory to the Company of such loss, theft or destruction of this Warrant and indemnity, if requested, also satisfactory to the Company. Applicants for such substitute Warrant certificate shall also comply with such other reasonable regulations and pay such other reasonable charges as the Company may prescribe. 6. SECTION RESERVATION OF SHARES There have been reserved, and the Company shall at all times keep reserved, out of its authorized Common Stock a number of shares of Common Stock sufficient to provide for the exercise of the rights of purchase represented by this Warrant. Any transfer agent for the Common Stock or for any other shares of the Company's capital stock issuable upon the exercise of any of the rights of purchase aforesaid will be irrevocably authorized and directed at all times to reserve such number of authorized shares as shall be requisite for such purpose. The Company will keep a photocopy of this Warrant on file with any transfer agent for the Common Stock or for any shares of the Company's capital stock issuable upon the exercise of the rights of purchase represented by this Warrant. 7. SECTION PURCHASE BY THE COMPANY 7.1 Purchase of Warrant. The Company shall have the right, except as limited by law, other agreements or herein, to purchase or otherwise acquire this Warrant at such times, in such manner and for such consideration as it may deem appropriate and as shall be agreed with the Holder of this Warrant. 8. SECTION ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES 4 5 8.1 Adjustments. The Warrant Price and the number and kind of securities purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the happening of certain events, as follows: (a) In case the Company shall (i) pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock, (ii) subdivide its outstanding shares of Common Stock, (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock or (iv) issue by reclassification of its shares of Common Stock other securities of the Company, the number of Shares purchasable upon exercise of this Warrant immediately prior thereto shall be adjusted so that the Holder of this Warrant shall be entitled to receive the kind and number of Shares or other securities of the Company which he would have owned or have been entitled to receive after the happening of any of such event or any record date with respect thereto. An adjustment made pursuant to this paragraph (a) shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event (b) In case the Company shall issue rights, options or warrants to all or substantially all holders of its shares of Common Stock, without any charge to such holders, entitling them to subscribe for or purchase shares of Common Stock at a price per share which is lower at the record date mentioned below than the Current Market Price per share of Common Stock (as defined in paragraph (d) below), the number of Shares thereafter purchasable upon the exercise of this Warrant shall be determined by multiplying the number of Shares theretofore purchasable upon exercise of this Warrant by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights, options or warrants plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the denominator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights, options or warrants plus the number of shares which the aggregate offering price of the total number of shares of Common Stock so offered would purchase at such Current Market Price. Such adjustment shall be made whenever such rights, options or warrants are issued, and shall become effective retroactively immediately after the record date for the determination of stockholders entitled to receive such rights, options or warrants. (c) In case the Company shall distribute to all or substantially all holders of its shares of Common Stock evidences of its indebtedness or assets (excluding cash dividends or distributions out or earnings) or rights, options or warrants or convertible securities containing the right to subscribe for or purchase shares of Common Stock (excluding those referred to in paragraph (b) above), then in each such case the number of Shares thereafter purchasable upon the exercise of this Warrant shall be determined by multiplying the number of Shares theretofore purchasable upon exercise of this Warrant by a fraction, of which the numerator shall be the then Current Market Price per share of Common Stock (as defined in paragraph (d) below) on the date of such distribution, and of which the denominator shall be such Current Market Price per share of Common Stock, less the then fair value (as determined by the Board of Directors of the Company, whose determination shall be conclusive) of the portion of the assets or evidences of indebtedness so distributed or of such subscription rights, options or warrants, or of such convertible securities applicable to one share of Common Stock. Such adjustment shall be made 5 6 whenever any such distribution is made, and shall become effective on the date of distribution retroactive to the record date for the determination of shareholders entitled to receive such distribution. (d) For the purposes of this Warrant, the Current Market Price per share of Common Stock of the Company at any date shall be deemed to be (i) if the shares of Common Stock are traded in the over-the-counter market and not on any national securities exchange and not in the NASDAQ National Market System, the average of the mean between the bid and asked price per share, as reported by The National Quotation Bureau, Incorporated, or an equivalent generally accepted reporting service, for the twenty (20) consecutive trading days immediately preceding the date for which the determination of Current Market Price is to be made, or, (ii) if the shares of Common Stock are traded on a national securities exchange or in the NASDAQ National Market System, the average daily per share closing price on the principal national securities exchange on which they are so listed or in the NASDAQ National Market System, as the case may be, for the twenty (20) consecutive trading days immediately preceding the date for which the determination of Current Market Price is to be made. The closing price referred to in clause (ii) above shall be the last reported sales price or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices, in either case on the principal national securities exchange on which the shares of Common Stock are then listed or in the NASDAQ National Market System. If the Current Market Price cannot be determined in accordance with the foregoing, it shall be the fair market value per share of Common Stock as determined in good faith by the Company's Board of Directors. (e) No adjustment in the number of shares purchasable hereunder shall be required unless such adjustment would require an increase or decrease of at least 1 percent in the number of Shares purchasable upon the exercise of this Warrant; provided that any adjustments which by reason of this paragraph (e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. (f) Whenever the number of Shares purchasable upon the exercise of this Warrant is adjusted as herein provided, the Warrant Price per Share payable upon exercise of this Warrant shall be adjusted by multiplying such Warrant Price immediately prior to such adjustment by a fraction, of which the numerator shall be the number of Shares purchasable upon the exercise of this Warrant immediately prior to such adjustment, and of which the denominator shall be the number of Shares so purchasable immediately thereafter. (g) In case the Company shall sell and issue shares of Common Stock, or rights, options, warrants or convertible securities containing the right to subscribe for or purchase shares of Common Stock, at a price per share of Common Stock (determined in the case of such rights, options, warrants or convertible securities, by dividing (1) the total amount received or receivable by the Company in consideration of the sale and issuance of such rights, options, warrants or convertible securities, plus the total consideration payable to the Company upon exercise or conversion thereof, by (ii) the total number of shares of Common Stock covered by such rights, options, warrants or convertible securities) lower than the Current Market Price (as 6 7 defined in paragraph (d) above) in effect immediately prior to such sale and issuance, then the Warrant Price shall be reduced to a price (calculated to the nearest cent) determined by dividing (i) an amount equa1 to the sum of (1) the number of shares of Common Stock outstanding immediately prior to such sale and issuance multiplied by the then existing Warranty Price, plus (2) the consideration received by the Company upon such sale and issuance, by (ii) the total number of shares of Common Stock outstanding immediately after such sale and issuance; provided that adjustments pursuant to this paragraph (g) shall only be made if such sale or issuance is to an officer, director or other affiliate of the Company, or any relative of any of the above, and if no adjustment for such sale or issuance is made pursuant to paragraph (c) above. The number of Shares purchasable upon the exercise of each Warrant shall be determined by multiplying the number of Shares issuable upon exercise immediately prior to such adjustment by a fraction, of which the numerator is the Warrant Price in effect immediately prior to such adjustment and the denominator is the Warrant Price as so adjusted. For the purposes of such adjustments, the shares of Common Stock which the holders of any such rights, options, warrants or convertible securities shall be entitled to subscribe for or purchase shall be deemed to be issued and outstanding as of the date of such sale and issuance, and the consideration received by the Company therefor shall be deemed to be the consideration received by the Company for such rights, options, warrants or convertible securities, plus the consideration or premiums stated in such rights, options, warrants, or convertible securities to be paid for the shares of Common Stock covered thereby. In case the Company shall sell and issue shares of Common Stock, or rights, options, warrants, or convertible securities containing the right to subscribe for or purchase shares of Common Stock, for a consideration consisting, in whole or in part, of property other than cash or its equivalent, then in determining the "price per share of Common Stock" and the "consideration received by the Company" for purposes of the first sentence of this paragraph (g), the Board of Directors shall determine, in its discretion, the fair value of said property and such determination, if made in good faith, shall be binding upon the Holder of this Warrant. There shall be no adjustment of the Warrant Price pursuant to this paragraph (g) if the amount of such adjustment would be less than $.05 per Share; provided that any adjustment which by reason of this provision is not required to be made shall be carried forward and taken into account in any subsequent adjustment. (h) When the number of Shares purchasable upon the exercise of this Warrant or the Warrant Price is adjusted as herein provided, the Company shall promptly mail to the Holder by first class mail, postage prepaid, notice of such adjustment or adjustments together with a certificate of a firm of independent public accountants selected by the Board of Directors of the Company (who may be the regular accountants employed by the Company) setting forth the number of Shares purchasable upon the exercise of this Warrant and the Warrant Price of such Shares after such adjustment, a brief statement of the facts requiring such adjustment and the computation by which such adjustment was made. Such certificate shall be conclusive evidence of the correctness of such adjustment. The Company shall be entitled to rely on such certificate and shall be under no duty or responsibility with respect to any such certificate, except to exhibit the same, from time to time, to the Holder during reasonable business hours. 7 8 (i) For the purpose of this subsection 8.1, the term "shares of Common Stock" shall mean (i) the class of stock designated as the Common Stock of the Company on the date of this Warrant, or (ii) any other class of stock resulting from successive changes or reclassifications of such shares consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. In the event that at any time, as a result of an adjustment made pursuant to this subsection 8.1, the Holder shall become entitled to purchase any shares of the Company other than shares of Common Stock, thereafter the number of such other shares so purchasable upon exercise of this Warrant, and the Warrant Price of such shares, shall be subject to adjustment from time to time in manner and on terms as nearly equivalent as practicable to the provisions with respect to the Shares contained in paragraphs (a) though (h), inclusive, above, and the provisions of Section 3 and subsections 8.2 through 8.4, inclusive, with respect to the shares shall apply on like terms to any such other shares. (j) Upon the expiration of any rights, options, warrants or conversion privileges, if any thereof shall not have been exercised, the number of shares purchasable upon exercise of this Warrant and the Warrant Price, to the extent this Warrant shall not then have been exercised, shall, upon such expiration, be readjusted and shall thereafter be such as they would have been had it been originally adjusted (or had the original adjustment not been required, as the case may be) on the basis of (1) the only shares of Common Stock so issued were the shares of Common Stock, if any, actually issued or sold upon the exercise of such rights, options, warrants or conversion rights and (2) such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company for the issuance, sale or grant of all of such rights, options, warrants or conversion rights, whether or not exercised; provided that no such readjustment shall have the effect of increasing the Warrant Price by an amount in excess of the amount of the adjustment initially made in respect of the issuance, sale or grant of such rights, options, warrants or convertible rights. 8.2 No Adjustment for Dividends. Except as provided in subsection 8.1, no adjustment in respect of any dividends shall be made during the term of this Warrants or upon the exercise of this Warrant. 8.3 No Adjustment in Certain Cases. No adjustments shall be made pursuant to this Section 8, in connection with the issuance of (a) such number of shares of Common Stock (as adjusted for all stock dividends, stock splits, subdivisions and combinations) as are issued to employees, officers, Directors, consultants or members of the Advisory Board of the Company, or other persons performing services for the company, pursuant to any stock option plan, stock purchase plan or management incentive plan, agreement or arrangement approved by the Board, and (b) any shares of Common Stock (or securities convertible into shares of Common Stock) as consideration for the acquisition by the Company of assets or equity interests in any business entity. 8.4 Preservation of Purchase Rights upon Reclassification, Consolidation, etc. In case of any consolidation of the Company with or merger of the Company into another corporation or in case of any sale or conveyance to another corporation of the property, assets or business of the 8 9 company as an entirety or substantially as an entirety, the Company or such successor or purchasing corporation, as the case may be, shall execute an agreement with the Holder that the Holder shall have the right thereafter upon payment of the Warrant Price in effect immediately prior to such action to purchase upon exercise of this Warrant the kind and amount of Shares and other securities and property which he would have owned or have been entitled to receive after the happening of such consolidation, merger, sale or conveyance had this Warrant been exercised immediately prior to such action. Such agreement shall provide for adjustments, which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 8. The Company shall mail an executed copy of any such agreement by first class mail, postage prepaid, to the Holder. The provisions of this subsection 8.4 shall similarly apply to successive consolidations, mergers, sales, or conveyances. 9. SECTION FRACTIONAL INTERESTS The company shall not be required to issue fractional Shares on the exercise of this Warrant. If more than one of the Redeemable Warrants shall be presented for exercise in full at the same time by the same Holder, the number of full Shares which shall be issuable upon the exercise thereof shall be computed on the basis of the aggregate number of Shares represented by this Warrant and the Other Redeemable Warrants so presented. If any fraction of a Share would, except for the provisions of this Section 9, be issuable on the exercise of this Warrant (or specified portion thereof), the Company shall pay an amount in cash equal to the Current Market Price per Share (as defined in paragraph 8.1(d) above) multiplied by such fraction. 10. SECTION NO RIGHT AS STOCKHOLDERS; NOTICES TO HOLDER Nothing contained in this Warrant shall be construed as conferring upon the Holder or the Holder's transferees the right to vote or to receive dividends or to consent or to receive notice as stockholders in respect of any meeting of stockholders for the election of directors of the Company or any other matter, or any rights whatsoever as stockholders of the Company. If, however, at any time prior to the expiration of this Warrant and prior to its exercise, any of the following events shall occur: (a) any action which would require an adjustment pursuant to subsections 8.1 or 8.4, or (b) a dissolution, liquidation, or winding up of the Company (other than in connection with a consolidation, merger, or sale of all or substantially all of its property, assets, and business as an entirety) shall be proposed; the Company shall in each such case give notice in writing of such event to the Holders as provided in Section 11 hereof. Failure to publish or mail such notice or any defect therein or in the publication or mailing thereof shall not affect the validity of any action taken in connection with such dividend, distribution, or subscription rights, or proposed dissolution, liquidation or winding up. 9 10 11. SECTION NOTICES 11.1 Any notice to the Company pursuant to this Warrant shall be in writing and shall be deemed to have been duly given if delivered or mailed certified mail, return receipt requested, to the Company at IT Center, 55 Broad Street, 23rd Floor, New York, New York 10004, Attention: President. The Company may from time to time change the address to which such notices are to be delivers or mailed hereunder by notice to the Holder in accordance with paragraph (b) below. 11.2 Any notice pursuant to this Warrant by the Company to the Holder shall be in writing and shall be deemed to have been duly given if mailed, postage prepaid, to the Holder at the Holder's address on the books of the Company. 12. SECTION SUPPLEMENTS AND AMENDMENTS The Company may from time to time supplement or amend this Warrant, without the approval of the Holder, in order to cure any ambiguity or to correct or supplement any provision contained herein which may be defective or inconsistent with any other provisions herein, or to make any other provisions in regard to matters or questions arising hereunder which the Company may deem necessary or desirable and which shall not be inconsistent with the provisions of this Warrant and which shall not adversely affect the interest of the Holder. Any other amendment to this Warrant may be made only by a written instrument executed by the Company and the Holder. 13. SECTION SUCCESSORS All the covenants and provisions of this Warrant by or for the benefit of the Company or the Holder shall bind and inure to the benefit of their respective successors and assigns hereunder. 14. SECTION MERGER OR CONSOLIDATION OF THE COMPANY The Company will not merge or consolidate with or into any other entity unless the entity resulting from such merger or consolidation (if not the Company) shall expressly assume the due and punctual performance and observance of each and every covenant and condition of this Warrant to be performed and observed by the Company. 15. SECTION APPLICABLE LAW This Warrant shall be deemed to be a contract made under the laws of the State of New York and for all purposes shall be construed in accordance with the laws of said state. 10 11 IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its President and its corporate seal to be affixed thereto. Date: June 10, 1999 SCREAMINGMEDIA.NET, INC. ATTEST: By: /s/ Alan S. Ellman ______________________________ /s/ William P. Kelly Alan S. Ellman, President __________________________________ William P. Kelly, Secretary 11 12 SCREAMINGMEDIA.NET, INC. COMMON STOCK PURCHASE WARRANT PURCHASE FORM The undersigned hereby irrevocably elects to exercise the right of purchase represented by (the within Warrant Certificate for, and to purchase thereunder, _____________ shares (the "Shares") provided for therein, and requests that certificates for the Shares be issued in the name of: _______________________________________ (Please Print or Type Name, Address and Social Security Number) _______________________________________ _______________________________________ _______________________________________ and, if said number of Shares shall not be all the Shares purchasable hereunder, that a new Warrant Certificate for the balance of the unpurchased Shares be registered in the name of the undersigned Warrant holder as below indicated and delivered to the address stated below: (Please Print) Dated:__________________________________ Name of Warrantholder:__________________ Address:________________________________ ________________________________ Signature:______________________________ 12 13 Note: The above signature must correspond with the name as written upon the face of this Warrant Certificate in every particular, without alteration or enlargement or any change whatever. Signature Guaranteed: __________________________________ (Signature must be guaranteed by a bank or trust company having an office or correspondent in the United States or by a member firm of a registered securities exchange or the National Association of Securities Dealers, Inc.) 13 EX-10.8 8 WARRANT AGREEMENT 1 Exhibit 10.8 NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE REGISTERED HOLDER OF THIS WARRANT HAS AGREED THAT NO SALE, PLEDGE OR OTHER TRANSFER OF THIS WARRANT OR ANY OF SAID SHARES MAY BE MADE WITHOUT REGISTRATION UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW, UNLESS THE HOLDER SHALL DELIVER TO THE ISSUER AN OPINION (IN FORM SATISFACTORY TO THE ISSUER) OF COUNSEL SATISFACTORY TO THE ISSUER THAT NO SUCH REGISTRATION IS REQUIRED. SCREAMING MEDIA.COM INC. COMMON STOCK PURCHASE WARRANT Warrant No. 3 50,000 Shares This certifies that, for value received, TOMAR ASSOCIATES, INC. or its assigns, are entitled, subject to the terms and conditions hereinafter set forth, at or before 5:00 p.m., New York time, on February 4, 2005, but not thereafter, to purchase up to 50,000 shares (the "Shares") of Common Stock, par value $.01 per share ("Common Stock"), of Screaming Media.com Inc., a Delaware corporation (the "Company"). The purchase price payable upon the exercise of this Warrant shall initially be $5.60 per share, said amount being subject to adjustment as described herein (the "Warrant Price"). Upon delivery of this Warrant with the Purchase Form attached hereto duly executed, together with payment of the Warrant Price for the shares of Common Stock thereby purchased, at the principal office of the Company (which is located at the Company's address as set forth in Section 11) or at such other address as the Company may designate by notice in writing to the registered holder hereof (the "Holder"), the Holder shall be entitled to receive a certificate or certificates for the Shares so purchased. All Shares issued upon the exercise of this Warrant will, upon issuance, be fully paid and nonassessable and free from all taxes, liens and charges with respect thereto. This Warrant is subject to the following terms and conditions: 2 Section 1. Transferability and Form of Warrant l.l. Registration. This Warrant is numbered and registered on the books of the Company. The Company shall be entitled to treat the Holder as the sole owner of this Warrant for all purposes and, unless the provisions of Section 1.2 shall be complied with, shall not be bound to recognize any equitable or other claim to or interest in this Warrant on the part of any other person, and shall not be liable for any registration of transfer of this Warrant which is to be registered in the name of a fiduciary or the nominee of a fiduciary unless made with actual knowledge that a fiduciary or nominee is committing a breach of trust in requesting such registration of transfer. 1.2. Transfer. This Warrant shall be transferable only on the books of the Company maintained at its principal office in New York, New York, or wherever its principal office may then be located, upon delivery of this Warrant either duly endorsed by the Holder or by the Holder's duly authorized attorney or representative, or accompanied by proper evidence of succession, assignment, or authority to transfer. In all cases of transfer by an attorney, the original letter of attorney, duly approved, or an official copy thereof, duly certified, shall be deposited and remain with the Company. In case of transfer by executors, administrators, guardians or other legal representatives, duly authenticated evidence of their authority shall be produced, and may be required to be deposited and remain with the Company in its discretion. Upon any registration of transfer, the Company shall execute and deliver a new Warrant to the person entitled thereto. Section 2. Exchange of Warrant Certificate This Warrant certificate may be exchanged for another certificate or certificates entitling the Holder to purchase a like aggregate number of Shares as this certificate then entitles the Holder to purchase. Any Holder of this Warrant desiring to exchange this Warrant certificate shall make such request in writing delivered to the Company, and shall surrender this certificate, properly endorsed, to the Company. Thereupon, the Company shall execute and deliver to the person entitled thereto a new Warrant certificate or certificates, as the case may be, as so requested. Section 3. Term of Warrant; Exercise of Warrant Subject to the terms of this Warrant, the Holder shall have the right, at any time during the period commencing at 9:00 a.m., New York time, on the date hereof, until 5:00 p.m., New York time, on February 4, 2005 (the "Termination Date"), to purchase from the Company the number of fully paid and nonassessable Shares to which the Holder may at the time be entitled to purchase pursuant to this Warrant, upon surrender, to the Company at this principal office, of this Warrant certificate, together with the Purchase Form attached hereto duly completed and signed, and upon payment to the Company of the Warrant Price for the number of Shares in respect of which this Warrant is then being exercised. Payment of the aggregate Warrant Price shall be made in cash, or be certified or cashier's check, or by delivery of shares of Common Stock valued at their Current Market Price (as hereinafter defined) on the date of exercise, or a combination thereof. -2- 3 Upon surrender of this Warrant and payment of the Warrant Price as aforesaid, the Company shall issue and cause to be delivered with all reasonable dispatch, to or upon the written order of the Holder and (subject to the restrictive legend on the first page of this Warrant) in such name or names as the Holder may designate, a certificate or certificates for the number of full Shares so purchased upon the exercise of this Warrant, together with cash, as provided in Section 9 hereof, in respect of any fractional Shares otherwise issuable upon such surrender. Such certificate or certificates shall be deemed to have been issued and any person so designated to be named therein shall be deemed to have become a holder of record of such Shares as of the date of the surrender of this Warrant and payment of the Warrant Price as aforesaid; provided that if, at the date of surrender of this Warrant and payment of such Warrant Price, the transfer books for the Shares or other class of stock purchasable upon the exercise of this Warrant shall be closed, the certificates for the Shares in respect of which this Warrant is then exercised shall be issuable as of the date on which such books shall next be opened (whether before or after the Termination Date) and until such date the Company shall be under no duty to deliver any certificate for such Shares; and provided further that the transfer books of record, unless otherwise required by law, shall not be closed at any one time for a period longer than twenty days. The rights of purchase represented by this Warrant shall be exercisable, at the election of the Holder, either in full or from time to time in part and, in the event that this Warrant is exercised in respect of fewer than all of the Shares at any time prior to the date of expiration of this Warrant, a new Warrant certificate to purchase the remaining Shares will be issued. Section 4. Payment of Taxes The Company will pay all documentary stamp taxes, if any, attributable to the initial issuance of Shares upon the exercise of this Warrant; provided that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in such issuance. Section 5. Mutilated or Missing Warrant In case the certificate evidencing this Warrant shall be mutilated, lost, stolen or destroyed, the Company may, in its discretion, issue and deliver in exchange and substitution for and upon cancellation of this certificate if it is mutilated, or in lieu of and substitution for this certificate if it is lost, stolen or destroyed, a new Warrant certificate of like tenor and representing an equivalent right or interest, but only upon receipt of evidence satisfactory to the Company of such loss, theft or destruction of this Warrant and indemnity, if requested, also satisfactory to the Company. Applicants for such substitute Warrant certificate shall also comply with such other reasonable regulations and pay such other reasonable charges as the Company may prescribe. Section 6. Reservation of Shares There have been reserved, and the Company shall at all times keep reserved, out of its authorized Common Stock, a number of shares of Common Stock sufficient to provide for the exercise of the rights of purchase represented by this Warrant. Any transfer agent for the Common -3- 4 Stock or for any other shares of the Company's capital stock issuable upon the exercise of any of the rights of purchase aforesaid will be irrevocably authorized and directed at all times to reserve such number of authorized shares as shall be requisite for such purpose. The Company will keep a photocopy of this Warrant on file with any transfer agent for the Common Stock or for any shares of the Company's capital stock issuable upon the exercise of the rights of purchase represented by this Warrant. SECTION 7. PURCHASE BY THE COMPANY; REGISTRATION 7.1 Right to Require Repurchase of Warrant by the Company. The Holder shall, at any time prior to the Termination Date, have the right, subject to the terms and conditions set forth in this subsection 7.1, to cause the Company to purchase this Warrant, in whole or in part (such right being the "Warrant Put"), at a price of $14.40 per share (payable in cash), as adjusted in the manner of the Warrant Price in Section 8 hereof (the "Warrant Put Price"), by delivery to the Company of the Warrant and written notice of the exercise of the Warrant Put (the "Warrant Put Notice"). The Company shall, within 30 days of receipt of the Warrant and the Warrant Put Notice, pay the Warrant Put Price to the Holder, or such person or persons as the Holder may designate in the Warrant Put Notice. 7.2 Right to Require Repurchase of Shares by the Company. (a) The following terms used in this Section 7.2 and in Section 7.3 hereof shall have the indicated definitions: (1) "Securities Act" shall mean the Securities Act of 1933, as amended. (2) "Rule 144" shall mean Rule 144 issued by the Securities and Exchange Commission under the Securities Act, 17 CFR Section 230.144, or any successor to such rule. (3) "Warrant Derived Shares" shall mean the Warrant Shares and any Shares that were issued to Holder by reason of its ownership of Warrant Shares or Warrant Derived Shares due to Subtenant's stock split, stock dividend, recapitalization or similar corporate action. Any Shares that are sold, exchanged, or otherwise transferred out of the beneficial or record ownership of Holder shall no longer be considered Warrant Derived Shares and shall entitle the owner thereof to no rights under this Agreement. (4) "Warrant Shares" shall mean the Shares owned beneficially and of record by Holder that were obtained upon the exercise of this Warrant. (5) "Always Restricted Shares" shall mean that number of Warrant Derived Shares for which neither the set of conditions in subparagraph (i) following nor the condition in subparagraph (ii) following has have ever been satisfied: -4- 5 (i) (x) there is available current public information with respect to the Company that satisfies the conditions of subsection (c) of Rule 144; (y) the Holder has held such Warrant Derived Shares for the holding period required in subsection (d) of Rule 144; and (z) the Holder would have been be able to sell such number of Warrant Derived Shares under the volume limitations of subsection (e) of Rule 144 (considering the period of time that conditions (x) and (y) hereof have been satisfied); or (ii) such Warrant Derived Shares are registered pursuant to the Securities Act. (b) The Holder shall have the right at any time and from time to time, subject to the terms and conditions set forth in this section 7.2, to cause the Company to purchase from it a number of Warrant Derived Shares in an amount less than or equal to the total number of Holder's Always Restricted Shares (such right being the "Share Put"). The purchase price for such Warrant Derived Shares shall be $20.00 per share (payable in cash), as adjusted in the manner of the Warrant Price in Section 8 hereof, with such adjustment taking into consideration all events both prior to and subsequent to the exercise of this Warrant (the "Share Put Price"). The Share Put shall be exercised by delivery to the Company of the Shares and written notice of the exercise of the Share Put (the "Share Put Notice"). The Company shall, within 30 days of receipt of the Shares and the Share Put Notice, pay the Share Put Price to the Holder, or such person or persons as the Holder may designate in the Share Put Notice. 7.3 Right to Participate in Share Registration. If the Company at any time or times later than one year after the effective date of the Company's initial offering of equity securities determines to prepare and file a registration statement under the Securities Act (except a registration statement connection with the acquisition of any entity or business or any employee benefit plan, including any stock option plan, or on Form S-4 or Form S-8 under the Securities Act or any successor forms thereto) in connection with the proposed offer of sale of Shares, which registration statement does not consist exclusively of securities to be sold for the account of the Company, the Company shall notify the Holder of such event and shall permit Holder to include in such registration statement such number of Warrant Derived Shares as determined by multiplying (i) the number of Warrant Derived Shares held by the Holder by (ii) the Highest Shareholder Percentage. The Highest Shareholder Percentage shall be the highest number determined by comparing the numbers computed for each other shareholder for whom shares of Stock are being registered in the registration statement by dividing (x) the number of shares of Stock to be included in such registration by such shareholder by (y) the total number of Shares beneficially owned by such shareholder. In all cases the Holder shall be subject to the same rights and agree to be bound by the same restrictions, if any, as other shareholders may be subject to with respect to the sales pursuant to the subject registration statement as provided herein. In the event that other shareholders are required to pay registration expenses, the Holder shall only be responsible for its pro rata share of -5- 6 such expenses based on the number of Shares to be registered by Holder and by the total number of shares to be registered by all shareholders. If the offering that is subject of such registration is underwritten, in whole or in part, and the managing underwriter advises the Company in writing that the inclusion of Holder's Shares proposed to be included in such registration would interfere with the successful marketing (including pricing) of the securities proposed to be registered by the Company, than the number of Holder's Shares to be included in the underwritten offering may be reduced or excluded altogether. SECTION 8. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES 8.1 Adjustments. The Warrant Price and the number and kind of securities purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the happening of certain events, as follows: (a) In case the Company shall (i) pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock, (ii) subdivide its outstanding shares of Common Stock, (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock or (iv) issue by reclassification of its shares of Common Stock other securities of the Company, the number of Shares purchasable upon exercise of this Warrant immediately prior thereto shall be adjusted so that the Holder of this Warrant shall be entitled to receive the kind and number of Shares or other securities of the Company which he would have owned or have been entitled to receive after the happening of any of such event or any record date with respect thereto. An adjustment made pursuant to this paragraph (a) shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event. (b) In case the Company shall issue rights, options or warrants to all or substantially all holders of its shares of Common Stock, without any charge to such holders, entitling them to subscribe for or purchase shares of Common Stock at a price per share which is lower at the record date of such issuance than the Current Market Price per share of Common Stock (as defined in paragraph (d) below) at the date of such issuance, the number of Shares thereafter purchasable upon the exercise of this Warrant shall be determined by multiplying the number of Shares theretofore purchasable upon exercise of this Warrant by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights, options or warrants plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the denominator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights, options or warrants plus the number of shares which the aggregate offering price of the total number of shares of Common Stock so offered would purchase at such Current Market Price. Such adjustment shall be made whenever such rights, options or warrants are issued, and shall become effective retroactively immediately after the record date for the determination of stockholders entitled to receive such rights, options or warrants. (c) In case the Company shall distribute to all or substantially all holders of its shares of Common Stock evidences of its indebtedness or assets (excluding cash dividends or distributions -6- 7 out of earnings) or rights, options or warrants or convertible securities containing the right to subscribe for or purchase shares of Common Stock (excluding those referred to in paragraph (b) above), then in each such case the number of Shares thereafter purchasable upon the exercise of this Warrant shall be determined by multiplying the number of Shares theretofore purchasable upon exercise of this Warrant by a fraction, of which the numerator shall be the then Current Market Price per share of Common Stock (as defined in paragraph (d) below) on the date of such distribution, and of which the denominator shall be such Current Market Price per share of Common Stock, less the then fair value (as determined by the Board of Directors of the Company, whose determination shall be conclusive) of the portion of the assets or evidences of indebtedness so distributed or of such subscription rights, options or warrants, or of such convertible securities applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made, and shall become effective on the date of distribution retroactive to the record date for the determination of shareholders entitled to receive such distribution. (d) For the purposes of this Warrant, the Current Market Price per share of Common Stock of the Company at any date shall be deemed to be (i) if the shares of Common Stock are traded in the over-the-counter market and not on any national securities exchange and not in the GNOSTIC National Market System, the average of the mean between the bid and asked price per share, as reported by The National Quotation Bureau, Incorporated, or an equivalent generally accepted reporting service, for the twenty (20) consecutive trading days immediately preceding the date for which the determination of Current Market Price is to be made, or (ii) if the shares of Common Stock are traded on a national securities exchange or in the GNOSTIC National Market System, the average daily per share closing price on the principal national securities exchange on which they are so listed or in the GNOSTIC National Market System, as the case may be, for the twenty (20) consecutive trading days immediately preceding the date for which the determination of Current Market Price is to be made. The closing price referred to in clause (ii) above shall be the last reported sales price or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices, in either case on the principal national securities exchange on which the shares of Common Stock are then listed or in the GNOSTIC National Market System. If the Current Market Price cannot be determined in accordance with the foregoing, it shall be the fair market value per share of Common Stock as determined in good faith by the Company's Board of Directors. (e) No adjustment in the number of shares purchasable hereunder shall be required unless such adjustment would require an increase or decrease of at least 1 percent in the number of Shares purchasable upon the exercise of this Warrant; provided that any adjustments which by reason of this paragraph (e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. (f) Whenever the number of Shares purchasable upon the exercise of this Warrant is adjusted as herein provided, the Warrant Price per Share payable upon exercise of this Warrant shall be adjusted by multiplying such Warrant Price immediately prior to such adjustment by a fraction, of which the numerator shall be the number of Shares purchasable upon the exercise of this Warrant -7- 8 immediately prior to such adjustment, and of which the denominator shall be the number of Shares so purchasable immediately thereafter. (g) When the number of Shares purchasable upon the exercise of this Warrant or the Warrant Price is adjusted as herein provided, the Company shall promptly mail to the Holder by first class mail, postage prepaid, notice of such adjustment or adjustments together with a certificate of a firm of independent public accountants selected by the Board of Directors of the Company (who may be the regular accountants employed by the Company) setting forth the number of Shares purchasable upon the exercise of this Warrant and the Warrant Price of such Shares after such adjustment, a brief statement of the facts requiring such adjustment and the computation by which such adjustment was made. Such certificate shall be conclusive evidence of the correctness of such adjustment absent manifest error. (h) For the purpose of this subsection 8.1, the term "shares of Common Stock" shall mean (i) the class of stock designated as the Common Stock of the Company on the date of this Warrant, or (ii) any other class of stock resulting from successive changes or reclassifications of such shares consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. In the event that at any time, as a result of an adjustment made pursuant to this subsection 8.1, the Holder shall become entitled to purchase any shares of the Company other than shares of Common Stock, thereafter the number of such other shares so purchasable upon exercise of this Warrant, and the Warrant Price of such shares, shall be subject to adjustment form time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Shares contained in paragraphs (a) through (g), inclusive, above, and the provisions of Section 3 and subsections 8.2 through 8.4, inclusive, with respect to the shares shall apply on like terms to any such other shares. (i) Upon the expiration of any rights, options, warrants or conversion privileges, if any thereof shall not have been exercised, the number of shares purchasable upon exercise of this Warrant and the Warrant Price, to the extent this Warrant shall not then have been exercised, shall, upon such expiration, be readjusted and shall thereafter be such as they would have been had it been originally adjusted (or had the original adjustment not been required, as the case may be) on the basis of (1) the only shares of Common Stock so issued were the shares of Common Stock, if any, actually issued or sold upon the exercise of such rights, options, warrants or conversion rights and (2) such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company for the issuance, sale or grant of all of such rights, options, warrants or conversion rights, whether or not exercised; provided that no such readjustment shall have the effect of increasing the Warrant Price by an amount in excess of the amount of the adjustment initially made in respect of the issuance, sale or grant of such rights, options, warrants or convertible rights. 8.2 No Adjustment for Dividends. Except as provided in subsection 8.1, no adjustment in respect of any dividends shall be made during the term of this Warrant or upon the exercise of this Warrant. -8- 9 8.3 No Adjustment in Certain Cases. No adjustments shall be made pursuant to this Section 8 in connection with the issuance of (a) such number of shares of Common Stock (as adjusted for all stock dividends, stock splits, subdivisions and combinations) as are issued to employees, officers, directors, consultants or members of the Advisory Board of the Company, or other persons performing services for the Company, pursuant to any stock option plan, stock purchase plan or management incentive plan, agreement or arrangement approved by the Board, and (b) any shares of Common Stock (or securities convertible into shares of Common Stock) as consideration for the acquisition by the Company of assets or equity interests in any business entity. 8.4 Preservation of Purchase Rights upon Reclassification, Consolidation, etc. In case of consolidation of the Company with or merger of the Company into another corporation or in case of any sale or conveyance to another corporation of the property, assets or business of the Company as an entirety or substantially as an entirety, the Company or such successor or purchasing corporation, as the case may be, shall execute an agreement with the Holder that the Holder shall have the right thereafter upon payment of the Warrant Price in effect immediately prior to such action to purchase upon exercise of this Warrant the kind and amount of Shares and other securities and property which he would have owned or have been entitled to receive after the happening of such consolidation, merger, sale or conveyance had this Warrant been exercised immediately prior to such action. Such agreement shall provide for adjustments, which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 8. The Company shall mail an executed copy of any such agreement by first class mail, postage prepaid, to the Holder. The provisions of this subsection 8.4 shall similarly apply to successive consolidations, mergers, sales, or conveyances. SECTION 9. FRACTIONAL INTERESTS The Company shall not be required to issue fractional Shares on the exercise of this Warrant. If more than one of the Warrants shall be presented for exercise in full at the same time by the same Holder, the number of full Shares which shall be issuable upon the exercise thereof shall be computed on the basis of the aggregate number of Shares represented by this Warrant and the other Warrants so presented. If any fraction of a Share would, except for the provisions of this Section 9, be issuable on the exercise of this Warrant (or specified portion thereof), the Company shall pay an amount in cash equal to the Current Market Price per Share (as defined in paragraph 8.1(d) above) multiplied by such fraction. SECTION 10. NO RIGHT AS STOCKHOLDERS; NOTICES TO HOLDER Nothing contained in this Warrant shall be construed as conferring upon the Holder or the Holder's transferees the right to vote or to receive dividends or to consent or to receive notice as stockholders in respect of any meeting of stockholders for the election of directors of the Company or any other matter, or any rights whatsoever as stockholders of the Company. If, however, at any time prior to the expiration of this Warrant and prior to its exercise, any of the following events shall occur: -9- 10 (a) any action which would require an adjustment pursuant to subsections 8.1 or 8.4, or (b) a dissolution, liquidation, or winding up of the Company (other than in connection with a consolidation, merger, or sale of all or substantially all of its property, assets, and business as an entirety) shall be proposed; the Company shall in each such case give notice in writing of such event to the Holders as provided in Section 11 hereof. Failure to publish or mail such notice or any defect therein or in the publication or mailing thereof shall not affect the validity of any action taken in connection with such dividend, distribution, or subscription rights, or proposed dissolution, liquidation or winding up. SECTION 11. NOTICES (a) Any notice to the Company pursuant to this Warrant shall be in writing and shall be deemed to have been duly given if delivered or mailed certified mail, return receipt requested, to the Company at 601 West 26th Street, 13th Floor, New York, New York 10001, Attention: President. The Company may from time to time change the address to which such notices are to be delivered or mailed hereunder by notice to the Holder in accordance with paragraph (b) below. (b) Any notice pursuant to this Warrant by the Company to the Holder shall be in writing and shall be deemed to have been duly given if mailed, postage prepaid, to the Holder at the Holder's address on the books of the Company. SECTION 12. SUPPLEMENTS AND AMENDMENTS The Company may from time to time supplement or amend this Warrant, without the approval of the Holder, in order to cure any ambiguity or to correct or supplement any provision contained herein which may be defective or inconsistent with any other provisions herein, or to make any other provisions in regard to matters or questions arising hereunder which the Company may deem necessary or desirable and which shall not be inconsistent with the provisions of this Warrant and which shall not adversely affect the interest of the Holder. Any other amendment to this Warrant may be made only by a written instrument executed by the Company and the Holder. SECTION 13. SUCCESSORS All the covenants and provisions of this Warrant by or for the benefit of the Company or the Holder shall bind and inure to the benefit of their respective successors and assigns hereunder. SECTION 14. MERGER OR CONSOLIDATION OF THE COMPANY -10- 11 The Company will not merge or consolidate with or into any other entity unless the entity resulting from such merger or consolidation (if not the Company) shall expressly assume the due and punctual performance and observance of each and every covenant and condition of this Warrant to be performed and observed by the Company. Section 15. Applicable Law This Warrant shall be deemed to be a contract made under the laws of the State of New York and for all purposes shall be construed in accordance with the laws of said state. IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by the officer named below and its corporate seal to be affixed thereto. Date: February 4, 2000 SCREAMING MEDIA.COM INC. By: /s/ Jay Chiat -------------------- Name: Jay Chiat Title: Chairman 11 12 SCREAMING MEDIA.COM INC. COMMON STOCK PURCHASE WARRANT PURCHASE FORM The undersigned hereby irrevocably elects to exercise the right of purchase represented by the within Warrant Certificate for, and to purchase thereunder, shares (the "Shares") provided for therein, and requests that certificates for the Shares be issued in the name of: ---------------------------------------- (Please Print or Type Name, Address and Social Security Number) ---------------------------------------- ---------------------------------------- ---------------------------------------- and, if said number of Shares shall not be all the Shares purchasable hereunder, that a new Warrant Certificate for the balance of the unpurchased Shares be registered in the name of the undersigned Warrantholder as below indicated and delivered to the address stated below: (Please Print) Dated: -------------------------------------------------------------- Name of Warrantholder: ---------------------------------------------- Address: ------------------------------------------------------------ ------------------------------------------------------------ Signature: ---------------------------------------------------------- 13 Note: The above signature must correspond with the name as written upon the face of this Warrant Certificate in every particular, without alteration or enlargement or any change whatever. Signature Guaranteed: ______________________ (Signature must be guaranteed by a bank or trust company having an office or correspondent in the United States or by a member firm of a registered securities exchange or the National Association of Securities Dealers, Inc.) -2- EX-10.9 9 LETTER EMPLOYMENT AGREEMENT 1 EXHIBIT 10.9 Ms. Marianne Howatson 100 United Nations Plaza New York, New York 10017 Dear Marianne, We are delighted to welcome you to the ScreamingMedia team. We believe your background and skills will be a great fit for the company at this crucial growth stage. We offer the following terms for your employment with ScreamingMedia.Net, Inc. Your salary will be paid at the rate of $180.000 per year. We will pay you a signing bonus of $70,000 when you accept this offer. The company agrees to grant you a stock option to purchase 300,000 shares of the company's Common Stock at an exercise price of $3.60 per share. The option will vest at the rate of 36 equal monthly installments of 8,333 shares (8.345 for the 36th month). Vesting will continue for so long as you remain an employee of the company, but will stop if your employment with the company terminates. You will participate on standard terms in the company medical plan and future benefits as they become available. If this offer is acceptable to you, please sign the attached copy of this letter in the space provided below. Upon your signature, this letter will act as our final and complete agreement as to the terms of your employment with the company, and any prior agreements or understandings with respect to such terms will be superseded. As part of our standard company policy, we ask that all new employees sign a confidentiality agreement in the form attached to this letter. We look forward to accomplishing great things with you, Very truly yours, /s/ Alan S. Ellman ------------------ Alan S. Ellman President Accepted and agreed: Marianne Howatson /s/ Marianne Howatson EX-10.10 10 EMPLOYMENT AGREEMENT 1 Exhibit 10.10 EMPLOYMENT AGREEMENT AGREEMENT dated as of November 8, 1999 between Screaming Media.Net, Inc., a Delaware corporation (the "Company"), and Kevin Clark (the "Executive"). WHEREAS the parties desire to enter into an employment agreement, on the terms and conditions hereinafter set forth, providing for the employment of the Executive by the Company for the term herein specified, NOW, THEREFORE, in consideration of the mutual agreements hereinafter set forth, the parties hereto agree as follows: SECTION 1. EMPLOYMENT AND TERM. The Company hereby employs the Executive, and the Executive hereby agrees to serve, as an executive employee of the Company with the duties set forth in Section 2, for a term (hereinafter called the "Term of Employment") beginning November 8, 1999, and ending on November 8, 2002, unless sooner terminated as provided herein. SECTION 2. DUTIES. (a) The Executive agrees that during the Term of Employment, he will hold the office of Chief Executive Officer of the Company reporting to the Company's Board of Directors. The Executive agrees that he will perform faithfully and to the best of his ability such duties and assignments relating to the business of the Company, as the Board of Directors of the Company shall direct and consistent with the office of Chief Executive Officer, except that the Executive shall not be required to perform any duty or assignment inconsistent with his experience and qualifications or not customarily performed by a senior corporate officer. The Company represents to the Executive that the Board of Directors has authorized the making of this agreement and has approved the appointment of Executive as Chief Executive Officer of the Company. (b) If the Board of Directors of the Company so requests, the Executive shall, in addition to his duties as Chief Executive Officer, serve as an officer of one or more subsidiaries of the Company (if, but only if, the duties of such position are not inconsistent with the Executive's experience and qualifications and are duties customarily performed by a senior corporate officer). Part or all of the compensation to which the Executive is entitled hereunder may be paid by such subsidiary or subsidiaries. However, such 2 employment or payment of the Executive by a subsidiary or subsidiaries shall be guaranteed by the Company and shall not relieve the Company from any of its obligations under this agreement. (c) During the Term of Employment, the Executive shall, except during customary vacation periods and periods of illness, devote all of his business time and attention to the performance of his duties hereunder and to the business and affairs of the Company and to promoting the best interests of the Company and he shall not, either during or outside of normal business hours, engage in any activity inimical to such best interests. Notwithstanding the foregoing, Executive may serve as a Director on Boards of organizations which do not compete with the Company and may engage in charitable or civic pursuits provided that such service or pursuits do not interfere with Executive's obligations under the Agreement. SECTION 3. COMPENSATION DURING TERM OF EMPLOYMENT. (a) BASE SALARY. During the Term of Employment, the Company shall pay to the Executive compensation (in addition to the compensation provided for elsewhere in this agreement) in equal monthly installments at the rate of $300,000 per Contract Year (such amount being herein called "Base Salary"). Executive's base salary shall be review at least annually during the term of the Agreement with regard to potential increases as authorized by the Board of Directors. The Base Salary shall be paid in such periodic installments as the Company may determine, but not less often than monthly. In addition, Executive shall be eligible to participate in bonus plans applicable to senior executives of the Company to the extent such bonus plans are formed during the term of this Agreement. 3 (b) STOCK OPTIONS. Effective as of the first day of the Term of Employment, the Company shall grant to the Executive a seven-year non-qualified stock option (the "Option") to purchase 450,000 shares of Common Stock of the Company, par value $.01 per share, at an exercise price of $6.50 per share. The form of the Option shall be in the form attached as Exhibit A. In the event it is determined that any payment or distribution made, or benefit provided (included, without limitation, the acceleration of any payment, distribution or benefit and the acceleration of vesting of any stock option, restricted stock or other award), by the Company to or for your benefit (whether paid or payable or distributed or distributable pursuant to the terms of this letter or otherwise, but determined without regard to any additional payments required under this provision (a "payment") would be subject to the excise tax imposed by Section 4999 of the Code (or any similar excise tax) or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, collectively referred to as the "Excise Tax"), then Executive will be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by Executive of all taxes (including any Excise Tax, income tax or payroll tax) imposed upon the Gross-Up Payment, and any interest or penalties imposed with respect to such taxes caused by the Company's negligence, Executive will retain from the Gross-Up Payment an amount equal to the Excise Tax imposed upon the Payments. (c) FRINGE BENEFITS AND PERQUISITES. During the Term of Employment, the Executive shall enjoy the customary perquisites of office, including but not limited to office space and furnishings, secretarial services, expense reimbursements and any similar emoluments customarily afforded to senior executive officers of the Company as authorized or approved by the Board of Directors. The Company shall provide Executive with a full-time Executive Assistant and will reimburse him for car service to his residence in the event that he works beyond 6 p.m. The Executive shall also be entitled to receive or participate in the highest level of all "fringe benefits" and employee benefit plans, if any, now or hereafter provided or made available by the Company to its executives or management personnel generally, such as, but not limited to, group hospitalization, medical, life and disability insurance, and pension, retirement, profit-sharing and medical reimbursement plans, all as the Board of Directors shall determine. In addition, the Company will reimburse Executive for annual membership in the YPO. (d) VACATIONS. The Executive shall be entitled each year to a paid vacation of four weeks. The Company shall not pay the Executive any additional compensation for any vacation time not used by the Executive. (e) REIMBURSEMENT. The Company shall reimburse the Executive for up to $10,000 for actual, out-of-pocket expenses incurred by the 4 Executive in connection with the closing of the Executive's office in Rowayton, Connecticut. SECTION 4. TERMINATION OF EMPLOYMENT. (a) DEATH OR TOTAL DISABILITY. The employment of the Executive will terminate upon his death or if, by reason of partial or total disability, Executive is incapable of performing his principal duties hereunder for a period of 90 consecutive working days or for more than 120 working days in any 12 month period ("Disability"). If, during the Term of Employment, the employment of the Executive is terminated due to death or Disability, the Executive or his estate shall receive, within 30 days of such termination, Base Salary provided for in Section 3 as then in effect, accrued through the date of termination of Executive's employment ("Date of Termination"). Upon the Date of Termination all unvested Stock Options and all other benefits under this Agreement shall lapse, expire and be forfeited (other than the proceeds of any insurance or disability policy or medical coverage provided by the Company which are or become payable by reason of the Executive's death or Disability, as the case may be). (b) FOR CAUSE OR FOR LACK OF GOOD REASON. The employment of the Executive may be terminated by the Company at any time for Cause, as defined below. If, during the Term of Employment, the employment of the Executive is terminated by the Company for Cause or by the Executive without Good Reason, as defined below, the Executive shall receive, within 30 days of such termination, Base Salary provided for in Section 3 as then in effect, accrued through the Date of Termination. Upon the Date of Termination (i) all unvested Stock Options and all other benefits under this Agreement shall lapse, expire and be forfeited. (c) WITHOUT CAUSE OR WITH GOOD REASON. (i) The employment of the Executive may also be terminated by the Company at any time without Cause or by the Executive at any time with Good Reason. If, during the Term of Employment, the employment of the Executive is terminated by the Company without Cause, or by the Executive with Good Reason, the Executive shall continue to receive Base Salary provided for in Section 3 as then in effect and medical and other insurance coverage in effect on the Date of Termination for the six months following termination. Upon the Termination of Executive under this Section, all options scheduled to vest within one year of the Date of Termination shall accelerate and immediately vest and all vested options shall become exercisable as provided in Executive's Option Agreement. Subject to the severance arrangements described herein, all other benefits under this Agreement shall lapse, expire and be forfeited. 5 (d) DEFINITION OF "CAUSE" AND "GOOD REASON". "Cause" means (i) willful failure of the Executive to perform his duties with the Company which have been duly assigned to the Executive and which duties are commensurate with the position for which Executive is then employed, (ii) the engaging by the Executive in willful conduct which is materially injurious to the Company, (iii) the conviction of the Executive of any crime or offense constituting a felony; or (iv) a failure by the Executive to comply with any material provision of this Agreement, which failure is not cured (if capable of cure) within 30 days after receipt of written notice of such non-compliance by the Executive. Termination of the Executive for "cause" shall mean termination by action of at least a majority of the Company's Board of Directors, at a meeting duly called and held upon at least 30 days written notice to the Executive specifying the particulars of the action or inaction alleged to constitute "cause" and at which meeting the Executive and his counsel were entitled to be present and given adequate opportunity to be heard. Action or inaction by the Executive shall not be considered "willful" unless done or omitted by him intentionally or not in good faith and without reasonable belief that his action or inaction was in the best interest of the Company, and shall not include failure to act by reason of total or partial incapacity due to physical or mental illness. "Good Reason" means (i) a material adverse alteration in the nature or status of the Executive's position, duties or responsibilities from those in effect as of the inception of the Term of Employment; (ii) a reduction in or failure to pay or provide any of the compensation set forth in this Agreement which is not cured within 30 days after receipt by the Company of written notice thereof; or (iii) a change in the principal place of the Executive's employment to a location more than 75 miles from the place of the Executive's principal residence as of the date of this Agreement, excluding required travel on the Company's business. 6 SECTION 5. COVENANT NOT TO COMPETE. In the case of termination of the Executive's employment pursuant to Section 4(b) above, for a period of six months after the Date of Termination, the Executive shall not, in The City of New York, render services to any corporation, individual or other entity engaged in any activity, or himself engage directly or indirectly in any activity, which is competitive to any material extent with the then business of the Company or any of its subsidiaries. In the case of any termination of Executive's employment under this Agreement, for a period of six months after the end of the Term of Employment, the Executive shall not solicit for the purpose of diverting business from the Company, for himself or a business competitive with that of the Company or any of its then subsidiaries, business from any person, firm or corporation which shall, at the time that the Term of Employment ends, be an existing customer of the Company or any such subsidiary or solicit, raid or entice or induce any employee of the Company or any of its subsidiaries to become employed by any other business enterprise. It is understood that general and trade advertising is not to be deemed a form of "solicitation" for purposes of this agreement. As used herein, "existing customer" means any person, firm or corporation which is on the list or lists maintained by the Company or any subsidiary of its customers, as well as any person, firm or corporation which has made a purchase from the Company or a subsidiary within the preceding year. SECTION 6. COMPANY'S RIGHT TO INJUNCTIVE RELIEF. The Executive acknowledges that his services to the Company consisting of senior managerial executive, with an intimate knowledge of and day to day dealing with the Company's customers, distributors, suppliers and the key employees of the Company and its subsidiaries, as well as an intimate knowledge of the plans and strategies of the Company and its subsidiaries for present and future businesses and extensions thereof are of a unique character, which gives them a peculiar value to the Company, the loss of which cannot be reasonably or adequately compensated in damages in an action at law, and that therefore, in addition to any other remedy which the Company may have at law or in equity, the Company and each relevant subsidiary shall be entitled to injunctive relief for a breach of this agreement by the Executive. 7 SECTION 7. TRADE SECRETS AND CONFIDENTIAL INFORMATION. The Executive shall not, either directly or indirectly, except as required in the course of his employment by the Company disclose or use at any time, whether during or subsequent to the Term of Employment, any information of a proprietary nature owned by the Company or any of its subsidiaries including, but not limited to, (i) lists of customers, clients and contacts or any of them, (ii) contracts with customers, programmers, developers, suppliers, distributors and other dealers, marketing plans, financial condition and results of operation, and (iii) records, data, formulae, documents, specifications, inventions, processes, methods and intangible rights which are acquired by him in the performance of his duties for the Company or any subsidiary thereof and which are of a confidential information or trade secret nature. All inventions, processes, methods and intangible rights, lists of customers, clients and contacts or any of them, contracts with customers, suppliers and distributors, records, files, drawings, documents, equipment and the like, relating to the business of the Company or a subsidiary, which the Executive shall invent, develop, conceive, produce, prepare, use, construct or observe, shall be and remain the sole property of the Company or the relevant subsidiary. Upon the termination of his employment (or earlier upon the request of the Company), the Executive shall return to the possession of the Company all materials (and all copies thereof) involving any and all confidential information or trade secrets of, and shall not take any material or copies thereof from the possession of, the Company or any subsidiary. SECTION 8. MERGERS AND CONSOLIDATIONS; ASSIGNABILITY. In the event that the Company, or any entity resulting from any merger or consolidation referred to in this Section 8 or which shall be a purchaser or transferee so referred to, shall at any time be merged or consolidated into or with any other entity or entities, or in the event that substantially all of the assets of the Company or any such entity shall be sold or otherwise transferred to another entity, the provisions of this agreement shall be binding upon and shall inure to the benefit of the continuing entity in or the entity resulting from such merger or consolidation or the entity to which such assets shall be sold or transferred. The Company will not enter into any such transaction unless, as a condition thereof, all of the obligations of the Company under this agreement are duly and validly assumed by the continuing or resulting entity or the entity to which such assets shall be sold or transferred. Except as provided in this Section 8, this agreement shall not be assignable by the Company or by any entity referred to in this Section 8. This agreement shall not be assignable by the Executive, but in the event of his death it shall be binding upon and inure to the benefit of his legal representatives to the extent required to effectuate the terms hereof. 924088-1 CATEMPW636152 V1 - CLARK - EMPLOYMENT AGREEMENT.DOC 8 SECTION 9. MISCELLANEOUS. (a) The captions in this agreement are not part of the provisions hereof, are merely for the purpose of reference and shall have no force or effect for any purpose whatsoever, including the construction of the provisions of this agreement, and if any caption is inconsistent with any provisions of this agreement, such provisions shall govern. (b) This agreement is made in, and shall be governed by and construed in accordance with the internal laws of, the State of New York. (c) This agreement contains a complete statement of all of the arrangements between the parties with respect to the subject matter hereof; and there are no representations, agreements, arrangements or understandings, oral or written, between the parties relating to the subject matter of this agreement which are not fully expressed in this agreement. This agreement may not be waived, changed, modified or discharged orally, but only by an agreement in writing signed by the party against whom any waiver, change, modification or discharge is sought. (d) All notices given hereunder shall be in writing and shall be sent by registered or certified mail, return receipt requested, and, if intended for the Company, shall be addressed to it at its principal office at 601 West 26th Street, New York, New York 10021 for the attention of William P. Kelly, Esq., General Counsel of the Company with a copy to Alan S. Ellman, President of the Company, or at such other address and for the attention of such other person of which the Company shall have given notice to the Executive in the manner herein provided, and, if intended for the Executive, shall be addressed to him at his then current residence address as shown by the employment records of the Company, or at such other address or to such designee of which the Executive shall have given notice to the Company in the manner herein provided. Each such notice shall be deemed to be given on the date received at the address of the addressee. (e) The Company and the Executive will treat this agreement as confidential, and neither of them will disclose the contents of this agreement to any person, except as may be required by law and except as the Company may need to do so in its dealings with banks or other lenders or otherwise in the normal course of business. (f) The Executive irrevocably (i) consents to the jurisdiction and venue of the Southern District Federal court located in New York State (or, if jurisdiction is not available in such forum, to the jurisdiction of the courts of the State of New York located in New York City) in connection with any 9 action, suit or other proceeding arising out of or relating to this agreement or any act taken or omitted hereunder, (ii) waives and agrees not to assert in any such action, suit or other proceeding that he is not personally subject to the jurisdiction of such courts, that the action, suit or other proceeding is brought in an inconvenient forum or that the venue of the action, suit or other proceeding is improper, (iii) waives personal service of any summons, complaint or other process and (iv) agrees that the service thereof may be made by certified or registered mail directed to the Executive at his address for purposes of notices hereunder. Should the Executive fail to appear or answer within the time prescribed by law, he shall be deemed in default and judgment may be entered by the Company against him for the amount or other relief as demanded in any summons, complaint or other process so served. Nothing contained herein shall affect the rights of the Company to bring such an action, suit or other proceeding in any other jurisdiction. IN WITNESS WHEREOF, the parties hereto have executed this agreement as of the day and year first above written. SCREAMING MEDIA.NET, INC. By: /s/ Jay Chiat Name: Jay Chiat Title: Chairman Kevin Clark /s/ Kevin Clark EX-10.11 11 SERIES A PREFERRED STOCK PURCHASE AGREEMENT 1 Exhibit 10.11 SERIES A PREFERRED STOCK PURCHASE AGREEMENT DATED AS OF JUNE 8, 1999 AMONG i-RECALL, INC. AND THE INVESTORS IDENTIFIED HEREIN 2 i-RECALL, INC. 37 West 28th Street, 12th Floor New York, New York 10001 As of June 8, 1999 To each of the parties listed on Schedule I hereto i-Recall, Inc. Series A Convertible Preferred Stock Purchase Agreement Dear Ladies and Gentlemen: The undersigned, i-RECALL, INC., a Delaware corporation (the "Corporation") presently intends to issue shares of convertible preferred stock $.01 par value, of the Corporation (the "Series A Preferred Stock") to each of the parties identified on Schedule 1 hereto (each an "Investor" and, collectively, the "Investors"), and hereby agrees with the Investors as follows: SECTION 1. FILING OF CERTIFICATE OF DESIGNATION; ISSUANCE AND SALE OF SERIES A PREFERRED STOCK; CLOSING. 1.1 FILING OF CERTIFICATE OF DESIGNATION. Immediately prior to the execution and delivery of this Agreement, the Corporation is filing with the Secretary of State of the State of Delaware a Certificate of Designation, Preference and Rights of the Series A Preferred Stock, substantially in the form of Exhibit B attached hereto (the "Certificate of Designation"). 1.2 ISSUANCE AND SALE OF SERIES A PREFERRED STOCK. Simultaneously with the execution and delivery of this Agreement, the Corporation is selling to each Investor, and each such Investor is purchasing from the Corporation, upon the terms and subject to the conditions hereinafter set forth, that number of shares of Series A Preferred Stock, of the Corporation (collectively, the "Initial Shares") set forth opposite such Investor's name on Schedule I hereto (representing an aggregate of 8,246 shares of Series A Preferred Stock being issued and sold to and purchased by all Investors hereunder at the Closing (as hereinafter defined)) for a cash purchase 3 price of $16.67 per share of Series A Preferred Stock (representing an aggregate purchase price of $137,460.82 (the "Aggregate Purchase Price") for all of the shares of Series A Preferred Stock being issued and sold to and purchased by the Investors at the Closing). 1.3 INITIAL CLOSING. The closing (the "Closing") of the sale and purchase of the Initial Shares is taking place at the offices of Orrick, Herrington & Sutcliffe LLP, 666 Fifth Avenue, New York, New York 10103, simultaneously with the execution and delivery of this Agreement (the "Closing Date"). At the Closing, the Corporation is issuing and delivering to each Investor a certificate representing the Initial Shares being purchased by such Investor hereunder, registered in the name of such Investor, against delivery to such Investor of a certified check payable to the Corporation, or a wire transfer of immediately available funds to an account designated by the Corporation, in an amount equal to the full amount of the purchase price for such Initial Shares being purchased by such Investor hereunder at the Closing. 1.4 ADDITIONAL CLOSINGS. (a) Subject to paragraph (b) below, the Corporation shall sell additional shares for cash of Series A Preferred Stock (the "Additional Shares") pursuant to the terms and conditions set forth herein to the Investors at two closings hereunder after the Closing (each of said closings being sometimes hereinafter referred to as an "Additional Closing") which shall take place at the office of OHS at the address set forth in Section 1.2 on June 1 and July 1, respectively, each said date being sometimes hereinafter referred to as an "Additional Closing Date"). (b) The Investors agree to purchase that number of Additional Shares set forth opposite such Investor's name on Schedule I hereto (representing an aggregate number of 4,122 Additional Shares being issued and sold to and purchased by all Investors hereunder at each Additional Closing) for an aggregate purchase price of $68,713.74 on each Additional Closing Date if the Corporation attains the following milestones with respect to each Additional Closing Date: (i) On or before June 15, the Corporation shall deliver a software control that allows a user to display and edit digital ink downloaded from the CrossPad. (ii) On or before July 15, the Corporation shall deliver an application built using the control mentioned above that allows a user to access particular moments in a media recording. 3 4 (c) Upon the satisfaction of each milestone, the respective Additional Closing shall occur, and the Corporation shall (i) issue to each Investor a certificate representing the number of Additional Shares being purchased by such Investor at such Additional Closing, registered in the name of such Investor and (ii) deliver to such Investor an officer's certificate certifying that, except as disclosed in the certificate the representations and warranties of the Corporation are true and correct in all material respects as of such Additional Closing Date (as the same may be updated on such Additional Closing Date) against delivery to such Investor of a certified check payable to the Corporation, or a wire transfer of immediately avail able funds to an account designated by the Corporation, in an amount equal to the full amount of the purchase price for such Additional Shares being purchased by such Investor at such Additional Closing. SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION. The Corporation hereby represents and warrants to the Investors as follows: 2.1 ORGANIZATION. The Corporation is a corporation duly organized, validly existing and in good standing under the laws of the State of New York. The Corporation has all requisite corporate power and authority to own and operate its properties. The Corporation has duly qualified and is in good standing in all jurisdictions in which the failure to be so qualified would have a material adverse effect on the business of the Corporation. The Corporation has no subsidiaries. The Corporation has delivered to the Purchaser complete and correct copies of its Certificate of Incorporation and By-Laws in effect as of the date hereof. 2.2 CAPITALIZATION. (a) The authorized capital stock of the Corporation immediately prior to the Closing consisted of (i) 4,000,000 shares of common stock, $0.1 par value, (the "Common Stock") of which 100,000 shares were outstanding and (ii) 1,000,000 shares of Preferred Stock, $.01 par value, of which there were no shares outstanding. Immediately prior to the date hereof, there were no (i) outstanding warrants, options, agreements or other securities pursuant to which the Corporation is or may become obligated to issue or sell any shares of capital stock or other securities of the Corporation, or (ii) preemptive or similar rights to purchase or otherwise acquire shares of capital stock of the Corporation pursuant to any provision of law, the Certificate of Incorporation or By-laws of the Corporation or any agreement to which the Corporation is party. As of the date hereof, no third party has the right to anti-dilution protection from the Corporation (other than in connection with stock splits, stock dividends, stock combinations, recapitalizations and like occurrences). The names of the record holders of shares of Common Stock of the Corporation and the number of issued and outstanding shares of Common 4 5 Stock of the Corporation held by each of them are set forth on Schedule 2.2. The delivery of the certificates to the Investor representing Initial Shares and/or Additional Shares pursuant to Sections 1.3 and 1.4(c) will result in the Investor's immediate acquisition of record ownership of the Initial Shares and Additional Shares purchased by such Investor hereunder, free and clear of all liens, charges or other encumbrances of any nature created by the Corporation, other than restrictions imposed under the Securities Act of 1933, as amended (the "Securities Act"), any applicable state securities or "blue-sky" laws or under the Co-Sale Agreement (as hereinafter defined). (b) The Company has reserved, and at all times from and after the date hereof will keep reserved, free from preemptive rights, out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion into shares of Common Stock of all shares of Series A Preferred Stock, sufficient shares of Common Stock to provide for the full conversion into shares of Common Stock of all shares of Series A Preferred Stock. 2.3 AUTHORIZATION. The execution, delivery and performance by the Corporation of this Agreement and the Co-Sale Agreement dated the date hereof (the "Co-Sale Agreement") among the Corporation and the Investors in the form attached hereto as Exhibit C have been duly authorized by all requisite corporate action on the part of the Corporation, and this Agreement has been duly executed and delivered by the Corporation and constitutes the valid and binding obligation of the Corporation, enforceable in accordance with its terms, except (i) as limited by (A) applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or similar laws relating to or affecting the rights and remedies of creditors and debtors and (B) equitable principles generally, regardless of whether such principles are considered in a proceeding at equity or at law. The execution, delivery and performance of this Agreement and the Co-Sale Agreement and compliance with the provisions hereof by the Corporation will not (a) violate in any material respect any law or statute or order, judgment or decree of any court, administrative agency or other governmental body applicable to the Corporation or its properties or assets, (b) conflict in any material respect with or result in any material breach of any of the terms or provisions or constitute (with due notice or lapse of time, or both) a default under the Certificate of Incorporation or By-laws of the Corporation or any note, indenture, mortgage, lease agreement or other material agreement, contract or instrument to which the Corporation is a party or by which it or any of its properties or assets may be bound or affected or (c) result in the creation or imposition of any lien, charge, restriction, claim or encumbrance of any nature whatsoever upon any of the Corporation's properties or assets. 5 6 2.4 CONSENTS. Subject to the truth and accuracy of the representations and warranties of the Investors contained in Section 3 hereof, no authorization, consent, approval or other order of, or declaration to or filing with, any governmental agency or body or other person or entity is required for the valid authorization, execution, delivery and performance by the Corporation of this Agreement or the offer, sale or issuance of the Series A Preferred Stock or the consummation of the transactions contemplated hereby or, if so required, the same have been or will be obtained or made. 2.5 AUTHORIZATION OF SERIES A PREFERRED STOCK. The issuance, sale and delivery of the Series A Preferred Stock, have been duly authorized by all requisite corporate action of the Corporation, and when issued, sold and delivered in accordance with the terms of this Agreement and the Certificate of Designation, the Series A Preferred Stock will be validly issued and outstanding, fully paid and nonassessable and will not be subject to preemptive or other similar rights of the stockholders of the Corporation or others, except as set forth in this Agreement or in the Co-Sale Agreement, and will be free and clear of all liens, charges, restrictions, claims and encumbrances imposed by the Corporation. 2.6 AGREEMENTS. Each written agreement, lease, contract or commitment ("contract") to which the Corporation is a party or by which the Corporation or its properties or assets are bound or affected involving an aggregate consideration in excess of $5,000 is listed on Schedule 2.6 hereto (copies of which have been delivered to counsel for the Investor). The Corporation is not in default in any material respect under any such contract. The Corporation has not received any written notice of cancellation or termination in connection therewith and each such contract is a valid and binding obligation of the Corporation and in full force and effect. No consent (except for any consent(s) which have been or will be obtained by the Closing) of the other party or parties thereto is required to be obtained by the Corporation to consummate the transactions contemplated hereby. 2.7 LITIGATION. There are no actions, suits, proceedings, or investigations pending nor, to the knowledge of the Corporation, threatened against the Corporation by or before any court or governmental agency which, if adversely determined, would have an effect on the Corporation. 2.8 COMPLIANCE WITH LAWS; GOVERNMENTAL AUTHORIZATIONS. The Corporation is in compliance with all laws, statutes or decrees that, if violated, would have a material adverse effect on the Company. 2.9 PATENTS TRADEMARKS AND COPYRIGHTS, ETC. The Corporation 6 7 believes it possesses adequate licenses or other rights to use all patents, trademarks, service marks, trade names, copyrights, manufacturing processes, formulae, trade secrets, customer lists and know-how (collectively, "Intellectual Property") necessary to the conduct of its business as presently conducted or can acquire the same on commercially reasonable terms. No claim is pending and the Corporation has not received written notice from any third party to the effect that the operations of the Corporation infringe upon or conflict with the asserted rights of any person under any Intellectual Property. The Corporation has not received any written notice or claim alleging that such trade name, trademark, copyright, patent or other right infringes upon any trade name, trademark, copyright, patent or other right of any third party. The Corporation has no knowledge of any infringement by any third party upon any such trade name, trademark, copyright, patent or other right of the Corporation, and the Corporation has not taken or omitted to take any action which would have the effect of waiving any of its rights with respect thereto. Each of Anselm Spoerri, Nathaniel Polish and Daniel Magill have executed an Employee Non-Disclosure, Non-Competition and Assignment of Inventions Agreement with the Corporation, a form of which is attached hereto as EXHIBIT D. 2.10 TAXES. The Corporation has filed all tax returns when due, if any, and paid all taxes shown thereon to be due, if any, that are required to have been filed on or before the Closing with appropriate Federal, state, county and local governmental agencies or instrumentalities, including any and all payroll taxes, except where the failure to do so would not have a material adverse effect upon the business of the Corporation taken as a whole. The Corporation has not been advised in writing (a) that any of its returns, Federal, state or other, have been or are being audited as of the date hereof, or (b) of any deficiency in assessment or proposed adjustment to its Federal, state or other taxes. 2.11 TITLE TO ASSETS. All assets (if any) owned by the Corporation are owned outright free and clear of mortgages, pledges, security interests, liens, charges and other encumbrances, except (a) for liens for current taxes not yet due and (c) minor imperfections of title, if any, not material in amount and not materially detracting from the value or impairing the use of the property subject thereto or impairing the operations or proposed operations of the Corporation. 2.12 REAL PROPERTY. The Corporation does not own any real property. The Corporation presently subleases space from Daedalus Technology Group, Inc. located at 37 West 28th Street, 12th Floor, New York, New York 10001 pursuant to an oral agreement for $200.00 per month. 2.13 LABOR CONTRACTS; EMPLOYMENT CONTRACTS, ETC. The Corporation is 7 8 in compliance in all material respects with all applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours and has not been notified by any governmental entity or instrumentality of, charged with, or found to be engaged in, any unfair labor practice. 2.14 BENEFIT PLANS. The Corporation does not have, none of the Corporation's employees are covered by, and the Corporation has no obligations with respect to, any bonus, deferred compensation, pension, profit-sharing, retirement, insurance, stock purchase, stock option, or other fringe benefit plan, arrangement or practice, or any other employee benefit plan (as defined in section 3(3) of the Employee Retire ment Income Security Act of 1974, as amended ("ERISA"), whether formal or informal (collectively, "Plans"). 2.15 MILLENNIUM COMPLIANCE. To the knowledge of the Corporation, all software systems, machinery, equipment and other technology (collectively, "Technology") owned by the Corporation is Millennium Compliant. "Millennium Compliant" means as to the Technology that it correctly performs all date-related operations (i) without human intervention, other than original data entry of any date, (ii) without regard to whether any date involved in the operation occurs in the 20th or 21st Century and (iii) without regard to the system date at the time the calculation is performed. 2.16 NO UNDISCLOSED LIABILITIES. As of the date hereof, to the knowledge of the Corporation, except as disclosed on Schedule 2.16 hereto, the Corporation does not have any material indebtedness or liabilities, fixed or contingent, liquidated or unliquidated, secured or unsecured, accrued or absolute, including, without limitation, liabilities on account of taxes, other governmental charges or lawsuits brought, that would be required by generally accepted accounting principles to be set forth on a balance sheet of the Corporation as at such date in order for such balance sheet to fairly present the financial condition of the Corporation as at such date. 2.17 DISCLOSURE. Neither this Agreement nor any Schedule hereto contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein or therein not misleading. 2.18 USE OF PROCEEDS. The Corporation intends to utilize the net proceeds from the sale of the Series A Preferred Stock for working capital, operating and general corporate purposes and payment of professional expenses (including legal and accounting fees and expenses). 8 9 2.19 BROKERS AND FINDERS. No person or entity acting on behalf or under the authority of the Corporation is or will be entitled to any broker's, finder's, or similar fee or commission in connection with the transactions contemplated by this Agreement. SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each Investor, as to itself, himself or herself, as the case may be, represents and warrants to the Corporation as follows: 3.1 AUTHORITY. Such Investor has full power and authority to execute, deliver and perform this Agreement and the Co-Sale Agreement and to consummate the transactions contemplated hereby and thereby; and this Agreement and the Co- Sale Agreement constitute the valid and binding obligations of such Investor, enforceable in accordance with their respective terms, except as limited by (A) applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or similar laws relating to or affecting the rights and remedies of creditors and debtors and (B) equitable principles generally, regardless of whether such principles are considered in a proceeding at equity or at law. 3.2 ACCREDITED INVESTOR. If such Investor has checked the box located on the signature page hereto, such Investor is an "accredited investor" (as such term is defined in Rule 501 of Regulation D promulgated under the Securities Act of 1933, as amended (the "Securities Act")). 3.3 INVESTOR INTENT. Such Investor is acquiring the Series A Preferred for his, her or its own account, for investment and not with a view to, or for resale in connection with, any distribution thereof, nor with any present intention of distributing or reselling the same or any part thereof in any transactions that would be in violation of the Securities Act of or any state securities or "blue-sky" laws. 3.4 RESTRICTED SECURITIES. Such Investor understands (i) that the Series A Preferred Stock being acquired by him, her or it hereunder and any shares of Common Stock issuable upon conversion of the Series A Preferred Stock, will not be registered under the Securities Act or any state securities or "blue-sky" laws by reason of their issuance in a transaction exempt from the registration requirements of the Securities Act or any state securities or "blue-sky" laws, (ii) that the Series A Preferred Stock and any shares of Common Stock issuable upon conversion thereof must be held indefinitely unless a subsequent disposition thereof is registered under the Securities Act or any state securities or "blue-sky" laws or is exempt from such registration, (iii) that the Corporation is under no obligation to so register any shares of Series A Preferred Stock and any shares of Common Stock issuable upon 9 10 conversion thereof and (iv) that the certificate(s) evidencing the shares of the Series A Preferred Stock and any shares of Common Stock issuable upon conversion thereof will be imprinted with a legend that prohibits the transfer substantially as set forth in Section 4.2(b) hereof unless they are registered or such registration is not required. 3.5 RULE 144. Such Investor understands that the exemption from registration afforded by Rule 144 (the provisions of which are known to such person) promulgated under the Securities Act ("Rule 144") depends on the satisfaction of various conditions and that, if applicable, Rule 144 may only afford the basis for sales under certain circumstances only in limited amounts. 3.6 ACCESS TO INFORMATION; EXPERIENCE. Such Investor has been furnished with or has had access during the course of this transaction and prior to the sale of the Series A Preferred Stock to all information necessary to enable such Investor to evaluate the merits and risks of a prospective investment in the Corporation and such Investor has had an opportunity to discuss with representatives of the Corporation the business and financial affairs of the Corporation and the terms and conditions of the offering and to obtain such additional information, to the extent that the Corporation possesses such information or could acquire it without unreasonable effort or expense, necessary to verify the accuracy of the information to which such Investor has had access and all questions raised by such Investor have been answered to the full satisfaction of such Investor. Such Investor has conducted his own investigation and analysis of the business and his investment in the Series A Preferred Stock and is not relying on the Corporation's business plan or executive summary (if any) or any other written material or any information or opinions that may be contained therein in making its or his decision to purchase the Series A Preferred Stock. Such Investor has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Corporation so that it or he is capable of evaluating the merits and the risks of its investment in the Corporation and has the capacity to protect its or his own interests in making his investment in the Corporation. Such Investor can afford to suffer a complete loss of its or his investment in the Series A Preferred Stock. 3.7 NO PUBLIC MARKET. Such Investor understands that no public market now exists for the Series A Preferred Stock or any shares of Common Stock issuable on conversion thereof, that it is unlikely that a public market will ever exist therefor, and that even if a public market exists at the time such Investor wishes to sell the Series A Preferred Stock or any shares of Common Stock issuable on conversion thereof, the Corporation may not be satisfying the current public information requirements of Rule 144, and that, in such event, such Investor would be precluded 10 11 from selling the securities under Rule 144 even if the applicable minimum holding period provided thereunder had been satisfied. 3.8 SPECULATIVE INVESTMENT. Such Investor understands that the Corporation has a limited financial and operating history, that the shares of Series A Preferred Stock being purchased by him, her or it are a speculative investment which involve a high degree of financial risk, and that there is no assurance of any eco nomic, income or tax benefit from such investment. 3.9 REVIEW OF AGREEMENT. Such Investor has carefully read and re viewed this Agreement and, to the extent he, she or it believed necessary, such Investor has discussed with his legal, accounting and other professional advisors the representations, warranties and agreements which such Investor is making herein and the terms and conditions of the investment contemplated hereby. SECTION 4. AFFIRMATIVE COVENANTS. 4.1 CONFIDENTIALITY. Each Investor hereby agrees to and shall keep strictly confidential and will not disclose or divulge any confidential, proprietary or secret information which such Investor may obtain from the Corporation, including, by way of example and not in limitation thereof, financial statements, reports and other materials submitted by the Corporation as required hereunder, unless required to be disclosed by law or pursuant to any judgment, order, subpoena or decree of any court having competent jurisdiction, or unless such information is or becomes publicly known (other than as a result of this Section 4.1), or unless the Corporation gives its written consent to such Investor's release of such information, except that no such written consent shall be required (and such Investor shall be free to release such information) if such information is to be provided to such Investor's lawyer or accountant who are instructed to comply with this provision. Each Investor shall be responsible for making sure its lawyer and accountant comply. 4.2 LETTER AGREEMENTS. (a) Currently herewith, the Corporation, Robin Neustein and Jacob Goldfield (the "GS Investors") are entering into a letter agreement governing the non-disclosure of the identities of the GS Investors in any public announcement and/or press release of the transaction contemplated hereby. (b) Currently herewith, the Corporation and Screaming Media.Net, Inc. are entering into a letter agreement governing, among other things, the public announcement and/or press release of the transaction contemplated hereby. 11 12 4.3 FINANCIAL INFORMATION. Until the consummation of the initial public offering of Common Stock of the Corporation registered under the Securities Act (the "IPO"), the Corporation shall provide each Investor with the following: (a) QUARTERLY REPORTS. As soon as available, but not later than 30 days after the end of each quarterly accounting period commencing with the quarterly period ending on June 30, 1999, an unaudited balance sheet and income statement of the Corporation, (b) ANNUAL REPORTS. As soon as available, but not later than 90 days after the end of each fiscal year of the Corporation, unaudited financial statements of the Corporation, which shall include a balance sheet as at the last day thereof and an income statement for the year then ended. 4.4 TRANSFER OF SECURITIES. (a) RESTRICTIONS ON TRANSFER. Each Investor acknowledges that the Series A Preferred Stock and the shares of Common Stock issuable upon conversion thereof purchased hereunder have not been registered under the Securities Act, that such shares are being or will be issued pursuant to an exemption from registration under the Securities Act and that such shares constitute "restricted securities" under Rule 144. Accordingly, the Series A Preferred Stock and the shares of Common Stock issuable upon conversion thereof held by such Investor shall not be sold, transferred, assigned, pledged, encumbered or otherwise disposed of (each, a "Transfer") except upon the conditions specified in this Section 4.4 or Section 4.6 (which provides for certain additional restrictions on transfer), which conditions are intended to ensure compliance with the provisions of the Securities Act and this Agreement. (b) RESTRICTIVE LEGEND. Each certificate for Series A Preferred Stock and all shares of Common Stock issuable upon conversion thereof held by each Investor and each certificate for any such securities issued to subsequent transferees of any such certificate shall (unless otherwise permitted by the provisions of Sections 4.4(c) and 4.4(d)) be stamped or otherwise imprinted with a legend in substantially the following form: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY APPLICABLE STATE 12 13 SECURITIES OR "BLUE-SKY" LAWS. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THERE FROM UNDER SAID ACT OR LAWS. ADDITIONALLY, THE TRANSFER OF THESE SECURITIES IS SUBJECT TO THE CONDITIONS SPECIFIED IN SECTIONS 4.4 AND 4.6 OF THE STOCK PURCHASE AGREEMENT DATED AS OF JUNE ___, 1999, AMONG I-RECALL, INC. AND THE INVESTORS IDENTIFIED THEREIN, AND NO TRANSFER OF THESE SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED. UPON THE FULFILLMENT OF ALL APPLICABLE CONDITIONS, I-RECALL, INC. HAS AGREED TO DELIVER TO THE HOLDER HEREOF A NEW CERTIFICATE, NOT BEARING THIS LEGEND, FOR THE SECURITIES REPRESENTED HEREBY REGISTERED IN THE NAME OF THE HOLDER HEREOF." (c) NOTICE OF TRANSFER. Each Investor agrees, prior to any Transfer of Series A Preferred Stock or shares of Common Stock issued upon conversion thereof to give written notice to the Corporation of such Transfer and to comply in all other respects with the provisions of this Section 4.4. Each such notice shall describe the manner and circumstances of the proposed Transfer and shall be accompanied by the written opinion, addressed to the Corporation, of counsel for the holder of such shares, stating that in the opinion of such counsel (which opinion and counsel shall be reasonably satisfactory to the Corporation), such proposed Transfer does not involve any transaction requiring registration or qualification of such shares under the Securities Act or the securities blue sky laws of any relevant state of the United States. Each such Investor shall thereupon be entitled to Transfer such shares in accordance with the terms of the notice delivered by it to the Corporation. Each certificate or other instrument evidencing the securities issued upon the Transfer of any such shares (and each certificate or other instrument evidencing any untransferred balance of such shares) shall bear the legend set forth in Section 4.4(b) unless (a) in such opinion of counsel registration of any future Transfer is not required by the applicable provisions of the Securities Act and applicable state securities laws or (b) the Corporation shall have waived the requirement of such legends. No Investor shall Transfer any shares of Series A Preferred Stock, or shares of Common Stock issuable on conversion thereof until such opinion of counsel has been given (unless waived by the Corporation or unless such opinion is not required in accordance with the provisions of this Section 4.4). 13 14 (d) REMOVAL OF LEGENDS, ETC. Notwithstanding the foregoing provisions of this Section 4.2, the restrictions imposed by this Section 4.4 upon the transferability of any shares of the capital stock of the Corporation held by an Investor shall cease and terminate when (a) any such shares are sold or otherwise disposed of pursuant to an effective registration statement under the Securities Act or as otherwise contemplated by Section 4.4(c) and, pursuant to Section 4.4(c), the securities so transferred are not required to bear the legend set forth in Section 4.4(b) the holder of such shares has received an opinion of counsel stating that such holder has met the requirements for Transfer of such shares pursuant to subparagraph (k) of Rule 144. Whenever the restrictions imposed by this Section 4.4 shall terminate, as herein provided, each Investor holding shares as to which such restrictions have terminated shall be entitled to receive from the Corporation, without expense, a new certificate not bearing the restrictive legend set forth in Section 4.4(b) and not containing any other reference to the restrictions imposed by this Section 4.4. 4.5 INDEMNIFICATION. Each Investor acknowledges that he, she or it understands the meaning and legal consequences of the representations, warranties and acknowledgments he, she or it has made in Section 3 and elsewhere in this Agreement and he, she or it understands that the Corporation is relying upon the truth and accuracy thereof. Accordingly, each Investor hereby agrees to indemnify and hold harmless the Corporation, its officers, agents and representatives, from and against any and all loss, damage or liability due to or arising out of a breach of any representation or warranty of any Investor contained in this Agreement. The Corporation hereby agrees to indemnify and hold harmless each Investor, its officers, agents and representatives, from and against any and all loss, damage or liability due to or arising out of a breach of any representation or warranty of the Corporation contained in this Agreement. 4.6 RIGHT OF FIRST REFUSAL. Until the consummation of the IPO, no Investor shall sell or in any other way directly or indirectly transfer, assign, pledge, distribute, bequeath, devise, encumber or otherwise dispose of, either voluntarily or involuntarily, with or without consideration (each, a "Sale") any of the shares of Series A Preferred Stock or shares of Common Stock issued on conversion thereof (the "Investor Shares") except in accordance with the following procedures: (a) In the event that such Investor (such Investor being referred to in this Section 4.6 as a "Selling Stockholder") receives a bona fide written offer from a third party (the "Prospective Purchaser") to purchase all or any portion of the Investor Shares owned by the Selling Stockholder, the Selling Stockholder shall deliver to the Corporation a written notice (the "Offer Notice"), which shall be 14 15 irrevocable, subject to Section 4.6(b), for a period of 30 days after delivery thereof (the "Offer Period"), offering (the "Offer") all of the Investor Shares proposed to be Sold by the Selling Stockholder to the Prospective Purchaser at the purchase price and on the terms of the proposed Sale to the Prospective Purchaser (such Offer Notice to include the foregoing information and all other relevant terms of the proposed Sale, including the identification of the Prospective Purchaser). The Corporation, and/or its assignee(s), shall have the right and option, for a period of 30 days after delivery of the Offer Notice, to accept all or any part of the Investor Shares so offered at the purchase price and on terms comparable to those stated in the Offer Notice. Such acceptance shall be made by delivering a written notice to the Selling Stockholder within said 30-day period. (b) Anything contained herein to the contrary notwithstanding, the Selling Stockholder may withdraw from the proposed Sale to a Prospective Purchaser and, accordingly, may rescind the Offer by delivering written notice of such withdrawal to the Corporation and/or its assignee(s) within the Offer Period, subject to the reinstatement of the provisions of this Section 4.4 in the event an Investor subsequently intends to sell the Investor Shares. (c) Sales of Investor Shares under the terms of Section 4.6(a) shall be made at the offices of the Corporation on a mutually satisfactory business day within 30 days after the expiration of the Offer Period. Delivery of certificates or other instruments evidencing such Investor Shares duly endorsed for transfer shall be made to the Corporation on such date against payment of the purchase price therefor. (d) If an effective acceptance shall not be received pursuant to Section 4.6(a) with respect to all Investor Shares offered for Sale pursuant to the Offer Notice, then at any time within 30 days after the expiration of the Offer Period the Selling Stockholder may Sell all or any part of the remaining Investor Shares that were not accepted for purchase by the Corporation and/or its assignees as aforesaid to the Prospective Purchaser at a purchase price no less than that, and on the terms no more favorable to the Prospective Purchaser than those, stated in the Offer Notice; provided, however, that the Selling Stockholder may not, under any circumstances, Sell any Investor Shares to the Prospective Purchaser if the Board of Directors determines in good faith, within the Offer Period, that the Prospective Purchaser is a competitor of the Corporation. In the event that the Investor Shares are not Sold by the Selling Stockholder to the Prospective Purchaser during such 45-day period, the right of the Selling Stockholder to Sell such remaining Investor Shares to the Prospective Purchaser shall expire and the obligations of this Section 4.6 shall be reinstated. "Affiliate" shall mean any (a) corporation or other entity in which the subject person owns, directly or indirectly, more than 50% of the capital stock or 15 16 other equity interests the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation or other entity and (b) any other person that directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with, the subject person. (e) Anything contained herein to the contrary notwithstanding, any purchaser of Investor Shares pursuant to this Section 4.6 who is not an Investor shall agree in writing in advance with the parties hereto to be bound by and comply with all applicable provisions of this Agreement and shall be deemed to be an Investor for all purposes of this Agreement. (f) The provisions of this Section 4.6 shall not apply to the transfer of Investor Shares by an Investor to the spouse or lineal descendants of such Investor or an Affiliate thereof or any trust for the benefit of such persons, provided such transferee has agreed in writing in advance to be bound by and comply with all provisions of this Agreement to the same extent as the transferring Investor. (g) The provisions of this Section 4.7 shall not be applicable to and shall terminate upon consummation of the IPO. 4.7 PREEMPTIVE RIGHTS. (a) In the event that the Corporation shall propose to issue or sell any shares of capital stock of the Corporation in connection with an equity financing of the Corporation for cash consideration (a "Sale Event"), the Corporation shall at any time during the period commencing 20 days prior to the consummation of the transactions constituting a Sale Event and ending on the 20th day thereafter offer to sell (the "Offer") to each Investor who then owns shares of Series A Preferred Stock or Common Stock issued upon conversion thereof a percentage of the Offered Securities (as hereinafter defined) equal to its Pro Rata Amount (as hereinafter defined) immediately prior to such Sale Event, at the same price and on the same terms as shall be applicable to the Sale-Event, which Offer by its terms shall remain open and irrevocable for a period of 10 days from the date it is delivered by the Corporation to each such Investor. (b) Notice of the intention of any Investor to accept, in whole or in part, an Offer shall be evidenced by a writing signed by such Investor (the "Notice of Acceptance") and delivered to the Corporation within the foregoing 10-day period, setting forth such portion of its Proportionate Percentage of the Offered Securities as such Investor elects to purchase (the "Accepted Securities"). 16 17 (c) If the Sale Event does not occur for any reason, the right of each Investor pursuant to this Section 4.5 shall terminate. If the Sale Event does occur, the closing of the purchase of any Accepted Securities shall take place within 15 days following the delivery of the Notice of Acceptance with respect thereto at such time as the parties to such purchase shall mutually agree upon. Such purchase is subject in all respects to the preparation, execution and delivery of a purchase agreement relating to the Accepted Securities, satisfactory in form and substance to the parties to such purchase. (d) The rights of the Investors under this Section 4.5 shall not apply to the following securities: (i) Common Stock issued to officers, employees or directors of, or consultants to, the Corporation, pursuant to any agreement, plan or arrangement approved by the Board of Directors, or options to purchase or rights to subscribe for such Common Stock, or securities by their terms convertible into or exchangeable for such Common Stock, or options to purchase or rights to subscribe for such convertible or exchangeable securities, in each case as approved by the Board of Directors of the Corporation; (ii) securities issued pursuant to commercial transactions approved by the Board of Directors including but not limited to, equipment leases or bank lines of credit; provided, that the specific issuance is approved by the Board of Directors of the Corporation; (iii) securities issued to parties entering into "corporate partnering", "strategic investment" or other similar types of transactions or relation ships with the Corporation, provided, that the specific issuance is approved by the Board of Directors of the Corporation; (iv) shares of Common Stock issued upon conversion of Series A Preferred Stock; (v) shares of any class of capital stock of the Company issued on a pro rata basis to all holders of such class as a stock dividend or upon any stock split, stock combination, recapitalization, spin-off or other subdivision of shares of capital stock; and (vi) shares of capital stock of the Company issued as consideration in connection with the acquisition by the Company of all or 17 18 substantially all assets or all capital stock of any person or entity. (e) "Offered Securities" shall mean the number of securities of the kind issued in a Sale Event required to be issued to all Investors who own any shares of Series A Preferred Stock to assure that immediately following such Sale Event and assuming the exercise by all Investors of their right pursuant to this Section 4.5 to in connection therewith, each Investor owns the same Pro Rata Amount of all shares of Common Stock issued and outstanding on a fully diluted basis as it owned immediately prior to such Sale Event. (f) "Pro Rata Amount" shall mean for any Investor the fraction, the numerator of which is the number of shares of Common Stock into which the shares of Series A Preferred Stock owned by such Investor are then convertible and the denominator of which is the aggregate number of shares of Common Stock issued and outstanding on a fully diluted basis, in each case as of the date of determination. Any determination on a fully diluted basis shall assume conversion, exercise or exchange in to shares of Common Stock all of the vested options, warrants, rights or other securities convertible into or exchangeable for, directly or indirectly, shares of Common Stock. 4.8 INSURANCE. The Corporation shall obtain insurance for its properties of a character usually insured by persons engaged in similar businesses against loss or damage resulting from fire or other risks insured against by extended coverage and public liability insurance of a kind customarily insured against by such persons. SECTION 5. MISCELLANEOUS. 5.1 NOTICES. All notices, advices and communications to be given or otherwise made to any party to this Agreement shall be deemed to be sufficient if contained in a written instrument delivered in person or by telecopier or duly sent by first class registered or certified mail, return receipt requested, postage prepaid, or by overnight courier, addressed to such party at the address set forth below or at such other address as may hereafter be designated in writing by the addressee to the addressor listing all parties: (i) if to the Corporation, to: i-Recall, Inc. 37 West 28th Street, 12th Floor New York, New York 10001 Attention: Anselm Spoerri 18 19 Telecopier: (212) 684-3875 with a copy to: Orrick, Herrington & Sutcliffe LLP 666 Fifth Avenue New York, New York 10103 Attention: Martin H. Levenglick, Esq. Telecopier: (212) 506-5151 (ii) if to an Investor, to the address as set forth on Schedule I hereto with a copy to: Carter, Ledyard & Milburn 2 Wall Street New York, New York 10005 Attention: Alan J. Bernstein, Esq. Telecopier: (212) 732-3232 or to such other address as the party to whom notice is to be given may have furnished to the other parties hereto in writing in accordance herewith. Any such notice or communication shall be deemed to have been delivered and received (i) in the case of personal delivery or delivery by telecopier, on the date of such delivery, (ii) in the case of nationally-recognized overnight courier, on the next business day after the date when sent and (iii) in the case of mailing, on the third business day following that on which the piece of mail containing such communication is posted. As used in this Section 5, "business day" shall mean any day other than a day on which banking institutions in the State of New York are legally closed for business. 5.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein, this Agreement shall bind and inure to the benefit of the parties hereto and the respective successors and assigns of the parties hereto; provided, however, that the rights and obligations of the Investor shall not be assignable without the prior written consent of the Corporation. 5.3 SURVIVAL. All representations and warranties of the Corporation contained in this Agreement shall survive the Closing until the first anniversary hereof. All representations and warranties of each Investor contained in this Agreement shall survive indefinitely. 19 20 5.4 AMENDMENTS. The terms and provisions of this Agreement may only be amended with the written consent of the Corporation and the Investors holding eighty percent (80%), by voting power, of the outstanding shares of Preferred Stock and any shares of Common Stock issued on conversion thereof then held by all Investors. 5.5 ENTIRE AGREEMENT. This Agreement and the other writings referred to herein or delivered pursuant hereto which form a part hereof contain the entire agreement among the parties with respect to the subject matter hereof and supersede all prior and contemporaneous arrangements or understandings with respect thereto. 5.6 COUNTERPARTS. This Agreement may be executed in any number of counterparts, and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. 5.7 HEADINGS. The headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be a part of this Agreement. 5.8 GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICTING PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK, OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK TO BE APPLIED. IN FURTHERANCE OF THE FOREGOING, THE INTERNAL LAW OF THE STATE OF NEW YORK WILL CONTROL THE INTERPRETATION AND CONSTRUCTION OF THIS AGREEMENT, EVEN IF UNDER SUCH JURISDICTION'S CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS, THE SUBSTANTIVE LAW OF SOME OTHER JURISDICTION WOULD ORDINARILY APPLY. THE ISSUANCE AND DELIVERY OF THE INITIAL SHARES AND ADDITIONAL SHARES SHALL BE GOVERNED BY THE DELAWARE GENERAL CORPORATION LAW. 5.9 JURISDICTION AND VENUE. SUBJECT TO THE TERMS OF THIS AGREEMENT, EACH INVESTOR HEREBY AGREES THAT ANY AND ALL ACTIONS ARISING UNDER OR IN RESPECT OF THIS AGREEMENT MAY BE LITIGATED IN THE FEDERAL OR STATE COURTS IN NEW YORK. BY EXECUTING AND DELIVERING OF THIS AGREEMENT, EACH INVESTOR IRREVOCABLY SUBMITS TO THE PERSONAL JURISDICTION OF SUCH 20 21 COURTS FOR ITSELF, HIMSELF, OR HERSELF AND IN RESPECT OF ITS, HIS OR HER PROPERTY WITH RESPECT TO SUCH ACTION. EACH INVESTOR AGREES THAT VENUE WOULD BE PROPER IN ANY OF SUCH COURTS, AND HEREBY WAIVES ANY OBJECTION THAT ANY SUCH COURT IS AN IMPROPER OR INCONVENIENT FORUM FOR THE RESOLUTION OF ANY SUCH ACTION. EACH INVESTOR FURTHER AGREES THAT THE MAILING BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, OF ANY PROCESS REQUIRED BY ANY SUCH COURT SHALL CONSTITUTE VALID AND LAWFUL SERVICE OF PROCESS AGAINST THEM, WITHOUT THE NECESSITY FOR SERVICE BY ANY OTHER MEANS PROVIDED BY STATUTE OR RULE OF COURT. * * * * * 21 22 [COUNTERPART SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT] IN WITNESS WHEREOF, the undersigned have caused this Stock Purchase Agreement to be executed as of the date first written above. i-RECALL, INC. By: -------------------------- Name: Anselm Spoerri Title: President INVESTORS: [Name of Investor] By: -------------------------- Name: Title: Investor Social Security Number Investor Address Investor Home Phone Investor Office Phone Please check if correct: 22 23 [ ] Investor is an "accredited investor" (as defined under Rule 501 of Regulation D promulgated under the Securities Act of 1933, as amended). Please complete Investor Suitability Questionnaire attached hereto as Exhibit A. 23 24 [COUNTERPART SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT] IN WITNESS WHEREOF, the undersigned have caused this Stock Purchase Agreement to be executed as of the date first written above. i-RECALL, INC. By: /s/ Anselm Spoerri -------------------------- Name: Anselm Spoerri Title: President INVESTORS: Screaming Media.Net, Inc. Screaming Media.Net Inc. ------------------------------ [Name of Investor] By: /s/ Alan S. Ellman By: -------------------------- Name: Alan S. Ellman Title: President Investor Social Security Number Investor Address Investor Home Phone Investor Office Phone Please check if correct: 24 25 [ ] Investor is an "accredited investor" (as defined under Rule 501 of Regulation D promulgated under the Securities Act of 1933, as amended). Please complete Investor Suitability Questionnaire attached hereto as Exhibit A. 25 26 EXHIBIT A I-RECALL, INC. INVESTOR SUITABILITY QUESTIONNAIRE i-Recall, Inc. (the "Company"), desires to sell to the Purchaser shares of Series A Preferred Stock, par value $.01 per share (the "Preferred Stock"), of the Company on the terms and conditions to be set forth in a Stock Purchase Agreement to be entered into between the Company and you (hereinafter referred to as the "Purchaser"). The following is an investor questionnaire to be completed by the Purchaser to qualify the Purchaser as a suitable investor in the Company under the Federal and state securities and blue-sky law. 2. Accredited Investor Certification. The Purchaser represents and warrants that he comes within one category marked below, and that for any category marked, he has truthfully set forth, where applicable, the factual basis or reason the Purchaser comes within that category. ALL INFORMATION IN RESPONSE TO THIS SECTION WILL BE KEPT STRICTLY CONFIDENTIAL. The undersigned agrees to furnish any additional information which the Company deems necessary in order to verify the answers set forth below. Category A _____ The undersigned is an individual (not a partnership, corporation, etc.) whose individual net worth, or joint net worth with his or her spouse, presently exceeds $1,000,000. Explanation: In calculating net worth you may include equity in personal property and real estate, including your principal residence, cash, short-term investments, stock and securities. Equity in personal property and real estate should be based on the fair market value of such property less debt secured by such property. Category B _____ The undersigned is an individual (not a partnership, corporation, etc.) who had an income in excess of $200,000 in each of the two most recent years, or joint income with his or her spouse in excess of $300,000 in each of those years (in each case including foreign income, tax exempt income and full amount of capital gains and losses but excluding any income of other family members and any unrealized capital appreciation) and has a reasonable expectation of reaching the same income level in the current year. Category C _____ The undersigned is a director or executive officer of the Company. 26 27 Category D _____ The undersigned is a bank, a savings and loan association, insurance company, registered investment company, registered business development company, licensed small business investment company ("SBIC"), or employee benefit plan within the meaning of Title 1 of ERISA and (a) the investment decision is made by a plan fiduciary which is either a bank, savings and loan association, insurance company or registered investment advisor, or (b) the plan has total assets in excess of $5,000,000 or is a self directed plan with investment decisions made solely by persons that are accredited investors. (describe entity) Category E_____ The undersigned is a private business development company as defined in Section 202(a)(22) of the Investment Advisors Act of 1940. (describe entity) Category F_____ The undersigned is a corporation, partnership, business trust, or non-profit organization within the meaning of Section 501(c)(3) of the Internal Revenue Code, in each case not formed for the specific purpose of acquiring the Securities and with total assets in excess of $5,000,000. (describe entity) Category G_____ The undersigned is a trust with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the Securities, where the purchase is directed by a "sophisticated person" as defined in Regulation 506 (b)(2)(ii). Category H_____ The undersigned is an entity all the equity owners of which are "accredited investors" (as such term is defined in Rule 501(a) as promulgated under the Securities Act of 1933, as amended (the "Securities Act")) within one or more of the above categories. If relying upon this Category alone, each 27 28 equity owner must complete a separate copy of this Agreement. (describe entity) Category I_____ The undersigned is not within any of the categories above and is therefore not an "accredited investor". 3. MANNER IN WHICH TITLE TO BE HELD. (circle one) (a) Individual Ownership (b) Community Property (c) Joint Tenant with Right of Survivorship (both parties must sign) (d) Partnership (e) Tenants in Common (f) Company (g) Trust (h) Other 28 29
- ---------------------------------------------------------------------------------------------------------------------- Signature Signature (if purchasing jointly) - ---------------------------------------------------------------------------------------------------------------------- Name (Typed or Printed) Name (Typed or Printed) - ---------------------------------------------------------------------------------------------------------------------- Residence (Typed or Printed) Residence (Typed or Printed) - ---------------------------------------------------------------------------------------------------------------------- City, State and Zip Code City, State and Zip Code - ----------------------------------------------------------------------------------------------------------------------
29 30
- ---------------------------------------------------------------------------------------------------------------------- Tax Identification or Social Security Number Tax Identification or Social Security Number - ---------------------------------------------------------------------------------------------------------------------- Telephone No.: Telephone No.: Business Business Home Home - ---------------------------------------------------------------------------------------------------------------------- Name in which securities should be issued: - ---------------------------------------------------------------------------------------------------------------------- Dated: , 1999 Dated: 1999 ----------------------------- ----------------------------- - ----------------------------------------------------------------------------------------------------------------------
30 31
Schedule I Number of Shares being Purchased by each Investor at the Closing and each Additional Closing - ---------------------------------------------------------------------------------------------------------------------- Investor Number of Shares Number of Shares Number of Shares being purchased on being purchased at being purchased at the date of this Additional Closing Additional Closing Agreement and dated June 15, 1999 dated July 15, 1999 Purchase Price and Purchase Price and Purchase Price therefor therefor therefor - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- Jay Chiat Screaming Media.Net, Inc. 5,998 Shares 2,999 Shares 2,999 Shares 55 Broad Street, 23rd floor ($99,986.66) ($49,993.33) ($49,993.33) New York, New York 10004 - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- Robin Neustein Goldman Sachs & Co. 1499 Shares 749 Shares 749 Shares 85 Broad Street, 22nd floor ($24,988.33) ($12,485.83) ($12,485.83) New York, New York 10004 - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- Jacob Goldfield Goldman Sachs & Co. 749 Shares 374 Shares 374 Shares 85 Broad Street, 22nd floor ($12,485.83) ($6,234.58) ($6,234.58) New York, New York 10004 - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- TOTALS: 8246 Shares 4122 Shares 4122 Shares ($137,460.82) ($68,713.74) ($68,713.74) - ----------------------------------------------------------------------------------------------------------------------
EX-10.12 12 PREFERRED STOCK PURCHASE AGREEMENT OF SERIES A 1 Ex 10.12 PREFERRED STOCK PURCHASE AGREEMENT PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of May 14, 1999, by and between SoftCom, Inc., a Delaware corporation ("Seller") and each purchaser executing a signature page hereto (collectively, the "Buyers", and each individually a "Buyer"). WITNESSETH: WHEREAS, Seller desires to sell to Buyers, and the Buyers desire to purchase from Seller, the number of shares of Series A Convertible Preferred Stock, par value $.001 per share (the "Preferred Stock") set forth under each such Buyer's name on a signature page hereto (the "Shares"), subject to the terms and conditions hereof. NOW, THEREFORE, in consideration of the premises and the representations, warranties and agreements herein contained, the parties hereby agree as follows: 1. Terms of Acquisition. 1.1 Stock Purchase. Upon the terms and subject to the conditions of this Agreement, on the Closing Date (as hereinafter defined), each Buyer shall purchase from Seller, and Seller shall sell, convey and deliver to each Buyer, the Shares, free and clear of any and all charges, liens, claims, security interests, adverse interests, pledges and encumbrances. The certificates evidencing the Shares shall be delivered at the Closing (as hereinafter defined) by Seller to each Buyer. Seller's agreement with each of the Buyers is a separate agreement, and the sale of Shares to each Buyer is a separate sale notwithstanding the fact that the terms of such sales are contained in one agreement. 1.2 Purchase Price. As the purchase price for the Shares, each Buyer shall pay to Seller, at the Closing, the aggregate sum set forth under each such Buyer's name on a signature page hereto (the "Purchase Price"). Such amount shall be payable by check, wire transfer or delivery of other immediately available funds. 1.3 Closing Date. The closing of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of Kirkpatrick & Lockhart LLP, 1251 Avenue of the Americas, New York, New York 10020, on such dates as funds for the Shares are received from each Buyer or at such other time and place as Seller and Buyers shall mutually agree (the "Closing Date"). At each Closing, upon payment of the Purchase Price by a Buyer, Seller shall deliver to such Buyer a certificate representing the amount of Shares purchased by such Buyer. 2 1.4 Subsequent Sale of Preferred Stock. At any time on or before May 19, 1999, Seller may sell up to an aggregate of 5,769,231 shares of Preferred Stock (including shares sold on the date hereof) to new investors in Seller (each a "New Investor"). In addition, the sale of up to an additional 641,026 shares of Preferred Stock may be made after May 18, 1999 to an additional investor (also referred to herein as a "New Investor"), subject to the limitation provided in the second sentence of Section 7 below. All sales described herein shall be made on the terms and conditions set forth in this Agreement, and each New Investor shall execute and deliver a counterpart of this Agreement. All shares of Preferred Stock sold pursuant to this Section 1.4 shall be deemed to be "Shares" for all purposes under this Agreement, and each New Investor, upon consummation of the purchase of such Shares, shall be deemed to be a "Buyer" for all purposes under this Agreement. 2. Representations and Warranties. 2.1 Representations and Warranties of Seller. Seller hereby represents, warrants, and covenants to the Buyers as follows: (a) Organization and Good Standing. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and has all necessary power and authority to carry on its business as now being conducted and presently proposed to be conducted. (b) Requisite Power and Authorization. Seller has all necessary corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder. All corporate action of Seller required for the execution, delivery and performance of this Agreement has been duly taken. This Agreement constitutes the valid and binding obligation of Seller, enforceable against Seller in accordance with its terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditor's rights in general and (ii) as limited by general principles of equity that restrict the availability of equitable remedies. (c) No Conflicts. The execution, delivery and performance of this Agreement will not (i) conflict with, result in a breach of, or constitute a default under the Certificate of Incorporation (the "Certificate") or By-laws of Seller, or any agreement or other obligation to which Seller is a party or by which Seller or any of its assets are bound, or any judgment, decree, order, writ, injunction, determination or award of any court or other governmental agency, instrumentality or body applicable to Seller, or (ii) violate any law, rule or regulation applicable to Seller or its property. (d) No Consents. No consent, authorization, approval of, or order of any governmental agency or court or any other person or entity is required in connection with Seller's execution and delivery and performance of this Agreement. 2 3 (e) Qualification. Except as set forth on Schedule 2.1(e) attached hereto, Seller is duly qualified to transact business and is in good standing in each jurisdiction in which the failure so to qualify could have a material adverse effect on its Condition (as defined below). (f) Capitalization. The capital stock of Seller, as authorized by the Certificate, will consist of: (i) 33,000,000 shares of Common Stock, 10,000,000 shares of which will be issued and outstanding and 6,615,384 shares of which will be reserved for issuance upon conversion of the Shares and the conversion of shares issued upon exercise of the Warrants described in Section 4 below (the "Warrants") (the shares issued upon conversion of the Shares, upon exercise of the Warrants or upon conversion of shares issued upon exercise of the Warrants are sometimes hereinafter referred to, collectively, as "Conversion Shares"); and (ii) 7,000,000 shares of preferred stock, par value $0.01 per share of Seller, of which 6,800,000 shares shall have been designated a Preferred Stock. The rights, privileges and preferences of the Common Stock and Preferred Stock are as stated in the Certificate and the Certificate of Designations relating to the Preferred Stock, true and complete copies of which are attached hereto as Exhibit A. Except as specifically set forth on Schedule 2.1(e) hereto, and except for options to purchase up to 6,910,830 shares of Common Stock pursuant to outstanding stock options, as of the Closing, Seller will not (i) have outstanding any capital stock or other securities convertible into or exchangeable for any shares of its capital stock and, except for the preemptive rights contained in the Certificate, no person or entity will have any right to subscribe for or to purchase (including conversion or preemptive rights), or any options for the purchase of, or any agreements providing for the issuance (contingent or otherwise) of, or any calls, commitments or other claims of any character relating to, any capital stock or any stock or securities convertible into or exchangeable for any capital stock of Seller; (ii) have any capital stock, equity interests or other securities reserved for issuance for any purpose (other than an aggregate of 6,910,832 shares of Common Stock reserved for issuance upon exercise of options issued or issuable pursuant to the Company's existing stock options or stock option or incentive plans); or (iii) be subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of its capital stock or any convertible securities, rights or options of the type described in the immediately preceding clause (i). No outstanding options, warrants or other security directly or indirectly exercisable for or convertible into any class or series of Seller's capital stock require anti-dilution adjustments by reason of the transactions contemplated by this Agreement. All of the issued and outstanding shares of Common Stock have been duly and validly issued, are fully paid and nonassessable and were issued in compliance with all applicable federal and state securities laws. All of the shares of Preferred Stock and Conversion Shares, when issued, (i) will be duly and validly issued, fully paid and nonassessable, (ii) except as set forth in the Shareholders Agreement in the form of Exhibit D hereto (the "Shareholders Agreement"), and except for certain Preferred Stock subject to irrevocable proxies, will be free of any liens or encumbrances of any kind, and (iii) will be issued in compliance with all applicable federal and state securities laws. To the best knowledge of Seller, there are no agreements among Seller's stockholders with respect to the voting or transfer of Seller's capital stock, other than the agreements regarding voting and transfer contained in the Shareholders Agreement. Schedule 2.1(e) sets forth a complete and correct list of the name of each holder of Seller's stock, options or other securities and the number of shares, options or other securities (and type, class and series of capital stock owned by such stock, option or other security holder (and exercise price, if applicable)). In addition Seller has agreed to issue warrants to purchase 205,128 Shares of Preferred Stock to PS Capital Ventures, LP. Prior to consummation of the transactions contemplated hereby, Seller shall amend its Certificate of Incorporation and Certificate of Designations related to the Preferred Stock to increase its authorized shares of preferred stock and the authorized Series A Preferred Stock to be 7,500,000 shares. 3 4 (g) Subsidiaries. Seller does not presently own or control, directly or indirectly, any interest in any partnership, corporation or other business entity. (h) Financial Information. To the extent Seller has previously provided to a Buyer its unaudited balance sheet as of December 31, 1998, and the related unaudited statements of operations, stockholders' equity and cash flows for the year then ended (the "Financials") such Financials are complete and correct in all material respects; are in accordance with the books of account, ledgers and records of Seller; have been prepared in conformity with generally accepted accounting principles ("GAAP") applied on a consistent basis (subject to ordinary year-end adjustments not individually, or in the aggregate, material to the Condition of the Company); and present fairly the consolidated financial position, results of operations and cash flows of Seller as of the respective dates thereof. Except as reflected in the Financials, the Seller does not have as of the Closing any obligation or liability, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business and consistent with past practice since the date of the Financials, which liabilities are not, individually or in the aggregate, material to the Condition of Seller, and (ii) obligations and liabilities which, individually or in the aggregate, are not material to the Condition of Seller and are not required under GAAP to be reflected in the Financials. (i) Certain Changes or Events. Since December 31, 1998, the business of Seller has been operated only in the ordinary course, consistent with past practice, and in addition to, and not in limitation of the foregoing: (i) there has not been any significant adverse change in the business, properties, operations, earnings, assets, liabilities, condition (financial or otherwise) or prospects (collectively, "Condition") of Seller, except for changes in the ordinary course of business consistent with past practice which have not been, in the aggregate, materially adverse to Seller; (ii) there has been no change of laws, rules or regulations applicable to Seller, or revocation or change in any contract, permit or right to do business, and no other event or occurrence of any character which has resulted, or could reasonably be expected to result, in a material adverse change in the Condition of Seller; (iii) Seller has not authorized or made any distributions, or declared or paid any dividends, upon or with respect to any of its capital stock, or other equity interests, nor has Seller redeemed, purchased or otherwise acquired, any of its capital stock or other equity interests; (iv) except as set forth on Schedule 2.1(i) attached hereto, there has been no material change in any compensation, arrangement or agreement with any employee, director, stockholder or Affiliate (as defined below); and (v) there has been no agreement or commitment by Seller to do or perform any of the acts described in this Section 2.1(i). "Affiliate" of a specified person or entity shall mean a person or entity that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the person or entity specified. (j) Title to Assets. Seller has good title to all of its assets and properties, free and clear of any liens or encumbrances of any kind, except for such liens and encumbrances which arise in the ordinary course of business and do not materially impair Seller's use or ownership of such assets. With respect to any assets or properties it leases, Seller holds a valid and subsisting leasehold interest therein, free and clear of any liens or encumbrances of any kind, and is in compliance, in all material respects, with the terms of the applicable lease. 4 5 (k) Contracts. Seller is not a party to, nor is its assets or properties bound by, or subject to, any contracts, agreements, notes, instruments, leases, licenses, commitments, arrangements or understandings, written or oral (collectively, "Contracts") of the following types, except for those listed in Schedule 2.1(k) attached hereto: any Contract pursuant to which Seller, or another party thereto, is obligated to pay in excess of twenty-five thousand dollars ($25,000) in any twelve-month period; any Contract pursuant to which Seller acquired the right to use any Intellectual Property (defined below) or information that is material to or necessary in the business of Seller, or pursuant to which Seller has granted to others the right to use, or which otherwise relates to, its Intellectual Property; any Contract (other than advances of expenses to employees in the ordinary course of business) involving loans, loan agreements, debt securities, mortgages, deeds of trust, security agreements, suretyships or guarantees; any Contract between Seller, on the one hand, and any of its officers, directors, employees or persons or entities that beneficially own in excess of 1.0% of the outstanding equity interest of Seller, or any Affiliate or relative, or Affiliate of a relative, of any of the foregoing, on the other; any deferred compensation agreements, bonus, pension, profit sharing, stock option and incentive plans or arrangements, hospitalization, medical and insurance plans, agreements and policies, retirement and severance plans and other employee compensation policies and agreements affecting employees of Seller; any Contract with any labor union affecting employees of Seller; any Contract which restricts Seller from freely engaging in business or competing anywhere; or any Contract which otherwise is material to the Condition of Seller. All of such Contracts are in full force and effect and constitute legal, valid and binding obligations of Seller and, to the best knowledge of Seller, the other parties thereto; the Seller and, to the best knowledge of Seller, each other party thereto, has performed in all material respects all obligations required to be performed by it under such Contracts. 5 6 (l) Intellectual Property. Seller has sufficient title, ownership or other rights in all patents, trademarks, service marks, trade names, copyrights, trade secrets, information, proprietary rights and processes (the "Intellectual Property") necessary for its business as now conducted and as proposed to be conducted without any conflict with or infringement of the rights of others known to Seller. Except as set forth on Schedule 2.1(l) attached hereto, there are no outstanding option, license or agreement of any kind relating to the foregoing, nor is Seller bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes of any other person or entity. Seller has not received any communications alleging that Seller has violated or, by conducting its business as proposed, would violate any of the patents, trademarks, service marks, trade names, copyrights or trade secrets or other proprietary rights of any other person or entity, nor is Seller aware of any such violations. To Seller's knowledge, none of its employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of the employee's best efforts to promote the interests of Seller or that would conflict with Seller's business as proposed to be conducted. Neither the execution nor delivery of this Agreement and the consummation of the transactions contemplated hereby, nor the carrying on of Seller's business by the employees of Seller, nor the conduct of Seller's business as proposed, will, to Seller's knowledge, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any of such employees is now obligated. Seller does not believe it is or will be necessary to utilize any inventions of any of its employees (or people it currently intends to hire) made prior to their employment by Seller. (m) Insurance. Seller has in full force and effect fire and casualty insurance policies, with extended coverage, sufficient in amount (subject to reasonable deductibles) to allow it to replace any of its properties that might be damaged or destroyed. Seller also has in full force and effect comprehensive general liability insurance providing coverage in such amounts as are customary for responsible companies engaged in the same or similar business. (n) Litigation. There is no action, suit, proceeding, investigation or governmental approval process pending or, to the knowledge of Seller, threatened against Seller or affecting any of the properties or assets of Seller which individually or in the aggregate could have a material adverse effect on the Condition of Seller, nor is Seller aware of any basis for any such action. Neither Seller nor any of its assets or properties, nor, to Seller's knowledge, in connection with its business, any stockholder, director, officer or employee of Seller, is subject to any action, order, judgment, writ, injunction, decree, ruling or decision of any governmental authority which is material to the Condition of Seller. There is no action or suit by Seller currently pending or which Seller intends to initiate which is material to the Condition of Seller. (o) Compliance with Laws; Permits. Seller has not violated or failed to comply with, in any material respect, any statute, law, ordinance, rule, regulation or policy to which it or any of its properties or assets is subject. Seller has all permits, licenses, orders, certificates, authorizations and approvals that are material to the conduct of its business as presently conducted and as proposed to be conducted and is not in violation thereof; all such permits, licenses, orders, certificates, authorizations and approvals are, and as of the Closing will be, in full force and effect. 6 7 (p) Taxes. Seller has timely filed all tax returns and reports as required by law. These returns and reports are true and correct in all material respects. Seller has paid all taxes and other assessments due. The provision for taxes of Seller as shown in the Financials is adequate for taxes due or accrued as of the date thereof. (q) Registration Rights. Except as otherwise provided in this Agreement, no person or entity has, and as of the Closing no person or entity will have, demand, "piggy-back," or other rights to cause Seller to file any registration statement under the Securities Act of 1933, as amended, relating to any securities of Seller or to participate in any such registration statement. (r) No Brokers or Finders. Except for certain options issuable to David Mitchell to purchase up to 510,832 shares in his capacity as an advisor to Seller, Seller has not entered into any agreement pursuant to which Seller or any Buyer will be liable, as a result of the transactions contemplated by this Agreement or the transactions contemplated hereby, for any claim of any person or entity for any commission, fee or other compensation as finder or broker. (s) Employee Confidentiality Agreements/Highly-Compensated Employees. Each employee and officer of Seller has executed an agreement protecting Seller's confidential and proprietary information in customary form. No employee or officer of Seller has received compensation, or is currently compensated at a rate, in excess of $150,000 per annum. (t) Disclosure. In connection with the purchase of the Shares by the Buyers as contemplated hereby, Seller has disclosed to the Buyers all material facts and information known to Seller concerning Seller, its Condition and the Shares, and has not in any of the representations or warranties contained in this Agreement made any untrue statement of a material fact or omitted to state any material fact necessary in order to make the statements contained in such representations and warranties not misleading. (u) ERISA. Except as set forth in Schedule 2.1(u) attached hereto, Seller does not maintain (nor has it ever maintained) nor does it have (nor has it ever had) any obligation under any employee benefit plan, program or policy, whether written or unwritten, including without limitation an employee benefit plan as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended. 2.2 Representations and Warranties of the Buyers. Each Buyer hereby severally, and not jointly, represents, warrants and covenants to Sellers as follows, provided, that nothing contained in this Section 2.2 shall in any respect limit or modify the representations and warranties of Seller in Section 2.1 or the right of each Buyer to rely thereon: (a) Requisite Power and Authorization. Such Buyer has full power and authority and/or legal capacity to enter into this Agreement and this Agreement constitutes such Buyer's valid and 7 8 binding obligation, enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, or other laws of general application affecting enforcement of creditors' rights in general and (ii) as limited by general principles of equity that restrict the availability of equitable remedies. (b) Purchase Entirely for Own Account. The Shares purchased by such Buyer under this Agreement are being acquired for investment for such Buyer's own account, and not with a view to the resale or distribution of any part thereof in violation of any applicable securities laws. Such Buyer has no present intention of selling, granting any participation in, or otherwise distributing any of the Shares purchased by such Buyer. By executing this Agreement, each Buyer further represents that such Buyer does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Shares in violation of any applicable securities laws. (c) Disclosure of Information. Each Buyer has reviewed the Certificate of Designation of Seller attached hereto as Exhibit A which sets forth the rights of the Preferred Stock. Each Buyer believes it has received all the information it considers necessary or appropriate for deciding whether to purchase the Shares. (d) Investment Experience. Each Buyer is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Shares. If other than an individual, the Buyer represents it has not been organized for the purpose of acquiring the Shares. (e) Restricted Securities. Each Buyer understands that the Shares have not been, and will not be, registered under the Securities Act of 1933, as amended (the "Securities Act"), by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of each Buyer's representations as expressed herein. Each Buyer understands that the Shares are "restricted securities" under applicable Federal and state securities laws and that, pursuant to these laws, each Buyer must hold the Shares indefinitely unless they are registered with the Securities and Exchange Commission and qualified by state authorities, or an exemption from such registration and qualification requirements is available. Each Buyer acknowledges that, except as set forth herein, Seller has no obligation to register or qualify the Shares for resale. Each Buyer further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Shares and on requirements relating to Seller which are outside of such Buyer's control, and which Seller is under no obligation and may not be able to satisfy. In this connection, each Buyer represents that it is familiar with Securities and Exchange Commission Rule 144 ("Rule 144"), as presently in effect, and understands the resale limitations imposed thereby. (f) Legends. It is understood that the certificates evidencing the Shares may bear one or all of the following legends: 8 9 (i) "These securities have not been registered under the Securities Act of 1933, as amended. They may not be sold, offered for sale, pledged or hypothecated in the absence of a registration statement in effect with the respect to the securities under such Act or an opinion of counsel satisfactory to the Company that such registration is not required or unless sold pursuant to Rule 144 of such Act." (ii) "The Shares evidenced hereby are subject to a Shareholders Agreement (a copy of which may be obtained upon written request from the Company), and by accepting any interest in such Shares the person accepting such interest shall be deemed to agree to and shall become bound by all the provisions of said Shareholders Agreement." (g) Accredited Investor. Each Buyer is an "accredited investor" as defined in Rule 501(a) of Regulation D promulgated under the Securities Act. 3. Conditions Precedent. (a) Conditions to Seller's Obligation. The obligation of Seller to complete the Closing is subject to the fulfillment on or prior to the Closing Date of all of the following conditions, any one or more of which may be waived by Seller in writing: (i) Representation and Warranties. The representations and warranties of each Buyer purchasing at the Closing contained in this Agreement shall be true and correct on and as of the Closing Date with the same force and effect as though such representations and warranties had been made on and as of the Closing Date. (ii) Purchase Price. Each of the Buyers purchasing at the Closing shall have delivered to Seller such Buyer's respective portion of the Purchase Price. (iii) Minimum Sales. Buyers shall have purchased Shares having an aggregate minimum purchase price of at least $1,000,000. (iv) Shareholders Agreement. The Shareholders Agreement, substantially in the form attached hereto as Exhibit D, shall have been executed by Seller and each of the Buyers. (b) Conditions to the Buyer's Obligation. The obligation of each Buyer to complete the Closing is subject to the fulfillment on or prior to the Closing Date of all of the following conditions, any one or more of which may be waived by such Buyer in writing: 9 10 (i) Representations and Warranties. The representations and warranties of Seller shall be true and correct on and as of the Closing Date with the same force and effect as though such representations and warranties have been made on and as of the Closing Date. (ii) Share Certificates. Each Buyer purchasing at the Closing shall have received from Seller stock certificates evidencing the Shares purchased by such Buyer. (iii) Certificate of Designation. The Certificate of Designation, substantially in the form attached hereto as Exhibit A, shall have been filed with the Secretary of State of the State of Delaware and shall be in full force and effect. (iv) Stock Split. Seller shall have consummated a 100:1 split of its currently outstanding common stock. (v) Founder's Note. Seller and Kevin O'Brien shall have executed the Founder's Note, substantially in the form attached hereto as Exhibit B. (vi) Deferred Compensation Subordination Agreement. The Deferred Compensation Subordination Agreement, substantially in the form attached hereto as Exhibits C-1 and C-2, shall have been fully executed by all signatories thereto. (vii) Shareholders Agreement. The Shareholders Agreement, substantially in the form attached hereto as Exhibit D, shall have been executed by Seller and each of the Buyers. (viii) Founder Non-Compete Agreement. Chris O'Brien and Kevin O'Brien shall have each entered a Founder Non-Compete Agreement, substantially in the form attached hereto as Exhibit E. (ix) By-laws. Seller's By-laws shall have been amended substantially in the form attached hereto as Exhibit F, to require a supermajority vote by Seller's Board of Directors on certain corporate governance issues. (x) Minimum Sales. Buyers shall have purchased Shares having an aggregate minimum purchase price of at least $1,000,000. (xi) Legal Opinion. Buyers shall have received a legal opinion in form and substance satisfactory to the Buyers. 10 11 4. Warrants. Seller shall issue warrants to purchase Preferred Stock to each Buyer ("Threshold Buyer") purchasing $800,000 or more in Preferred Stock. The number of shares which such warrants shall entitle each such Buyer to purchase shall equal fifteen (15%) percent of the number of shares of Preferred Stock purchased by such Buyer. Seller shall also issue warrants to purchase Preferred Stock to each group of Buyers (other than any Threshold Buyers) purchasing $800,000 or more in Preferred Stock. The number of shares which such warrants shall entitle such group of buyers to purchase shall equal five (5%) percent of the number of shares of Preferred Stock purchased by such group. Such warrants shall otherwise contain the terms and conditions set forth in the Preferred Stock Purchase Warrant attached hereto as Exhibit G. 5. Intentionally omitted. 6. Registration Rights. Each Buyer will have the following registration rights with respect to Shares purchased hereunder: (a) If during any time any Buyer owns any Shares, Seller shall determine to register for its own account or the account of others under the Securities Act any of its equity securities, it shall send to each Buyer written notice of such determination and, if within twenty (20) days after receipt of such notice, any Buyer shall so request in writing, Seller shall include in such registration statement all of the Shares held by such Buyer, and requested to be registered by such Buyer. Notwithstanding the foregoing, in the event that any registration shall be in whole or in part an underwritten offering, the number of registrable securities to be included in such an underwriting may be reduced (pro rata among the Buyers and the holders of the other registrable securities requested to be registered by each of them) if and to the extent that the managing underwriter shall be of the good faith opinion that such inclusion would reduce the number of registrable securities to be offered by Seller. Nothing herein shall be construed so as to require Seller, in connection with any proposed offering, to engage the services of an underwriter, as, for example, if Seller shall file a registration statement under Rule 415 of the Securities Act without the services or engagement of any underwriter. This "piggy-back" registration right shall not apply to an offering of equity securities on Forms S-4 or S-8 (or their then equivalents) relating to securities to be issued solely in connection with an acquisition of any entity or business or securities issuable in connection with a stock option or other employee benefit plan. At such time of any registration each Buyer and Seller shall enter into customary reciprocal indemnification provisions with respect to such registration; provided, that in no event shall any Buyer be obligated to indemnify Seller for any amount in excess of the proceeds received by such Buyer in such offering. (b) If and to the extent Seller grants registration rights to any group of investors in the future that are more favorable to such investors than the registration rights granted to Buyers hereunder, the Buyers hereunder shall be entitled to such registration rights granted to such investors on a pari passu basis. 7. Maximum Sales. Subject to the next succeeding sentence, Seller shall not sell Shares having an aggressive purchase price in excess of $2,250,000. Notwithstanding the immediately preceding sentence, Seller shall be permitted to sell additional Shares having an aggregate purchase price 11 12 of $250,000 (for a total maximum or $2,500,000) with the unanimous consent of Seller's board of directors (as such board of directors is constituted as set forth in the Shareholders Agreement). 8. Financial Information. Seller shall within forty-five (45) days after the end of each financial quarter provide its members of the board of directors with quarterly unaudited financial statements including (a) an unaudited balance sheet as of the last day of such quarter, (b) an unaudited statement of income for such quarter and (c) a cash flow statement for such quarter. In addition, Seller shall provide each Buyer on a current basis copies of financial statements or other financial information that it provides to any other of its stockholders. 9. Miscellaneous Provisions. (a) Amendments. This Agreement may be amended or modified but only by a written instrument executed by all of the parties hereto. (b) Entire Agreement. This Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements and understandings, oral and written, among the parties hereto with respect to the subject matter hereof. (c) Applicable Law. This Agreement and the legal relations among the parties hereto shall be governed by and construed in accordance with the internal laws of the State of New York applicable to contracts made and to be wholly performed therein. (d) Survival of Representations. The parties hereto agree that the representations and warranties contained herein shall survive the execution and delivery of this Agreement and the consummation of the transaction contemplated hereby. (e) Binding Effect; Benefits. This Agreement shall inure to the benefit of, and be binding upon, the parties hereto and their respective successors and permitted assigns. (f) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. (g) Severability. If any provision or party thereof contained in this Agreement is declared invalid by any court of competent jurisdiction or a government agency having jurisdiction, such declaration shall not affect the remainder of the provision or the other provisions and each shall remain in full force and effect. (h) Headings. The headings in this Agreement are for reference purposes only and shall not in any way affect or limit the meaning or interpretation of this Agreement. 12 13 (i) Expenses. Each party hereto shall bear its own expenses incurred in connection with the consummation of the transactions contemplated in this Agreement. 13 14 IN WITNESS WHEREOF, the parties hereto have executed this Preferred Stock Purchase Agreement as of the day and year first above written. SELLER: SOFTCOM, INC. By: /s/Chris O'Brien -------------------------- Name: Chris O'Brien Title: Chief Executive Officer BUYER: SCREAMINGMEDIA NET, INC. By: /s/ Alan Ellman ------------------------- Name: Alan Ellman Title: President 384,615 $.39 $150,000 Number of Shares purchased x purchase price per share = Aggregate purchase price EX-10.16 13 AGREEMENT 1 Exhibit 10.16 [ROBINSON LERER & MONTGOMERY LETTERHEAD] April 22, 1999 Mr. Alan S. Ellman President Screaming Media.Net, Inc. 55 Broad Street, 23rd Floor New York, NY 10004 Dear Mr. Ellman: This letter, when signed by both Screaming Media.Net, Inc. ("you" or "your") and Robinson Lerer & Montgomery, LLC ("we," "us" or "our"), will constitute an agreement (the "Agreement") between you and us with regard to our appointment by you as a consultant for certain of your corporate communications work. 1. Fees: For our services on your behalf, you agree to pay us a fixed monthly retainer of $20,000 (the "Fee"). For your reference, our standard hourly time charges are as follows: Partner $400-$475 Principal $350 Executive Vice President $325 Senior Vice President $285 Vice President $225 Senior Associate $185 Associate $150 Assistant $ 65 The above referenced hourly charges shall be subject to change on January 1 of each year. Reimbursements: For our outlays on your behalf, you agree to reimburse us for reasonable disbursements and other charges we incur in connection with providing services to you under this Agreement. We shall bill you monthly, in arrears, for such disbursements and other charges. Interest on Late Payments: On invoices for fees or reimbursements for which payment is not received within thirty (30) days of invoice date, you agree to pay us simple interest, computed monthly, at one and one-half percent (1 1/2 percent) over the prime rate of interest in effect at Chase Manhattan Bank, in New York City, on the undisputed amount outstanding at the end of such 45-day period, until such payment is received. In the event of a disputed charge, you shall notify us in writing of the disputed amount and reason for the 2 Mr. Alan S. Ellman Screaming Media.Net, Inc. Page 2 dispute, and you agree to pay all undisputed amounts owed while the dispute is under negotiation. 2. Term: This Agreement shall commence as of April 22, 1999, and will continue unless and until terminated by either party on prior written notice to the other, by registered or certified mail. Upon termination of this Agreement, you agree to pay all fees, disbursements and other charges incurred prior to the effective date of such termination. 3. Indemnity: You hereby agree to indemnify and hold harmless us and our officers, directors, members, agents, and employees (each of the foregoing, including us, being hereinafter referred to as an "Indemnified Person") to the fullest extent permitted by law from and against any and all losses, claims, damages, actions, proceedings, arbitrations or investigations or threats thereof, and expenses related thereto (including reasonable fees, disbursements, and other charges of counsel) (all of the foregoing being hereinafter referred to as "Liabilities"), based upon, relating to or arising out of our engagement by you to perform services hereunder or any Indemnified Person's role therein; provided, however, that you shall not be liable under this paragraph: (a) for any amount paid in settlement of claims without your consent, unless your consent is unreasonably withheld, or (b) to the extent that it is finally judicially determined, or expressly stated in an arbitration award, that such Liabilities resulted primarily from the willful misconduct or gross negligence of the Indemnified Person seeking indemnification. In connection with your obligation to indemnify for expenses as set forth above, you further agree to reimburse each Indemnified Person for all such expenses (including reasonable fees, disbursements, and other charges of counsel) as they are incurred by such Indemnified Person; provided, however, that if any Indemnified Person is reimbursed hereunder for any expenses, the amount so paid shall be refunded if and to the extent it is finally judicially determined, or expressly stated in an arbitration award, that the Liabilities in question resulted primarily from the willful misconduct or gross negligence of such Indemnified Person. You hereby also agree that neither we nor any other Indemnified Person shall have any liability to you (or anyone claiming through you or in your name) in connection with our engagement by you except to the extent that such Indemnified Person has engaged in willful misconduct or been grossly negligent. The provisions of this paragraph shall survive the termination of this Agreement. 4. Applicable Law: This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York applicable to agreements made and to be performed entirely within such State, without regard to the principles of conflicts of law. This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter hereof and supersedes all prior agreements, arrangements, and understandings, written or oral, relating thereto. No representation, promise, or inducement has been made by either party that is not embodied in this Agreement and neither party shall be bound by or liable for any alleged representation, promise, or inducement not so set forth. Neither party shall have the right to assign any of its rights or obligations under this Agreement. No amendment or waiver of this Agreement shall be effective, binding, or enforceable unless in writing and signed by both you and us or, in the case of a waiver, by the party granting the waiver. 3 Mr. Alan S. Ellman Screaming Media.Net, Inc. Page 3 Please confirm that the foregoing correctly sets forth our understanding by signing and returning to us the enclosed duplicate copy of this letter. Very truly yours, By: /s/ Patrick S. Gallagher ------------------------- Patrick S. Gallagher Chief Financial Officer ACCEPTED AND AGREED: By: /s/ Alan S. Ellman ---------------------------- Alan S. Ellman President Screaming Media.Net, Inc. EX-10.17 14 WARRANT AGREEMENT 1 EXHIBIT 10.17 NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE REGISTERED HOLDER OF THIS WARRANT HAS AGREED THAT NO SALE, PLEDGE OR OTHER TRANSFER OF THIS WARRANT OR ANY OF SAID SHARES MAY BE MADE WITHOUT REGISTRATION UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW, UNLESS THE HOLDER SHALL DELIVER TO THE ISSUER AN OPINION (IN FORM SATISFACTORY TO THE ISSUER) OF COUNSEL SATISFACTORY TO THE ISSUER THAT NO SUCH REGISTRATION IS REQUIRED. SCREAMING MEDIA.COM INC. COMMON STOCK PURCHASE WARRANT Warrant No. 1 7,143 Shares This certifies that, for value received, HUT SACHS STUDIO or its assigns, are entitled, subject to the terms and conditions hereinafter set forth, at or before 5:00 p.m., New York time, on June 15, 2004, but not thereafter, to purchase up to 7,143 shares (the "Shares") of Common Stock, par value $.01 per share ("Common Stock"), of Screaming Media.com Inc., a Delaware corporation (the "Company"). The purchase price payable upon the exercise of this Warrant shall initially be $7.00 per share, said amount being subject to adjustment as described herein (the "Warrant Price"). Upon delivery of this Warrant with the Purchase Form attached hereto duly executed, together with payment of the Warrant Price for the shares of Common Stock thereby purchased, at the principal office of the Company or at such other address as the Company may designate by notice in writing to the registered holder hereof (the "Holder"), the Holder shall be entitled to receive a certificate or certificates for the Shares so purchased. All Shares issued upon the exercise of this Warrant will, upon issuance, be paid and nonassessable and free from all taxes, liens and charges with respect thereto. This Warrant is subject to the following terms and conditions: 2 1.SECTION TRANSFERABILITY AND FORM OF WARRANT 1.1 Registration. This Warrant is numbered and registered on the books of the Company. The Company shall be entitled to treat the Holder as the sole owner of this Warrant for all purposes and shall not be bound to recognize any equitable or other claim to or interest in this Warrant on the part of any other person, and shall not be liable for any registration of transfer of this Warrant which is to be registered in the name of a fiduciary or the nominee of a fiduciary unless made with actual knowledge that a fiduciary or nominee is committing a breach of trust in requesting such registration of transfer. 1.2 Transfer. This Warrant shall be transferable only on the books of the Company maintained at its principal office in New York, New York, or wherever its principal office may then be located, upon delivery of this Warrant either duly endorsed by the Holder or by the Holder's duly authorized attorney or representative, or accompanied by proper evidence of succession, assignment, or authority to transfer. In all cases of transfer by an attorney, the original letter of attorney, duly approved, or an official copy thereof, duly certified, shall be deposited and remain with the Company. In case of transfer by executors, administrators, guardians or other legal representatives, duly authenticated evidence of their authority shall be produced, and may be required to be deposited and remain with the Company in its discretion. Upon any registration of transfer, the Company shall execute and deliver a new Warrant to the person entitled thereto. 2. SECTION EXCHANGE OF WARRANT CERTIFICATE This Warrant certificate may be exchanged for another certificate or certificates entitling the Holder to purchase a like aggregate number of Shares as this certificate then entitles the Holder to purchase. Any Holder of this Warrant desiring to exchange this Warrant certificate shall make such request in writing delivered to the Company, and shall surrender this certificate, properly endorsed, to the Company. Thereupon, the Company shall execute and deliver to the person entitled thereto a new Warrant certificate or certificates, as the case may be, as so requested. 3. SECTION TERM OF WARRANT; EXERCISE OF WARRANT Subject to the terms of this Warrant, the Holder shall have the right, at any time during the period commencing at 9:00 a.m., New York time, on the date hereof, until 5:00 p.m., New York time, on June 15, 2004 (the "Termination Date"), to purchase from the Company the number of fully paid and nonassessable Shares to which the Holder may at the time be entitled to purchase pursuant to this Warrant, upon surrender, to the Company at this principal office, of this Warrant certificate, together with the Purchase Form attached hereto duly completed and signed, and upon payment to the Company of the Warrant Price for the number of Shares in respect of which this Warrant is then being exercised. Payment of the aggregate Warrant Price shall be made in cash, or by certified or cashier's check, or by delivery of shares of Common Stock 3 valued at their Current Market Price (as hereinafter defined) on the date of exercise, or a combination thereof. In lieu of exercising this Warrant as provided above, the Holder may elect to receive Shares equal to value (as determined below) of any or all of the Warrants represented by this Warrant, upon surrender to Company, at its principal office, of all or a portion of this Warrant, together with notice of such election (a "Cashless Exercise"), in which event the Company shall issue to the Holder a number of Shares computed using the following formula: X = Y(A-B) - - ------ A where X = the number of Shares to be issued pursuant to this paragraph. Y = the number of Shares issuable upon exercise of the surrendered Warrants. A = the Current Market Price, as defined in Section 8.1(d) hereof, on the date when this Warrant evidencing the surrendered Warrants is received by the Company at its principal office. B = the Warrant Price. Upon surrender of this Warrant and payment of the Warrant Price (or upon a Cashless Exercise) as aforesaid, the Company shall issue and cause to be delivered with all reasonable dispatch, to or upon the written order of the Holder and (subject to the restrictive Legend on the first page of this Warrant) in such name or names as the Holder may designate, a certificate or certificates for the number of full Shares so purchased upon the exercise of this Warrant, together with cash, as provided in Section 9 hereof; in respect of any fractional Shares otherwise issuable upon such surrender. Such certificate or certificates shall be deemed to have been issued and any person so designated to be named therein shall be deemed to have become a holder of record of such Shares as of the date of the surrender of this Warrant arid payment of the Warrant Price (or making of a Cashless Exercise) as aforesaid; provided that if, at the date of surrender of this Warrant and payment of such Warrant Price (or making of a Cashless Exercise), the transfer books for the Shares or other class of stock purchasable upon the exercise of this Warrant shall be closed, the certificates for the Shares in respect of which this Warrant is then exercised shall be issuable as of the date on which such books shall next be opened (whether before or after the Termination Date) and until such date the Company shall be under no duty to deliver any certificate for such Shares; and provided further that the transfer books of record, unless otherwise required by law, shall not be closed at any one time for a period longer than twenty days. The rights of purchase represented by this Warrant shall be exercisable, at the election of the Holder, either in full or from time to time in part and in the event that this Warrant is 3 4 exercised in respect of fewer than all of the Shares at any time prior to the date of expiration of this Warrant, a new Warrant certificate to purchase the remaining Shares will be issued. 4.SECTION PAYMENT OF TAXES The Company will pay all documentary stamp taxes, if any, attributable to the initial issuance of Shares upon the exercise of this Warrant provided that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in such issuance. 5.SECTION MUTILATED OR MISSING WARRANT In case the certificate evidencing this Warrant shall be mutilated, lost, stolen or destroyed, the Company may, in its discretion, issue and deliver in exchange and substitution for and upon cancellation of this certificate if it is mutilated, or in lieu of and substitution for this certificate if it is lost, stolen or destroyed, a new Warrant certificate of like tenor and representing an equivalent right or interest, but only upon receipt of evidence satisfactory to the Company of such loss, theft or destruction of this Warrant and indemnity, if requested, also satisfactory to the Company. Applicants for such substitute Warrant certificate shall also comply with such other reasonable regulations and pay such other reasonable charges as the Company may prescribe. 6.SECTION RESERVATION OF SHARES There have been reserved, and the Company shall at all times keep reserved, out of its authorized Common Stock a number of shares of Common Stock sufficient to provide for the exercise of the rights of purchase represented by this Warrant. Any transfer agent for the Common Stock or for any other shares of the Company's capital stock issuable upon the exercise of any of the rights of purchase aforesaid will be irrevocably authorized and directed at all times to reserve such number of authorized shares as shall be requisite for such purpose. The Company will keep a photocopy of this Warrant on file with any transfer agent for the Common Stock or for any shares of the Company's capital stock issuable upon the exercise of the rights of purchase represented by this Warrant. 7.SECTION PURCHASE BY THE COMPANY 7.1 Purchase of Warrant. The Company shall have the right, except as limited by law, other agreements or herein, to purchase or otherwise acquire this Warrant at such times, in such manner and for such consideration as it may deem appropriate and as shall be agreed with the Holder of this Warrant. 8.SECTION ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES 4 5 8.1 Adjustments. The Warrant Price and the number and kind of securities purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the happening of certain events, as follows: (a) In case the Company shall (i) pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock, (ii) subdivide its outstanding shares of Common Stock, (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock or (iv) issue by reclassification of its shares of Common Stock other securities of the Company, the number of Shares purchasable upon exercise of this Warrant immediately prior thereto shall be adjusted so that the Holder of this Warrant shall be entitled to receive the kind and number of Shares or other securities of the Company which he would have owned or have been entitled to receive after the happening of any of such event or any record date with respect thereto. An adjustment made pursuant to this paragraph (a) shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event. (b) In case the Company shall issue rights, options or warrants to all or substantially all holders of its shares of Common Stock, without any charge to such holders, entitling them to subscribe for or purchase shares of Common Stock at a price per share which is lower at the record date mentioned below than the Current Market Price per share of Common Stock (as defined in paragraph (d) below), the number of Shares thereafter purchasable upon the exercise of this Warrant shall be determined by multiplying the number of Shares theretofore purchasable upon exercise of this Warrant by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights, options or warrants plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the denominator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights, options or warrants plus the number of shares which the aggregate offering price of the total number of shares of Common Stock so offered would purchase at such Current Market Price. Such adjustment shall be made whenever such rights, options or warrants are issued, and shall become effective retroactively immediately after the record date for the determination of stockholders entitled to receive such rights, options or warrants. (c) In case the Company shall distribute to all or substantially all holders of its shares of Common Stock evidences of its indebtedness or assets (excluding cash dividends or distributions out or earnings) or rights, options or warrants or convertible securities containing the right to subscribe for or purchase shares of Common Stock (excluding those referred to in paragraph (b) above), then in each such case the number of Shares thereafter purchasable upon the exercise of this Warrant shall be determined by multiplying the number of Shares theretofore purchasable upon exercise of this Warrant by a fraction, of which the numerator shall be the then Current Market Price per share of Common Stock (as defined in paragraph (d) below) on the date of such distribution, and of which the denominator shall be such Current Market Price per share of Common Stock, less the then fair value (as determined by the Board of Directors of the Company, whose determination shall be conclusive) of the portion of the assets or evidences of indebtedness so distributed or of such subscription rights, options or warrants, or of such convertible securities applicable to one share of Common Stock. Such adjustment shall be made 5 6 whenever any such distribution is made, and shall become effective on the date of distribution retroactive to the record date for the determination of shareholders entitled to receive such distribution. (d) For the purposes of this Warrant, the Current Market Price per share of Common Stock of the Company at any date shall be deemed to be (i) if the shares of Common Stock are traded in the over-the-counter market and not on any national securities exchange and not in the NASDAQ National Market System, the average of the mean between the bid and asked price per share, as reported by The National Quotation Bureau, Incorporated, or an equivalent generally accepted reporting service, for the twenty (20) consecutive trading days immediately preceding the date for which the determination of Current Market Price is to be made, or, (ii) if the shares of Common Stock are traded on a national securities exchange or in the NASDAQ National Market System, the average daily per share closing price on the principal national securities exchange on which they are so listed or in the NASDAQ National Market System, as the case may be, for the twenty (20) consecutive trading days immediately preceding the date for which the determination of Current Market Price is to be made. The closing price referred to in clause (ii) above shall be the last reported sales price or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices, in either case on the principal national securities exchange on which the shares of Common Stock are then listed or in the NASDAQ National Market System. If the Current Market Price cannot be determined in accordance with the foregoing, it shall be the fair market value per share of Common Stock as determined in good faith by the Company's Board of Directors. (e) No adjustment in the number of shares purchasable hereunder shall be required unless such adjustment would require an increase or decrease of at least 1 percent in the number of Shares purchasable upon the exercise of this Warrant; provided that any adjustments which by reason of this paragraph (e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. (f) Whenever the number of Shares purchasable upon the exercise of this Warrant is adjusted as herein provided, the Warrant Price per Share payable upon exercise of this Warrant shall be adjusted by multiplying such Warrant Price immediately prior to such adjustment by a fraction, of which the numerator shall be the number of Shares purchasable upon the exercise of this Warrant immediately prior to such adjustment, and of which the denominator shall be the number of Shares so purchasable immediately thereafter. (g) In case the Company shall sell and issue shares of Common Stock, or rights, options, warrants or convertible securities containing the right to subscribe for or purchase shares of Common Stock, at a price per share of Common Stock (determined in the case of such rights, options, warrants or convertible securities, by dividing (1) the total amount received or receivable by the Company in consideration of the sale and issuance of such rights, options, warrants or convertible securities, plus the total consideration payable to the Company upon exercise or conversion thereof, by (ii) the total number of shares of Common Stock covered by such rights, options, warrants or convertible securities) lower than the Current Market Price (as 6 7 defined in paragraph (d) above) in effect immediately prior to such sale and issuance, then the Warrant Price shall be reduced to a price (calculated to the nearest cent) determined by dividing (i) an amount equa1 to the sum of (1) the number of shares of Common Stock outstanding immediately prior to such sale and issuance multiplied by the then existing Warranty Price, plus (2) the consideration received by the Company upon such sale and issuance, by (ii) the total number of shares of Common Stock outstanding immediately after such sale and issuance; provided that adjustments pursuant to this paragraph (g) shall only be made if such sale or issuance is to an officer, director or other affiliate of the Company, or any relative of any of the above, and if no adjustment for such sale or issuance is made pursuant to paragraph (c) above. The number of Shares purchasable upon the exercise of each Warrant shall be determined by multiplying the number of Shares issuable upon exercise immediately prior to such adjustment by a fraction, of which the numerator is the Warrant Price in effect immediately prior to such adjustment and the denominator is the Warrant Price as so adjusted. For the purposes of such adjustments, the shares of Common Stock which the holders of any such rights, options, warrants or convertible securities shall be entitled to subscribe for or purchase shall be deemed to be issued and outstanding as of the date of such sale and issuance, and the consideration received by the Company therefor shall be deemed to be the consideration received by the Company for such rights, options, warrants or convertible securities, plus the consideration or premiums stated in such rights, options, warrants, or convertible securities to be paid for the shares of Common Stock covered thereby. In case the Company shall sell and issue shares of Common Stock, or rights, options, warrants, or convertible securities containing the right to subscribe for or purchase shares of Common Stock, for a consideration consisting, in whole or in part, of property other than cash or its equivalent, then in determining the "price per share of Common Stock" and the "consideration received by the Company" for purposes of the first sentence of this paragraph (g), the Board of Directors shall determine, in its discretion, the fair value of said property and such determination, if made in good faith, shall be binding upon the Holder of this Warrant. There shall be no adjustment of the Warrant Price pursuant to this paragraph (g) if the amount of such adjustment would be less than $.05 per Share; provided that any adjustment which by reason of this provision is not required to be made shall be carried forward and taken into account in any subsequent adjustment. (h) When the number of Shares purchasable upon the exercise of this Warrant or the Warrant Price is adjusted as herein provided, the Company shall promptly mail to the Holder by first class mail, postage prepaid, notice of such adjustment or adjustments together with a certificate of a firm of independent public accountants selected by the Board of Directors of the Company (who may be the regular accountants employed by the Company) setting forth the number of Shares purchasable upon the exercise of this Warrant and the Warrant Price of such Shares after such adjustment, a brief statement of the facts requiring such adjustment and the computation by which such adjustment was made. Such certificate shall be conclusive evidence of the correctness of such adjustment. The Company shall be entitled to rely on such certificate and shall be under no duty or responsibility with respect to any such certificate, except to exhibit the same, from time to time, to the Holder during reasonable business hours. 7 8 (i) For the purpose of this subsection 8.1, the term "shares of Common Stock" shall mean (i) the class of stock designated as the Common Stock of the Company on the date of this Warrant, or (ii) any other class of stock resulting from successive changes or reclassifications of such shares consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. In the event that at any time, as a result of an adjustment made pursuant to this subsection 8.1, the Holder shall become entitled to purchase any shares of the Company other than shares of Common Stock, thereafter the number of such other shares so purchasable upon exercise of this Warrant, and the Warrant Price of such shares, shall be subject to adjustment from time to time in manner and on terms as nearly equivalent as practicable to the provisions with respect to the Shares contained in paragraphs (a) though (h), inclusive, above, and the provisions of Section 3 and subsections 8.2 through 8.4, inclusive, with respect to the shares shall apply on like terms to any such other shares. (j) Upon the expiration of any rights, options, warrants or conversion privileges, if any thereof shall not have been exercised, the number of shares purchasable upon exercise of this Warrant and the Warrant Price, to the extent this Warrant shall not then have been exercised, shall, upon such expiration, be readjusted and shall thereafter be such as they would have been had it been originally adjusted (or had the original adjustment not been required, as the case may be) on the basis of (1) the only shares of Common Stock so issued were the shares of Common Stock, if any, actually issued or sold upon the exercise of such rights, options, warrants or conversion rights and (2) such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company for the issuance, sale or grant of all of such rights, options, warrants or conversion rights, whether or not exercised; provided that no such readjustment shall have the effect of increasing the Warrant Price by an amount in excess of the amount of the adjustment initially made in respect of the issuance, sale or grant of such rights, options, warrants or convertible rights. 8.2 No Adjustment for Dividends. Except as provided in subsection 8.1, no adjustment in respect of any dividends shall be made during the term of this Warrants or upon the exercise of this Warrant. 8.3 No Adjustment in Certain Cases. No adjustments shall be made pursuant to this Section 8, in connection with the issuance of (a) such number of shares of Common Stock (as adjusted for all stock dividends, stock splits, subdivisions and combinations) as are issued to employees, officers, Directors, consultants or members of the Advisory Board of the Company, or other persons performing services for the company, pursuant to any stock option plan, stock purchase plan or management incentive plan, agreement or arrangement approved by the Board, and (b) any shares of Common Stock (or securities convertible into shares of Common Stock) as consideration for the acquisition by the Company of assets or equity interests in any business entity. 8.4 Preservation of Purchase Rights upon Reclassification, Consolidation, etc. In case of any consolidation of the Company with or merger of the Company into another corporation or in case of any sale or conveyance to another corporation of the property, assets or business of the 8 9 company as an entirety or substantially as an entirety, the Company or such successor or purchasing corporation, as the case may be, shall execute an agreement with the Holder that the Holder shall have the right thereafter upon payment of the Warrant Price in effect immediately prior to such action to purchase upon exercise of this Warrant the kind and amount of Shares and other securities and property which he would have owned or have been entitled to receive after the happening of such consolidation, merger, sale or conveyance had this Warrant been exercised immediately prior to such action. Such agreement shall provide for adjustments, which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 8. The Company shall mail an executed copy of any such agreement by first class mail, postage prepaid, to the Holder. The provisions of this subsection 8.4 shall similarly apply to successive consolidations, mergers, sales, or conveyances. 9. SECTION FRACTIONAL INTERESTS The company shall not be required to issue fractional Shares on the exercise of this Warrant. If more than one of the Redeemable Warrants shall be presented for exercise in full at the same time by the same Holder, the number of full Shares which shall be issuable upon the exercise thereof shall be computed on the basis of the aggregate number of Shares represented by this Warrant and the Other Redeemable Warrants so presented. If any fraction of a Share would, except for the provisions of this Section 9, be issuable on the exercise of this Warrant (or specified portion thereof), the Company shall pay an amount in cash equal to the Current Market Price per Share (as defined in paragraph 8.1(d) above) multiplied by such fraction. 10. SECTION NO RIGHT AS STOCKHOLDERS; NOTICES TO HOLDER Nothing contained in this Warrant shall be construed as conferring upon the Holder or the Holder's transferees the right to vote or to receive dividends or to consent or to receive notice as stockholders in respect of any meeting of stockholders for the election of directors of the Company or any other matter, or any rights whatsoever as stockholders of the Company. If, however, at any time prior to the expiration of this Warrant and prior to its exercise, any of the following events shall occur: (a) any action which would require an adjustment pursuant to subsections 8.1 or 8.4, or (b) a dissolution, liquidation, or winding up of the Company (other than in connection with a consolidation, merger, or sale of all or substantially all of its property, assets, and business as an entirety) shall be proposed; the Company shall in each such case give notice in writing of such event to the Holders as provided in Section 11 hereof. Failure to publish or mail such notice or any defect therein or in the publication or mailing thereof shall not affect the validity of any action taken in connection with such dividend, distribution, or subscription rights, or proposed dissolution, liquidation or winding up. 9 10 11.SECTION NOTICES 11.1 Any notice to the Company pursuant to this Warrant shall be in writing and shall be deemed to have been duly given if delivered or mailed certified mail, return receipt requested, to the Company at 601 West 26th Street, 13th Floor, New York, New York 10001, Attention: President. The Company may from time to time change the address to which such notices are to be delivered or mailed hereunder by notice to the Holder in accordance with paragraph (b) below. 11.2 Any notice pursuant to this Warrant by the Company to the Holder shall be in writing and shall be deemed to have been duly given if mailed, postage prepaid, to the Holder at the Holder's address on the books of the Company. 12. SECTION SUPPLEMENTS AND AMENDMENTS The Company may from time to time supplement or amend this Warrant, without the approval of the Holder, in order to cure any ambiguity or to correct or supplement any provision contained herein which may be defective or inconsistent with any other provisions herein, or to make any other provisions in regard to matters or questions arising hereunder which the Company may deem necessary or desirable and which shall not be inconsistent with the provisions of this Warrant and which shall not adversely affect the interest of the Holder. Any other amendment to this Warrant may be made only by a written instrument executed by the Company and the Holder. 13. SECTION SUCCESSORS All the covenants and provisions of this Warrant by or for the benefit of the Company or the Holder shall bind and inure to the benefit of their respective successors and assigns hereunder. 14. SECTION MERGER OR CONSOLIDATION OF THE COMPANY The Company will not merge or consolidate with or into any other entity unless the entity resulting from such merger or consolidation (if not the Company) shall expressly assume the due and punctual performance and observance of each and every covenant and condition of this Warrant to be performed and observed by the Company. 15. SECTION APPLICABLE LAW This Warrant shall be deemed to be a contract made under the laws of the State of New York and for all purposes shall be construed in accordance with the laws of said state. 10 11 IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its President and its corporate seal to be affixed thereto. Date: June 15, 1999 SCREAMINGMEDIA.COM, INC. ATTEST: By: /s/ Alan S. Ellman ---------------------------------- /s/ William P. Kelly Alan S. Ellman, President - ---------------------------------- William P. Kelly, Secretary 11 12 SCREAMINGMEDIA.COM, INC. COMMON STOCK PURCHASE WARRANT PURCHASE FORM The undersigned hereby irrevocably elects to exercise the right of purchase represented by (the within Warrant Certificate for, and to purchase thereunder, _____________ shares (the "Shares") provided for therein, and requests that certificates for the Shares be issued in the name of: --------------------------------------- (Please Print or Type Name, Address and Social Security Number) --------------------------------------- --------------------------------------- --------------------------------------- and, if said number of Shares shall not be all the Shares purchasable hereunder, that a new Warrant Certificate for the balance of the unpurchased Shares be registered in the name of the undersigned Warrant holder as below indicated and delivered to the address stated below: (Please Print) Dated: --------------------------------------- Name of Warrantholder:-------------------------- Address:---------------------------------------- ---------------------------------------- Signature:--------------------------------------- 12 13 Note: The above signature must correspond with the name as written upon the face of this Warrant Certificate in every particular, without alteration or enlargement or any change whatever. Signature Guaranteed: --------------------------------------- (Signature must be guaranteed by a bank or trust company having an office or correspondent in the United States or by a member firm of a registered securities exchange or the National Association of Securities Dealers, Inc.) 13 EX-16 15 LETTER REGARDING CHANGE IN CERTIFYING ACCOUNTANT 1 Exhibit 16 February 15, 2000 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, DC 20549 Ladies and Gentlemen: We have read the section entitled "Change in Accountants" in the Registration Statement on Form S-1 of Screaming Media.com Inc., to be filed with Securities and Exchange Commission and are in agreement with the statements contained therein. Sincerely, /s/ DAVID TARLOW & CO., P.C. David Tarlow & Co., P.C. EX-23.1 16 CONSENT OF DELOITTE & TOUCHE LLP 1 Exhibit 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement of Screaming Media.com Inc. on Form S-1 of our report dated January 19, 2000 (February 1, 2000 as to Note 12), appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the headings "Selected Financial Data" and "Experts" in such Prospectus. DELOITTE & TOUCHE LLP New York, New York February 16, 2000 EX-23.2 17 CONSENT OF DAVID TARLOW & CO., P.C. 1 Exhibit 23.2 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Screaming Media.com Inc. New York, New York We hereby consent to the use in the Prospectus constituting a part of this Registration Statement of our report dated December 28, 1999, relating to the financial statements of Screaming Media.com Inc., which is contained in that Prospectus. We also consent to the reference to us under the caption "Experts" in the Prospectus. Sincerely, /s/ DAVID TARLOW & CO., P.C. ------------------------------ David Tarlow & Co., P.C. New York, New York February 15, 2000 -----END PRIVACY-ENHANCED MESSAGE-----