-----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, E428QXNY3DlqGtTP1Rjfo7yM1g1693qW9AZRgnikcmOh78XxG4o17G5wwlKI3J5w kPgTezl7JneOcKX2pfPTkA== 0000950131-02-002063.txt : 20020515 0000950131-02-002063.hdr.sgml : 20020515 20020515164925 ACCESSION NUMBER: 0000950131-02-002063 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SONIC FOUNDRY INC CENTRAL INDEX KEY: 0001029744 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 391783372 STATE OF INCORPORATION: MD FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-30407 FILM NUMBER: 02653282 BUSINESS ADDRESS: STREET 1: 1617 SHERMAN AVE CITY: MADISON STATE: WI ZIP: 53704 BUSINESS PHONE: 6082563133 MAIL ADDRESS: STREET 1: 1617 SHERMAN AVE CITY: MADISON STATE: WI ZIP: 53704 10-Q 1 d10q.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) {X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly period ended March 31, 2002 -------------- OR { } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-14007 ------- SONIC FOUNDRY, INC. ------------------- (Exact name of registrant as specified in its charter) MARYLAND 39-1783372 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1617 Sherman Avenue, Madison, WI 53704 -------------------------------------- (Address of principal executive offices) (608)256-3133 ------------- (Registrant's telephone number including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes X No . --- --- State the number of shares outstanding of each of the issuer's common equity as of the last practicable date: Outstanding Class May 13, 2002 ----- ------------ Common Stock, $0.01 par value 27,121,736 SONIC FOUNDRY, INC. QUARTERLY REPORT ON FORM 10-Q QUARTER ENDED MARCH 31, 2002 TABLE OF CONTENTS PAGE NO. -------- PART I FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Balance Sheets - March 31, 2002 (Unaudited) and September 30, 2001............................................3 Consolidated Statements of Operations (Unaudited) - Three months ended March 31, 2002 and 2001 and six months ended March 31, 2002 and 2001..............................5 Consolidated Statements of Cash Flows (Unaudited) - Six months ended March 31, 2002 and 2001..........................6 Notes to Consolidated Financial Statements (Unaudited)..............8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..............................14 Item 3. Quantitative and Qualitative Disclosures About Market Risk................................................25 PART II OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds..........................27 Item 4. Submission of Matters to a Vote of Security Holders................29 Item 5. Other Information..................................................29 Item 6. Exhibits and Reports on Form 8-K...................................31 Sonic Foundry, Inc. Consolidated Balance Sheets (in 000's except for share data)
March 31, September 30, 2002 2001 ---------------------------------------- (Unaudited) Assets Current assets: Cash and cash equivalents $ 8,134 $ 7,809 Restricted cash 1,000 - Accounts receivable, net of allowances of $788 and $1,075 4,207 4,065 Accounts receivable, other 68 26 Inventories 537 1,118 Prepaid expenses and other current assets 733 1,085 ---------------------------------------- Total current assets 14,679 14,103 Property and equipment: Buildings and improvements 2,409 2,409 Equipment 13,347 13,823 Furniture and fixtures 542 542 Assets held for sale 40 40 ---------------------------------------- Total property and equipment 16,338 16,814 Less accumulated depreciation 6,304 5,010 ---------------------------------------- Net property and equipment 10,034 11,804 Other assets: Goodwill and other intangibles, net 8,171 44,732 Capitalized software development costs and purchased technology, net 1,550 73 Long-term investment 514 514 Debt issue costs, net 778 - Other assets 32 457 ---------------------------------------- Total other assets 11,045 45,776 ---------------------------------------- Total assets $ 35,758 $ 71,683 ========================================
See accompanying notes. 3 Sonic Foundry, Inc. Consolidated Balance Sheets (in 000's except for share data)
March 31, September 30, 2002 2001 --------------------------------- (Unaudited) Liabilities and stockholders' equity Current liabilities: Accounts payable $ 2,857 $ 2,316 Unearned revenue 57 83 Accrued liabilities 1,926 1,719 Accrued restructuring charges 107 345 Current portion of long-term debt 3,987 4,003 Current portion of capital lease obligations 1,159 1,216 ------------------------------ Total current liabilities 10,093 9,682 Long-term obligations, net of current portion 153 217 Capital lease obligations, net of current portion 154 525 Convertible debt, net of discount 1,582 - Other liabilities 110 28 Stockholders' equity Preferred stock, $.01 par value, authorized 5,000,000 shares, none issued and outstanding - - 5% preferred stock, Series B, voting, cumulative, convertible, $.01 par value (liquidation preference at par), authorized 10,000,000 shares, none issued and outstanding - - Common stock, $.01 par value, authorized 100,000,000 shares; 27,145,251 and 22,345,503 shares issued and 27,117,501 and 22,317,753 outstanding at March 31, 2002 and September 30, 2001 271 223 Common stock to be issued - 5,375 Additional paid-in capital 166,172 148,188 Accumulated deficit (142,510) (92,248) Receivable for common stock issued (35) (34) Cumulative foreign currency translations/adjustments (3) 7 Unearned compensation (79) (130) Treasury stock, at cost, 27,750 shares (150) (150) ------------------------------ Total stockholders' equity 23,666 61,231 ------------------------------ Total liabilities and stockholders' equity $ 35,758 $ 71,683 ==============================
See accompanying notes. 4 Sonic Foundry, Inc. Statements of Operations (Unaudited)
Three months ended Six months ended (in 000's except for per share data) March 31, March 31, ------------------------------------------- 2002 2001 2002 2001 ------------------------------------------- Revenue: Software $ 3,608 $ 4,534 $ 7,161 $ 8,522 Media services 2,438 2,730 4,785 5,260 Media systems 405 - 543 - ------------------------------------------- Total revenue 6,451 7,264 12,489 13,782 Cost of revenue: Cost of software 846 1,790 1,809 3,194 Cost of media services 1,798 1,957 3,575 4,290 Cost of media systems 123 - 159 - ------------------------------------------- Total cost of revenues 2,767 3,747 5,543 7,484 ------------------------------------------- Gross profit 3,684 3,517 6,946 6,298 Operating expenses: Selling and marketing expenses 1,903 2,759 4,304 7,987 General and administrative expenses 1,662 2,187 3,263 5,871 Product development expenses 1,815 1,793 3,662 4,627 Amortization of goodwill and other intangibles - 7,009 - 14,027 Restructuring charges - - - 3,782 ------------------------------------------- Total operating expenses 5,380 13,748 11,229 36,294 ------------------------------------------- Loss from operations (1,696) (10,231) (4,283) (29,996) Other income (expense): Interest expense (154) (185) (189) (372) Non-cash interest expense (858) - (858) - Interest and other (204) 139 (200) 418 ------------------------------------------- Total other income (expense) (1,216) (46) (1,247) 46 ------------------------------------------- Loss before cumulative effect of changes in accounting principle (2,912) (10,277) (5,530) (29,950) Cumulative effect of changes in accounting principle - - (44,732) - ------------------------------------------- Net loss $(2,912) $(10,277) $(50,262) $(29,950) =========================================== Loss per common share: Loss before cumulative effect of changes in accounting principle $ (.11) $ (0.46) $ (.21) $ (1.36) Cumulative effect of changes in accounting principle - - (1.71) - ------------------------------------------- Net loss per common share - basic and diluted $ (.11) $ (0.46) $ (1.92) $ (1.36) ===========================================
See accompanying notes. 5 Sonic Foundry, Inc. Consolidated Statements of Cash Flows (Unaudited)
Six months ended March 31, (in 000's) 2002 2001 --------------------- Operating activities Net loss $(50,262) $(29,950) Adjustments to reconcile net loss to net cash used in operating activities: Cumulative effect of change in accounting principle 44,732 - Amortization of goodwill, other intangibles, purchased technology and capitalized software development costs 193 14,272 Depreciation and amortization of property and equipment 1,703 1,785 Amortization of debt discount and debt issue costs 858 - Noncash charge for common stock warrants and options 155 234 Loss on sale of assets 218 1,477 Changes in operating assets and liabilities: Accounts receivable (176) 3,282 Inventories 581 615 Prepaid expenses and other assets 405 985 Accounts payable and accrued liabilities (2,340) (2,271) --------------------- Total adjustments 46,329 20,352 --------------------- Net cash used in operating activities (3,933) (9,598) Investing activities Acquisition, net of cash acquired (579) (679) Purchases of property and equipment (262) (1,723) Sales of property and equipment 4 1,205 --------------------- Net cash used in investing activities (837) (1,197) Financing activities Proceeds from sale of common stock 174 110 Proceeds from debt, net of commissions and issue costs 6,675 - Borrowings on line of credit, net - 571 Payments on long-term debt and capital leases (757) (1,507) Cash placed in escrow (1,000) - --------------------- Net cash provided by (used in) financing activities 5,092 (826) Effect of exchange rate changes on cash 3 - --------------------- Net increase (decrease) in cash 325 (11,621) Cash and cash equivalents at beginning of period 7,809 21,948 --------------------- Cash and cash equivalents at end of period $ 8,134 $ 10,327 =====================
See accompanying notes. 6 Sonic Foundry, Inc. Consolidated Statements of Cash Flows (continued) (Unaudited) Supplemental cash flow information: Interest paid $ 70 $ 192 Non-cash transactions - Capital lease acquisitions 17 86 Issuance of options for deferred compensation plan 104 - Issuance of warrants for consulting services 49 19 Conversion of exchangeable stock into common stock 5,375 - Issuance of common stock and stock options for MediaSite 5,016 - Issuance of shares for Digital Savant 541 - Issuance of shares for accrued royalties 125 - Reclassification of goodwill to fixed assets upon final appraisal of International Image - 1,281 Cancellation of unvested stock options classified as unearned compensation upon acquisition of STV - 1,249
7 1. Basis of Presentation and Significant Accounting Policies Interim Financial Data The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements and should be read in conjunction with the Company's annual report filed on Form 10-K for the fiscal year ended September 30, 2001. In the opinion of management, all adjustments (consisting only of adjustments of a normal and recurring nature) considered necessary for a fair presentation of the results of operations have been included. Operating results for the six-month period ended March 31, 2002 are not necessarily indicative of the results that might be expected for the year ended September 30, 2002. Revenue Recognition Revenues from software license fees consist of fees charged for the licensing of Windows-based software products. We recognize software product revenue upon delivery, net of estimated returns, provided that collection is determined to be probable and no significant obligations remain. Software product revenue from distributors is subject to agreements allowing limited rights of return, rebates, and price protection. Accordingly, we reduce revenue recognized for estimated future returns, price protection when given, and rebates at the time the related revenue is recorded or promotion is offered. The estimates for returns are adjusted periodically based upon historical rates of returns, estimated inventory levels in the distribution channel, and other related factors. The estimates and reserves for rebates and price protection are based on historical rates. Delivery occurs through the following methods: ... Direct Distribution: Direct revenues are recognized upon delivery to the end-user either via shipment of a boxed product from the Company's fulfillment contractor or electronic download. No returns are accepted. ... Retail Distribution: Retail revenues are recognized upon delivery to a third-party distributor, net of allowances for estimated returns, rebates and price protection. ... OEM: OEM revenues are generated through partnerships with hardware and software vendors who license the right to bundle one of the Company's products with the partner's products. Typically, this type of revenue is recognized as the partner sells through to the end-user. 8 ... Consulting: Consulting revenues include fees recorded pursuant to long-term contracts, using the percentage of completion method of accounting, when significant customization or modification of a product is required. ... Consignment: Consignment revenues are recognized when a third-party reseller delivers the boxed product to their customer. All software products sold include free installation support and professional software products sold include 60 days of free telephone support. Costs associated with free support are accrued at the date of sale because the free support is not significant. Customers that require additional post-contract customer support ("PCS") are charged a separate fee either through a telephone charge or annual subscription charge. Revenue and associated costs for PCS are recognized as the services are performed or on a straight-line basis over the contractual period. Revenues from media services are typically recognized when persuasive evidence of a contract exists, the service has been completed and no significant obligations of the Company remain, the fee is fixed and determinable and collection of the resulting receivable is deemed probable. The Company records revenue on a percentage of completion method, generally by using the number of tapes completed as a percentage of total tapes included in the contract, when performing services of a duration of 30 days or more and all criteria for recognition of service revenue are met other than completion. We perform ongoing credit evaluations of our customers' financial condition and generally do not require collateral. We maintain allowances for potential credit losses and such losses have been within our expectations. Inventories Inventory consists of the following (in thousands): March 31, September 30, 2002 2001 -------------------------- Raw materials and supplies $ 273 $ 390 Work-in-process 50 112 Finished goods 214 616 -------------------------- $ 537 $ 1,118 ========================== Net Loss Per Share The following table sets forth the computation of basic and diluted loss per share:
Three months ended Six months ended March 31, March 31, 2002 2001 2002 2001 ---------------------------------------------------- Denominator Denominator for basic and diluted loss per share - weighted average common shares 26,760,584 22,103,804 26,213,343 22,019,690 ====================================================
9
Securities that could potentially dilute basic earnings per share in the future that are not included in the computation of diluted loss per share as their impact is anti-dilutive: Options, warrants and exchangeable shares 2,835,638 1,567,034 2,506,584 1,375,651 Convertible subordinated debt 1,814,058 - 907,029 -
Accounting Pronouncements In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS 144"), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations for a disposal of a segment of a business. FAS 144 is effective for fiscal years beginning after December 15, 2001, with earlier application encouraged. The Company adopted FAS 144 as of October 1, 2002. The adoption of the Statement had no significant impact on the Company's financial position and results of operations. Effective October 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. Under SFAS No. 142, goodwill is no longer amortized but reviewed for impairment annually, or more frequently if certain indicators arise. The Company is required to complete the initial step of a transitional impairment test within six months of adoption of SFAS No. 142. During the first quarter of 2002 the Company retained an outside valuation firm to assist in the completion of the transitional impairment test. It was determined that the remaining goodwill of the media services reporting unit associated with the acquisitions of STV and International Image was entirely impaired, which resulted in a $44,732,000 charge reflected as a cumulative effect of changes in accounting principle. See Note 5 for additional details. Subsequent impairment charges for MediaSite or other acquisitions, if any, will be reflected as an operating expense in the income statement. Had the Company been accounting for its goodwill under SFAS No. 142 for all periods presented, the Company's net income and earnings per share would have been as follows: 10
(in thousands, except per share data) Six months ended March 31, 2002 2001 ------------------------------- Reported net loss $(50,262) $(29,950) Add back cumulative effect of changes in accounting principle 44,732 - Add back goodwill amortization - 14,027 -------------------------------- Adjusted net loss $ (5,530) $(15,923) ================================ Basic and diluted - net loss per share Reported net loss per share $ (1.92) $ (1.36) Cumulative effect of changes in accounting principle 1.71 - Goodwill amortization - .64 -------------------------------- Adjusted net loss per share $ (.21) $ (.72) ================================
2. Restructuring Charge As a result of rapidly changing market conditions, in December 2000 the Company's Board of Directors authorized management to make a 40% workforce reduction affecting all divisions of the Company in order to reduce future cash expenditures. The restructuring charges were determined based upon plans submitted by the Company's management and approved by the Board of Directors using information available at the time. As a result of the workforce reduction, the Company exited four leased facilities and disposed of fixed assets (mainly computer equipment and trade show assets) that were no longer necessary for future operations. Future lease obligations of facilities exited were accrued net of estimated sub-lease income to be generated through the lease term. Computer equipment and trade show assets no longer necessary for operations were written down from a carrying amount of $3.1 million to their anticipated net realizable value. As a result of the workforce reductions, termination of leases and disposal of fixed assets, the Company recorded restructuring charges of $3,782,000 during the first quarter of fiscal 2001. In the fourth quarter of fiscal 2001, the Company refined the net realizable value of equipment no longer necessary in operations that was identified in the December 2000 restructuring plan, which resulted in an additional charge of $1,191,000. The remaining balance will continue to decrease as lease obligations are paid and sublease income is received.
(in thousands) Severance and Lease Fixed Asset Related Charges Terminations Disposals Other Total --------------- ------------ ----------- ----- ------- Charge in December 2000 $ 1,470 $1,555 $ 594 $ 163 $ 3,782 Charge in September 2001 - - 1,191 - 1,191 ---------------------------------------------------------------- Total charges 1,470 1,555 1,785 163 4,973 Adjustments to December 2000 charge - (503) 503 - - Amount paid (1,470) (707) - (2) (2,179) Non-cash charges - - (2,288) (161) (2,449) ---------------------------------------------------------------- Accrued liabilities at September 30, 2001 - 345 - - 345
11 Amount paid in fiscal 2002 (238) - - (238) ----------------------------------------------------------------------------- $ - $ 107 $ - $ - $ 107 =============================================================================
3. Contingencies In early January 2001, the Company withheld paying a $4 million note due to the former shareholders of International Image pending the resolution of certain disputed representations made during the acquisition. In January 2001 the note holders initiated litigation against the Company in Toronto for payment of the note and in March 2001 the Company initiated a counter action for damages incurred. In April 2001, the Company paid certain shareholders $500,000 in full settlement of $700,000 of the note plus accrued interest originally owed. Litigation with the remaining shareholders is still pending. In October 2001, pursuant to an agreement with the plaintiffs, the Company deposited $1,000,000 with the Ontario Superior Court of Justice to be held in trust until settlement of the suit. The transaction was recorded as restricted cash. 4. Acquisitions On October 15, 2001, the Company completed the asset purchase of MediaSite, Inc., a pioneer in providing automated rich media publishing, management and access solutions. Under terms of the purchase agreement, a wholly-owned subsidiary of the Company purchased the majority of the assets of MediaSite and assumed certain of its liabilities in exchange for 3,880,000 shares of the Company's common stock and 300,000 warrants valued at $1.20 per share. Also as part of the purchase, the Company capitalized $490,000 in closing costs, $3,101,000 in assumed liabilities and a $365,000 advance that was issued to MediaSite in September 2001. Approximately $9,100,000 of intangible assets resulted from the purchase. The Company obtained an independent appraisal, which resulted in an allocation of $120,000 to the Carnegie Mellon University license agreement, $130,000 to the MediaSite trade name and $1,400,000 to acquired technology. All three were determined to have useful lives of 5 years and will be amortized to cost of systems. $100,000 was amortized in the current quarter. The remaining balance of $7,450,000 will be assigned to goodwill and, in accordance with SFAS No. 142, will not be amortized, but will be reviewed annually for impairment. On February 12, 2002 the Company's media services division purchased all the intellectual property rights to Media Taxi (TM) from Los Angeles based Digital Savant, Inc. in exchange for $100,000 and 221,000 shares of the Company's common stock. Media Taxi is a widely deployed browser-based media asset management system focused on streamlining and reducing the cost of managing and distributing marketing and publicity materials for the entertainment industry. As part of the acquisition, $430,000 was assigned to goodwill and, in accordance with SFAS No. 142, will not be amortized, but will be reviewed annually for impairment. $240,000 was assigned to purchased technology and will be amortized to cost of services over two years. $20,000 was amortized in the current quarter. 5. Goodwill and Other Intangible Assets - Adoption of Statement No. 142 12 In July 2001, the FASB issued SFAS No. 142 Goodwill and Other Intangible Assets, which established financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, Intangible Assets. The Company early adopted SFAS No. 142 on October 1, 2001, the beginning of its fiscal year. SFAS No. 142 requires that goodwill and intangible assets that have indefinite useful lives not be amortized but, instead, tested at least annually for impairment. Accordingly, the Company reclassified the net book value of assembled workforce to goodwill and ceased amortization of all goodwill, on October 1, 2001. Intangible assets that have finite useful lives, primarily developed technology and know-how, continue to be amortized over their useful lives. The standard also requires that goodwill be tested for impairment annually. In the year of adoption, the standard required a transitional goodwill impairment evaluation, which was a two-step process. The first step was a screen for whether there was an indication that goodwill was impaired as of October 1, 2001. At this time, the Company had two reporting units - software and media services. The entire goodwill balance, which had resulted from the 2000 acquisitions of STV Communications and International Image, related to the media services unit. To determine if the goodwill was impaired, the company retained an independent appraisal firm to a perform a valuation of the media services unit using the criteria prescribed under FAS 142. As of December 2001, the appraisers completed this first step, which indicated that goodwill recorded during the 2000 acquisitions mentioned above was impaired as of October 1, 2001. For the second step, the Company used the services of the same independent appraisal firm to compare the implied fair value of the affected reporting unit's goodwill to its carrying value in order to measure the amount of impairment. The fair value of goodwill was determined by allocating the reporting unit's fair value to all of its assets and liabilities in a manner similar to a purchase price allocation in accordance with SFAS No. 141 Business Combinations. As of December 2001, the appraisers concluded that goodwill was 100% impaired. Therefore, the Company recorded an impairment loss of $44.7 million as a cumulative effect of a change in accounting principle in its statement of operations. The circumstances leading to the goodwill impairment related to: 1) the decreased demand for digital services such as encoding (especially from dot coms); 2) significant reductions of STV's workforce; 3) the company's decreased market capitalization; and 4) a history of cash flow and operating losses for the media services unit. These negative trends provide evidence that initial growth expectations when STV and International Image were acquired have not materialized. The fair value used to determine the impairment was based on a combination of discounted cash flow valuation techniques, market transactions and the prices of publicly-traded comparable companies. 6. Convertible Subordinated Debt In January and February 2002, the Company completed a $7,125,000 offering of convertible subordinated debt with several investors. The promissory notes bear interest at 10% per annum and mature (if not converted) in monthly installments commencing on December 1, 2002, in the event we raise at least $8,000,000 in additional financing on or before July 1, 2002 on terms 13 specified in the notes. In such case, the aggregate amount of such monthly installments for all the Notes is $330,000 with a final installment in the aggregate amount of $2,502,000 due on the maturity date of February 1, 2004. If we do not complete such financing of at least $8,000,000 on or before July 1, 2002 and otherwise meet the requirements in the Notes, the Notes mature (if not converted) in monthly installments commencing on August 1, 2002. In such case the aggregate amount of such monthly installments for all the Notes is $330,000 with a final installment in the aggregate amount of $1,181,000 due on the maturity date of February 1, 2004. The Notes may be converted into shares of our common stock, in whole or in part, at any time. The conversion price is $2.45 per share, subject, to potential anti-dilution adjustments. The Investors also received 1,163,000 warrants to purchase shares of common stock at an exercise price of $2.94. The Company also paid a $502,500 commission and issued 129,000 warrants to purchase common stock at an exercise price of $2.94 to the placement agents, which are classified as debt issuance costs in the accompanying balance sheet. Warrants granted to the Investors and the placement agents expire in February 2006. The value allocated to the warrants issued was measured at the date of grant because the number of shares was fixed and determinable. The value was determined based upon a Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 3%, dividend yield of 0%, expected common stock market price volatility factor of 1.5 and the expected life of the warrants. The valuation of the investor warrants reduced the carrying value of the debt by $2.8 million and was recorded as a debt discount. The debt discount recorded for the warrant valuation caused a beneficial embedded conversion feature valued at $3.5 million and was recorded as an additional debt discount. The debt discount is being amortized using an effective interest method over the two-year term of the debt. The unamortized balance of the debt discount at March 31, 2002, was $5,543,000. The debt issuance costs are being amortized using the straight line method over the two-year term of the debt. Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the consolidated financial position and results of operations of the Company should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this form 10-Q and the Company's annual report filed on form 10-K for the fiscal year ended September 30, 2001. In addition to historical information, this discussion contains forward-looking statements such as statements of the Company's expectations, plans, objectives and beliefs. These statements use such words as "may," "will," "expect," "anticipate," "believe," "plan," and other similar terminology. Actual results could differ materially due to changes in the market acceptance of our products, market introduction or 14 product development delays, our ability to effectively integrate acquired businesses, global and local business conditions, legislation and governmental regulations, competition, our ability to effectively maintain and update our product portfolio, shifts in technology, political or economic instability in local markets, and currency and exchange rate fluctuations. Overview In accordance with FAS 131 disclosure on segment reporting, the SEC's guidance has been to present financial information in a format that is used by the Company's management to make decisions. The Company is a leading provider of professional rich media solutions with three primary revenue centers: Sonic Foundry Media Software develops sophisticated software tools used by professionals and hobbyists for the creation, editing and publishing of digital audio and video. We currently focus our software efforts on the Sound Forge(R), ACID(TM) and Vegas(R) Video platforms. Sonic Foundry Media other video Services supplies media digitization, management and delivery solutions for various industries, particularly the entertainment sector. These services consist of conversion, reformatting and encoding of television, film and other video content for multiple delivery platforms. Sonic Foundry Media Systems (formerly MediaSite) develops automated rich-media applications and scalable solutions that allow media owners - including entertainment companies, corporations and government organizations - to deploy, manage and distribute video content on IP-based networks. These three revenue centers, along with their respective production costs, are analyzed independently from each other. However, because the majority of operating expenses support all revenue centers, all items below gross margin are analyzed on a combined basis. Critical Accounting Policies We have identified the following as critical accounting policies to our company and have discussed the development, selection of estimates and the disclosure regarding them with the audit committee of the board of directors: . Revenue recognition, sales returns, allowance for doubtful accounts and other credits; . Impairment of investments and . Impairment of long-lived assets 15 Revenue Recognition, Sales Returns, Price Protection and Rebates We recognize revenue for licensing of software products upon shipment, net of estimated returns, provided that collection is determined to be probable and no significant obligations remain. Product revenue from distributors is subject to agreements allowing limited rights of return, rebates, and price protection. Accordingly, we reduce revenue recognized for estimated future returns, price protection when given, and rebates at the time the related revenue is recorded or promotion is offered. The estimates for returns are adjusted periodically based upon historical rates of returns, inventory levels in the distribution channel, and other related factors. The estimates and reserves for rebates and price protection are based on historical rates. While management believes it can make reliable estimates for these matters, nevertheless unsold products in these distribution channels are exposed to rapid changes in consumer preferences or technological obsolescence due to new operating environments, product updates or competing products. Significant judgments and estimates must be made and used in connection with establishing reserves for sales returns, price protection and rebates in any accounting period. Material differences may result in the amount and timing of our revenue for any period if we made different judgments or utilized different estimates. During fiscal 2001, returns from software products sold to consumer retail distributors were higher than historical rates incurred in fiscal 2000 and 1999. In response to economic factors affecting the consumer retail market, we began recording revenues to consumer retail distributors on a consignment basis in September 2001. Please refer to Note 1 of our Notes to Consolidated Financial Statements for further information on our revenue recognition policies. The preparation of our consolidated financial statements also requires us to make estimates regarding the collectability of our accounts receivables. We specifically analyze the age of accounts receivable and analyze historical bad debts, customer concentrations, customer credit-worthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. Impairment of Investments We periodically evaluate whether any estimated decline in the fair value of our long-term investment is other-than-temporary. Significant judgments and estimates must be made to assess the fair value of our investment and determine whether an other-than-temporary decline in fair value of our investment has occurred. This evaluation consists of a review of qualitative and quantitative factors, review of publicly available information regarding the investee and discussions with investee management. Since our investment is in a private company with no quoted market price, we also consider the implied value from any recent rounds of financing completed. Based upon an evaluation of the facts and circumstances during the quarter ended March 31, 2002, we determined that no other-than-temporary decline in fair value of our investment had occurred. 16 Impairment of long-lived assets We assess the impairment of goodwill on an annual basis or whenever events or changes in circumstances indicate that the fair value of the reporting unit to which goodwill relates is less than the carrying value. Factors we consider important which could trigger an impairment review include the following: ... poor economic performance relative to expected historical or projected future operating results; ... significant negative industry, economic or company specific trends; ... changes in the manner of our use of the assets or the plans for our business; and ... loss of key personnel If we determine that the fair value of a reporting unit is less than its carrying value including goodwill, based upon the annual test or the existence of one or more of the above indicators of impairment, we would then measure impairment based on a comparison of the implied fair value of reporting unit goodwill with the carrying amount of goodwill. The implied fair value of goodwill is determined by allocating the fair value of a reporting unit to its assets (recognized and unrecognized) and liabilities in a manner similar to a purchase price allocation. The residual fair value after this allocation is the implied fair value of reporting unit goodwill. To the extent the carrying amount of reporting unit goodwill is greater than the implied fair value of reporting unit goodwill, we would record an impairment charge for the difference. The Company evaluates all of its long-lived assets, including intangible assets other than goodwill, for impairment in accordance with the provisions of SFAS No. 121, "Accounting for the impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". SFAS 121 requires that long-lived assets and intangible assets other than goodwill be evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable based on expected undiscounted cash flows attributable to that asset. Should events indicate that any of the Company's assets are impaired; the amount of such impairment will be measured as the difference between the carrying value and the fair value of the impaired asset and recorded in earnings during the period of such impairment. We Disclose Pro Forma Financial Information We release quarterly unaudited financial statements prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). We also disclose and discuss certain pro forma financial information in the related earnings release and investor conference call. Our pro forma financial information does not include amortization of purchased technology, restructuring charges, amortization of goodwill or other purchased intangibles, non-cash interest expense, or cumulative effect of changes in accounting principle. We believe the disclosure of the pro forma financial information helps investors more meaningfully evaluate the results of our ongoing operations. However, we urge investors to carefully review the GAAP financial information included as part of our Quarterly Reports on Form 10-Q, our Annual Reports on Form 10-K, and our quarterly earnings releases and compare that GAAP financial information with the pro forma financial results disclosed in our quarterly earnings releases and investor calls, as well as in some of our reports. 17 The following table shows the Company's pro forma results reconciled to the GAAP Consolidated Statements of Income table. Sonic Foundry, Inc Pro Forma Analysis
(In 000's, except per share data) Three months ended Six months ended March 31, March 31, 2002 2001 2002 2001 --------------------------------------------------------- Net loss $(2,912) $(10,277) $(50,262) $(29,950) Amortization of purchased technology 120 - 120 - Amortization of goodwill and other intangibles - 7,009 - 14,027 Restructuring charges - - - 3,782 Non-cash interest expense 858 - 858 - Cumulative effect of changes in accounting principle - - 44,732 - --------------------------------------------------------- Pro forma net loss (1,934) (3,268) (4,552) (12,141) --------------------------------------------------------- Pro forma net loss per common share - basic and diluted $ (.07) $ (0.15) $ (.17) $ (.55) -------------------------------------------------------- Shares used in computing basic and diluted net loss per share (in thousands) 26,761 22,104 26,213 22,020 --------------------------------------------------------
Results of Operations The following chart has been presented to add clarification only and should be read in conjunction with the consolidated financial statements.
Three months ended March 31, Six months ended March 31, 2002 2001 2002 2001 ----------------------------------------------------------------------- Software license fees $3,608 100% $4,534 100% $ 7,161 100% $8,522 100% Cost of software license fees 846 23 1,790 39 1,809 25 3,194 37 ------------------------------------------------------------------------- Gross margin-software license fees $2,762 77% $2,744 61% $ 5,352 75% $5,328 63% Media services $2,438 100% $2,730 100% $ 4,785 100% $5,260 100% Cost of media services 1,798 74 1,957 72 3,575 75 4,290 82 ------------------------------------------------------------------------- Gross margin-media services $ 640 26% $ 773 28% $ 1,210 25% $ 970 18%
18 Media systems $ 405 100% - - $ 543 100% - - Cost of media systems 123 30 - - 159 29 - - ----------------------------------------------------------------------------- Gross margin-media systems $ 282 70% - - $ 384 71% - -
Revenue from Software License Fees Revenues from software license fees consist of fees charged for the licensing of Windows based software products. The Company's primary focus is on the platforms of ACID(TM), Sound Forge(R) and Vegas(R) Video. These software products are marketed to both consumers and producers of digital media. We reach both our domestic and international markets through traditional retail distribution channels, our direct sales effort and OEM partnerships. Q2-2002 compared to Q2-2001 and YTD-2002 (six months) compared to YTD-2001 (six months) Net revenues from software license fees decreased $926 or 20% from Q2-2001 to Q2-2002 and $1,361 or 16% from YTD-2001 to YTD-2002. The net changes resulted from the following items: . $1.3 million of the quarter to quarter decline resulted from sales of Sound Forge. In Q2-2001, the first major update of Sound Forge in several years, version 5.0, generated nearly $2 million in revenue. In Q2-2002, as sales declined pending release of Sound Forge 6.0, the product sold just over $700. We anticipate Sound Forge sales will again approach the Q2-2001 levels after we release version 6.0 in May 2002. . $300 of the quarter to quarter decline related to ACID and Acid Loops. Q2-2001 saw strong performance as a number of new loop bundles were sold in the retail channel. Although loop sales remain strong in the direct channel due to strong catalog sales, they have not approached the retail levels reached during Q2-2001. . The quarter to quarter declines above were offset by the growth of Vegas Video. In November 2001, we released version 3.0 of this product and generated nearly $600 of sales growth from the prior year quarter. . The remainder of the quarter to quarter decline can be attributed to a Q2-2001 increase in our reserve for product returns due to poor sell through of certain lower end retail products like Siren and ACID Latin. These products have been discontinued as we shifted our focus to the professional platforms of ACID, Sound Forge and Vegas Video. . The YTD trends mirror those of the quarter. Sound Forge YTD declines amounted to $1.2 million, Acid and Acid Loops declined by $760, and Vegas Video grew by over $1 million. Increases in YTD-2001 reserves for product returns account for most of the remaining change. Gross Margin from Software License Fees Included in costs of software license fees are product material costs, assembly labor, freight, royalties on third party technology or intellectual content, and amortization of previously capitalized product development and localization costs. Despite the decline in software 19 revenues, 2002 software gross margin dollars were nearly identical with Q2-2001 and YTD-2001 amounts. The much improved margins on a percentage basis can be attributed to the declining presence of lower priced consumer retail products and a shift toward higher priced professional products. In 2001, the poor performance of the lower priced retail products, which had margins near 50%, negatively impacted gross margin. We anticipate that software margins will continue to approach 80% as we expand our direct channel and electronic download business. Revenue from Media Services Revenue from media services includes tape duplication for broadcast distribution, broadcast standard conversions, audio and video encoding, as well as fees for consulting services. Since our restructuring in December 2000, revenue from low bit rate encoding has generated less than 2% of media services and has been deemphasized. Revenue from media services declined $292 or 11%, from Q2-2001 to Q2 2002. A decline in advertising income of entertainment companies led to decreased demand (over $400) for our traditional duplication and conversion services. This decline was offset by growth in our digital restoration and High Definition services ($100) and revenues from consulting and the MediaTaxi technology, acquired from Digital Savant in February 2002, (over $80) during Q2-2002. Revenue from media services declined $475, or 9%, from YTD-2001 to YTD-2002. Reasons for the change mirror those in the quarter discussion above. Traditional services declined approximately $800 while Digital Restoration and High Definition services rose by nearly $250. A decrease in audio encoding revenues of approximately $100 also contributed to the overall decline. Gross Margin from Media Services Costs of media services include compensation, benefits and other expenses associated with production personnel, videotape costs, depreciation on production equipment and an allocation for general and administrative expenses such as facility costs. These costs have become relatively stable and fixed in dollars since Q3-2001 and we anticipate no major increases in the near future. Future fluctuations in gross margin will result primarily from changes in revenue because: 1) these costs should remain relatively fixed going forward; and 2) newer offerings, such as MediaTaxi and MediaDub, are lower cost procedures. Gross Margin from media services declined from 28% to 26% from Q2-2001 to Q2-2002. Revenues from services declined $300, while cost of services only declined $200. The decline in cost of services was related to $300 savings from reductions in production personnel, which was offset by an increase in depreciation of $100. Q2-2002 included $20 of amortization of MediaTaxi technology acquired in February. The MediaTaxi technology will be amortized at $10 per month for the next two years. Gross margin from media services improved from 18% to 25% from YTD-2001 to YTD-2002. Revenues from services declined $500, while cost of services declined $700. The decline in cost of services is related to the Company's restructuring that occurred in Q1-2001, which included 20 the elimination of duplicate positions, operational and process improvements, a switch to a temporary labor force for encoding services and a reduction in depreciation expenses from the write-off and disposal of underutilized assets no longer needed for the service business. Revenue from Media Systems The media systems business, established upon acquisition of MediaSite, recorded Q2-2002 revenues of $405 - an increase of $267 over its initial quarter (Q1-2002). Approximately half of the system revenues represent what we believe to be the first stage of a relationship with a unit of the Federal Government, from which we expect to generate additional license and support revenues in the future. In total, government contracts accounted for 75% of total media system sales. Gross Margin from Media Systems Gross margin from media systems consists of a 5% royalty on certain sales of MediaSite technology and amortization of MediaSite acquisition amounts assigned to purchased technology and other identified intangibles. During the year and quarter, all Systems revenue were subject to the royalty. We will be amortizing approximately $100 per quarter over the next 5 years for the identified intangibles of the MediaSite purchase. In the future, our systems group intends to market systems that include a hardware component with gross margins just over 50%. Although such units are not currently expected to exceed 10% of systems sales, they may reduce future gross margin percentages of media systems. Operating Expenses The following chart is provided to add clarification by presenting items as a percentage of total revenues. For comparison purposes, amortization of goodwill has been excluded from the 2001 results due to the adoption of SFAS No. 142. Please see Note 1 of the financial statements for further details. This should be read in conjunction with the unaudited consolidated financial statements presented in this filing. Three months ended Six months ended March 31, March 31, 2002 2001 2002 2001 --------------------------------------- Total revenues 100% 100% 100% 100% Cost of revenues 43 52 44 54 --------------------------------------- Gross margin 57 48 56 46 Operating expenses Selling and marketing expenses 29 38 35 58 General and administrative expenses 26 30 26 43 Product development expenses 28 25 29 34 Restructuring charges - - - 27 --------------------------------------- Total operating expenses 83 93 90 162 --------------------------------------- Loss from operations (26)% (45)% (34)% (116)% ======================================= 21 Selling and Marketing Expenses Selling and marketing expenses include wages and commissions for sales, marketing, business development and technical support personnel, our direct mail catalog, co-operative advertising with our software distributors, print advertising and various promotional expenses for our products, services and systems. Timing of these costs may vary greatly depending on introduction of new offerings and entrance into new markets. Q2-2002 compared to Q2-2001 and YTD-2002 (six months) compared to YTD-2001 (six months) Selling and marketing expenses declined both as a percentage of revenues and in gross dollars for the quarter period. The decline from Q2-2001 to Q2-2002 was $856 or 31%. Two primary contributors to the decline were reductions in co-operative advertising and customer service. The reduction in co-operative and other advertising of over $700 reflects our shift away from lower priced consumer retail products which demanded heavier in-store promotions. Our customer service expenses declined by $200 because: 1) we terminated outsourcing arrangements that provided 24 hour support; and 2) we reduced headcount in our internal customer service department which no longer had to support discontinued lower priced, higher volume retail products. The above items, and other smaller reductions related to advertising and catalogs, were slightly offset by increases in media systems sales and marketing personnel. The YTD decline of $3,683 or 46% in selling and marketing resulted from: 1) reduction in advertising and co-op advertising in the retail channel ($1.6 million of the change); 2) significant staff reductions as part of the December 2000 restructuring (over $1 million of the change); and 3) decline in tradeshow expenses ($360 of the change). We anticipate that the continued promotion of our new systems offerings and the upcoming updates of Sound Forge and Acid will lead to increases in selling and marketing expenses for the remaining fiscal year. We expect Q3-2002 and Q4-2002 levels to be near the Q1-2002 total of $2.4 million. General and Administrative Expenses General and administrative ("G&A") expenses consist of personnel and related costs associated with the facilities, finance, legal, human resource and information technology departments, as well as other expenses not fully allocated to functional areas. Q2-2002 compared to Q2-2001 and YTD-2002 (six months) compared to YTD-2001 (six months) G&A expenses declined by $525 or 24%, from Q2-2001 to Q2-2002. The decline is primarily the result of: 1) a reduction in bad debt expense from $300 to $100 which reflects large 2001 write-offs related to audio encoding services to dot coms; 2) approximately $150 of reductions in headcount due in part to reduced purchasing and operational support needs; and 3) a salary waiver program for executives that began in December 2001 ($125,000 of change). Under the terms of the salary waiver program, certain executives waived salary in exchange for stock 22 options. The addition of MediaSite's Pittsburgh facility, which primarily houses sales and marketing and product development staff, had minimal impact on G&A expenses. The YTD reduction of $2,608 or 44% is due to the elimination of non-recurring, integration related expenses and elements of the Q1-2001 restructuring plan which included the removal of duplicate personnel functions and the consolidation of facilities. In addition, bad debt expense decreased by $400 for the six-month periods. For the remainder of fiscal 2002, we anticipate G&A expenses will remain constant. We feel we have adequate resources and infrastructure to support anticipated near term growth. Product Development Expenses Product development expenses include salaries and wages of the software research and development staff and an allocation of benefits, facility and administrative expenses. Fluctuations in product development expenses correlate directly to changes in headcount. Q2-2002 compared to Q2-2001 and YTD-2002 (six months) compared to YTD-2001 (six months) Product development expenses increased $22 or 1% from Q2-2001 to Q2-2002. Head count increased from 61 to 65 as the addition of the MediaSite staff slightly exceeded other attrition. Product development costs declined $965 or 21% from YTD-2001 to YTD-2002. The decrease resulted from the company-wide restructuring that occurred at the end of Q1-2001. Headcount at the beginning of that quarter was just over 100. As part of the restructuring, we eliminated low volume, niche products such as CD Architect(TM) and Soft Encode as well as the engineering positions required to maintain these products. In accordance with SFAS Number 86, the Company capitalizes the cost of development of software products that have reached technological feasibility and then amortizes that cost over the anticipated life of the product. No development costs for our core product line were capitalized during fiscal 2001 or the first two quarters of 2002. Amortization of capitalized software development was $55 in Q1-2002 and relates to Viscosity(TM), which was a result of the Jedor acquisition in February 2000. Viscosity was fully amortized in January 2002. Product development spending increased slightly over the quarter ended September 2001 due to the recent acquisition of MediaSite software developers. Going forward we anticipate spending for research and development to remain relatively stable and we do not anticipate that any fiscal 2002 software development efforts will qualify for capitalization under SFAS Number 86. Restructuring Charges As outlined in footnote 2 to the unaudited consolidated financial statements included in this report, a restructuring charge of $3,782 was incurred in Q1-2001. Consistent with management's plan to reduce costs in response to weak market conditions, the restructuring charge primarily consisted of: 1) an accrual for 60 days of severance and benefits for domestic employees terminated on December 20, 2000 as well as severance and other expenses associated with 23 closing our office in the Netherlands; 2) an asset impairment charge related to the sale, disposal or write-down of PCs, office equipment and other assets no longer required; 3) operating and lease termination costs related to the consolidation of facilities; and 4) miscellaneous charges such as forfeited tradeshow deposits. Other Income (Expense) The increase in interest expense was due to the subordinated debt issuance in February 2002. This debt resulted in $858 (approximately 2 months) of non-cash amortization. (see note 6 to the consolidated financial statements). In addition, other expense included a $219 loss on asset disposals during the current YTD period. The amortization of the debt discount and debt issuance costs will approximate $1.5 million per quarter through the remainder of fiscal 2002. If some of the debt is converted, the unamortized debt issuance and discount amounts would be reclassified to equity. Cumulative Effect of Changes in Accounting Principle Effective October 2001, the Company adopted Financial Accounting Standards Board ("SFAS") No. 142, "Goodwill and Other Intangible Assets." Under the new rules, the Company ceased the amortization of goodwill associated with the media services reporting unit, which included the acquisitions of STV Communications and International Image. Implementation of the new rules also requires an assessment of the carrying value of goodwill using a number of criteria, including the value of the overall enterprise as of October 1, 2001. The Company retained an independent appraisal firm to assist in the assessment, which resulted in a $44,732 write off of the entire remaining value of goodwill associated with the media services reporting unit. Future impairment charges, if any, associated with MediaSite or other acquisitions will be reflected as an operating expense in the statement of operations. Liquidity and Capital Resources Cash used in operating activities was $3,933 YTD-2002 compared to $9,598 in YTD-2001. The decrease of $5,665 consisted primarily of operating cost reductions identified in the Q1-2001 restructuring. The primary reason for the change was the net change in loss from operations before amortization of goodwill and restructuring charges, which improved from $12,187 in YTD-2001 to $4,283 in YTD-2002. This improvement was offset by payments of liabilities assumed in the MediaSite acquisition ($2.1 million). Cash used in investing activities was $837 in YTD-2002 compared to $1,197 in YTD-2001. A $1.5 million decline in the purchase of equipment offset by cash from sale of a building in YTD-2001 led to the difference between the two periods. The reduction in purchases relate to our restructuring and previous build up of certain services business lines such as encoding and webcasting. The Investing activities in the current year also included legal, professional and other closing costs associated with the MediaSite acquisition while the prior year included certain payments related to the International Image acquisition. 24 Cash provided by financing activities was $5,103 in YTD-2002 compared to cash used of $826 in YTD-2001. The primary change was due to additional subordinated debt, which resulted in $6,686 of net proceeds. In October 2001, we deposited $1,000 with the Ontario Superior Court of Justice to be held in trust until settlement of a lawsuit with the former shareholders of International Image. This $1,000 has been recorded as restricted cash. Payments on other debt and capital leases decreased $750 due to the early 2001 sale of a building, and corresponding mortgage retirement. Recent Developments Impacting Liquidity In May 2002 we made the first quarterly interest payment of $175 on the subordinated debt. Payments are due quarterly over the next two years. Monthly principal payments of approximately $330 begin in August 2002 unless we raise at least $8 million of additional capital by July 1, 2002, in which case the principal payments of approximately $330 will begin December 1, 2002 or, some or all of the debt converts into equity, in which case the interest and principal amounts would be decreased accordingly. The 6 month period included cash expenditures for non-recurring items such as MediaSite acquisition costs, large settlement payments on the delinquent accounts payable assumed from MediaSite and cash placed in escrow. The Company believes it has access to sufficient resources and operating flexibility to fund operations and subordinated debt payments for at least the next twelve months. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Derivative Financial Instruments The Company is not party to any derivative financial instruments or other financial instruments for which the fair value disclosure would be required under SFAS No. 107, Derivative Financial Instruments, Other Financial Instruments and Derivative Commodity Instruments. The Company's cash equivalents consist of overnight investments in money market funds that are carried at fair value. Accordingly, we believe that the market risk of such investments is minimal. Interest Rate Risk The Company's cash equivalents are subject to interest rate fluctuations, however, we believe this risk is immaterial due to the short-term nature of these investments. Foreign Currency Exchange Rate Risk All international sales of our software products are denominated in US dollars. However, the majority of transactions for our media services division in Toronto are denominated in Canadian dollars. Although these transactions are not generally subject to significant foreign exchange rate gains and losses, they are translated into US dollars as part of our consolidated financial 25 statements and therefore fluctuations in the exchange rate will affect our consolidated financial statements. The Canadian dollar has been stable relative to the US dollar and we have not engaged in any foreign currency hedging activities. 26 PART II OTHER INFORMATION Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS (a) None (b) None (c) Between January 1, 2002 and March 31, 2002 the Company issued unregistered securities as follows: In February 2002, we issued 221,000 shares to Digital Savant, Inc., as part of the Media Taxi asset purchase. In January and February 2002, we closed on a $7,125,000 offering of convertible subordinated debt (the "Note Offering") with several investors (the "Investors"). The promissory notes issued (the "Notes") bear interest at 10% per annum and are due February 1, 2004 (if not converted). The Notes may be converted into shares of our common stock, in whole or in part, at any time. The conversion price is $2.45 per share, subject, however, to adjustment. The conversion price will be adjusted in the following circumstances: (a) in the event we declare a stock dividend or stock split or combine our shares of common stock; or (b) in the event we issue 500,000 or more shares (the "New Shares") at a price per share that is lower than both $2.00 per share and the Investors' then current conversion price (the lower of the two, the "Base Price"), in which case the Investors' conversion price will be reduced to a price equal to the Base Price less 50% of the difference between the Base Price and the price per share at which the New Shares are issued. No adjustment is made to the Investors' conversion price for pro-rata issuances to all holders of our common stock, pursuant to the warrants discussed below, or pursuant to our stock option plans. The Investors also received warrants (the "Warrants") to purchase shares of common stock at a strike price of $2.94. In February, we issued 105,485 shares to Carnegie Mellon University ("CMU"). The Shares issued to CMU relate to an obligation the Company assumed, as part of the MediaSite transaction, for past due royalties owed by MediaSite. The issuances to Digital Savant, CMU and the Investors were made in reliance upon the exemption from registration set forth in Section 4(2) of the Securities Act, relating to sales by an issuer not involving a public offering. In that no public offering was involved, we reasonably believed the Digital Savant, CMU and the Investors were accredited and sophisticated investors; and that Digital Savant, CMU and the Investors had substantial information on the Company necessary to make an informed investment decision. On February 25, 2002, we filed an S-3, 27 amended on April 29, 2002 to register the shares of our common stock underlying the Notes and Warrants, along with an additional 25% of the total shares issuable upon conversion of the Notes at the current conversion price, 115,000 shares to become issuable upon exercise of certain other warrants, and 105,485 Shares that were issued to CMU. The following table sets forth certain information as of May 5, 2002 with respect to the Investors.
- -------------------------------------------------------------------------------- INVESTORS IN THE OFFERING AGGREGATE WARRANTS TO PRINCIPAL PURCHASE NUMBER OF AMOUNT OF SHARES SET FORTH NOTE BELOW - -------------------------------------------------------------------------------- Omicron Partners, L.P. $400,000 653,061 - -------------------------------------------------------------------------------- Deephaven Private Placement Trading, Ltd. $800,000 122,460 - -------------------------------------------------------------------------------- Gryphon Master Fund, L.P. $800,000 122,460 - -------------------------------------------------------------------------------- Quantico Partners, L.P. $375,000 61,225 - -------------------------------------------------------------------------------- Langley Partners, L.P. $375,000 61,225 - -------------------------------------------------------------------------------- OTATO Limited Partnership $500,000 81,650 - -------------------------------------------------------------------------------- AIG DKR Soundshore Private Investors Holding $250,000 40,800 Fund LTD. - -------------------------------------------------------------------------------- John Feith $100,000 16,327 - -------------------------------------------------------------------------------- Herber H. Hertner $25,000 4,082 - --------------------------------------------------------------------------------
28 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Stockholders was held on May 9, 2002. A quorum consisting of approximately 90% of the Company's common stock issued and outstanding was represented either in person or by proxy. At the meeting the following proposals were approved by the stockholders: 1. To re-elect Rimas Buinevicius as a Class IV Director for a term of five years. Frederick H. Kopko, Jr, Monty Schmidt, Curtis Palmer, Arnold Pollard and David Kleinman continued as directors following the meeting. 2. To ratify the appointment of Ernst & Young LLP as independent auditors of Sonic Foundry for the year ending September 30, 2002. For Against Abstain/Withheld --- ------- ---------------- Proposal #1 24,319,382 - 62,068 Proposal #2 24,300,911 11,238 7,233 Item 5. OTHER INFORMATION Effective February 12, 2002, Sonic Foundry Media Systems, Inc. ("SFMS"), a Maryland corporation and a wholly-owned subsidiary of the Company purchased substantially all of the assets and assumed certain liabilities of Digital Savant, Inc. ("Digital") pursuant to an Asset Purchase Agreement (the "Purchase Agreement") dated February 6, 2002 by and among SFMS, the Company, and Digital. The acquisition does not constitute a "significant" amount of assets. Pursuant to the Purchase Agreement, the following consideration was paid: (a) 221,000 shares of the Company's common stock; (b) $100,000 in cash; and (c) assumption of certain scheduled liabilities of Digital. Of the shares issued, 50% of the shares are restricted from sale for 6 months after closing, 25% are restricted from sale for 12 months after closing and the remaining 25% are restricted from sale for 18 months after closing. The Company has agreed to register for resale under the Securities Act of 1933, as amended, the shares of its common stock issued in the acquisition. The registration will apply to the resale of the shares by the shareholders of Digital, though as noted above Digital has agreed to additional resale restrictions pursuant to a Stock Restriction and Registration Agreement. The Company plans to file the registration statement within 120 days after the Closing Date. The acquisition has been accounted for as a purchase. Results of operations for Digital have been included in the Company's consolidated operating results beginning March 1, 2002. In March, 2002, the Company executed a Software License and Marketing Agreement with Broderbund Properties, LLC. (the "SLMA"). Pursuant to the SLMA, Broderbund has agreed to distribute, on a non-exclusive basis, certain of the Company's consumer level products through the OEM channel and a limited-exclusive right to distribute the Company's Super Duper Music 29 Looper(TM) product in the retail channel. The Company may still distribute Super Duper Music Looper into the k-12 educational channel and on a direct basis (i.e. website, catalog, email). Under the SLMA, Broderbund must pay the Company royalties on units sold, including certain minimum royalty levels. 30 Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (see exhibit list) (b) Reports on Form 8-K On January 31, 2002 and February 15, 2002, the Company filed reports on Item 5 of Form 8-K reporting on the closing of the $7,125,000 Note Offering. ITEM 6(a) NUMBER DESCRIPTION - ------ ---------------------------------------------------------------------- 2.1 Amendment No. 1 to the Purchase Agreement dated February 11, 2002 by and between Sonic Foundry, Inc. and Omicron Partners, L.P. 2.2 Note - Exhibit A to Amendment No. 1 to the Purchase Agreement. 2.3 Warrant - Exhibit B to Amendment No. 1 to the Purchase Agreement. 2.4 Registration Rights Agreement - Exhibit C to Amendment No. 1 to the Purchase Agreement. 3.1 Amended and Restated Articles of Incorporation of the Registrant, filed as Exhibit No. 3.1 to the registration statement on amendment No. 2 to Form SB-2 dated April 3, 1998 (Reg. No. 333-46005) (the "Registration Statement"), and hereby incorporated by reference. 3.2 Amended and Restated By-Laws of the Registrant, filed as Exhibit No. 3.2 to the Registration Statement, and hereby incorporated by reference. 10.1 Registrant's 1995 Stock Option Plan, as amended, filed as Exhibit No. 4.1 to the Registration Statement on Form S-8 on September 8, 2000, and hereby incorporated by reference. 10.2 Registrant's Non-Employee Directors' Stock Option Plan, filed as Exhibit No. 10.2 to the Registration Statement, and hereby incorporated by reference. 10.3 Employment Agreement between Registrant and Rimas Buinevicius dated as of January 1, 2001, filed as Exhibit 10.4 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2001, and hereby incorporated by reference. 10.4 Employment Agreement between Registrant and Monty R. Schmidt dated as of January 1, 2001, filed as Exhibit 10.5 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2001, and hereby incorporated by reference. 31 10.5 Employment Agreement between Registrant and Curtis J. Palmer dated as of January 1, 2001, filed as Exhibit 10.6 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2001, and hereby incorporated by reference. 10.6 Digital Audio System License Agreement between Registrant and Dolby Laboratories Licensing Corporation dated July 28, 1997, filed as Exhibit No. 10.7 to the Registration Statement, and hereby incorporated by reference. 10.7 Digital Audio System License Agreement between Registrant and Dolby Laboratories Licensing Corporation dated July 28, 1997, filed as Exhibit No. 10.8 to the Registration Statement, and hereby incorporated by reference. 10.9 Convertible Debenture Purchase Agreement dated September 13, 1999 between Purchasers and the Registrant filed as Exhibit No. 10.17 to the Current Report on form 8-K filed on September 24, 1999, and hereby incorporated by reference. 10.10 Commercial Lease between Registrant and Tenney Place Development, LLC regarding 1617 Sherman Ave., Madison, Wisconsin dated October 1, 1999, filed as Exhibit No. 10.18 to the Annual Report on form 10-K for the period ended September 30, 1999, and hereby incorporated by reference. 10.11 Commercial Lease between Registrant and Hargol Management Limited regarding 23 Prince Andrew Place, Don Mills, Ontario, Canada dated January 15, 1990, filed as Exhibit No. 10.20 to the Amended Annual Report on Form 10-K/A for the year ended September 30, 2000, and hereby incorporated by reference. 10.12 Commercial Lease between Registrant and the Richlar Partnership regarding 1703 Stewart St., Santa Monica, CA, dated August 10, 1995, filed as Exhibit No. 10.21 to the Amended Annual Report on Form 10-K/A for the year ended September 30, 2000, and hereby incorporated by reference. 10.13 Commercial Lease between Registrant and Thomas Seaman regarding 12233 Olympic Blvd., Santa Monica, CA, dated January 23, 2000 filed as Exhibit No. 10.22 to the Amended Annual Report on Form 10-K/A for the year ended September 30, 2000, and hereby incorporated by reference. 10.14 Agreement and Plan of Merger, dated as of March 15, 2000, by and among the Registrant, New Sonic, Inc., and STV Communications, Inc., filed as Exhibit 2.1 to a Current Report on Form 8-K dated April 18, 2000 and hereby incorporated by reference. 10.15 Stock Purchase Agreement, dated January 18, 2000, by and among the Registrant, Jedor, Inc., and certain principals of Jedor, Inc., filed as Exhibit 2.2 to the registration statement filed on Form S-3 on May 12, 2000 and hereby incorporated by reference. 32 10.16 Share Purchase Agreement dated as of June 1, 2000, by and among the Registrant, Sonic Foundry (Nova Scotia) Inc., Charles Ferkranus, Michael Ferkranus, 1096159 Ontario Limited, 1402083 Ontario Limited, Dan McLellan, Curtis Staples, Bank of Montreal Capital Corp., Roynat Inc. and DGC Entertainment Ventures Corp., filed as Exhibit 2 to the Current Report filed on Form 8-K on September 12, 2000, and hereby incorporated by reference. 10.17 Voting and Option Agreement, dated March 15, 2000, among the Company, certain of its stockholders, and Jan Brzeski, David Fife, Jeffrey Gerst, and Fife Waterfield, filed as Exhibit 4.3 to the Registration Statement filed on Form S-3 on May 12, 2000, and hereby incorporated by reference. 10.18 Subscription Agreement dated February 8, 2000 between Subscribers and the Company, filed as Exhibit 10.19 of a Current Report on Form 8-K dated February 14, 2000, and hereby incorporated by reference. 10.19 Registration Rights Agreement, dated February 8, 2000, by and among the Company and certain investors, filed as Exhibit 4.5 to the Registration Statement filed on Form S-3 on May 12, 2000, and hereby incorporated by reference. 10.20 Registration Rights Agreement, dated March 31, 2000, among the Company and Sony Pictures Entertainment Inc., filed as Exhibit 4.6 to the Registration Statement filed on Form S-3 on May 12, 2000, and hereby incorporated by reference. 10.21 Buyer Non-Voting Exchangeable Share Option Agreement, dated August 24, 2000, among the Registrant, Dan McLellan, Curtis Staples, and Sonic Foundry (Nova Scotia), Inc., filed as Exhibit 4.3 to the Registration Statement filed on Form S-3 on November 7, 2000, and hereby incorporated by reference. 10.22 Support Agreement, dated August 24, 2000, between the Company and Sonic Foundry (Nova Scotia), Inc. filed as Exhibit 4.4 to the Registration Statement filed on Form S-3 on November 7, 2000 and hereby incorporated by reference. 10.23 Commercial Lease between Ewart Associates, L.P. and Sonic Foundry Systems Group, Inc. (now known as Sonic Foundry Media Systems, Inc.), dated November 30, 2001. Term of December 1, 2001 through June 30, 2005; lease of a single floor of commercial space in downtown Pittsburgh, PA for media systems subsidiary. Monthly rent of $11,125. 33 10.24 Commercial Lease between Stonewood East and Sonic Foundry Media Systems, Inc. dated January 13, 2002. Term of January 31, 2002 through January 31, 2004; lease of single floor of commercial space in Wexford, PA for media systems subsidiary. Monthly rent of $8,253.66. 10.25 Asset Purchase Agreement and Plan of Asset Transfer and Reorganization dated September 6, 2001 by and among Sonic Foundry, Inc., Sonic Foundry Systems Group, Inc. (formerly known as MediaSite Acquisition, Inc.), and MediaSite, Inc., filed as Exhibit No. 2.1 to the Current Report on Form 8-K dated October 30, 2001, and hereby incorporated by reference. 10.26 Asset Purchase Agreement dated February 6, 2002 by and among Sonic Foundry Media Services, Inc. and Digital Savant, Inc. 10.27 Registrant's 2001 Deferred Compensation Plan, filed as Exhibit 4.4 to Form S-8 on November 21, 2001 and hereby incorporated by reference. 10.28 Stock Restriction and Registration Agreement between Sonic Foundry, Inc., Zero Stage Capital VI Limited Partnership, Saturn Capital, Inc. and Saturn Partners Limited Partnership dated October 15, 2001 filed as Exhibit 4.4 to Form S-3 filed on December 21, 2001, and hereby incorporated by reference. 10.29 Registrant's Amended 1999 Non-Qualified Plan, filed as Exhibit 4.1 to Form S-8 on December 21, 2001, and hereby incorporated by reference. 10.30 Software License and Marketing Agreement effective as of March 25, 2002 between Registrant and Broderbund Properties LLC; CONFIDENTIAL TREATMENT REQUESTED. 10.31 Amended and Restated License Agreement effective October 15, 2001 between Carnegie Mellon University and MediaSite, Inc. 34 SIGNATURES Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Sonic Foundry, Inc. ----------------------------- (Registrant) May 14, 2002 By: /s/ Rimas P. Buinevicius ----------------------------- Rimas P. Buinevicius Chairman and Chief Executive Officer May 14, 2002 By: /s/ Kenneth A. Minor ----------------------------- Kenneth A. Minor Chief Financial Officer and Secretary EX-10.23 3 dex1023.txt COMMERCIAL LEASE EXHIBIT 10.23 LEASE BY AND BETWEEN EWART ASSOCIATES, L.P., LANDLORD AND SONIC FOUNDRY SYSTEMS GROUP, INC., TENANT OF THE EWART BUILDING 1 THE EWART BUILDING LEASE LEASE INDEX Paragraph Page - --------- ---- 1. BASIC LEASE PROVISIONS 1 2. LEASING AGREEMENT 2 3. RENT 2 4. RENTAL ADJUSTMENTS FOR OPERATING EXPENSES 3 5. SERVICES 6 6. LANDLORD'S TITLE 10 7. SECURITY DEPOSIT 10 8. MORTGAGE BY LANDLORD 10 9. CERTAIN RIGHTS RESERVED TO LANDLORD 11 10. WAIVER 13 11. INSURANCE, INDEMNIFICATION, CASUALTY 13 12. SURRENDER OF PREMISES 16 13. ALTERATIONS 17 14. REPAIRS 18 15. RULES AND REGULATIONS 19 16. ASSIGNMENT AND SUBLETTING 19 17. HOLDING OVER 21 18. DEFAULT 21 19. REMEDIES 22 20. CONDITION OF PREMISES 25 i 21. NOTICES BY LANDLORD'S AGENT 25 22. ASSIGNMENT BY LANDLORD 25 23. NOTICES 26 24. QUIET POSSESSION 26 25. QUALIFICATIONS AS TO USE 26 26. MISCELLANEOUS 26 27. LANDLORD'S WORK 31 28. SECURITY AGREEMENT 31 29. HAZARDOUS SUBSTANCES 31 30. CONFIDENTIALITY 31 EXHIBITS: - -------- A. The Premises B. Rules and Regulations C. INTENTIONALLY DELETED D. INTENTIONALLY DELETED E. Cleaning Specifications F. Guaranty and Suretyship Agreement G. Notice and Waiver of Rights ii 1. BASIC LEASE PROVISIONS. A. Building Address: 925 Liberty Avenue Pittsburgh, PA 15222 B. Landlord and Address: Ewart Associates, L.P. 707 Grant Street Pittsburgh, PA 15219 cc: Ewart Associates, L.P. 1000 Huyler Street Teterboro, NJ 07608 C. Tenant and Current Address: Sonic Foundry Systems Group, Inc. 1617 Sherman Avenue Madison, WI 53704 D. Premises: Ewart Building, Floor 3 E. Date of Lease: November _____, 2001 F. Lease Term: Three (3) years, seven (7) months G. Commencement Date of Term: December 1, 2001 H. Expiration Date of Term: June 30, 2005 I. Fixed Rent: See Section 3 of --- Lease Agreement J. Rentable Area of Premises: 6,600 Square Feet K. Rentable Area of Building: 60,000 Square Feet L. Tenant's Percentage: 11.0% M. Base Year: 1999 N. Security Deposit: $11,125.59 O. Floor of Premises: Floor 3 P. Broker: Grant Street Associates, Inc. 425 Union Trust Building 501 Grant Street Pittsburgh, PA 15219 1 2. LEASING AGREEMENT. Landlord hereby leases to Tenant and Tenant hereby hires and takes from Landlord the premises (the "Premises") consisting of approximately 6,600 rentable square feet as outlined on the plan attached hereto as Exhibit "A", ---------- which Premises are contained in the building (the "Building") located at 925 Liberty Avenue, Pittsburgh, Pennsylvania. This Lease shall be for a term (the "Term") of three (3) years and seven (7) months commencing on the Commencement Date. The Premises shall be occupied and used by Tenant for general office uses and for no other purpose. Notwithstanding anything to the contrary contained in the foregoing or in Paragraph 1, Landlord's obligations under this Lease are expressly contingent upon: (i) Landlord entering into an agreement satisfactory to Landlord, in its sole discretion, with the current occupant of the Premises (the "Current Occupant"), for the termination of the Current Occupant's lease with Landlord for the Premises; (ii) the Current Occupant vacating the Premises on or before December 1, 2001. 3. RENT. A. Fixed Rent. Tenant shall pay to Landlord at the management office of the Building or to such other person or such other place as directed from time to time by notice to Tenant from Landlord, without demand, notice, offset or deduction, fixed rent ("Fixed Rent") at the annual rate(s) as follows: (i) for the portion of the Term beginning as of the Commencement Date and ending on the last day of the forty-third (43rd) month thereafter, Tenant shall pay to Landlord Fixed Rent in the annual amount of One Hundred Thirty-three Thousand Five Hundred Seven and 08/100 ($133,507.08) per year, payable in equal monthly installments of Eleven Thousand One Hundred Twenty-five and 59/100 ($11,125.59) per month. Fixed Rent shall be payable in equal monthly installments in advance on the first day of each calendar month during the Term. Fixed Rent shall be prorated for partial months within the Term. All charges, costs and sums including any applicable late charges required to be paid by Tenant to Landlord under this Lease in addition to Fixed Rent are additional rent, and Fixed Rent and additional rent shall hereinafter be collectively called "Rent". Tenant's covenant to pay Rent shall be independent of every other covenant in this Lease. B. Late Charge. If Tenant shall fail to pay Rent, including additional rent or any other charge at any time due or payable hereunder, within ten (10) days after same is due and payable, Tenant agrees to pay to Landlord, as and for a late charge by reason thereof, without further notice or demand by Landlord, a sum equal to ten cents ($.10) for every unpaid dollar thereof. Nothing contained in this Paragraph 3 is intended to grant Tenant any extension of time in respect of the due dates for any payments under this Lease, nor shall the same be construed to be a limitation of or a substitution for any other rights, remedies and privileges of Landlord under this Lease or otherwise. 2 4. RENTAL ADJUSTMENTS FOR OPERATING EXPENSES. As additional rent, Tenant shall pay to Landlord each year during the Term hereof (i) Tenant's pro rata share of any increases in the costs and expenses of managing, operating and maintaining the Building (hereinafter called the "Operating Expenses") over the Operating Expenses for the Base Year, and (ii) the Tenant's pro rata share of any increases in Taxes (as hereinafter defined) over the Taxes for the Base Year. The increase, if any, in Operating Expenses, shall be determined by subtracting the Base Year Operating Expenses from the Operating Expenses for each Calendar Year subsequent to 2001 ("Comparison Year"). Tenant's share of increased Operating Expenses shall be calculated by multiplying the increase in Operating Expenses by 11%. The increase, if any, in Taxes shall be calculated in the same manner as the separate calculation for increases in Operating Expenses as described in the preceding sentence. A. Definitions. The following terms shall have the following meanings hereinafter set forth: (i) "Lease Year" means each calendar year during the Term except that (a) the first Lease Year is the period from the Commencement Date to the next December 31st, both inclusive, and (b) the last Lease Year is the period from January 1 of the year in which the Term expires to the date upon which the Term expires, both inclusive. (ii) "Tenant's Share" means 11% which is calculated by dividing Tenant's rentable area of 6,600 square feet by the 60,000 square feet of the rentable area in the Building. (iii) "Operating Expenses" means, for each Lease Year, (a)all costs, expenses, and disbursements of every kind, nature or description(including, but not limited to, a normal and customary fee for management of the Property) which Landlord shall pay or become obligated to pay in connection with the ownership, management, operation, maintenance, repair and replacement of the Property and of the personal property, fixtures, machinery, equipment, systems and apparatus located therein or used in connection therewith, and (b) those costs, expenses and disbursements which Landlord reasonably determines it would have incurred had the Building been 90% occupied at all times during such Lease Year; provided, however, that "Operating Expenses" shall not include the following: (a) Costs of tenant improvement renovations pursuant to any "Work Letter"; (b) Leasing commissions and attorneys fees incurred in connection with leasing; (c) Costs of capital improvements to the Building, except that Operating Expenses shall include (i) the cost of any capital improvement, amortized over the useful life of such capital improvement, which reduces any component cost included 3 within Operating Expenses, (ii) if Landlord shall pay the cost for any capital improvement described in clause (i), above, interest on the unamortized portion of the cost of such capital improvement, at the rate paid by Landlord, (iii) if Landlord shall lease any capital improvement described in clause (i), above, all rental and other payments made under such lease and (iv) the cost of any capital improvements made to keep the Building in compliance with applicable governmental laws, ordinances, rules and regulations, (including, but not limited to The Americans with Disabilities Act); (d) Depreciation, interest and principal payments on mortgages and other indebtedness related to the Building and on any personal property used in connection therewith (except that Operating Expenses shall include depreciation and interest with respect to machinery, equipment, systems, property or facilities installed in or used in connection with the Building if one of the principal purposes of such installation or use was to reduce any component cost included within Operating Expenses). Operating Expenses "for" a Lease Year or period shall mean those component costs included within Operating Expenses which are reasonably allocable to such Lease Year or period as determined by Landlord in the reasonable exercise of its discretion without regard to when such Operating Expenses are incurred or paid. (iv) "Taxes" means, for each Lease Year, (a) the face amount of all federal, state and local governmental taxes, assessments and charges (including transit or transit district taxes or assessments) of any kind or nature, whether general, special, ordinary or extraordinary, which Landlord shall pay or shall become obligated to pay because of or in connection with ownership, leasing, management, control or operation of the Building or of the personal property, fixtures, machinery, equipment, systems and apparatus located therein or used in connection therewith, including, without limitation, all ad valorem taxes and the Pittsburgh Business Privilege Tax; (b) any tax or excise levied, confirmed, assessed or imposed in lieu of those taxes described in clause (a), above; (c) any water charges and/or sewer rents which may be assessed, levied, confirmed or imposed in respect of, or which may become a lien upon, the Building or any portion thereof; and (d) all fees, costs and expenses incurred by Landlord in negotiating, contesting or appealing any of the items described in clauses (a) through (c) above. The amount included in Taxes for any Lease Year or other annual period shall be without regard to when such tax is payable, except that if any special assessment payable in installments is levied against the Building or any portion thereof, taxes for any Lease Year or annual period shall include only the installments of such assessments and any interest thereon payable in such year or period (all without regard to any right to pay or payment of any such special assessment in a lump sum or single payment). In determining the amount of Taxes for any Lease Year, there shall be deducted from the amount of such Taxes any refund of Taxes received by Landlord which are applicable to such Lease Year, but only to the extent such refund relates to Taxes for a period within the Term (and in no event will Taxes be decreased below the amount of Taxes for the Base Year). Taxes shall not include any federal or state franchise, capital stock, inheritance, income or estate taxes, except that if a change occurs in the method of taxation resulting in the substitution 4 of any such taxes for any Taxes as hereinabove defined, such substituted taxes shall be included in Taxes. (v) "Base Year" means the calendar year 1999. B. Expense Adjustment. (i) Tenant shall pay as additional rent for each Lease Year an amount (the "Expense Adjustment Amount") equal to Tenant's Share of the increase in such Operating Expenses for such Lease Year above the Operating Expenses for the Base Year, and if the Term shall terminate on a date other than December 31, the Expense Adjustment Amount for the last Lease Year of the Term shall be an amount equal to Tenant's Share of Operating Expenses for the full calendar year in which the Term ends multiplied by a fraction, the numerator of which shall be the number of months and partial months during such calendar year which coincide with the Term, and the denominator of which shall be twelve. Tenant shall also pay to Landlord (in the manner as set forth below) Tenant's Share of the excess, if any, of Taxes for such calendar year over Taxes for the Base Year. Within a reasonable amount of time after the end of the calendar year, Landlord shall furnish Tenant with a statement of the Taxes incurred by Landlord for the prior calendar year and, after the end of the first calendar year only, a statement of the Taxes incurred by Landlord for the Base Year. If the Taxes incurred by Landlord for any year subsequent to the Base Year exceed the Taxes incurred by Landlord during the Base Year, then Tenant shall pay to the Landlord the Tenant's Share of such increase in Taxes, without demand, within thirty (30) days from the sending of such statement by Landlord to Tenant. The amount of said deficiency to be paid by Tenant shall hereafter be referred to as the "Tax Adjustment Amount". (ii) Prior to the commencement of each Lease Year, Landlord shall notify Tenant of Landlord's estimate of the Expense Adjustment Amount and the Tax Adjustment Amount for such Lease Year and Tenant shall pay, as Additional Rent, such amounts in equal monthly installments on the first day of each calendar month during such Lease Year, in advance and without demand or any set-off or deduction whatsoever. If at one or more times during such Lease Year Landlord revises its estimate of the Expense Adjustment Amount or Tax Adjustment Amount for such Lease Year, Landlord may (but shall not be obligated to) notify Tenant of such revised estimate and of the increase or decrease in such monthly payments thereafter payable during such Lease Year necessary to cause the total monthly payments during such Lease Year to equal Landlord's then current estimate of the Expense Adjustment Amount or Tax Adjustment Amount for such Lease Year, and Tenant shall pay such revised monthly payment amount on the first day of each calendar month thereafter during such Lease Year. Each such estimate provided by Landlord shall show separately the amount thereof allocable to Taxes and the amount thereof allocable to Operating Expenses other than Taxes (iii) Following the close of each Lease Year, Landlord shall furnish to Tenant a statement setting forth the actual Expense Adjustment Amount and the Tax Adjustment Amount for such Lease Year and, within thirty (30) days after receipt of such 5 statement, Tenant shall pay the excess, if any, of such actual Expense Adjustment Amount and the actual Tax Adjustment Amount for such Lease Year based upon Landlord's estimates. (iv) After Landlord receives the relevant tax bills for each Lease Year, Landlord shall also furnish to Tenant a statement setting forth the actual amount of Taxes for such Lease Year and, within thirty (30) days after receipt of such statement, Tenant shall pay the excess, if any, of such actual amount of the Tax Adjustment Amount which relates to Taxes for such Lease Year as shown in said statement over the amount of the payments theretofore made by Tenant with respect to the Tax Adjustment Amount for such Lease Year based upon Landlord's estimates. (v) If the total estimated monthly payments paid by Tenant for any Lease Year exceed the actual Expense Adjustment Amount for such Lease Year, such excess shall be credited against the payments of additional rent due or next becoming due hereunder. If the total estimated monthly payments paid by Tenant for any Lease Year exceed the actual Tax Adjustment Amount for such Lease Year, such excess shall be credited against the payments of additional rent due or next becoming due hereunder. 5. SERVICES. A. Landlord shall provide the following services: (1) Customary janitor and cleaning service in the Premises, Saturdays, Sundays and holidays excepted. Holidays shall mean New Year's Day, George Washington's Birthday, Memorial Day, July 4th, Labor Day, Veteran's Day, Thanksgiving Day, the day after Thanksgiving Day, Christmas Day and any other holidays as observed by other first-class office buildings in Pittsburgh, Pennsylvania, or as agreed to with the union(s) representing Building employees. (2) Heat and air-conditioning in the Premises in accordance with applicable laws during Normal Business Hours, Sundays and holidays excepted, to the extent necessary for comfortable occupancy of the Premises under normal business operations in the absence of the use of machines or equipment or excessive personnel which affect the temperature otherwise maintained in the Premises. The term "Normal Business Hours" shall mean 8:00 a.m. to 6:00 p.m., Monday through Friday, and 8:00 a.m. to 1:00 p.m. Saturday. Tenant will be charged for all heating and air-conditioning requested and furnished before or after Normal Business Hours at rates from time to time established by Landlord, but that Tenant shall only be responsible for such heating and air conditioning as it relates to the Premises. Wherever heat generating machines or equipment are used in the Premises which affect the temperature otherwise maintained by the air-conditioning system, Landlord may, at its option, provide and install supplementary air-conditioning units in the Premises and the cost of providing, installing, operating and maintaining the same shall be paid by Tenant as Additional Rent. Tenant shall cooperate fully with Landlord to assure the most effective operation of the Building's heat and air-conditioning systems, and shall refrain from adjusting any controls other than room 6 thermostats installed for Tenant's use and shall, when not in use, keep closed all doors connecting the Premises to public corridors. (3) Electrical. Landlord shall supply electricity for Building Standard lighting fixtures installed in the Premises and for normal task lights, small office machines and other incidental 120 volt loads connected to Building Standard 120 volt, single phase outlets to the Premises subject to all other terms and conditions herein. (4) Water from City mains for drinking, lavatory and toilet purposes as customary for office use, drawn through fixtures installed by Landlord. (5) Passenger elevator service in common with other tenants of the Building and freight elevator service, subject to scheduling by Landlord. In the event that Tenant desires to utilize the freight elevators other than during Normal Business Hours, Tenant will pay Landlord for such usage at rates from time to time established by Landlord. (6) Window washing of all exterior windows. B. The following subparagraphs shall, to the extent permitted by applicable laws and regulations, govern the furnishing of electrical service for the Premises. (1) Landlord will furnish or cause to be furnished electricity for the Premises as herein provided. Landlord shall have the right, at any time and from time to time during the Term of this Lease, to contract for service to the Building or any portion thereof from any company providing electric service. Tenant shall cooperate with Landlord and any electric service provider with respect to the providing of electric service and will allow for reasonable access to the Building's electrical lines, feeders, users, wiring and other items within the Premises. The Fixed Rent for the Base Year includes a charge for consumption of electricity for the Building Standard lighting fixtures installed in the Premises and for normal small office machines and fixtures connected to the Building's standard 110-volt, single phase outlets during Normal Business Hours. Tenant shall pay monthly to Landlord, as additional rent, for the consumption of electricity used in the Premises whenever the total connected load exceeds 3 watts per square foot of rentable area of the Premises and for the consumption of electricity used beyond Normal Business Hours at a rate which shall be the higher of: (a) the rate which Tenant would be required to pay if such service was being provided to Tenant directly by the public utility company; or (b) the rate computed on Landlord's average cost per kilowatt hour. Such average cost shall be determined by dividing the total kilowatt hours used in the Building into the total cost of the utility company's electricity invoices for the Building. The amount of electrical consumption in the Premises for a total connected load in excess of 3 watts per square foot and Tenant's consumption of electricity by Tenant shall be determined by Landlord's reasonable estimate, or, at either Landlord's option or Tenant's request, by an engineering analysis by a consultant retained by Landlord, such engineering analysis to be at Tenant's sole cost. 7 (2) At any time hereafter and to the extent permitted by applicable laws and regulations, Landlord, at Landlord's sole option, may elect to install or cause to be installed, at Landlord's cost, separate meters or sub-meters to measure Tenant's consumption of electricity in the Premises or to measure Tenant's consumption of electricity for any special uses (such as computer centers), in which event Tenant shall pay all such meter charges either directly to the public electric utility company supplying the electricity or directly to the Landlord as the case may be at such rates as are set forth in Paragraph 5B(1) above. In addition, at any time hereafter and to the extent permitted by applicable laws, Landlord, at Landlord's sole option, may at Landlord's cost, elect to install sub-meters which measure, in addition to Tenant's consumption of electricity in the Premises, the Tenant's consumption of electricity in other premises or areas of the Building. Charges for excess, overtime or special use electrical consumption shall be billed and paid as additional rent. (3) Tenant shall pay for all electricity required for the operation of any special air conditioning or ventilating system and for any office machinery or equipment requiring special or extra current. Tenant shall pay for the maintenance and replacement of all light fixtures, electrical switches, electrical outlets and lamps located in the Premises and for all bulbs, tubes, ballasts and starters utilized in the Premises. (4) Tenant's use of electrical energy shall never exceed the capacity of the then existing feeders to the Building or the then existing risers or wiring installations. If Tenant wishes to install in the Premises equipment which would not be considered ordinary office equipment, including, but not limited to items such as significant computer installation(s) or supplemental air conditioning system(s), or other heat or cooling intensive electrically operated equipment, Tenant shall submit to Landlord a list indicating the specific type of additional equipment to be installed. Such list shall include the number, type and model of each item of equipment to be installed, as well as the manufacturer's electrical rating associated with same. Any riser or risers needed to supply Tenant's electrical requirements and all other equipment proper and necessary in connection therewith will, upon request of Tenant, be installed by Landlord, at Tenant's sole cost and expense, if, in Landlord's reasonable judgment, the same are necessary and will not cause or create a hazardous condition or entail excessive or unreasonable alterations, repairs or expenses or interference with or disturb other tenants. Tenant shall not, without the prior consent of Landlord, install equipment which would not be considered ordinary office equipment or make or perform or permit any alteration to wiring installations, telephone line installations or other electrical or communication facilities in or serving the Premises. (5) In the event the Premises or any portion thereof is separately metered or sub-metered pursuant to the foregoing paragraphs, the Fixed Rent reserved under Paragraph 3 which includes a charge for the consumption of electricity for Building standard uses during the Base Year, shall be reduced in the amount of fifty cents ($.50) per square foot of the Rentable Area within the then Premises or within the portion of the Premises which is separately metered or sub-metered. 8 (6) 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 Rent or additional rent, 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 equipment, business, or otherwise. (7) Notwithstanding any other provision herein, the parties understand and acknowledge that Tenant's failure or refusal for any reason whatsoever to utilize such electrical energy as Landlord stands ready to provide shall not entitle Tenant to any abatement or diminution in the Fixed Rent or additional rent payable hereunder. (8) Tenant agrees upon Landlord's request to promptly execute such amendments to this Lease which may be required pursuant to the foregoing subparagraphs. C. Landlord shall in no event be obligated to furnish any services or utilities, other than those specified in Paragraphs 5(A) and 5(B) above. If Landlord elects to furnish services or utilities requested by Tenant in addition to those specified in Paragraphs 5(A) and (B) above (including utility service at times other than those specified in said sections) Tenant shall pay Landlord's then prevailing rates for such services and utilities, within ten (10) days after receipt of Landlord's invoices therefor. No discontinuance of any service or utility pursuant to this Paragraph 5(C) shall result in any liability of Landlord to Tenant or be deemed to be an eviction or a disturbance of Tenant's use of the Premises. D. Tenant agrees that Landlord shall not be liable for damages for failure to furnish or delay in furnishing any service which failure or delay is caused in whole or in part, by any one or more of the causes specified in Paragraph 26J hereof. No failure or delay in furnishing any service caused in whole or in part by any one or more of the causes specified in Paragraph 26J hereof shall result in any liability of Landlord to Tenant, or be deemed to be an eviction or disturbance of Tenant's use of the Premises, or relieve Tenant of any of its obligations under this Lease including the obligation to pay Rent. Tenant hereby waives and releases all claims against Landlord from damages for interruption or stoppage of such services. 6. LANDLORD'S TITLE. Nothing contained in this Lease shall empower Tenant to do any act which can, shall or may encumber the interest or title of Landlord in and to the Building or the Land upon which the Building is situated. Tenant may not record this Lease, any memorandum of this Lease or any instrument affecting the Building or the Land upon which the Building is situated in any public office without the Landlord's prior written consent. 9 7. SECURITY DEPOSIT. As additional security for the full and prompt performance by Tenant of all of its obligations hereunder, Tenant has upon execution of this Lease paid to Landlord the security deposit set forth in Paragraph 1N, which sum may be applied by Landlord for the purpose of curing any default or defaults of Tenant under this Lease. Tenant shall pay to Landlord as security, on request by Landlord, any amounts so used by Landlord. Landlord shall not pay any interest on the security deposit and the security deposit may be commingled by Landlord with other tenant security deposits or other funds of Landlord. Tenant also hereby grants to Landlord a security interest in the security deposit in accordance with applicable provisions of the Uniform Commercial Code as adopted in the Commonwealth of Pennsylvania. If Tenant has not defaulted hereunder or if Landlord has not applied said sum to said default, then said security deposit or any portion thereof not so applied by Landlord shall be paid to Tenant within forty-five (45) days after the expiration of this Lease and the vacation of the Premises by Tenant. The security deposit shall not be deemed an advance payment of Fixed Rent or measure of damages for any default by Tenant under this Lease, nor shall it be a bar or defense to any action which Landlord may at any time institute against Tenant. 8. MORTGAGE BY LANDLORD. This Lease is expressly subject and subordinate at all times to (i) any ground, underlying or operating lease of the Building or the Land upon which the Building is situated now or hereafter existing and all amendments, renewals and modifications thereof ("Superior Leases") and (ii) the lien of any current or future mortgage or trust deed encumbering the Building, the Land or any such Superior Leases now or hereafter existing ("Superior Mortgages"), and to all advances made or to be made upon the security thereof. Tenant agrees: (a) if requested by any mortgagee, trustee or lessor under a Superior Mortgage or Superior Lease, Tenant will execute such agreement or agreements evidencing such subordination as may be reasonably required by any such mortgagee, trustee, or lessor; and (b) in the event of any default by Landlord under this Lease which would give Tenant the right to terminate this Lease or to claim a partial or total eviction, Tenant will not exercise any such right (i) until it has notified in writing the holders of all Superior Mortgages and the lessors of all Superior Leases (as the case may be), if the name and address of such holder or lessor shall previously have been furnished by written notice to Tenant, of such default, and (ii) until a reasonable period, not exceeding thirty (30) days, for commencing the remedying of such default shall have lapsed following the giving of such notice, and (iii) unless such holder or lessor (as the case may be) with reasonable diligence, shall not have so commenced and continued to remedy such default or to cause such default to be remedied; and (c) if any Superior Mortgage be foreclosed, or if any Superior Lease be terminated, upon request of the mortgagee, trustee, lessor or purchaser at any foreclosure 10 sale, Tenant will attorn to the purchaser at any foreclosure sale or the lessor under the Superior Lease (as the case may be) and will execute such instruments as may be necessary or appropriate to evidence such attornment; and (d) Tenant shall, from time to time upon not less than ten (10) days' prior request by Landlord, deliver to Landlord a statement, in form satisfactory to Landlord, in writing and certifying: (i) that this Lease is unmodified and in full force and effect (or if there have been modifications that the Lease as modified is in full force and effect); (ii) the dates to which Rent and other charges have been paid; (iii) that, to the Tenant's knowledge, Landlord is not in default under any provision of this Lease, or, if in default, the nature thereof in detail, it being intended that any such statement may be relied upon by any prospective purchaser or tenant of the Building, any mortgagees or prospective mortgagees thereof, or any prospective assignee of any mortgage thereof and (d) such other matters as may be reasonably requested. Tenant shall execute and deliver the aforesaid estoppel letter and whatever instruments may be required for such purposes and, without limitation of Landlord's other rights and remedies or Tenant's liability for failure so to do, if Tenant fails so to do within ten (10) days after demand in writing, Tenant shall be deemed to have accepted and executed such estoppel letter and other documents and hereby authorizes Landlord as its attorney in fact for the sole purpose of executing such estoppel letter and other documents. 9. CERTAIN RIGHTS RESERVED TO LANDLORD. Landlord reserves the following rights: (a) Entry - if Tenant vacates or abandons the Premises, to enter the Premises in order to decorate, remodel, repair, alter or otherwise prepare the Premises for re-occupancy, without same being deemed acceptance of a surrender and without affecting Tenant's obligation to pay Rent. (b) Pass Keys - to have pass keys to the Premises. (c) Access for Repairs - to have access to the Premises at any time in the event of an emergency, and otherwise at reasonable times, to take any and all measures, including inspections, repairs, alterations, additions and improvements to the Premises or to the Building, as Landlord may deem necessary or desirable for the safety, protection or preservation of the Premises or the Building or the Landlord's interests, or as may be necessary or desirable in the operation or improvement of the Building or in order to comply with all laws, orders and requirements of governmental or other authorities. (d) Show Premises - to show the Premises to prospective tenants or brokers during the last year of the Term, and to prospective purchasers, mortgagees and others having a legitimate interest at all reasonable times upon reasonable prior notice given to Tenant at the Premises only. 11 (e) Service Contracts - to approve all sources furnishing sign painting, ice, drinking water, beverages, utilities, foods, towels or toilet supplies or extra cleaning services used or consumed in the Building or on the Premises, and to select an electric service provider and/or alternative electric service providers and other providers of utilities to the Building. (f) Heavy Equipment - to approve the weight, size and location of safes or heavy equipment or other articles. Such items may be moved in, about, or out of the Building or the Premises only at such times and in such manner as Landlord shall direct and in all events, however, at Tenant's sole risk and responsibility. (g) Close Building - to close the Building after Normal Business Hours and on holidays subject, however, to Tenant's right to admittance under such regulations as Landlord may prescribe from time to time, which may include by way of example but not of limitation, that persons entering or leaving the Building identify themselves to a watchman by registration, photo identification cards, or otherwise and that said persons establish their right to enter or leave the Building. Landlord may exclude or expel any peddler(s) at any time. Landlord shall also have the right to prohibit or restrict access to the Building in the event of an emergency or for the purpose of testing the Building's life, safety and emergency systems. (h) Building Identification and Appearance - to change the Building's name or street address ; to install and maintain all signs on the exterior or interior of the Building, to approve prior to installation, all signs, shades, blinds, drapes and internal lighting; and to change the arrangement of entrances, doors, corridors, stairs and other public service portions of the Building. If Tenant's Premises includes the area located directly adjacent to the elevator corridors/lobby, Tenant shall utilize such area only in a business-like and professional manner, and Landlord expressly reserves the right to control the appearance and use of such elevator corridors/lobby by Tenant. Further, Landlord also reserves the right of access to such elevator corridors/lobby. (i) Exclusives - to grant to any party the exclusive right to conduct any business or service in the Building, provided such exclusive right shall not operate to prohibit Tenant from using the Premises for the purposes permitted hereunder. (j) Vending Machines - to install vending machines of all kinds in the Premises, and to provide mobile vending service therefor, and to receive all of the revenue derived therefrom, provided, however, that no vending machines shall be installed by Landlord in the Premises nor shall any mobile vending service be provided therefor, unless Tenant so requests. Tenant shall not have vending machines placed in the Premises or obtain mobile vending service without Landlord's prior written consent. Landlord may enter upon the Premises and may exercise any or all of the foregoing rights hereby reserved without being liable in any manner to Tenant. Any such entry and/or exercise of rights shall not in any way affect the obligations of Tenant under this Lease, including without limitation, the obligation to pay Rent nor shall such entry and/or exercise 12 entitle Tenant to any abatement or reduction in Rent, or be deemed to be constructive eviction or be grounds for a termination of this Lease or the Term hereof, nor shall such entry and/or exercise give Tenant the right to claim damages or any matter or thing from Landlord or Landlord's agent(s) or contractor(s). 10. WAIVER. Tenant waives all claims it may have against Landlord and the Building manager and their respective agents or employees, for injury or damage to person, property or business sustained by Tenant, its agents, employees or invitees resulting directly or indirectly from the Premises, equipment therein, or any part of the Premises becoming out of repair or resulting from any accident within the Premises or resulting directly or indirectly from any act of Landlord or the Building manager, unless such claim arises from the gross negligence or willful misconduct of the Landlord or Building Manager (and if alleged to be caused directly by the gross negligence or willful misconduct of Landlord or the Building Manager, then only after (i) Tenant shall have given Landlord notice of the condition claimed to constitute Landlord's gross negligence or willful misconduct, and (ii) the expiration of a reasonable time after such notice has been received by Landlord without Landlord having taken reasonable and practicable means to cure or correct such condition; and pending such cure or correction by Landlord, Tenant shall take all such reasonably prudent temporary measures and safeguards to prevent any injury, loss or damage to persons or property). Tenant also waives any employer's immunity under the Pennsylvania Workers Compensation Act. This provision shall apply without limitation to damage caused by water, snow, frost, steam, gas, sewer gas or odors, or by the bursting or leaking of pipes or plumbing works or the failure of any appurtenances or equipment. If any such damage to the Premises, any equipment or property located therein, or to tenants thereof results from any act, omission or negligence of Tenant, its agents, employees or invitees, Landlord may, at Landlord's option, repair such damage, and Tenant shall pay to Landlord as additional rent and on demand the amount of all costs of such repairs and damages. 11. INSURANCE, INDEMNIFICATION, CASUALTY. A. (1) Tenant agrees to and shall, on or before the Commencement Date of the Term, secure from one or more good and responsible companies doing insurance business in the Commonwealth of Pennsylvania and maintain during the entire Term of the Lease the following insurance coverage: (i) comprehensive general liability insurance for the mutual benefit of Landlord and Tenant relating to the Premises and its appurtenances in an amount of not less than Two Million Five Hundred Thousand and 00/100 Dollars ($2,500,000.00) in respect to personal injury or death and of not less than Two Million Five Hundred Thousand and 00/100 Dollars ($2,500,000.00) in respect of property damage; and (ii) fire and extended coverage, vandalism, malicious mischief and special extended coverage insurance covering all risks of physical loss, in an amount adequate to cover the cost of replacement of all leasehold or Building improvements in the Premises which were originally constructed or provided by or on behalf of Landlord or thereafter added, as well as the cost of replacement of all fixtures, equipment, decoration, contents and personal property therein; and (iii) if there is a boiler or air-conditioning equipment in, on, adjoining or 13 beneath the Premises, broad form, boiler or machine insurance in the amount of Two Hundred Fifty Thousand and 00/100 Dollars ($250,000.00). All such insurance shall name Landlord and Tenant as insureds as their respective interests may appear and contain a stipulation that it is Tenant's primary insurance. Tenant agrees to deliver to Landlord at least fifteen (15) days prior to the time such insurance is first required to be carried by Tenant and thereafter at least fifteen (15) days prior to the expiration of any such policy, either a duplicate policy or a certificate of insurance procured by Tenant evidencing compliance with its obligations hereunder, together with evidence of payment therefor. All of the aforesaid insurance shall be written by one or more responsible insurance companies satisfactory to Landlord and shall contain endorsements that: (i) such insurance may not be cancelled or amended with respect to Landlord except upon thirty (30) days written notice by registered mail to Landlord from the insurer; and (ii) Tenant shall be solely responsible for payment of premiums for such insurance. In the event Tenant fails to furnish such insurance, Landlord may obtain such insurance and the premiums shall be paid by Tenant to Landlord upon demand. The minimum limits of the aforesaid insurance shall be subject to increase at the end of every three (3) years during the Term if Landlord, in the exercise of its reasonable judgment, shall deem it necessary for adequate protection. (2) Tenant agrees, at its own cost and expense, to comply with all of the rules, regulations and recommendations of the Fire Insurance Rating organization having jurisdiction and any similar body. If, at any time and from time to time, as a result of or in connection with any failure by Tenant to comply with the foregoing sentence or any act of omission or commission by Tenant, its employees, contractors or licensees, or as a result of or in connection with the use to which the Premises are put (notwithstanding that such use may be for the purposes hereinbefore permitted or that such use may have been consented to by Landlord), the fire insurance rate(s) and/or rent insurance rates applicable to the Premises, or the Building in which same are located, or to any other premises in said Building, or to any adjacent property owned or controlled by Landlord or an affiliate of Landlord, and/or to the contents in any or all of the aforesaid properties shall be higher than that which would be applicable for the least hazardous type of occupancy legally permitted therein, Tenant agrees that it will pay to Landlord, on demand, as additional rent, such portion of the premiums for all fire insurance policies and/or rent insurance policies in force with respect to the aforesaid property and the contents thereof as shall be attributable to such higher rate(s). For the purpose of this Paragraph, any finding or schedule of the Fire Insurance Rating organization having jurisdiction thereof shall be deemed to be conclusive. (3) Each insurance policy carried by Landlord or Tenant and insuring all or any part of the Building, the Premises, including improvements, alterations and changes in and to the Premises made by either of them and Tenant's trade fixtures or other contents of the Premises shall be written in a manner to provide that the insurance company waives all right of recovery by way of subrogation against Landlord and its agent or Tenant, as the case may be, in connection with any loss or damage to the Premises or the Building in which the premises are located, or to property or business caused by any of 14 the perils covered by fire and extended coverage, building and contents, and business interruption insurance, for which either party may be reimbursed as a result of insurance coverage affecting any loss suffered by it. So long as the policy or policies involved can be so written and maintained in effect, neither Landlord nor Tenant shall be liable to the other for any such loss or damage; provided, however, that the foregoing waivers of liability given by Landlord and Tenant to each other shall apply only to the extent of any recovery made by the parties hereto under any policy of insurance now or hereafter issued. In the event of the inability on the part of either party to obtain such a provision in its policy or policies with the carrier with whom such insurance is then carried, or such carriers require payment of additional premium for such provision, the party so affected shall give the other party written notice of such inability or the increase in premium as the case may be. The party to whom such notice is given shall have fifteen (15) days from the receipt thereof within which: (1) in the case of such inability on the part of the other carrier, to procure from the aforesaid party's insurance carrier in writing, at no increase in premium over that paid theretofore by the party so affected, such waiver of subrogation; (2) in the case of increased premium, to pay the party so affected the amount of such increase; (3) to waive, in writing, within the time limit set forth herein, such requirement to obtain the aforesaid waiver of subrogation." Should the party to whom such notice is given fail or comply as aforesaid within the said fifteen (15) day period, each and every provision in this subsection (3) in favor of such defaulting party shall be cancelled and of no further force and effect. (4) Tenant will indemnify, save harmless, and defend Landlord from and against any and all claims and demands in connection with any accident, injury or damage whatsoever caused to any person or property arising directly or indirectly out of the business conducted in the Premises or occurring in, on or about the Premises or any part thereof, or arising directly or indirectly from any act or omission of Tenant or any concessionaire or subtenant or its or their respective licensees, servants, agents, employees, or contractors, and from and against any and all cost, expenses and liability, including reasonable attorneys' fees, incurred in connection with any such claim or proceeding brought thereon. B. (1) Should the Premises (or any part thereof) be damaged or destroyed by fire or other casualty insured under Landlord's standard fire and casualty insurance policy with approved standard extended coverage endorsement applicable to the Premises, Landlord shall, except as otherwise provided herein, and to the extent it recovers proceeds from such insurance, repair and/or rebuild the same with reasonable diligence. Notwithstanding the foregoing, if more than 60% of the Premises is destroyed, Tenant shall have the option of terminating this Lease by written notice to Landlord given within thirty (30) days of the date of such casualty. Landlord's obligation hereunder shall be limited to the Building and improvements originally provided by Landlord at the Commencement Date of the Term. Landlord shall not be obligated to repair, rebuild or replace any property belonging to Tenant or any leasehold or building improvements in the Premises which were originally constructed or provided by or on behalf of Tenant at Tenant's cost. If there should be a substantial interference with the operation of Tenant's business in the Premises as a result of such damage or destruction which requires Tenant as a result of such damage or destruction to temporarily close its business to the public, the Fixed Rent 15 and additional rent shall abate. Unless this Lease is terminated by Tenant or Landlord as hereinafter provided, Tenant shall, at its cost and expense, repair, restore, redecorate and re-fixture the Premises in a manner and to at least a condition equal to that existing prior to such damage or destruction except for the Building and improvements to be reconstructed by Landlord as above set forth, and the proceeds of all insurance carried by Tenant on the property, decorations and improvements, as well as fixtures and contents in the Premises, shall be held in trust by Tenant for such purposes. Tenant agrees to commence such work within thirty (30) days after the date of such damage or destruction or the date Landlord substantially completes any reconstruction required to be completed by it pursuant to the above, whichever date is later, and Tenant shall diligently pursue such work to its completion. (2) Notwithstanding anything to the contrary contained in the preceding Paragraph B(1) or elsewhere in this Lease, Landlord, at its option, may terminate this Lease on thirty (30) days notice to Tenant, given within ninety (90) days after the occurrence of any damage or destruction if (1) the Premises are damaged or destroyed as a result of a risk which is not covered by Landlord's insurance or (2) the Premises are damaged and the cost to repair the same shall be more than twenty-five percent (25%) of the cost of replacement thereof, or (3) the Premises are damaged during the last eighteen (18) months of the Term, or (4) the Building in which the Premises are located is damaged to the extent of twenty-five percent (25%) or more of the then monetary value thereof (whether the Premises be damaged or not), or (5) if the Building in which the Premises are located is damaged (whether or not the Premises are damaged) to such an extent that, in the sole judgment of Landlord, the Building cannot be operated as an integral unit. 12. SURRENDER OF PREMISES. Tenant shall deliver the Premises to Landlord upon the expiration or sooner termination of the Term or upon termination of Tenant's right of possession of the Premises in as good condition as when Tenant was first entitled to possession thereof, ordinary wear and fire and other casualty not resulting from Tenant's negligence excepted, failing which Landlord may restore the Premises to such condition and Tenant shall pay Landlord the cost thereof in accordance with the provisions of Paragraph 26 hereof. All installations, alterations, additions, hardware, non-trade fixtures and improvements, temporary or permanent, except movable furniture, trade fixtures and equipment belonging to Tenant, in or upon the Premises, whether placed there by Tenant or Landlord, unless otherwise agreed in writing at the time of the installation, shall be Landlord's property and shall be relinquished to Landlord in good condition, ordinary wear and tear excepted, at the termination of this Lease or Tenant's right to possession by lapse of time or otherwise, all without compensation, allowance or credit to Tenant; provided, however, that if prior to such termination or within fifteen (15) days thereafter Landlord so directs by notice, Tenant shall promptly remove the installations, alterations, additions, hardware, non-trade fixtures and improvements placed in or upon the Premises by Tenant and designated in the notice, failing which Landlord may remove the same and Tenant shall, upon demand, pay to Landlord the cost of such removal and of any necessary restoration of the Premises. 16 13. ALTERATIONS. Tenant shall not make any alterations, additions, improvements or decorations to the Premises without Landlord's prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed as to non-structural items and as to items which do not affect the Building's HVAC, plumbing, mechanical or electrical systems, and Tenant shall, if requested by Landlord, furnish Landlord with plans and specifications, names and addresses of contractors, copies of contracts necessary permits and indemnification in form and amount satisfactory to Landlord and shall, prior to the commencement of any work, cause its contractors to file waivers of lien against any and all claims, costs, damages, liabilities and expenses which may arise in connection with any such work. Tenant hereby agrees to indemnify and hold harmless Landlord, its agents and employees from any and all liabilities of every kind and description which may arise out of or be connected in any way with any such work. Before commencing any such work, Tenant shall furnish Landlord with certificates of insurance from all contractors performing labor or furnishing materials insuring Landlord in such amounts as Landlord deems appropriate against any and all liabilities which may arise out of or be connected in any way with such work. Tenant shall pay the cost of all such work and also the cost of decorating the Premises occasioned by such work. Upon completing any such work, Tenant shall furnish Landlord with contractors' affidavits and full and final waivers of lien and receipted bills covering all labor and materials expended and used. All such work shall comply with all insurance requirements, with all of Landlord's Rules and Regulations, and with all laws, (including, but not limited to The Americans with Disabilities Act), ordinances, regulations and requirements of any governmental and quasi-governmental bodies or agencies having or claiming jurisdiction over the Premises, the Building or the land upon which the Building is situated. If any such work results in a change in the heating, cooling or ventilating load in the Premises, Tenant shall, at its expense but at the Landlord's option, either modify the existing systems or provide supplementary heating, ventilating and/or air conditioning systems or equipment necessary to accommodate such load change. Tenant shall perform or cause such work to be performed in a manner which will not interfere with or impair the use and enjoyment of any other portion of the Building by Landlord and/or other tenants. All additions, alterations and improvements to the Premises (excluding trade fixtures other than light fixtures) shall become Landlord's property and, unless Landlord directs Tenant to remove such items pursuant to Section 12 hereof, all such alterations and improvements shall remain upon the Premises at the expiration or termination of this Lease, or termination of Tenant's right of possession of the Premises, without compensation, allowance or credit to Tenant. Tenant shall not permit any lien or claim for lien of any mechanic, laborer or supplier or any other lien to be filed against the Building, the land upon which the Building is situated, the Premises, or any part thereof arising out of work performed, or alleged to have been performed by, or under the direction of, or on behalf of Tenant. If any such lien or claim for lien is filed, Tenant immediately shall either have such lien or claim for lien released of record or shall deliver to Landlord a bond in form, content and amount 17 satisfactory to Landlord and issued by a surety satisfactory to Landlord, indemnifying Landlord and anyone else designated by Landlord against all costs and liabilities resulting from such lien or claim for lien and the foreclosure or attempted foreclosure thereof. If Tenant fails to have such lien or claim for liens released within thirty (30) days or to deliver such bond to Landlord, Landlord, without investigating the validity of such lien, may pay or discharge the same and Tenant shall reimburse Landlord as additional rent upon demand for the amount so paid by Landlord, including Landlord's expenses and attorneys' fees. 14. REPAIRS. Landlord shall make all repairs necessary to maintain the plumbing, air conditioning, and electrical systems, windows, floors (excluding floor coverings), and all other items which do not constitute a part of the Premises and are installed or furnished by Landlord, except repairs of Tenant's trade fixtures and property and installations which Tenant was obligated to make or which were performed by Landlord or others at Tenant's request or expense. Landlord shall not, however, be obligated for any of such repairs until the expiration of a reasonable period of time after receipt of written notice from Tenant that such repairs are needed. In no event shall Landlord be obligated under this Paragraph to repair any damage caused by any act, omission or negligence of the Tenant or its employees, agents, invitees, licensees, subtenants, contractors, subcontractors or assignees. Tenant shall take good care of the Premises and the fixtures and appurtenances therein. Tenant shall, at its sole cost and expense, repair and replace all damage or injury to the Premises and Building and to fixtures and equipment caused by Tenant or its employees, agents, invitees, licensees, subtenants, contractors, or subcontractors, or assignees, including, but not limited to, injury or damage resulting from all or any of them moving in or out of the Building or by installation or removal of furniture, fixtures or other property, which repairs and replacements shall be in quality and class equal to the original, undamaged condition. If Tenant fails to make such repairs or replacements, the same may be made by Landlord in accordance with the provisions of Paragraph 26N hereof. Landlord shall not be liable by reason of any inconvenience, injury to, or interference with Tenant's business arising from the making of any repairs, alterations, additions or improvements in or to the Premises or the Land and Building or to any appurtenances or equipment therein. Landlord shall use reasonable efforts to minimize such inconveniences and interference (but Landlord shall not be required to perform such work after normal business hours or on an overtime basis). There shall be no abatement of rent because of such repairs, alterations, additions or improvements, except as may be specifically provided in Paragraph 11 hereof. Landlord covenants to make reasonable efforts to implement such repairs, alterations, additions or improvements in a timely and expeditious manner, but in no event shall Landlord be required to perform such work at times other than during Normal Business Hours. 18 15. RULES AND REGULATIONS. Tenant shall abide by the current rules and regulations for the Building attached to this Lease and made a part hereof as Exhibit "B" and by all ----------- additional reasonable rules and regulations as may be adopted by Landlord from time to time for the operation and management of the Building (which rules and regulations Landlord shall promulgate and enforce in a non-discriminatory manner). If any rules and regulations are contrary to the provisions of this Lease, the provisions of this Lease shall govern. Landlord shall not be responsible for the violation of any rules and regulations of the Building by other tenants of the Building. 16. ASSIGNMENT AND SUBLETTING. A. Tenant, for itself, its heirs, distributees, executors, administrators, legal representatives, successors and assigns, expressly covenants that it shall not, voluntarily, involuntarily, by operation of law or otherwise, without Landlord's prior written consent (which shall not be unreasonably withheld, conditioned or delayed), (a) assign, convey, mortgage, pledge, encumber, hypothecate, or otherwise transfer this Lease or any interest therein; (b) allow any lien upon Tenant's interest; (c) sublet the Premises or any part thereof, or; (d) permit the use or occupancy of the Premises or any part thereof by anyone other than Tenant. Tenant shall, by notice, advise Landlord of any proposed assignment or subletting which notice shall state the name and address of the proposed assignee or subtenant, a summary of the terms of such subletting or assignment, including without limitation, all rent and/or other consideration payable thereunder or in connection therewith, and the effective date of such assignment or subletting (which shall be not less than thirty (30) days from the date such notice is given), and, concurrently with such notice, Tenant shall deliver to Landlord a true and complete copy of the proposed sublease or assignment, all other documents and instruments related thereto and the proposed assignee's or subtenant's most recent financial statements. Landlord shall not be deemed to be unreasonable in withholding its consent if the proposed assignee or sublessee does not fulfill each of the following requirements: (i) The proposed sublessee or assignee must be of a financial net worth and business reputation similar to tenants generally accepted by Landlord for direct lease in the Building; and (ii) The proposed sublessee or assignee must conduct a type of business which shall make a business use of the Premises which is similar to that of tenants generally accepted by Landlord for direct lease in the Building; and (iii) The proposed sublessee or assignee must not be a school, governmental or quasi-governmental entity, or conduct a personnel agency or other such use that would have a significant amount of elevator usage or pedestrian traffic; and (iv) The proposed sublessee or assignee must not be a current or former tenant of the Building. 19 Any subletting or assignment hereunder shall not release or discharge Tenant of or from any liability, whether past, present or future, under this Lease, and Tenant shall continue fully and primarily liable hereunder. The subtenant or subtenants or assignee shall agree to comply with and be bound by all of the terms, covenants, conditions, provisions and agreements of this Lease to the extent of the space sublet and assigned, and Tenant shall deliver to Landlord promptly after execution an executed copy of each such sublease or assignment of compliance by each such subtenant or assignee. Each assignee shall assume, and be deemed to have assumed this Lease and shall be and remain jointly and severally liable with Tenant for the performance and observance of all of the terms, covenants and conditions on the part of Tenant to be kept, performed or observed hereunder. No assignment shall be binding upon Landlord unless the assignee shall deliver to Landlord an instrument in recordable form containing a covenant of assumption by the assignee; provided, however, that the failure or refusal of such assignee to execute the same shall not release such assignee from such joint and several liability. Any consent by Landlord to any assignment or subletting shall not constitute a waiver of strict future compliance by Tenant of the provisions of this Section 16 or a release of Tenant from its liabilities hereunder. Notwithstanding anything to the contrary provided in this Section 16, if (a) Tenant is (i) a corporation, the shares of which are not publicly traded or (ii) a partnership, and (b) during the Term of this Lease (i) the ownership of the shares of stock which constitute "control" of Tenant or (ii) more than 50% of all general partnership interests in Tenant shall be transferred by reason of sale, transfer by operation of law or otherwise, Tenant shall notify Landlord of such transfer within five (5) days thereafter, and Landlord, at its option, may terminate this Lease by giving Tenant written notice of said termination, not less than thirty (30) days after Landlord's receipt of Tenant's notice to it of such transfer and if Landlord so elects to terminate this Lease, such termination shall be effective on the date specified in Landlord's notice, but in no event shall such effective date be less than sixty (60) days prior to the date of such notice. The term "control" as used herein means the power to directly or indirectly direct or cause the direction of the management or policies of Tenant. If Tenant shall assign or transfer its interest in this Lease or sublet all or a portion of the Premises for rent, charges and/or other consideration (which shall include the assumption by the proposed assignee or subtenant of the obligation of Tenant to pay Rent hereunder) which in the aggregate, are in excess of the Rent due and payable by Tenant under the provisions of Sections 3 and 4 of this Lease, one-half of said excess shall be paid to Landlord promptly upon receipt thereof by Tenant. For purposes of this paragraph excess rent will only be recognized after Tenant has recouped its actual, reasonable out-of-pocket costs of subletting or assignment, including without limitation, attorneys fees and brokerage commissions. In the case of any subletting of less than the entire Premises, Rent payable hereunder shall be apportioned, on a rentable square footage basis, between the portion of the Premises so sublet and the remaining portion of the Premises, and if the rent, charges and other consideration paid in connection with such subletting shall be in 20 excess of the amount of Rent so apportioned to the portion of the Premises so sublet, one half of said excess shall be paid to Landlord promptly upon receipt thereof by Tenant. Any sale, assignment, mortgage, transfer or subletting of this Lease which is not in compliance with the provisions of this Section 16 shall be void and of no force or effect. 17. HOLDING OVER. If Tenant retains possession of the Premises, or any part thereof, after the expiration or earlier termination of this Lease, Tenant shall pay Landlord rent at an annual rate equal to double the Rent payable for the year immediately preceding said holdover computed on a per month basis, for the period Tenant thus remains in possession, and Tenant shall also pay Landlord all damages sustained by Landlord by reason of such retention of possession. If Tenant retains possession of the Premises, or any part thereof, for thirty (30) days after the expiration or termination of this Lease, then at the sole option of Landlord expressed by written notice to Tenant, but not otherwise, such holding over shall constitute a renewal of this Lease for a period of one (1) year on the same terms and conditions contained herein, except that the annual Fixed Rent shall be increased to the fair annual rental value of the Premises, as determined by Landlord, but in no event shall such Fixed Rent be less than one and one-half times the highest Fixed Rent specified in Paragraph 3. The provisions of this Paragraph do not waive the Landlord's right of re-entry or any other right hereunder. TENANT EXPRESSLY WAIVES TO LANDLORD THE BENEFIT TO TENANT OF 68 P.S. (S)250.501, AS APPROVED APRIL 6, 1951, ENTITLED "LANDLORD AND TENANT ACT OF 1951," AS MAY BE AMENDED FROM TIME TO TIME, REQUIRING NOTICE TO QUIT UPON THE EXPIRATION OF THE TERM OF THIS LEASE OR AT THE EXPIRATION OF ANY EXTENSION OR RENEWAL THEREOF, OR UPON ANY EARLIER TERMINATION OF THIS LEASE, AS HEREIN PROVIDED. TENANT COVENANTS AND AGREES TO VACATE, REMOVE FROM AND DELIVER UP AND SURRENDER THE POSSESSION OF THE PREMISES TO LANDLORD UPON THE EXPIRATION OF THE TERM OR UPON THE EXPIRATION OF ANY EXTENSION OR RENEWAL THEREOF OR UPON ANY EARLIER TERMINATION OF THIS LEASE, AS HEREIN PROVIDED WITHOUT SUCH NOTICE. Tenant only waives notice with respect to the expiration or prior termination of the term of the Lease and does not waive any other protections. 18. DEFAULT. The occurrence of any of the following shall constitute a default and breach of this Lease by Tenant: (a) Failure of Tenant to take possession of the Premises within thirty (30) days after notice to Tenant that the same are ready for occupancy by Tenant; (b) The vacation or abandonment of the Premises by Tenant; 21 (c) A failure by Tenant to pay any installment of Fixed Rent or additional rent hereunder or any such other sum which is required to be paid by Tenant; (d) A failure by Tenant to observe and perform any other provision or covenant of this Lease to be observed or performed by Tenant, where such failure continues for twenty (20) days after written notice thereof from Landlord to Tenant, provided, however, that if the nature of the default is such that the same cannot reasonably be cured within such twenty (20) day period, Tenant shall not be deemed to be in default if Tenant shall within such period commence such cure and thereafter diligently prosecutes the same to completion; (e) The filing of a petition by or against Tenant for adjudication as a bankrupt or insolvent or for its reorganization or for the appointment pursuant to any local, state or federal bankruptcy or insolvency law of a receiver or trustee of Tenant's property; or an assignment by Tenant for the benefit of creditors; or the taking possession of the property of Tenant by any local, state or federal governmental officer or agency or court-appointed official for the dissolution or liquidation of Tenant or for the operation, either temporarily or permanently, of Tenant's business; provided, however, that if any such action is commenced against Tenant the same shall not constitute a default if Tenant causes the same to be dismissed within sixty (60) days after the filing of same. (f) If Tenant should default in the performance of any covenant or agreement of this Lease more than three (3) times in any period of twelve (12) months, then, notwithstanding that such defaults shall have each been timely cured, any further default shall be deemed to be deliberate and Landlord thereafter may give written notice to Tenant specifying such default and stating that this Lease and the Term of this Lease hereby demised shall expire and terminate on the date specified in such notice, which shall be at least ten (10) days after the giving of such notice, and upon the date specified in such notice this Lease and the Term of this Lease and all rights of Tenant under this Lease, whether or not heretofore exercised, shall expire and terminate. 19. REMEDIES. Upon the occurrence of any such default set forth above: (a) Landlord may accelerate all Fixed Rent and additional rent due through the expiration of the Term and declare the same to be immediately due and payable; (b) In determining the amount of any future payments due Landlord due to increases in Taxes and Operating Expenses, Landlord may make such determination based upon the amount of Taxes and Operating Expenses paid by Tenant for the full year immediately prior to such default and may assume that such expenses will increase four percent (4%) each year; 22 (c) Landlord, at its option, may serve notice upon Tenant that this Lease and the then unexpired Term hereof shall cease and expire and become absolutely void on the date specified in such notice, to be not less than five (5) days after the date of such notice without any right on the part of the Tenant to save the forfeiture by payment of any sum due or by the performance of any term, provision, covenant, agreement or condition broken; and, thereupon and at the expiration of the time limit in such notice, this Lease and the Term hereof granted, as well as the right, title and interest of the Tenant hereunder, shall wholly cease and expire and become void in the same manner and with the same force and effect (except as to Tenant's liability) as if the date fixed in such notice were the date of expiration of the Term. Thereupon, Tenant shall immediately quit and surrender to Landlord the Premises, and Landlord may enter into and repossess the Premises by summary proceedings, detainer, ejectment or otherwise and remove all occupants thereof and, at Landlord's option, any property thereon without being liable to indictment, prosecution, or damages therefor. No such expiration or termination of this Lease shall relieve Tenant of its liability and obligations under this Lease including the obligation pay Fixed Rent and additional rent through the date of expiration of the Term, whether or not the Premises shall be relet; (d) Landlord may, at any time after the occurrence of any event of default, re-enter and repossess the Premises and/or any part thereof and attempt in its own name, as agent for Tenant if this Lease not be terminated or in its own behalf if this Lease be terminated, to relet all or any part of such Premises for and upon such terms and to such persons, firms or corporations and for such period or periods as Landlord, in its sole discretion, shall determine, including for a term extending beyond the expiration date of the Term; and Landlord shall not be required to accept any tenant offered by Tenant or observe any instruction given by Tenant about such reletting or do any act or exercise any care or diligence with respect to such reletting, or to the mitigation of damages. For the purposes of such reletting, Landlord may decorate or make repairs, changes, alterations or additions in or to the Premises to the extent deemed by Landlord desirable or convenient; and the cost of such decoration, repairs, changes, alterations or additions shall be charged to and be payable by Tenant as additional rent hereunder, as well as any reasonable brokerage and legal fees expended by Landlord; and any sums collected by Landlord from any new tenant obtained on account of Tenant shall be credited against the balance of the Rent due hereunder as aforesaid. Landlord shall have the affirmative duty to take commercially reasonable actions to attempt to mitigate its damages under this Lease; provided, however, that Landlord may continue to advertise, lease directly, enter into and/or approve lease assignments, subleases and other agreements for other space in the Building notwithstanding that the Premises are not re-leased or subleased.; (e) Landlord shall have the right of injunction, in the event of a breach or threatened breach by Tenant of any of the agreements, conditions, covenants or terms hereof, to restrain the same and the right to invoke any remedy allowed by law or in equity, whether or not other remedies, indemnity or reimbursements are herein provided; and (f) IN THE EVENT OF ANY SUCH DEFAULT, TENANT HEREBY EMPOWERS ANY PROTHONOTARY OR ATTORNEY OF ANY COURT OF RECORD TO APPEAR 23 FOR TENANT IN ANY AND ALL ACTIONS WHICH MAY BE BROUGHT FOR FIXED RENT, ADDITIONAL RENT, OR OTHER CHARGES OR EXPENSES AGREED TO BE PAID BY TENANT HEREUNDER OR ACTIONS FOR THE RECOVERY OF FIXED RENT, ADDITIONAL RENT, OR OTHER CHARGES OR EXPENSES AND, IN SAID SUITS OR IN SAID AMICABLE ACTION OR ACTIONS, TO CONFESS JUDGMENT AGAINST TENANT FOR ALL OR ANY PART OF SUCH FIXED RENT, ADDITIONAL RENT, OR OTHER CHARGES OR EXPENSES, INCLUDING, AT LANDLORD'S OPTION, THE FIXED RENT AND ADDITIONAL RENT FOR THE ENTIRE UNEXPIRED BALANCE OF THE TERM OF THIS LEASE, COMPUTED AS AFORESAID, AND ANY OTHER CHARGES, PAYMENTS, COSTS AND EXPENSES RESERVED AS RENT OR AGREED TO BE PAID BY TENANT, AND FOR INTEREST AND COSTS TOGETHER WITH AN ATTORNEY'S COMMISSION OF FIFTEEN PERCENT (15%) THEREON. SAID AUTHORITY TO CONFESS JUDGMENT SHALL NOT BE EXHAUSTED BY ANY ONE EXERCISE THEREOF, BUT JUDGMENT MAY BE CONFESSED AS AFORESAID FROM TIME TO TIME AND AS OFTEN AS ANY OF FIXED RENT, ADDITIONAL RENT OR OTHER CHARGES OR EXPENSES SHALL FALL DUE OR BE IN ARREARS AND SUCH POWERS MAY BE EXERCISED AS WELL AFTER THE EXPIRATION OF THE TERM OR DURING ANY EXTENSION OR RENEWAL OF THIS LEASE. IT SHALL NOT BE NECESSARY FOR LANDLORD TO FILE THE ORIGINAL OF THIS LEASE, BUT LANDLORD MAY FILE A TRUE COPY THEREOF AT THE TIME OF ENTRY OF SUCH JUDGMENT OR JUDGMENTS; (g) WHEN THIS LEASE SHALL BE DETERMINED BY CONDITION BROKEN, EITHER DURING THE ORIGINAL TERM OF THIS LEASE OR ANY RENEWAL THEREOF, AND ALSO WHEN AS SOON AS THE TERM HEREBY CREATED EXPIRES OR IS EARLIER TERMINATED, IT SHALL BE LAWFUL FOR ANY ATTORNEY TO APPEAR AS ATTORNEY FOR THE TENANT AND TO ENTER IN ANY COMPETENT COURT AN AMICABLE ACTION AND JUDGMENT IN EJECTMENT AGAINST TENANT AND ALL PERSONS OR ENTITIES CLAIMING UNDER TENANT FOR THE RECOVERY BY LANDLORD OF POSSESSION OF THE PREMISES, FOR WHICH THIS LEASE SHALL BE SUFFICIENT WARRANT; WHEREUPON, IF LANDLORD SO DESIRES, A WRIT OF POSSESSION MAY ISSUE FORTHWITH WITHOUT ANY PRIOR WRIT OR PROCEEDING WHATSOEVER, AND PROVIDED THAT, IF FOR ANY REASON AFTER SUCH ACTION SHALL HAVE BEEN COMMENCED THE SAME SHALL BE DETERMINED AND THE POSSESSION OF THE PREMISES HEREBY DEMISED SHALL REMAIN IN OR BE RESTORED TO TENANT, LANDLORD SHALL HAVE THE RIGHT, UPON ANY SUBSEQUENT DEFAULT OR DEFAULTS OR UPON THE TERMINATION OR EXPIRATION OF THIS LEASE, TO BRING ONE OR MORE SUCH AMICABLE ACTION OR ACTIONS TO RECOVER POSSESSION OF THE SAID PREMISES. IT SHALL NOT BE NECESSARY TO FILE THE ORIGINAL LEASE AS A WARRANT OF ATTORNEY, ANY RULE OF COURT, CUSTOM OR PRACTICE TO THE CONTRARY NOTWITHSTANDING; AND (h) The rights and remedies given to Landlord in this Lease are distinct, separate and cumulative remedies, and not one of them, whether or not exercised by Landlord, shall be deemed to be in exclusion of any of the others and the right to confess 24 judgments for Fixed Rent and additional rent or other charges or expenses given in (f) above and the right to confess judgment in ejectment given in (g) above may be exercised concurrently and the power of attorney to confess judgment shall not be exhausted by a single confession in each case, but shall be exercised singularly or together from time to time and often as may be necessary to protect the rights of landlord and shall survive any expiration or termination of this Lease (g) A determining of the Term, or the receipt of Rent after default, or after judgment or after execution shall not deprive Landlord of other actions against Tenant for possession or for Fixed Rent or additional rent or other charges or expenses or for damages. TENANT UNDERSTANDS IT IS WAIVING IMPORTANT LEGAL RIGHTS BY AGREEING TO THIS PARAGRAPH 19 AND DOES SO IN THIS COMMERCIAL, NON-RESIDENTIAL TRANSACTION KNOWINGLY AND VOLUNTARILY AND AFTER ASCERTAINING THE LEGAL EFFECT HEREOF. 20. CONDITION OF PREMISES. It is agreed that Tenant has examined the Premises prior to the execution of this Lease and is satisfied with the physical condition thereof and further agrees that no representation has been made by Landlord, or Landlord's agent(s) as to the condition or repair of the Premises and there has been no agreement to redecorate, alter, repair or improve the Premises either before or after the execution of this Lease unless otherwise set forth herein. It is further agreed that Tenant accepts the Premises in its current "as-is" condition. 21. NOTICES BY LANDLORD'S AGENT. Whenever Landlord is required or desires to send any notice or other communication to Tenant under or pursuant to this Lease, it is understood and agreed that such notice or communication, if sent by Landlord's agent (of whose agency Landlord shall have advised Tenant), for all purposes shall be deemed to have been sent by Landlord. Landlord hereby advises Tenant that Landlord's current agent is Grant Street Associates, Inc. 22. ASSIGNMENT BY LANDLORD. Landlord may sell the Building or Landlord's interest therein or assign its interest in this Lease, or any part thereof, in the exercise of its sole discretion, and upon the written request of Landlord, Tenant shall acknowledge and consent to any such assignment in writing; provided, however, that Tenant's consent shall not be required for any such sale or assignment by Landlord. In the event of any sale or assignment, Landlord shall be entirely freed and relieved of all agreements and obligations of Landlord hereunder accruing or to be performed after the date of such sale or assignment, except that Tenant's lease terms and conditions and extensions thereof shall remain in full force and effect. 25 23. NOTICES. All notices and approvals to be given by one party to the other party under this Lease shall be given in writing, mailed or delivered as follows: (a) To Landlord c/o A&E Stores, Inc., 1000 Huyler Street, Teterboro, New Jersey 07608, Attention: Mr. Albert Erani, with a copy to Grant Street Associates, Inc., 425 Union Trust Building, 501 Grant Street, Pittsburgh, Pennsylvania 15219, Attention: Robert Geiger, or to such other addresses designated by notice to Tenant. (b) Except as otherwise provided in this Lease, to Tenant at the location set forth in Paragraph 1C until Tenant takes possession of the Premises, and thereafter at the Premises, or to such other address designated by notice to Landlord. Notices shall be delivered by hand or by United States certified or registered mail, postage prepaid, return receipt requested. Notices shall be deemed to have been given upon personal delivery thereof or upon posting in the United States mails. 24. QUIET POSSESSION. So long as Tenant shall observe and perform the covenants and agreements binding on it hereunder, Tenant shall at all times during the Term peacefully and quietly have and enjoy the possession of the Premises without any encumbrance or hindrance by, from or through Landlord, its successors or assigns, subject to the provisions of this Lease. 25. QUALIFICATIONS AS TO USE. A. Tenant shall occupy and use the Premises for general office purposes and for no other purpose whatsoever. Tenant shall not occupy or use the Premises or permit the Premises to be occupied or used for any purpose, act or thing which is in violation of any public law, ordinance or governmental regulation or which may be dangerous to persons or property. B. Tenant shall not advertise the business, profession or activities of Tenant conducted in the Building in any manner which violates the letter or spirit of any code of ethics adopted by any recognized association or organization pertaining to Tenant's business, profession or activities, and shall not use the name of the Building for any purposes other than that of the business address of the Tenant, and shall never use any picture or likeness of the Building in any circulars, notices, advertisements or correspondence without the Landlord's consent. 26. MISCELLANEOUS. A. Lease Binding. This Lease shall be binding upon and inure to the benefit of Landlord and Tenant and their respective heirs, legal representatives, successors and permitted assigns. 27 B. Payments Due. All amounts owed to Landlord hereunder, for which the date of payment is not expressly fixed herein, shall be paid within ten (10) days from the date Landlord renders statements of account therefor. C. Eminent Domain. In the event that all or a substantial portion of the Premises or the Building are taken by eminent domain so that the Premises cannot be reasonably used by Tenant for the purposes for which they are demised or, in the sole judgment of Landlord, so that the Building cannot be operated as an integral unit (whether or not the Premises are affected), then either party may terminate this Lease by giving written notice of termination to the other party within thirty (30) days after such taking. In the event of any taking by eminent domain, the entire award shall be paid to and retained by Landlord, excepting, however, that Tenant may receive therefrom any portion paid on account of Tenant's relocation expenses. D. Relocation. Landlord shall have the option to relocate the Premises at any time or times during the Term to a different location in the Building (herein referred to as "the New Premises"). Landlord may exercise such option by giving Tenant written notice thereof not less than sixty (60) days prior to the proposed effective date of relocation. If Landlord exercises its option to relocate the Premises: (i) The New Premises shall contain not less than ninety percent (90%) nor more than one hundred percent (100%) of the Rentable Area contained in the Premises; (ii) Landlord shall pay the direct physical moving expenses (including telephone and telephone equipment relocation costs) incurred by Tenant in relocating from the Premises to the New Premises and for improving the New Premises so that they are substantially similar to the Premises, but in no event shall Landlord pay any indirect expenses incurred by Tenant in relocating from the Premises to the New Premises (including salaries of employees of Tenant for time allocated to such relocation, legal fees, or loss of business or profit); (iii) The Fixed Rent specified in Paragraph 3 hereof and the additional rent then in effect under this Lease shall be decreased, if necessary, to the product obtained by multiplying each such amount by a fraction, the numerator of which shall be the rentable area contained in the New Premises and the denominator of which shall be the rentable area contained in the Premises; (iv) The Rentable Area of the Premises specified in Paragraph 1J shall be decreased, if necessary, by the difference in the rentable area contained in the Premises and the rentable area contained in the New Premises; and (v) Tenant's Percentage shall be recalculated to take into account the change in Rentable Area. 28 E. Rentable Square Feet. The term "rentable square feet" of the Premises as used herein has been determined by the mutual agreement of the parties to mean the amount shown in Paragraphs 1(J) and 2 of this Lease, and includes an allocation of common area space in the Building. F. Entire Agreement. This Lease and the Exhibits attached hereto contain the entire agreement between Landlord and Tenant concerning the Premises and there are no other agreements, either oral or written. Any agreement hereafter made shall be ineffective to change, modify, discharge or effect an abandonment of this Lease in whole or in part, unless such agreement is in writing and signed by the party against whom enforcement of the change, modification, discharge or abandonment is sought. G. Offer. The execution of this Lease by Tenant and delivery of same to Landlord or its agent does not constitute a reservation of or option for the Premises or an agreement to enter into a Lease and this Lease shall become effective only if and when Landlord executes and delivers same to Tenant; provided, however, that the execution and delivery by Tenant of this Lease to Landlord or its agent shall constitute an irrevocable offer by Tenant to lease the Premises on the terms and condition therein contained, which offer may not be withdrawn or revoked for fifteen (15) days after such execution and delivery. If Tenant is a corporation, it shall deliver to Landlord concurrently with the delivery to Landlord of an executed Lease a certified resolution of Tenant's directors authorizing execution and delivery of this Lease and the performance by Tenant of its obligations hereunder. H. No Waiver. No receipt of money by Landlord from Tenant after the termination of this Lease or Tenant's right of possession of the Premises shall reinstate, continue or extend the Term. The failure or delay on the part of either party to enforce or exercise at any time any of the provisions, rights or remedies in this Lease shall in no way be construed to be a waiver thereof, nor shall same in any way affect the validity of this Lease or any part hereof, or the right of the party to hereafter enforce each and every such provision, right or remedy. No waiver of any breach of this Lease shall be held to be a waiver of any other or subsequent breach. The receipt by Landlord of rental at a time when the rent is in default under this Lease shall not be construed as a waiver of such default. The receipt by Landlord of a lesser amount than the rent due shall not be construed to be other than a payment on account of the rent then due, nor shall any statement on Tenant's check or any letter accompanying Tenant's check be deemed an accord and satisfaction, and Landlord may accept such payment without prejudice to Landlord's right to recover the balance of the rent due or to pursue any other remedies provided in this Lease. No act or thing done by Landlord or Landlord's agents or employees during the term of this Lease shall be deemed an acceptance of a surrender of the Premises, and no agreement to accept such a surrender shall be valid unless in writing and signed by Landlord. I. Broker. Tenant represents that, except for the broker, if any, specified in Paragraph 1P, Tenant has not dealt with any real estate broker, sales person, or finder in connection with this Lease, and that no such person initiated or participated in the 29 negotiation of this Lease, or showed the Premises to Tenant. Tenant hereby agrees to indemnify and hold harmless Landlord, its agents and employees, from and against any and all liabilities and claims for commissions and fees arising out of a breach of the foregoing representation. Unless otherwise agreed by the parties, Landlord shall be responsible for the payment of all commissions to the broker, if any, specified in Paragraph 21, based upon Landlord's separate agreement with such broker. J. Force Majeure. Landlord shall not be deemed in default with respect to any of the terms, covenants and conditions of this Lease on Landlord's part to be performed and Tenant's obligations hereunder, including the obligation to pay Rent, shall not be affected, if Landlord fails to timely perform same and such failure is due in whole or in part to any strike, lockout, labor trouble (whether legal or illegal), civil disorder, inability to procure material, failure of power, restrictive governmental laws and regulations, riots, insurrection, war, fuel shortages, accidents, casualties, Acts of God, acts caused directly or indirectly by Tenant (or Tenant's agents, employees or invitees) or any other cause beyond the reasonable control of Landlord. K. Headings and Captions. Paragraph and other captions in this Lease are inserted only as a matter of convenience and in no way define, limit, construe or describe the scope or intent of such Paragraphs or portions thereof. L. Choice of Law. This Lease shall be construed in accordance with the laws of the Commonwealth of Pennsylvania without regard to conflicts of law principles. M. Limitation of Liability. Notwithstanding anything contained in this Lease to the contrary, the liability of Landlord under this Lease shall be limited to its interest in the Building and Tenant agrees that no judgment against Landlord under this Lease may be satisfied against any property or assets of Landlord other than the interest of Landlord in the Building. N. Landlord May Perform Tenant's Obligations. If Tenant fails to timely perform any of its duties under this Lease, Landlord shall have the right (but not the obligation), after the expiration of any grace period elsewhere under this Lease expressly granted to Tenant for the performance of such duty, to perform such duty on behalf and at the expense of Tenant without further prior notice to Tenant, and all sums expended or expenses incurred by Landlord in performing such duty along with a fifteen percent (15%) service charge, shall be deemed to be additional rent under this Lease and shall be due and payable upon demand by Landlord. O. Assignment of Landlord's Interest. Landlord's obligations hereunder shall be binding upon Landlord only for the period of time that Landlord is in ownership of the Building; and, upon termination of that ownership, Tenant shall look solely to Landlord's successor in interest in the Building for the satisfaction of each and every obligation of Landlord hereunder. 30 P. Remaining Provisions. If any provision of this Lease shall be held to be invalid, void or unenforceable, the remaining provisions hereof shall in no way be affected or impaired and such remaining provisions shall remain in full force and effect. Q. Waiver of Trial by Jury. It is mutually agreed by and between Landlord and Tenant that the respective parties hereto shall and they hereby do waive trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other on any matters whatsoever arising out of or in any way connected with this Lease, including but not limited to the relationship of Landlord and Tenant, Tenant's occupancy of the Premises, and any emergency statutory or any other remedy. R. Taxes on Tenant's Property. Tenant covenants and agrees to pay promptly when due all taxes, including real estate taxes, if any, assessed against Tenant's fixtures, furnishings, and equipment of any kind or nature placed in or on the Premises. Any such taxes, if paid by Landlord, shall be due and payable by Tenant as additional rent within ten (10) days after a billing therefor is rendered to Tenant. S. Fees. In the event it becomes necessary for Landlord to institute legal proceedings against Tenant for breach of any of the covenants or conditions contained in this Lease, Tenant agrees to pay all costs, charges and expenses, including fees of attorneys, agents and others retained or employed by Landlord in enforcing the obligations and undertakings of Tenant to Landlord, and all costs, charges and expenses incurred in any lawsuit, negotiation or transaction in which Tenant causes Landlord to become involved or concerned. T. Tenant's Property. Any employee of the Building to whom property shall be entrusted by or on behalf of Tenant shall be deemed to be acting as Tenant's agent with respect to such property and neither Landlord nor its agents shall be liable for any damage to such property nor for the loss of or damage to any property of Tenant by theft or otherwise. U. Failure to Give Possession. If Landlord is unable to give possession of the Premises on the date set forth in Paragraph 1G because of the holding-over or retention of possession of any tenant, undertenant or occupants, or otherwise as set forth in Paragraph 26J above, Landlord shall not be subject to any liability for failure to give possession, and the validity of this Lease shall not be impaired under such circumstances, nor shall the same be construed in any way to extend the Term; provided, however, that Tenant's sole remedy shall be that the Rent payable hereunder shall be abated (provided Tenant is not responsible in whole or in part for the inability to obtain possession or any failure by Landlord to Substantially Complete Landlord's Work) until after Landlord shall have given Tenant written notice that the Premises are Substantially Completed or ready for Tenant's occupancy (prior to the date specified in Paragraph 1G as the Commencement Date of the Term) and Tenant covenants and agrees that such occupancy shall be deemed to be under all the terms, covenants, conditions and provisions of this Lease except the payment of Rent. 31 27. LANDLORD'S WORK. Tenant takes the Premises in its "as-is" condition. In no event and under no circumstances will Landlord be obliged to perform any work or supply any materials in or to the Premises. Upon (i) execution of this Lease by Tenant, and (ii) execution of a lease termination agreement between Landlord and the Current Occupant of the Premises, in form and substance satisfactory to Landlord, in its sole discretion, and (iii) the vacation of the Premises by the Current Occupant on or before December 1, 2001, Landlord shall make possession of the Premises available to Tenant. 28. Guaranty Agreement. In order to secure Tenant's obligations to make the payments of Rent and/or all other charges specified in this Lease and to perform and observe all covenants and/or conditions specified in this Lease, Tenant's obligations hereunder shall be guaranteed by Tenant's corporate parent and documented in the form of the Guaranty Agreement attached hereto as Exhibit F. Tenant acknowledges that Landlord would not enter into this Lease without the agreement of Tenant's corporate parent to act as a guarantor and surety per the terms of Exhibit F. 29. HAZARDOUS SUBSTANCES. (a) Tenant shall not cause or allow the generation, treatment, storage, or disposal of Hazardous Substances on or near the Premises or the Building. "Hazardous Substances" shall mean (i) any hazardous substance as that term is defined in the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. 9601 et seq., as amended, (ii) any hazardous waste or hazardous substance as those terms are defined in any local, state or federal law, regulation and ordinance applicable to the Premises or the Building, or (iii) petroleum, including crude oil or any fraction thereof. In the event Tenant uses any Hazardous Substances, Tenant shall dispose of such substances in accordance with all applicable federal, state and local laws, regulations and ordinances. (b) Tenant agrees to indemnify, defend and hold harmless Landlord, its employees, agents, successors, and assigns, from and against any and all damage, claim, liability or loss, including reasonable attorneys' and other fees, arising out of or in any way connected to the generation, treatment, storage or disposal of Hazardous Substances by Tenant, its employees, agents, contractors, or invitees, on or near the Premises or the Building. Such duty of indemnification shall include, but to be limited to, damage, liability, or loss pursuant to all federal, state and local environment laws, rules and ordinances, strict liability and common law. (c) Tenant agrees to notify Landlord immediately of any disposal of Hazardous Substances on or near the Premises or the Building, of any discovery of Hazardous Substances on or near the Premises or the Building, or of any notice by any governmental 32 authority or private party alleging or suggesting that a disposal of Hazardous Substances on or near the Premises or the Building may have occurred. Furthermore, Tenant agrees to provide Landlord with full and complete access to any documents or information in Tenant's possession or control relevant to the question of the generation treatment, storage or disposal of Hazardous Substances on or near the Premises or the Building. 30. CONFIDENTIALITY. Tenant agrees that it shall maintain in confidence and shall not divulge to any third party (except as required by law) any of the terms, covenants and conditions of this Lease, including without limitation, any information related to the rental rate, the length of the Term, any renewal, termination expansion, contraction or similar options, if any, or the amount of any free rent, improvement allowance or other concessions granted to Tenant by Landlord under this Lease. Tenant further agrees to take commercially reasonable precautions to prevent the unauthorized disclosure of any of such information to any third parties. Tenant's obligations under this Section 30 shall survive termination of this Lease. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] [SIGNATURES ON NEXT PAGE] 33 [SIGNATURES TO LEASE AGREEMENT] [CONTINUED FROM PREVIOUS PAGE] IN WITNESS WHEREOF, the parties have executed this Lease on the day and year first above written. LANDLORD: EWART ASSOCIATES, L.P. By: Ewart Properties, LLC General Partner By: /s/ ----------------------------- Name: Aaron Stauber ----------------------------- Title: Member ----------------------------- TENANT: SONIC FOUNDRY SYSTEMS GROUP, INC., a Maryland corporation By: /s/ ----------------------------- Name: Kenneth A. Minor ----------------------------- Title: Secretary ----------------------------- 34 STATE OF Wisconsin ) ---------------------------------- ) SS COUNTY OF Dane ) --------------------------------- On this, the _______ day of November, 2001, before me, the undersigned officer, personally appeared ______________ who acknowledged himself to be __________ of Ewart Properties, LLC, a Pennsylvania limited liability company, general partner of Ewart Associates, L.P., a Pennsylvania limited partnership, and that he as such __________, being authorized to do so, executed the foregoing Lease Agreement for the purposes therein contained by signing his name as such partner. IN WITNESS WHEREOF, I hereunto set my hand and official seal. /s/ ------------------------------------- Notary Public STATE OF Wisconsin ) ---------------------------------- ) SS: COUNTY OF Dane ) --------------------------------- On this, the _______ day of November, 2001, before me, the undersigned office, personally appeared ___________ satisfactory proven to me to be the ___________ of Sonic Foundry Systems Group, Inc., a Maryland corporation, and that as such __________, he executed the foregoing Lease Agreement, and acknowledged that he executed the same on behalf of such corporation for the purposes therein contained. IN WITNESS WHEREOF, I hereunto set my hand and official seal. /s/ ------------------------------------- Notary Public EXHIBIT B RULES AND REGULATIONS 1. Tenant shall not suffer or permit the Premises or any part thereof to be used in any manner, or suffer or permit anything to be done therein, or suffer or permit anything to be brought into or kept therein, which may in any way (i) violate any of the provisions of any Superior Lease or Superior Mortgage (as those terms are defined in the Lease) or the rules, statutes, ordinances or requirements of any governmental or quasi-governmental authority having or claiming jurisdiction, (ii) invalidate or increase the amount of premiums for any policy of insurance affecting the Building and if any additional amounts of insurance premiums are so incurred, Tenant shall pay to Landlord the additional amounts upon demand, (iii) be dangerous to persons or property, (iv) make unobtainable (or unobtainable except upon payment of additional premium) from reputable insurance companies authorized to do business in Pennsylvania any fire insurance with extended coverage, or liability, elevator, boiler or other insurance required to be furnished by Landlord under the terms of any Superior Lease or Superior Mortgage (as those terms are defined in the Lease) at standard rates, (v) cause or in Landlord's reasonable opinion be likely to cause physical damage to the appearance, character or reputation of the Building or any part thereof, (vi) constitute a public or private nuisance, (vii) impair, in the sole opinion of Landlord, the appearance, character or reputation of the Building, (viii) discharge objectionable fumes, vapors or odors into the Building or the Building air conditioning system or into the Building flues or vents not designed to receive them or otherwise in such manner as may offend the occupants of the Building, (ix) 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, or (x) increase the pedestrian traffic in and out of the Premises or the Building above an ordinary level. 2. Any sign, lettering, picture, notice or advertisement installed within the Premises which is visible from the public corridors within the Building shall be installed in such manner and be of such character and style as Landlord shall first approve in writing. No sign, lettering, picture, notice or advertisement shall be placed on any outside window or in a position to be visible from outside the Building. 3. The listing of any name other than that of Tenant, whether on the doors of the Premises, on the Building directory, or otherwise, shall not operate to vest any right or interest in this Lease or in the Premises or be deemed to be the written consent of Landlord mentioned in Paragraph 16 of the Lease, it being expressly understood that any such listing is a privilege extended by Landlord and is revocable at will by written notice to Tenant. 1 4. No objects shall be placed against glass partitions, doors or windows which would be unsightly from the Building's corridors or from the exterior of the Building. 5. No animals, pets, bicycles or other vehicles shall be brought or permitted to be in Building or the Premises. 6. Room to room canvasses to solicit business from other tenants of the Building are not permitted. 7. Tenant shall not waste electricity, water or air conditioning services. All controls shall be adjusted only by authorized building personnel. Tenant shall not utilize the Premises in any manner which would overload the standard heating, ventilating or air conditioning systems of the Building. Tenant shall not open or permit to be opened any windows in the Premises. Tenant shall not permit the use of any apparatus for sound production or transmission in such manner that the sound so transmitted or produced shall be audible or vibrations therefrom shall be detectable beyond the Premises. Tenant shall not utilize any electronic, radio-wave, microwave or other transmitting, receiving, amplification or magnetic device which would disturb or interfere with any other tenant of the Building or the operation of the Building generally. Tenant shall keep all electrical and mechanical apparatus free of vibration, noise, magnetic fields, and air waives which may be transmitted beyond the Premises. 8. All corridor doors shall remain closed at all times. 9. No additional locks or similar devices shall be attached to any door or window without Landlord's prior written consent. No keys for any door other than those provided by the Landlord shall be made. If more than two keys for one lock are desired, the Landlord will provide the same upon payment by the Tenant of the reasonable cost therefor. All keys must be returned to the Landlord at the expiration or termination of this Lease. 10. Tenant assumes full responsibility of protecting the Premises from theft, robbery and pilferage. Except during Tenant's normal business hours, Tenant shall keep all doors to the Premises locked and other means of entry to the Premises closed and secured. 11. Only machinery or mechanical devices of a nature directly related to Tenant's ordinary use of the Premises shall be installed, placed or used in the Premises and the installation and use of all such machinery and mechanical devices is subject to the other rules contained herein and the other portions of this Lease. Unless Landlord gives advance written consent, Tenant shall not install or operate any steam or internal combustion engine, boiler, machinery, refrigerating or heating device or air conditioning apparatus in or about the Premises, or carry on any mechanical business therein. 12. Except with the prior approval of Landlord, all cleaning, repairing, janitorial, decorating, painting or other services and work in and about the Premises shall be done only by authorized Building personnel. 2 13. Tenant shall not overload any floor. Safes, furniture, equipment, machines and other large or bulky articles shall be brought to the Building and into and out of the Premises at such times and in such manner as Landlord shall direct (including the designation of elevator) and at Tenant's sole risk and cost. Prior to Tenant's removal of such articles from the Building, Tenant shall obtain written authorization from Landlord's agent and shall present such authorization to the designated employee of Landlord. 14. Tenant shall not in any manner deface or damage the Building. 15. Tenant shall not use the Premises for housing accommodations or lodging or sleeping purposes or do any cooking therein, or use any illumination other than electric light, or use or permit to be brought into the Building any inflammable fluids such as gasoline, kerosene, naphtha, and benzene, or any explosives, radioactive materials, carcinogens or other articles deemed extra hazardous to life, limb or property. 16. Tenant shall ascertain from Landlord the maximum amount of electrical current which can safely be used in the Premises, taking into account the electric wiring of the Building and the Premises and the needs of other tenants, and shall not use more than such safe capacity. Landlord's consent to the installation of electrical equipment shall not relieve Tenant from the obligation not to use more electricity than such safe capacity. 17. Tenant shall not contract for any work or service which might involve the employment of labor incompatible with the Building employees or employees of contractors doing work or performing services by or on behalf of the Landlord. Tenant shall take no action which would violate any of Landlord's contracts affecting the Building, or which would create or contribute to any work stoppage, strike, picketing, labor disruption or dispute, or which would interfere, in any way, with the business of Landlord or any other tenants of the Building or with the rights and privileges of any invitees, licensees, employees or any other persons lawfully in and upon the Building, or which would cause any impairment or reduction of the good will and reputation of the Building. In furtherance of the intent expressed above, and in the interest of preventing and avoiding the frictions traditionally inherent in commerce and industry associated with union and non-union personnel working side-by-side (which often times results in the above-mentioned work stoppages, strikes, picketing, labor disruptions or disputes), it is hereby understood and agreed by Tenant that any and all items of Tenant's initial construction, reconstruction, alterations, installations, additions, improvements, changes and/or remodeling of the Premises and the fixtures and appurtenances therein, and the removal of the same, as well as all items of Tenant's repairs to the Premises and the replacement and repair of fixtures and appurtenances therein shall be performed by union labor only. 3 18. To the extent permitted by law, Tenant shall not permit picketing or other union activity involving its employees in the Building, except in those locations and subject to time and other limitations as to which Landlord may give its prior written consent. 19. Neither Tenant nor any of its agents, employees, contractors, workmen, visitors or guests shall enter into or go upon roof or basement or other restricted areas of the Building, including all storage, heating, ventilation, air conditioning, mechanical or elevator machinery housing areas. 20. Tenant shall not distribute literature, flyers, handouts or pamphlets of any type in any of the common areas of the Building, without the prior written consent of Landlord. 21. Tenant shall not cook, otherwise prepare or sell any food or beverages in or from the Premises. 22. Tenant shall cooperate fully with Landlord to insure the effective operation of the Building's air conditioning and heating system, including the closing of venetian blinds and drapes, and shall keep all windows closed. 23. Tenant shall not permit objectionable odors or vapors to emanate from the Premises. 24. Tenant shall not place a load upon any floor of the Premises exceeding the floor load capacity for which such floor was designed or allowed by law to carry. 25. No floor covering shall be affixed to any floor in the Premises by means of glue or other adhesive without Landlord's prior written consent. 26. The sidewalks, halls, passages, exits, entrances, elevators and stairways shall not be obstructed by the Tenant or used for any purpose other than for ingress to and egress from its Premises. The halls, passages, exists, entrances, elevators, stairways and roof are not for the use of' the general public and the Landlord shall in all cases retain the right to control and prevent access thereto by all persons whose presence, in the judgment of the Landlord, shall be prejudicial to the safety, character, reputation and interests of the Building and its tenants, provided that nothing herein contained shall be construed to prevent such access to persons with whom the Tenant normally deals in the ordinary course of Tenant's business unless such persons are engaged in illegal activities. 4 EXHIBIT C INTENTIONALLY DELETED 1 EXHIBIT D INTENTIONALLY DELETED 1 EXHIBIT E EWART BUILDING CLEANING SPECIFICATIONS 1. Nightly - - Empty all waste cans including those in rest rooms. - - Install plastic liners in office waste cans. - - Change liners when necessary. - - Wash waste cans as necessary. - - Empty and damp wipe all ashtrays. - - Clean interior surfaces of elevator cabs. - - Vacuum carpet in cabs. - - Vacuum elevator door floor tracks. - - Clean mats at entrance doors wash or vacuum as necessary. - - Spot clean shoe marks from first floor tile floor . - - Spot spray buff and dry buff main lobby floors. - - Clean all first floor entrance door glass and directory glass. - - Wash and dry drinking fountains and sinks in tenant areas. - - Slop sinks and closets and other service areas will be kept clean at all times. - - Hose sidewalks. - - Dust all areas within hand - high reach as necessary; this includes window sills, ledges, chairs, desks, tables, base boards, lamps, file cabinets, pictures, and all manner of office and lobby furnishings. In no case shall dusting be performed at intervals of less than once a week - - Rest Rooms 1 - - Building rest rooms are to be clean and kept neat and orderly at all times. - - Sweep and wash floors. - - Wash and dry all toilets, seats, urinals, washbasins, mirrors, metal work and counter tops. - - Polish all metal work. - - Empty sanitary napkin disposal receptacles. - - Insert toilet tissue and toweling and sanitary napkins in dispensers. 2. Every Other Night - - Damp wipe spillage on furniture in lunch room areas. - - Sweep carpeting in elevator lobbies and adjoining corridors. 3. Weekly - - Vacuum all other carpet in the building. - - Scrub first floor tile floor. - - Damp wipe all glass top desks and tables. - - Dust clothes closets, shelving and coat racks. - - Sweep with treated cloths all flooring other than carpeting and first floor tile. - - Vacuum elevator sill plates. - - Remove fingerprints from public and tenant entrance doors, rest room doors and around light switches. - - Wash glass on tenant entrance doors, if applicable. - - Scour fountains. - - Wash sanitary napkin disposal containers. - - Damp mop all stairwell landings and hand wash all stairs in stairwells. 2 - - Spray buff tile floors other than first floor. 4. Monthly - - Wash fly doors and entrance doors in rest rooms. - - Thoroughly scrub rest room floors. - - Wash rest room waste cans. - - Wash all doors not previously mentioned. - - Spot clean carpeting in public areas. - - Wash telephones and elevator light fixtures. 5. Semi-annually - - Strip tile floors and reseal. - - Wash glass partitions. - - Wash elevator doors and jambs. 6. Yearly - - High Dust. - - Wash paneled walls in all elevator lobbies and side corridors on every occupied floor including first floor and stairwells leading to basement. - - Wash painted walls above paneling in public areas and rest rooms on occupied floors. 7. Every Two Years - - Wash fire hose cabinets and telephone equipment cabinets. - - Wash building light fixtures inside and outside and ceiling diffusers on occupied floors except first floor elevator lobby light fixtures which shall be cleaned by owner. - - Wash ceilings in rest rooms and walls and railings in stairwells on occupied floors. 3 8. Supply day porters to: - - Vacuum carpeting on the first floor lobbies and elevators. - - Damp mop tile floors on the first floor as needed. - - Salt curbs as needed. - - Clean first floor exterior bronze. - - Other maintenance work specified by Building Manager. 4 EXHIBIT F GUARANTY AND SURETYSHIP AGREEMENT This Guaranty and Suretyship Agreement is made as of this _______ day of November, 2001, by SONIC FOUNDRY, INC., a Maryland corporation (hereinafter referred to collectively as the "Guarantors") to EWART ASSOCIATES, L.P., a Pennsylvania limited partnership (hereinafter referred to as "Ewart"). WITNESSETH: WHEREAS, the Guarantors have requested Ewart to enter into a certain Lease Agreement dated November _____, 2001 (hereinafter, together with any modifications, amendments, extensions and renewals, referred to as the "Lease Agreement") with Sonic Foundry Systems Group, Inc., a Maryland corporation, as the Tenant (hereinafter referred to as "Tenant"), of which the Guarantors are shareholders, covering space consisting of the 3rd floor in the building known as the Ewart Building, 925 Liberty Avenue, Pittsburgh, PA, defined as the Premises in the Lease Agreement; and WHEREAS, to induce Ewart to enter into the Lease Agreement, the Guarantors hereby agree to guaranty as hereinafter provided the performance by Tenant of all of the terms, covenants, conditions, obligations, and agreements (hereafter being collectively called the "Covenants") contained in the Lease Agreement on the part of Tenant to be performed thereunder; NOW, THEREFORE, in consideration of the making of the Lease Agreement and other good and valuable consideration, including the undertakings herein contained, the Guarantors hereby agree as follows, intending to be legally bound hereby: 1. Guaranty of Lease Agreement - Guarantors unconditionally and absolutely, jointly and severally, guaranty to Ewart the prompt payment when due of the rents, additional rents, and other charges payable under the Lease Agreement and the full and faithful performance and observance of any and all Covenants contained in the Lease Agreement, including, without limitation, the rules and regulations as therein provided, on the part of Tenant to be performed and observed. Guarantors unconditionally and absolutely covenant to Ewart that, if Tenant shall default at any time in the Covenants to pay Rent and additional rent or any other charge stipulated in the Lease Agreement or in the performance of any of the other Covenants contained in the Lease Agreement on Tenant's part to be performed, Guarantors will well and truly perform such Covenants, and pay said Rent, additional rent, or other charges or arrears thereof that may remain due thereon to Ewart, and also all damages stipulated in the Lease Agreement. Guarantors shall pay to Ewart on demand, all expenses (including reasonable expenses for attorney's fees and reasonable charges of every kind) incidental to, or relating to the enforcement of 1 this Guaranty and Suretyship Agreement. Guarantors acknowledge and agree that the Guarantors' liability hereunder is that of a compensated surety. 2. No Discharge of Guaranty - The liability of any Guarantor hereunder shall not be impaired, released, terminated, or discharged, in whole or in part, by any of the following, notwithstanding that the same are made with or without notice to the Guarantor: (a) any amendment or modification of the provisions of the Lease Agreement; (b) any extensions of time for performance, whether in whole or in part, of the Covenants of Tenant under the Lease Agreement given prior to or after default thereunder; (c) any other guaranty now or hereafter executed by any Guarantor or anyone else; (d) any waiver of, assertion or enforcement of, or failure or refusal to assert or enforce, in whole or in part, any Covenants, claims, causes of action, rights, or remedies that Tenant may, at any time, have under the Lease Agreement or with respect to any guaranty or any security that Ewart may hold at any time for or under the Lease Agreement or with respect to; (e) any act or thing or omission or delay to do any act or thing that may in any manner or to any extent vary the risk of Guarantor or that would otherwise operate as a discharge of any Guarantor as a matter of law; (f) the failure to give any Guarantor any notices whatsoever; (g) the release of any security, guaranty, or any rights, power, or privileges Ewart may now or hereafter have against any person, entity, or collateral; or (h) the assignment or transfer of the Lease to any person or entity. In the event that any agreement or stipulation between Ewart and Tenant shall extend the time of performance or modify any of the Covenants of the Lease Agreement on the part of Tenant to be performed, Guarantors shall continue to be liable upon this Guaranty and Suretyship Agreement according to the tenor of any such agreement or stipulation. 3. Demand Not Required. To charge any Guarantor under this Guaranty and Suretyship Agreement, no demand shall be required nor shall there be required any notice of any default in the Covenants of the Lease Agreement on the part of Tenant to be 2 performed or of the same as affected by any agreement or stipulation extending the time of performance or modifying the covenants of the Lease Agreement. Guarantor hereby expressly waives such demand or notice. Ewart shall have the right to enforce this Guaranty and Suretyship Agreement without pursuing any rights or remedies of Ewart against Tenant or any other party or any security Ewart may hold, it being intended that immediately upon any breach or default by Tenant in the performance or observance of any covenant in the Lease Agreement, Ewart may enforce its rights directly against any Guarantor under this Guaranty and Suretyship Agreement without first proceeding against Tenant. Ewart may commence any action or proceeding based upon this Guaranty and Suretyship Agreement directly against any Guarantor or Guarantors for the full performance of the Lease Agreement without making Tenant, the other Guarantors, or anyone else a party defendant in such action or proceeding. Any one or more successive or concurrent actions may be brought on this Guaranty and Suretyship Agreement against any guarantor or Guarantors either by the same action, if any, brought against Tenant and/or any other party or in separate actions, as often as Ewart, in its sole discretion, may deem advisable. 4. Waivers. (a) The Guarantors hereby expressly waive and release (i) notice of the acceptance of this Guaranty and Suretyship Agreement and notice of any change in Tenant's financial condition; (ii) the right to interpose all substantive and procedural defenses of the law of guaranty, indemnification, and suretyship, except the defenses of prior payment or prior performance by Tenant (of the obligations which Guarantors are called upon to pay or perform under this Guaranty and Suretyship Agreement) or that there is no obligation on the part of Tenant with respect to the matter claimed to be in default; (iii) all rights and remedies accorded by applicable law to guarantors or sureties, including, without limitation, any extension of time conferred by any law now or hereafter in effect; (iv) the right to interpose any defense (except as allowed under (ii) above), set-off, or counterclaim of any nature or description in any action or proceeding except to the extent that such set-off or counterclaim shall concern Landlord's nonperformance under the terms and conditions of the Lease Agreement and this Exhibit "F"; and (v) any right or claim of right to ----------- cause a marshalling of Tenant's assets or to cause Ewart to proceed against Tenant, or any collateral held by Tenant at any time or in any particular order. (b) The Guarantors hereby expressly waive and release and expressly disclaim a duty on the part of Ewart to protect, secure or insure any security interest or property subject thereto; the Guarantors expressly consent to any act releasing or waiving any security interests. Ewart shall have no obligation to protect, secure or insure any security interest, liens or encumbrances granted in the Lease Agreement and the Guarantors' obligations are expressly said not to be reduced or released by Ewart's failure or delay to do any acts with regard to security interests or by the invalidity, unenforceability or change in priority or reduction or loss of value of any such security interest. 5. No Impairment of Obligation. Neither Guarantors' obligations to make payment in accordance with the terms of this Guaranty and Suretyship Agreement nor any remedy for the enforcement thereof shall be impaired, modified, changed, stayed, 3 released, or limited in any manner whatsoever by any impairment, modification, change, release, limitation, or stay of the liability of Tenant or its estate in bankruptcy or any remedy for the enforcement thereof, resulting from the operation of any present or future provision of the Bankruptcy Code of the United States or other statute or from the decision of any court interpreting any of the same, and each Guarantor shall be obligated under this Guaranty and Suretyship Agreement as if no such impairment, stay, modification, change, release, or limitation had occurred. IN WITNESS WHEREOF, the undersigned has executed this Guaranty and Suretyship Agreement on the day and year first above written. GUARANTOR AND SURETY: ATTEST: SONIC FOUNDRY, INC., a Maryland corporation /s/ By: /s/ - --------------------------------- ----------------------------------- Name: Kenneth A. Minor ----------------------------------- Title: CFO ----------------------------------- 4 EXHIBIT G NOTICE AND WAIVER OF RIGHTS REGARDING WARRANTS OF ATTORNEY, EXECUTION RIGHTS, AND WAIVER OF RIGHTS TO PRIOR NOTICE AND JUDICIAL HEARING Landlord: Ewart Associates, L.P. Tenant: Sonic Foundry Systems Group, Inc. Sureties: Sonic Foundry, Inc. Transaction: Lease of Third Floor, Ewart Building Date: November ___, 2001 This NOTICE AND WAIVER of rights is made by each of you and given to Ewart Associates, L.P. (the "Landlord") in connection with the above-described commercial lease transaction. IT IS IMPORTANT THAT YOU CAREFULLY READ AND UNDERSTAND THIS DOCUMENT. WHEN YOU SIGN YOUR NAME IN THE SPACE PROVIDED BELOW, YOU ARE ACKNOWLEDGING AND REPRESENTING TO THE LANDLORD THAT YOU HAVE READ AND UNDERSTAND THE CONTENTS OF THIS DOCUMENT. Each of you will be executing and delivering to the Landlord the Lease Agreement and/or a Guaranty and Suretyship Agreement (collectively, the "Documents") which grant to the Landlord, among other things, the power and authority to enter JUDGMENT BY CONFESSION against each of you, and to exercise rights of execution, levy, garnishment, seizure and possession of your property and the like. These rights and powers may be exercised by the Landlord without giving you any prior notice of its intention to do so. In addition, these powers and rights may be exercised without a prior hearing of any nature. By executing and delivering this Notice and Waiver, each of you knowingly, voluntarily, and intelligently waive your rights to prior notice and a hearing or other judicial proceedings to determine your rights and liabilities in connection with the Documents. By signing this Notice and Waiver, you acknowledge that you understand the Landlord may obtain a judgment against any one or more of you, and may obtain a judgment for possession of the leased premises, and execute upon and seize forthwith your property and assets, without the opportunity to raise any defense, set-off, counterclaim, or other claim that you may have. Each of you knowingly, voluntarily, and intelligently waive your rights to any prior notice or judicial determination as a material part of the consideration for this transaction and in order to induce the Landlord to enter into this commercial transaction. Each of you acknowledge and represent that you have consulted (or have had an opportunity to consult) with legal counsel of your choice, and with such other experts and advisors as you deemed necessary, in connection with the execution and delivery of the Documents (including without limitation the provisions of the Documents authorizing the confession of judgment and the execution upon and seizure of your property and assets, and obtaining possession of the leased premises, without the opportunity for prior notice or judicial determination of any nature). IN WITNESS WHEREOF, and intending to be legally bound, the undersigned have executed this Notice and Waiver this ____ day of ____________, 2001. ATTEST: TENANT: Sonic Foundry Systems Group, Inc. /s/ By: /s/ - ------------------------------- -------------------------------------- Name: Kenneth A. Minor -------------------------------------- Title: Secretary -------------------------------------- ATTEST: SURETY: Sonic Foundry, Inc. /s/ By: /s/ - ------------------------------- -------------------------------------- Name: Kenneth A. Minor -------------------------------------- Title: CFO -------------------------------------- EX-10.24 4 dex1024.txt COMMERCIAL LEASE EXHIBIT 10.24 L E A S E This L E A S E, is made as of the 13 day of January 2002 ------ --------------- (hereinafter the "Lease Date") between and among STONEWOOD EAST , a ------------------- Pennsylvania limited partnership ( hereinafter referred to as "Landlord" ) and Sonic Foundry Media Systems, Inc., (hereinafter referred to as "Tenant"). - ----------------------------------- W I T N E S S E T H: 1. PREMISES -------- 1.1 Premises. In consideration of the rents hereby reserved and --------- covenants hereby made, Landlord leases to Tenant, and Tenant does rent from Landlord, that certain premises designated as first (1/st/) floor containing ------------------ approximately 9,004 rentable square feet ("Demised Square Feet") of space ------ (hereinafter the "Demised Premises ) within the Building located at 12300 Perry ----------- Highway (hereinafter referred to as "Building"), in Wexford, Pennsylvania. The - --------- Demised Premises constitutes 28% % of the total 31,625 square feet of ----- ---------- rentable space in the Building ("Total Rentable Square Feet"). 2. TERM ---- 2.1 Initial Term. Tenant shall have and to hold the Demised Premises ------------- for an Initial Term of 24 months beginning on the 31st day of January , ------ ------- ---------- 2002 ("Commencement Date") and ending the 31st day of January , 2004 - ------ ------ ---------- ------ unless sooner terminated as hereinafter provided. 2.2 Renewal Term(s). Tenant shall have the option to renew this Lease ---------------- for one additional period(s) / term(s) of 12 months (hereinafter the ------- --- "Renewal Term(s)") provided: (a) Tenant notifies Landlord in writing of Tenant's election to exercise such option not less than 120 days prior to the expiration of the then current term and (b) Tenant is not in default under this Lease either at the time of written notification to Landlord of the exercise of the option or on the last day of the then current term. TIME IS OF THE ESSENCE (c) Right to renew and renewal option are approved in writing by CoManage (Guarantor). 3. RENT ---- 3.1 Rent. ----- A. Tenant agrees to pay during the First Lease Year, total "Base Rent" of $ 99,044, payable $ 8,253.66 monthly in advance on or before the first --------- --------- day of each month (hereinafter, the "Monthly Installments"). B. Tenant agrees to pay during the Second Lease Year, total "Base Rent" of $ 117,052, payable. $ 9,754.33 monthly in advance on or before the ---------- --------- first day of each month (hereinafter, the "Monthly Installments"). 4. USE OF DEMISED PREMISES ----------------------- 4.1 Use and Care. The Demised Premises shall be used only for general ------------- ------- office and for no other purposes without the prior written consent of Landlord. - ------ For the purposes of this lease agreement general office purposes includes those things reasonably necessary and required to carry on a business as a developer and technology integrator of computer software and hardware. Tenant agrees that it will not keep, store or use in or upon the Demised Premises any article, which may be prohibited by the terms of the fire and casualty insurance policies from time to time covering the Demised Premises. Tenant will not injure or deface the Demised Premises; Tenant will not overload the floors of the Demised Premises; Tenant will not permit any objectionable noise or odor to escape from the Demised Premises, and Tenant will not use the Demised Premises for lodging or sleeping purposes. 4.2 On Premises Advertising. Tenant will not place or allow to be ------------------------ placed, or maintain on the exterior of the Demised Premises, any sign (unless approved in writing by Landlord), advertising matter or other thing of any kind, on the glass of any window or door of the Demised Premises without first obtaining Landlord's written approval thereof; and thereafter Tenant will maintain such sign, decoration, lettering, advertising matter and other thing as may be approved in writing by Landlord, in good condition and repair at all times. No flashing, or moving signs or lights will be installed by Tenant. Tenant shall be responsible to Landlord for all damages caused by installation, use or maintenance of said signs, and Tenant agrees to repair all damage incident to removal of said signs. Landlord agrees that Tenant may place its name upon the roadside signs, glass doors and lobby marque in a manner similar to that currently in existence. 4.3 Return of Premises. Tenant shall deliver the Demised Premises to ------------------- Landlord at the expiration of the term of this Lease, including renewals thereof, in substantially the same condition as the Demised Premises were in when received by Tenant, reasonable wear and tear, damage by fire, casualty or other cause not due to the misuse or neglect of Tenant or Tenant's agents, servants, visitors or licensees excepted. 4.4 Enforcement. Notwithstanding the provisions of Section 11 hereof ------------ respecting the time within which the Tenant shall cure defaults, if Tenant fails to keep or perform any covenant or term included in this Section 4 or violates any such covenant or term, and such failure or violation shall continue for a period of five (5) days after receipt of written notice by Landlord, Landlord may, in addition to any other remedies at law or in equity, (i) enjoin Tenant from any further failure or violation hereunder through legal proceedings and/or (ii) cure such failure or violation and receive, within ten (10) days from demand, reimbursement for all expenses incurred by Landlord in connection therewith, including attorneys fees, and all of such shall be deemed Additional Rent and shall be payable upon demand by Landlord. 1 4.5 Rules and Regulations. The Rules and Regulations of the Building, ---------------------- including rules regarding access and security with respect to the Building and the Demised Premises are attached hereto as Exhibit "C" shall be and are hereby made a part of this Lease. Tenant, its employees, officers, servicepersons, servants and agents, shall perform and abide by the Rules and Regulations and all amendments or additions thereto which may be made from time to time by Landlord and Tenant shall be responsible for insuring that Tenant's customers, clients, patients and/or business invitees perform and abide by such Rules and Regulations, so long as Landlord agrees to uniformly apply and enforce the Rules and Regulations against all tenants of the Building. 5. DELIVERY OF DEMISED PREMISES ---------------------------- 5.1 Work Plans. Tenant shall have the right to install two additional ----------- 220V electrical outlets in an office to be used as an Uninterruptible Power Supply. Such installation shall be at Tenant's expense and Tenant agrees to utilize the Landlords licensed electricians for all work. 5.2 Delayed Possession. If Landlord cannot deliver possession of the ------------------- Demised Premises to Tenant on the Commencement Date set forth in Section 2.1 above, due to failure to complete the Work Items on or prior to said scheduled Commencement Date, and such failure is not due to an act or omission of Tenant, then in such event, this Lease Agreement shall not be void or voidable but rather the rent shall abate until date of possession. 6. REPAIRS, MAINTENANCE AND ALTERATIONS ------------------------------------ 6.1 Landlord Repair and Maintenance Obligation. Except as provided in ------------------------------------------ this Lease with respect to condemnation and damages caused by casualty, Landlord agrees to keep, repair and maintain the Building (including the roof, exterior walls, foundation, gutters and down spouts), the common areas, (both inside and out) including hallways, stairs, restrooms, elevators, foyers and all other common areas provided for the common use of all tenants of Building, sidewalks, paved areas, parking areas, HVAC, supply lines for water, sewer, gas and drainage, electrical wiring (but not any of the electrical or plumbing systems or fixtures within the Demised Premises such being the responsibility of Tenant) in good repair at all time. If any portion of the Demised Premises which is the responsibility of Landlord shall at any time be in need of repair, Landlord will promptly repair same upon receipt of written notice from Tenant delivered to Agent, except that Landlord shall not be obligated to make or pay for any repairs to the Demised Premises rendered necessary by the fault, act, omission or negligence Tenant, or any of its servants, agents, employees or business invitees. Landlord agrees to employ reasonable efforts to keep the common areas (both inside the Building and outside), clean, to keep such common areas lighted during business hours of darkness when the Building is generally open for business and keep the parking area reasonably paved, lighted and striped to assist in the orderly parking of cars. Temporary closing by Landlord of parking, walking and driveway areas due to repairs or other work deemed necessary by Landlord shall be permitted. 6.2 Tenant Obligations. Tenant shall commit no act of waste. Tenant ------------------- shall not make any alterations or additions to the Demised Premises without Landlord's prior written consent. Landlord reserves the right to approve the contractor, subcontractor or other workmen who are to affect said alterations or additions, which approval shall not be unreasonably withheld. All alterations, additions, improvements and fixtures, other than trade fixtures, which may be installed by Tenant upon the Demised Premises and which in any manner are attached to the floor, walls or ceiling shall, upon the expiration or earlier termination of this Lease, become the property and be surrendered with the Demised Premises as a part thereof. Any linoleum or other floor covering which may be cemented or otherwise adhesively affixed to the floor shall likewise become the property of Landlord. Tenant agrees to keep the Demised Premises in good condition and repair, excepting repairs, which are the responsibility of the Landlord as set forth in 6.1 above. Structural changes, exterior alterations or additions to the Demised Premises may be made only with Landlord's written consent. Tenant shall, in the use and occupancy of the Demised Premises, at its sole cost and expense, promptly comply with all Rules and Regulations (Exhibit C) as well as laws and ordinances now in force or hereafter enacted by any governmental body or agency which may affect the Demised Premises by reason of Tenant's use and occupancy of same. If structural alterations of the Demised Premises or the Building become necessary as a result of such enactments and by reason of Tenant's use and occupancy of the Demised Premises or because Tenant has overloaded the floor or any facility, Tenant shall promptly make such structural alterations at its sole cost and expense after first obtaining Landlord's prior written approval of plans and specifications and furnishing such indemnification against liens, costs and damages as Landlord may reasonably require. Provided however, Tenant will have the right to install free-standing work station partitions without Landlord's consent, so long as no building or other governmental permit is required for their installation or relocation; however, if a permit is required, Landlord will not unreasonably withhold its consent to such relocation or installation. The freestanding work station partitions for which Tenants pays, will be part of Tenant's trade fixtures for all purposes under this Lease. All other partitions installed in the Demised Premises are and will remain property of the Landlord. Landlord shall not be liable for any damage to property of Tenant or of others located on the Demised Premises, nor for the loss of, or damage to, any property of Tenant or of others, by theft or otherwise. Landlord shall not be liable for any injury or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, water, rain or snow or leaks from any part of the Building or from the pipes, appliances or plumbing or from the roof, street or subsurface or from any others place or by dampness or by any other cause or whatsoever nature. Landlord shall not be liable for any such damage caused by other tenants or persons in the Demised Premises, occupants of adjacent property or the Building, or the public, or caused by operations in construction of any private, public or quasi-public work. Landlord shall not be liable for any latent defect in the Demised Premises or in the Building except for a period of one (1) year from the date Tenant takes possession of the Demised Premises. All property of Tenant kept or stored on the Demised Premises shall be so kept or stored at the risk of Tenant only and Tenant shall hold Landlord harmless from any 2 claim arising out of damage to the same, including subrogation claims by Tenant's insurance carrier, unless such damage shall be caused by the willful act or gross negligence of Landlord. 6.3 Access. Landlord and its agents and employees, and persons ------- authorized or approved by Landlord and its agents and employees, shall have the right, upon 24 hours written notice, to enter the Demised Premises (a) to make repairs and/or perform maintenance and service to or for the Demised Premises and (b) if necessary, upon reasonable notice, in Landlord's opinion, to make repairs, capital improvements and/or tenant improvements to space adjacent to the Demised Premises which adjacent space is not leased to Tenant under this Lease. Landlord shall use reasonable efforts to completed any inspections or work in or about the Demised Premises so as to minimize disturbance to Tenant's operations. 6.4 Roof. Tenant may not use the roof of the Building for any purpose ----- whatsoever without Landlord's prior written consent. Landlord agrees to permit Tenant to install Dish Network type satellite antenna receivers on the side of the building near the roof of the demised premises. Landlord shall be responsible for the maintenance and repair of the roof. However, if Tenant has actual knowledge of any condition requiring maintenance or repair by Landlord and Tenant shall fail to notify Landlord, Landlord shall not be liable to Tenant for any damage occasioned by that condition including, but not limited to, damage caused by plumbing, electrical, gas, water, steam or other utility pipes, systems and facilities or by the bursting, stopping, leaking or running of any tank, sprinkler, washstand, closet or waste or other pipes in or about the Demised Premises or the Building nor any damage occasioned by water being upon or coming through or around any roof, flashing, window, skylight, vent, odor, trapdoor or the like unless Landlord had actual knowledge of the condition causing such damage. Landlord shall not be liable for any damage caused solely by the acts or neglect of co-tenants, or other occupants of the Building, occupants of adjacent property or the public. 7. DAMAGE BY FIRE, ETC. -------------------- 7.1 Tenant to Give Notice. In case of any damage or destruction of the ---------------------- Demised Premises or any part thereof, Tenant will promptly give written notice thereof to Landlord, generally describing the nature and extent of damage or destruction. 7.2 Damage or Destruction. If the Demised Premises should be damaged ---------------------- by fire or other casualty covered by insurance carried by the Landlord, Landlord shall repair the same unless the Demised Premises and/or the Building should be damaged or destroyed: (1) by fire or other casualty covered by the insurance policies carried by the Landlord ( I ) to the extent of 50% or more of the replacement costs of either thereof, or (ii) to the extent that 50% or more of the leasable area contained in either thereof shall be rendered untenantable; (2) by any cause other than those covered by the aforesaid insurance policies; or (3) If more than 50% of the Demised Premises is destroyed at any time when there is less than one year remaining on the original term or any renewal term hereof; or (4) if the holder of any deed to secure debt shall require that the insurance proceeds arising from the damage or destruction be applied against the principal balance due on any loan encumbering the Property, Building, or Demised Premises; or (5) If more than 50% of the Demised Premises is destroyed at any time during which there is a default, not cured within any applicable cure period, of any of the terms, conditions, provisions or obligations contained herein on the part of the Tenant to be kept or performed; Then, in any such events, the Landlord may, at its option and its sole discretion, either terminate this Lease or elect to repair the Demised Premises, and the Landlord shall notify the Tenant as to its election within thirty (30) days after the settlement of the casualty loss with the insurer, or the occurrence of the damage in the event of an uninsured casualty. In addition if more than 50% of the Demised Premises is damaged or destroyed, Tenant shall have the Option of terminating this Lease. If Landlord or Tenant elects to terminate this Lease, then the term hereof shall end at the end of the calendar month in which such election is made. If neither Landlord nor Tenant elects to terminate this Lease, then the Landlord shall promptly commence restoration of such damage or destruction and this Lease shall continue and remain in full force and effect. 7.3 Rent Abatement. Tenant agrees during any period of reconstruction, --------------- restoration or repair of the Demised Premises and/or of the Building to continue the operation of its business in the Demised Premises to the extent reasonably practicable from the standpoint of good business. Provided Tenant is not then in monetary default of any of the terms, conditions, covenants or obligation contained herein on the part of Tenant to be kept or performed, the Monthly Installments set forth in Section 3.1 of the Lease shall be abated proportionately during any period in which, by reason of any such damage or destruction, there is substantial interference with the operation of the business of Tenant in the Demised Premises, having regard to the extent to which Tenant may be required to discontinue its business in the Demised Premises. Such abatement shall continue for the period commencing with such damage or destruction and shall end with the completion by the Landlord of such work or repair and/or construction as Landlord is obligated to do. If, however, such damage or destruction is caused by Tenant's intentional, wanton or willful act or omission, then and in that event the rent shall not abate. 7.4 Tenant's Fixtures, etc. Notwithstanding anything herein which is ----------------------- or may be construed to be to the contrary with respect to any obligation of Landlord to restore or repair the Building and/or Demised Premises, Landlord shall not be required to repair, replace or restore any of Tenant's fixtures, trade fixtures, supplies, inventory, merchandise, furnishings, decoration, signs or any other alterations, improvements or betterments to the Demised Premises made by Tenant, whether or not such alterations, improvements or betterments were made with the consent of the Landlord. 8. LANDLORD SERVICES ----------------- Provided Tenant shall not be in default under this Lease, Landlord agrees to provide to Tenant the following services: 3 A. Passenger elevator service in common with others. Tenant agrees not to use any elevators for other than passenger service during the hours of 7:00 AM through 6:00 PM, Monday through Friday ("Prime Time") and any furniture or equipment which Tenant needs to deliver to the Demised Premises utilizing the elevators will be delivered during other than Prime Time. B. Men's and women's restrooms situated on the floor on which the Demised Premises are located, together with hot and cold water for use in said restrooms. C. A clean, street level lobby, entrance way, elevator lobby, public corridor or other public portions of the Building for use in common with others. D. A Building Directory located in close proximity to the primary entrance of the Building listing Tenant's name and suite number. E. Electricity sufficient to fulfill the needs of a Tenant for ordinary general office use. F. Lighting and light bulbs or fluorescent lighting as is standard for general office use. G. Heating, ventilation and air-conditioning (HVAC) sufficient to provide, reasonable comfort for general office use. H. Janitorial service and refuse removal per Exhibit B - Monday through Friday only. I. Removal of snow and ice when necessary. If Landlord fails to provide any of the services required above, Tenant shall have the right to provide or arrange for the provision of such services and all expenses incurred by Tenant in connection with the provision of such services may be offset against Tenant's obligation to pay rent. If Tenant elects not to provide such services or is unable to obtain such services, and the lack of services prevents Tenant from conducting its operations from the Demised Premises, then rent shall abate for such period during which Services are not available. 9. ASSIGNMENT AND SUBLETTING ------------------------- 9.1 Assignment by Tenant. Tenant shall not assign, pledge, mortgage, -------------------- encumber or in any manner transfer this Lease or any interest herein or sublet the Demised Premises or any part thereof without the prior written consent of Landlord, which consent Landlord agrees will not be unreasonably withheld. Consent by Landlord to one or more assignments or sub-lettings shall not operate as a waiver of Landlord's rights as to any subsequent assignments and sub-lettings. Notwithstanding any assignment or subletting to which Landlord may consent, Tenant shall at all times remain primarily and fully responsible and liable for all payments herein specified and for compliance with all of Tenant's other obligations under this Lease. The term "sublet" shall be deemed to include the granting of licenses, concessions, and any other rights of occupancy of any portion of the Demised Premises. 9.2 Transfer by Landlord. In the event of the transfer and assignment -------------------- by Landlord of its interest in this Lease and in the Building to a person or entity expressly assuming the Landlord's obligations under this Lease, provided that such person or entity recognizes the validity of this lease and agrees that so long as there is not a default hereunder Tenant's rights under this Lease shall not be terminated, affected or disturbed., then Landlord shall thereby be released from any further responsibility hereunder upon written notification to Tenant of such transfer and/or assignment and providing Tenant of name and address of new Owner/Landlord. Tenant agrees to look solely to such successor in interest of the Landlord for performance of such obligations. Any security given by Tenant to Landlord to secure performance of Tenant's obligations hereunder will be assigned and transferred by Landlord to such successors in interest of Landlord; and, upon acknowledgment by such successor of receipt of such security and its express assumption of the obligation to account to Tenant for such security in accordance with the terms of this Lease, Landlord shall thereby be discharged of any further obligation relating thereto. 10. CONDEMNATION ------------ 10.1 Taking of the Demised Premises. If at least 30% of the Building of ------------------------------ which the Demised Premises are a part should be taken for any public or quasi-public use under any governmental law, ordinance or regulation or by right of eminent domain or by private purchase under threat thereof, and such taking substantially and materially interferes with the Tenant's use of the Demised Premises, Landlord and Tenant each shall have the right to terminate this Lease, and in such event, the Base Rent shall be abated during the un-expired portion of this Lease, effective on the earlier of (I) receipt of notice from the party electing to terminate or (ii) date physical possession is taken by the condemning authority. In the event the Lease is not terminated, the Base Rent or Adjusted Base Rent for the remaining portion of the then current lease term shall be abated according to the remaining amount of the useable square feet in the Demised Premises. 10.2 Taking of Common or Parking Areas. If any part of the common or --------------------------------- parking areas located on the Property should be taken for any public or quasi-public use under any governmental law, ordinance or regulation, this Lease shall not terminate, nor shall any rent or additional rents payable hereunder be reduced, nor shall Tenant be entitled to any part of the award made for such taking except that either Landlord or Tenant may terminate this Lease if access to the Demised Premises is substantially affected and if the parking area remaining following such taking plus any additional parking area provided by the Landlord in reasonable proximity to the Property shall be less than 50% of the parking area on the Property immediately prior to such taking. 10.3 Notice of Termination. Any election to terminate this Lease --------------------- following condemnation shall be evidenced by written notice of termination delivered to the other party within thirty - (30)- days after that date on which physical possession is taken by the condemning authority. 10.4 Awards. All compensation shall be allocated between Landlord and ------ Tenant based on the condemning authorities allocation of the award between the Landlord's or Tenant's interest in the Demised Premises. Landlord shall have no interest in any award made to Tenant for loss of business, relocation of Tenant's business or for the taking of Tenant's fixtures and personal 4 property within the Demised Premises if a separate award for such items is made to Tenant. 11. DEFAULT, EVENTS and REMEDIES ---------------------------- 11.1 Events of Default. The occurrence of any one of the following ----------------- events shall constitute a default of this Lease by Tenant: A. Failure of Tenant to make any payment of Base Rent, Late Charges, Penalty Interest payments, . or any other required payment when due. B. Failure of Tenant to comply with any provision of this Lease other than payment of rent, with such failure continuing for thirty (30) days after mailing of written notice by Landlord to Tenant specifying the nature of non-compliance by Tenant with reasonable particularity provided. However, if the nature of Tenant's default is such that more than thirty (30) days are reasonably required for its cure, Tenant shall not be in default if Tenant immediately commences or has commenced such cure and thereafter diligently proceeds to cure such default. C. The making of an assignment or general arrangement for the benefit of creditors by Tenant or any guarantor of Tenant's obligations under the Lease. D. The filing by Tenant or any guarantor of Tenant's obligations under this Lease of a petition under any section or chapter of the present Federal Bankruptcy Act or amendment thereto. Or, the failure of the dismissal, within 30 days after the filing of an involuntary petition of bankruptcy or insolvency against Tenant or guarantor of Tenant's obligations. E. The appointment of a receiver or trustee for all or substantially all the assets of Tenant or any guarantor of Tenant's obligations under this Lease. F. The attachment, execution or other judicial seizure of substantially all of Tenant's assets located in the Premises or of Tenant's interest in this Lease where such seizure is not discharged within thirty (30) days. 11.2 Remedies in Event of Default. Upon the occurrence of any Event of ---------------------------- Default, Landlord shall have the option to do any one or more of the following without any notice or demand. A. Termination of Lease. Terminate this Lease, in which event -------------------- Tenant shall immediately surrender the Demised Premises to Landlord. If Tenant shall fail to do so, Landlord may without notice and prejudice to any other remedy available, enter and take possession of the Premises and remove Tenant or anyone occupying the Demised Premises and its effects without being liable to prosecution or any claim for damages. Tenant shall indemnify Landlord for all loss and damage suffered by Landlord because of such termination whether through inability to re-let the Demised Premises or otherwise, including any loss of rent for the remainder of the term of this Lease. If Landlord elects to terminate this Lease, Tenant's liability to Landlord for damages shall survive such termination. Landlord shall use commercially reasonable efforts to relet the Premises. B. Acceleration of Rent. Declare the entire amount of all rent -------------------- past due as well as the net present value of that which would have become due and payable during the remainder of the term of this Lease to be due and payable immediately. In this event, Tenant shall pay the same to Landlord immediately. Such payment shall constitute payment of past due rent and payment in advance of the rent stipulated for the remainder of the Lease term. Acceptance by Landlord of the payment of such rent shall not constitute a waiver of any then existing default occurring thereafter. C. Re-let Premises. Enter upon and take possession of the Demised --------------- Premises as agent of Tenant without terminating this Lease and without being liable to prosecution or any claim for damages. Landlord may re-let the Demised Premises and in that connection may make any suitable alterations or refurbish the Demised Premises, or both, or change the character or use of the Demised Premises. Landlord shall not be required to re-let for any use or purpose other than that specified in this Lease or which Landlord may reasonably consider injurious to the Demised Premises, or to any tenant, which Landlord may consider objectionable. Landlord may re-let all or any portion of the Demised Premises alone or in conjunction with other portions of the Building for a term longer or shorter than the term of this Lease at a rental rate greater or less than the then current rental rate provided in this Lease and upon such other terms (including the granting of concessions) as Landlord solely determines to be acceptable. If Landlord elects to reenter and re-let all or any portion of the Demised Premises, Landlord shall be entitled to recover as damages immediately, without waiting until the due date of any future rent, or until the date fixed for expiration of this Lease, the total net present value of all rent owed and unpaid as of the date of the default. The Landlord can also recover the costs of reentry and re-letting including without limitation the cost of any cleanup, refurbishing, removal of Tenant's property and fixtures, expenses from Tenant's failure to quit the Demised Premises and to leave them in the required condition, any remodeling costs, attorneys' fees, court costs, brokers' commissions, advertising costs, and the difference between the rent and all of Tenant's other obligations under this Lease and the actual rent received by Landlord from the Demised Premises for the period commencing with the date of the default and continuing through the date designated as the expiration date of this Lease, provided that broker's commissions and improvements made to relet the Premise will only be chargeable to Tenant for those portions attributable to the remainder of the Term. For example, if Landlord makes $100,000 of improvements and leases the Demised Premises for 5 years when there is one year left on the Term, Tenant would be responsible for $20,000 of improvements. No such reentry or taking possession of the Demised Premises shall be construed as an election on Landlord's part to terminate this Lease unless a written notice of such intention is given to Tenant. Landlord, however, shall have no duty to re-let the Demised Premises and Landlord's failure to do so shall not release Tenant's liability for rent or damages. If Landlord elects to enter and re-let the Demised Premises, the Landlord may at any time thereafter elect to terminate this Lease for Tenant's default. If Landlord takes possession of the Demised Premises, Landlord shall have the right to rent any other available space in the Building before re-letting or attempting to re-let the Demised Premises. D. Landlord's Right to Perform. Do whatever Tenant is obligated to --------------------------- do by provisions of this Lease and may enter the Demised Premises without being liable to prosecution or claim for damages in order to accomplish this purpose. Tenant shall reimburse Landlord immediately upon demand for any expenses, which Landlord may incur in complying with the terms of 5 this Lease on behalf of Tenant. Landlord shall not be liable for any damages to Tenant from such action, whether caused by negligence of Landlord or otherwise. E Right to Sue More Than Once. Sue periodically to recover damages --------------------------- during the period corresponding to the remainder of the term of this Lease, and no action for damages shall bar a later action for damages subsequently accruing. F. Remedies Cumulative. The remedies, as set forth and available ------------------- to Landlord because of the default of Tenant, shall be in addition to and shall not exclude any other remedy available to Landlord under this Lease or applicable law. 11.3 Waiver of Redemption Rights. Tenant for itself and on behalf of --------------------------- any and all persons claiming through or under it, including creditors of all kinds, does hereby waive and surrender all right and privilege which they or any of them might have under or by reason of any present or future law, to redeem the Demised Premises or to have a continuance of this Lease for its remaining term after having been dispossessed or ejected from the Demised Premises by process of law or under the terms of this Lease or after the termination of this Lease as herein provided. 11.4 Additional Rights Of Landlord. In the event of a breach or ----------------------------- threatened breach by Tenant of any of its obligations under this Lease, Landlord shall also have the right to obtain an injunction. The remedies to which Landlord may resort under this Lease are cumulative and are not intended to be exclusive of any other remedies to which Landlord may be lawfully entitled at any time. Landlord may invoke any remedies allowed at law or in equity as if specific remedies were not provided for herein. If this Lease shall terminate under or pursuant to Section 11.2, or if Landlord shall re-enter the Demised Premises under the provisions of this clause, or in the event of the termination of this Lease, or of re-entry by or under any summary dispossess or other proceeding or action or any provision of law by reason of Tenant's default, Landlord shall be entitled to retain all monies, if any, paid by Tenant to Landlord, whether as advance rent, security, or otherwise. But such monies shall be credited by Landlord against any Rent, due from Tenant at the time of such termination or re-entry or, at Landlord's option, against any damages payable by Tenant under this clause or pursuant to law. 12. Intentionally Deleted --------------------- 13. Intentionally Deleted --------------------- 14. COMMON AREAS ------------ 14.1 Parking and Access. Landlord agrees to cause to be provided, operated, ------------------ managed and maintained during the term of this Lease, parking areas adjacent to the Building. The manner in which such areas and facilities shall be maintained and operated and the expenditures therefore shall be at the sole discretion of the Landlord, and the use of such areas and facilities shall be subject to such reasonable regulations as Landlord shall make from time to time. Landlord hereby grants to Tenant, its employees, agents, customers and invitees the non-exclusive right to use the parking and other common areas as from time to time constituted, such use to be in common with Landlord, Landlord's licensees and all other tenants and occupants of the Building, from time to time, its and their employees, agents, customers and invitees, except when the same are being repaired, altered or constructed. Tenant shall neither charge nor pay for parking except as noted in the next two sentences following. Tenant and its employees shall park their automobiles only in those portions of the common areas and parking lots, as may be designated from time to time for that purpose by Landlord. Tenant shall be entitled to a minimum of thirty (30) parking spaces for its employers and invitees. Tenant shall upon notice from Landlord, furnish Landlord with license numbers of any and all employees of Tenant within five days after taking possession of the Demised Premises and of new employees within five days after such new employee begins work for Tenant. Landlord may charge and assess Tenant $10.00 per day for any automobile owned or operated by any employee of Tenant parked in an area not designated for employee parking, and Landlord may, if such unauthorized parking occurs more than 3 times with respect to any particular automobile, have such automobile removed from the property at Tenant's expense, such unauthorized parking and violations of the terms of this Lease and the Rules and Regulations being deemed a "trespass", without any liability to Landlord. Landlord may at any time close temporarily any common area to make repairs or changes, to prevent the acquisition of public rights in such areas or to discourage non-customer parking; and may do such other acts in and to the common areas as in its judgment may be desirable to improve the long-term convenience and security of the Tenants of the Building. Landlord shall have the reasonable right to limit access to the parking and common areas and shall have the right to erect barriers that can be passed or removed by use of a card or other identification system. During the term of this Lease, Landlord shall have the right to designate and relocate visitor parking areas, employee parking areas, and handicapped parking areas and other restricted parking areas periodically, all at Landlord's sole discretion. 14.2 Building Access. Landlord shall, throughout the term of this Lease, --------------- and so long as Tenant is not in default under this Lease, insure 24 hour access to the Building and the Demised Premises to Tenant, its employees and invitees,. The common areas within the Building shall be freely accessible during all Normal Business Hours and 24 hour access to the Building during Non-Business Hours and days shall provided to Tenant in accordance with security procedures currently in place at the Demised Premises. 15. INSURANCE, INDEMNITY AND SUBROGATION ------------------------------------- 15.1 Landlord Insurance Landlord may maintain insurance against such perils ------------------ and in such amounts as Landlord may determine consistent with coverage which is now, or may in the future be, considered prudent for similar income producing property situated in the same general geographic area as the Building or which any mortgagee or creditor of Landlord requires 6 Landlord to carry. The named insured on all policies of insurance maintained by Landlord shall be the Landlord and, if required, any mortgagee or creditor of Landlord. The cost of all insurance maintained by Landlord shall be Landlord's responsibility and liability unless otherwise specifically set forth herein. 15.2 Tenant's Insurance During the term of this Lease, Tenant shall ------------------ provide Landlord with evidence, in a form and amount reasonably acceptable to Landlord, of insurance coverage in effect with respect to the Demised Premises against such perils and in such amounts as Landlord shall from time to time reasonably request in writing. All insurance policies provided and maintained by Tenant in compliance with Landlord's request shall be issued in a form and by an insurer reasonably acceptable to Landlord and shall, in addition to Tenant, name as additional insured, Landlord, Agent and any other person or entity having an interest in the Building or land upon which it is situated whose name is furnished to Tenant by Landlord and, if applicable, their respective constituent general partners and/or officers, directors and shareholders. All policies of insurance maintained by Tenant shall require at least thirty (30) days prior written notice to Landlord of termination, lapse of coverage or material alteration; and waive, to the extent reasonably available, any right of recovery or subrogation against Landlord. If requested by Landlord, Tenant shall, upon the Commencement Date of this Lease and thereafter within thirty- (30)- days prior to the expiration of each such policy, promptly deliver to Landlord certified copies or other evidence of such policies and evidence satisfactory to Landlord that all premiums have been paid and all policies are in effect. If Tenant fails to secure or maintain any insurance coverage required by Landlord or should insurance secured not be approved by Landlord and such failure or approval not be corrected within forty-eight (48) hours after written notice from Landlord, Landlord may, in Landlord's sole discretion, purchase such insurance coverage required at Tenant's expense and Tenant shall, immediately upon demand from Landlord, reimburse Landlord for any monies expended. Tenant shall indemnify and hold harmless Landlord from all loss, claim, demand, damage, liability, or expense, including attorneys' fees, resulting from any injury to or death of any person or any loss of or damage to any property caused by or resulting from any act, omission, or negligence of Tenant or any officer, employee, agent, contractor, licensee, guest, invitee, or visitor of Tenant in or about the Demised Premises or the Building. The foregoing provision shall not be construed to make Tenant responsible for loss, damage, liability or expense resulting from injuries to third parties caused by any act, omission or negligence of Landlord or of any officer, employee, agent contractor, invitee or visitor of Landlord. Landlord shall not be liable for any loss or damage to person, property or Tenant's business sustained by Tenant, or other persons, which may be caused by the Building or the Premises, or any appurtenances thereto, being out of repair or by the bursting or leakage of any water, gas, sewer, or steam pipe, or by theft, or by any act of neglect of any tenant or occupant of the Building, or of any other person, or by any other cause whatsoever, unless caused by the negligence of Landlord. Tenant shall indemnify and hold harmless and pay on behalf of Landlord all loss claims, demands, expenses and judgments against Landlord caused by or arising out of, directly or indirectly: (a) the performance of this agreement by Tenant, (b) the Tenant's occupancy or use of the Building or Demised Premises, (c) any business or operations of Tenant and (d) any matter or thing done, permitted or omitted to be done by Tenant, its agents, employees, contractors, licensees, or invitees, whether occasioned by negligence or otherwise. Tenant's agreement to hold harmless and pay on behalf of Landlord shall extend to all loss, claims, demands, and expenses by reason of improper or faulty erection or construction of facilities, trade fixtures, or equipment installed on or in the Premises by Tenant. 15.3 Waiver of Recovery. Regardless of fault or negligence, Landlord ------------------ and Tenant hereby waive and release any claim arising in favor of one against the other, or anyone claiming through either of them (including any insurance company insuring either of them for any loss) by way of subrogation or otherwise, for any loss of or damage to any property of either which loss or damage is recovered under any such insurance policies. Said waiver shall be in addition to any other waiver or release contained in this Lease with regard to loss or damage to property of either. Landlord and Tenant shall request its insurers to consent to such waiver and agree to waive all rights of subrogation against the other party. If the insurer shall impose a fee for consenting to such waiver, the party benefiting shall pay the cost imposed. 16. EXCULPATION OF LANDLORD: Landlord's and Agent's obligations and liability to ----------------------- Tenant with respect to this Lease shall be limited solely to Landlord's and Agent's interest in the Building and the land there under, and neither Landlord nor Agent, nor any officer, director, shareholder or employee of Landlord or Agent shall have any personal liability whatsoever with respect to this Lease. 17. FORCE MAJEURE: Both parties shall be excused for the period of any delay and ------------- shall not be deemed in default with respect to the performance of any of the non-monetary terms, covenants, and conditions of this Lease when prevented from so doing by a cause or causes beyond their reasonable control, which shall include, without limitation, all labor disputes, governmental regulations or controls, fire or other casualty, inability to obtain any material or services, and acts of God. 18. SUBORDINATION AND ATTORNMENT: This Lease and all rights of Tenant hereunder ---------------------------- are and shall be subject and subordinate to any mortgage, deed to secure debt, deed of trust, or other instrument in the nature thereof (herein called "Security Deed") which may now or hereafter affect Landlord's fee title to the Demised Premises and/or Building. If the holder of any such Security Deed shall hereafter succeed to the rights of Landlord under this Lease, whether through possession or foreclosure action or delivery of a new lease, Tenant shall, at the request of such holder, attorn to and recognize such successor as Tenant's landlord under this Lease and shall promptly execute and deliver any instrument that may be necessary to evidence such attornment provided that such successor recognizes the validity of this lease and agrees that Tenant's rights hereunder shall not be disturbed so long as Tenant is not in default hereunder. In the event Landlord refinances the Building, Tenant agrees to execute any Subordination, Non-disturbance and Attornment Agreement reasonably requested by Landlord or its mortgagee 7 provided that such Agreement states that Tenant's rights under this lease shall not be disturbed so long as Tenant is not in default hereunder. 19. COVENANT OF QUIET ENJOYMENT Landlord has the right to enter into this Lease; --------------------------- and that Tenant, upon timely payment of the rents reserved and performance of each term and condition contained in this Lease, shall at all times during the Lease term and any extension or renewal, so long as Tenant is not in default under the Lease, peaceably and quietly enjoy the Leased Premises and the rights in the common areas of the property upon which the Building is located and which are granted in this Lease without any disturbance from Landlord or any person claiming by, through or under Landlord. It is understood, acknowledged and agreed by Tenant that Landlord and/or affiliates of Landlord are, or shall be, constructing and building other office buildings in close proximity to the Building and Tenant is aware of, and acknowledges that, there may be noise and some inconvenience with respect to the ongoing construction and agrees (a) not to hold Landlord liable therefore, (b) not to withhold rents, (c) not to vacate the Demised Premises and (d) not to bring any action against Landlord seeking to terminate this Lease or otherwise modify or amend this Lease as a result thereof. 20. AGENT Agent has acted, is acting and will act, as agent for Landlord in this ----- transaction and is to be paid by Landlord. Agent has not acted as agent in this transaction for Lessee. The Officers of Agent are licensed real estate agents in the Commonwealth of Pennsylvania. 21. END OF TERM. At the expiration or earlier termination of this Lease, Tenant ----------- will promptly quit and surrender the Demised Premises, in good order and repair, ordinary wear and tear excepted. If Tenant is not then in default, Tenant may remove from the Demised Premises any trade fixtures, equipment and movable furniture placed in the Demised Premises by Tenant, whether or not such are fastened to the Building. Tenant will not remove any trade fixtures or equipment without Landlord's prior written consent if such fixtures or equipment are used in the operation of the Building or if the removal as such will result in impairing the structural strength of the Building. Whether or not Tenant is in default, Tenant will remove such alterations, additions, improvements, trade fixtures, equipment and furniture as Landlord has requested. Tenant will fully repair any damage occasioned by the removal of any trade fixtures, equipment, furniture, alterations, additions and improvements. All trade fixtures, equipment, furniture, inventory, effects, alterations, additions and improvements on the Demised Premises after the end of the term of this Lease or earlier termination will be deemed conclusively to have been abandoned and may be appropriated, sold, stored, destroyed or otherwise disposed of by landlord without written notice to Tenant or liability therefore. Tenant shall pay Landlord for all expenses incurred in connection with the removal of such property. Tenant's obligations and liability under this Section shall survive the expiration or earlier termination of this Lease. 22. MISCELLANEOUS ------------- A. Right to Relocate. In the event the Demised Premises are less than ----------------- 1,500 square feet in area, Landlord reserves the right, at its option and upon giving thirty (30) days notice in advance to Tenant, to transfer and remove Tenant from the Demised Premises to any other available offices in the Building of equal size and area. Landlord shall bear the expense of said removal as well as the expense of any renovations or alterations necessary to make the new space similar in arrangement and lay-out with the space covered by this Lease. B. Light and Air. No easement for light or air is included in this -------------- Lease. C. Laws. The laws of the State of Pennsylvania shall govern the ----- interpretation, validity and enforcement of this Lease. If any provision of this Lease should be held to be invalid or unenforceable, the validity and enforceability of the remaining provisions of this Lease shall not be affected thereby. D. No Estate in Land. This Lease shall create the relationship of ----------------- Landlord and Tenant between Landlord and Tenant; no estate shall pass out of Landlord; Tenant has only a usufruct, not subject to levy and sale, and not assignable by Tenant except as provided in Section 9.1 hereof. E. Holding Over. If Tenant remains in possession of the Demised ------------ Premises after expiration of the term hereof, with Landlord's acquiescence and without any express agreement of the parties, there shall be no renewal of this Lease by operation of law and such acquiescence by Landlord shall not be deemed to establish a rental rate to be in effect at the expiration of the term hereof. Tenant agrees that no later than ten (10) days after written notice from Landlord to terminate such holding over and remove or cause to be removed all persons and property from the Demised Premises and the Building and peaceably relinquish possession of the Demised Premises to the Landlord. Should Tenant elect not to renew said Lease, then rental amount during any period of holding over shall be 150% of the rental effective at the expiration or termination of the term of the Lease. F. Attorneys Fees. In the event of any Base Rent, Adjusted Base Rent, -------------- Tenant's Additional Tax Payments or other additional rent or other charges due and owing under this Lease are collected by or through an attorney at law or in the event that Landlord, in order to obtain enforcement of any of the provisions of this Lease, finds it necessary to retain the services of an attorney at law, then in either of such events Tenant agrees to pay all attorneys fees and all costs arising out of or connected with said collection or enforcement. G. Rights Cumulative. All rights, powers and privileges conferred ------------------ hereunder upon parties hereto shall be cumulative to those given by law. H. Waiver of Rights. No failure of Landlord to exercise any rights ---------------- provided to Landlord hereunder, or to insist upon strict compliance by Tenant with his obligation hereunder, and no custom or practice of the parties at variance with the terms hereof shall constitute a waiver of Landlord's right to demand exact compliance with the terms hereof. 8 I. Time. TIME IS OF THE ESSENCE WITH RESPECT TO THIS ENTIRE LEASE. ----- J. Bill and Notices. Unless otherwise in this Lease provided, any bill, ---------------- statement, notice or communication which Landlord may desire or be required to give to Tenant, including any notice of expiration shall be deemed sufficiently given or rendered if in writing delivered to Tenant personally, or left at the Demised Premises addressed to Tenant, or sent by Registered or Certified Mail addressed to Tenant at the Demised Premises, or sent or delivered to any other address which Tenant, from time to time designates in writing to Landlord and notice of which is given to Landlord. The time of the rendition of such bill or statement, or the giving of such notice or communication shall be deemed to be the time when the same is delivered to Tenant, or left at the Demised Premises or other address designated by Tenant as provided above, or sent by Registered or Certified Mail addressed to Tenant at the Demised Premises or other address as Tenant may, from time to time, designate in writing. Any notice by Tenant to Landlord must be sent by Registered or Certified Mail addressed to Landlord at the address where the last previous rental hereunder was paid or such other address as Landlord may, from time to time, designate in writing. To Landlord: Tierra Realty Management Stonewood Commons I, Suite 200 101 Bradford Road Wexford, PA 15090 To Tenant: Sonic Foundry 12300 Perry Highway Suite 100/ 1/st/ Floor Wexford, PA. 15090 c/c Sonic Foundry c/o General Counsel 1617 Sherman Avenue Madison, WI. 53704 L. Section Titles. The Section titles are inserted only as a matter of --------------- convenience and for reference, and in no way define, limit or describe the scope or intent of this Lease nor in any way affect this Lease. M. Parties. The conditions, covenants and agreements in the aforesaid ------- Lease contained, to be kept and performed by the parties hereto, shall be binding upon and insure to the benefit of said respective parties, their legal representatives, successors and assigns. This clause shall not be construed to permit any assignment or subletting, unless otherwise permitted in this Lease without Landlord's consent. N. Short Form Lease. The parties hereto agree to execute a short form ---------------- of this Lease, which shall be recorded upon request by either party. In the event of any conflict, inconsistency or ambiguity between the provisions of this Lease and the provisions of the short form lease, the provisions of this Lease shall be deemed controlling. O. Posting. Tenant agrees that for a period of three (3) months ------- prior to the expiration of this Lease or any renewal thereof, Landlord shall have the right to display on the exterior of the Demised Premises but not in any window or doorway thereof, signs or evidence that the Demised Premises are, or will be, available for lease, and that during such period Landlord may show the Demised Premises and all parts thereof to prospective Tenants between the hours of 10:00 a.m. and 5:00 p.m. on any day except Sunday and any legal holiday on which Tenant does not conduct business. P. Liens. In the event that any mechanics or other liens are filed ------ against any portion of the Property by reason of Tenant's acts or omissions or because of a claim against Tenant, Tenant shall cause same to be canceled and discharged of record by bond or otherwise within ten (10) days after notice. Q Certificate. Tenant shall, from time to time, as requested by ----------- Landlord, execute and deliver to Landlord a written, certified statement in recordable form: (I) ratifying this Lease; (ii) confirming the commencement and expiration dates of the term of this Lease; (iii) certifying that the Tenant is in occupancy of the Demised Premises, the date Tenant commenced operating the Tenant's business therein and that this Lease is in full force and effect and has not been assigned, modified, supplemented, or amended, except by such writings as shall be set forth in such statement; (iv) that all conditions under this Lease to be performed by the Landlord have been fulfilled, except as set forth in such statement; (v) that there are no defenses or offsets against the enforcement of this Lease by Landlord, stating those claimed by Tenant; (vi) reciting the amount of advance rental, if any, paid by Tenant and the date to which rent and all other sums, charges and fees have been paid by Tenant; (vii) reciting the amount of the security deposit, if any; and (viii) and such other information and facts as the Landlord may reasonably request. Tenant further agrees to execute and deliver similar declarations from time to time as and when requested by the Landlord, Landlord's mortgage lenders, and/or any prospective purchasers, and each of such parties shall be entitled to rely upon such written declaration made by Tenant. Failure to respond within 15 days to any written request from Landlord for such certificate shall be deemed a default by Tenant under this Lease and give rise to all Landlord's rights and remedies as contained in this Lease. R. Indemnity. Tenant shall indemnify and save harmless Landlord from --------- and against any and all loss, cost (including attorneys fees), damage, expense and liability in connection with any and all claims for damages as a result of injury or death of any person or property damage to any property sustained by Tenant, its partners, customers, invitees, agents, employees, contractors and subcontractors and all other persons including Landlord, Agent, and their agents and employees if such injury, death or property damage arises from or in any manner grows out of any act of neglect on or about the Demised Premises by Tenant, its partners, agents, employees, customers, invitees, contractors or subcontractors or which arise from or in any manner 9 grow out of any defect in any undertaking hereunder by Tenant or any failure of Tenant to comply with the provisions of this Lease. Landlord shall indemnify and save harmless Tenant from and against any and all loss, cost (including attorneys fees), damage, expense and liability in connection with any and all claims for damages as a result of injury or death of any person or property damage to any property sustained by Tenant, its partners, customers, invitees, agents, employees, contractors and subcontractors and all other persons including Tenant, and its employees if such injury, death or property damage arises from or in any manner grows out of any act of neglect on or about the Demised Premises by Landlord, its partners, agents, employees, customers, invitees, contractors or subcontractors or which arise from or in any manner grow out of any defect in any undertaking hereunder by Landlord or any failure of Landlord to comply with the provisions of this Lease. S. No Construction Against Drafting Party. Landlord and Tenant -------------------------------------- acknowledge that each of them and their counsel have had an opportunity to review this Lease and fully and completely negotiate all clauses and Sections herein and this Lease will not be construed against Landlord merely because Landlord has prepared it. 10 T. Limited Time Offer. This Lease is submitted to Tenant on the understanding that it is considered an offer to lease on the express terms and conditions contained herein, which offer shall automatically be deemed withdrawn by Landlord unless two fully executed copies (including two executed copies of the Guaranty Agreement, if applicable) are delivered to Landlord within seven (7) days of the Lease Date set forth on the first page hereof. U. Written Amendment Required. No amendment, alteration, modification -------------------------- of, or addition to this Lease, except for Rules and Regulations which Landlord may, from time to time, amend without consent of Tenant, shall be valid or binding unless expressed in writing and signed by Landlord and Tenant. Notwithstanding, Tenant agrees to execute any modifications or amendments to this Lease required or requested by any lending institution providing financing for the Building, provided no such modification or amendment will materially adversely affect Tenant's rights and obligations under this Lease. V. Authority. Tenant, and the party executing this Lease on behalf of --------- Tenant, represent to Landlord that such party is authorized to do so by Tenant and agree to deliver to Landlord, if requested, evidence of such authority. W. Agent. Tenant understands and acknowledges that TIERRA REALTY ----- MANAGEMENT, INC. Is Agent, and manages the Property for, Landlord and any and all payments [payable to " Stonewood East "] and notices provided for -------------- hereinunder should be sent and/or directed to TIERRA REALTY MANAGEMENT, INC. at Suite 200, Stonewood Commons One, 101 Bradford Road, Wexford, Pa. 15090 with a - ----------------------------------------------------------------------- phone number of 724-934-0522 and a facsimile / fax number of 724-934-0441. IN WITNESS WHEREOF, the parties herein have hereunto set their hands. Witness Landlord - Stonewood East Partners /s/ John C. Baun --------------------------------------- By: John C. Baun, General Partner Date: 1-13-02 ------- Witness Tenant - Sonic Foundry Media Systems, Inc. /s/ /s/ Rimas Buinevicius - ------------------------- --------------------------------------- By: Rimas Buinevicius CEO Rimas P. Buinevicius --------------------------------------- Print Name and Title Date: 1-11-02 ------- See attached Guaranty of Lease to which the undersigned {CoManage} agrees to be bound". /s/ CoManage Corporation - ----------------------------------------- CoManage Corporation, A Delaware Corporation 11 EXHIBIT C RULES & REGULATIONS Reference is made to Paragraph 4.5 of the within Lease. Pursuant thereto, LANDLORD and TENANT hereby covenant and agree that the following Rules and Regulations are necessary and proper for the general care, safety, cleanliness and proper maintenance of the Leased Premises, the Building and the common areas of the same; that the same shall be faithfully kept, observed and performed by Tenant, its employees, agents and invitees. DEFINITIONS Wherever in these Rules and Regulations the word "Tenant" is used, it shall be taken to apply to and include the Tenant and his agents, employees, invitees, licensees, subtenants and contractors, and is to be deemed of such number and gender as the circumstances require. The words "room" and "Premises" are to be taken to mean and include the space covered by this Lease. The word "Landlord" shall be taken to include the employees and agents of Landlord. I.PHYSICAL FACILITIES 1. The sidewalks entry passages, corridors, halls, elevators, if any, and stairways shall not be obstructed by Tenant, or used by them for any purpose other than those of ingress and egress. The floors, skylights and windows that reflect or admit light into any place in said Building, shall not be covered or obstructed by Tenant. The water closets, toilets, bathroom facilities and other water apparatus shall not be used for any other purpose than those for which they were constructed, and no sweeping, rubbish, or other obstructing substances shall be thrown therein. 2. Landlord will furnish each tenant, free of charge, with two keys to each door provided in the premises by Landlord. Landlord may make a reasonable charge for additional keys. No tenant shall have any such keys copied. No tenant shall alter any lock or install a new or additional lock or any bolt on any door of its premises without written approval of Landlord. Each tenant, upon the termination of its lease, shall deliver to Landlord all keys to doors in the building. 3. All glass, locks and trimmings in or upon the doors and windows of the Building shall not be broken, the same shall be kept whole and when any part thereof shall be broken, the same shall be immediately replaced or repaired and put in order by the Landlord at Tenant's expense. Tenant shall not injure, overload or deface the Building, the woodwork or the walls of the Demised Premises, nor carry on upon the Demised Premises any noisesome, noxious, noisy or offensive business. 4. Safes, furniture, boxes, or other bulky articles shall be carried up into the Demised Premises or removed there from only with the prior written consent of the Landlord, and then only by means of the elevators, if any, by the stairways of said Building as the Landlord may in writing direct, and at such times in such manner and by such persons as the Landlord may direct. Safes and other heavy articles shall be placed by the Tenant in such places only as may be specified in writing by the Landlord, and any damage done to the Building or to tenants, or to other persons by taking a safe or other heavy article in or out of the Demised Premises, from overloading a floor, or in any other manner shall be paid for by the Tenant. 5. If Tenants require wiring for a bell, intercom or buzzer system, such wiring shall be done by an electrician approved by Landlord only, and no other electricians shall be allowed to do such electrical work except upon the prior written permission of Landlord, or its representatives. The wiring for telephone, fax machines, computer internet hook-ups, computer networking or other such communication facilities shall be done as directed by an electrician approved by Landlord, and no boring or cutting for wiring shall be done unless approved by Landlord or its representatives, as stated. The electric current provided by Landlord shall be used for ordinary lighting purposes, and small electrical appliances, desktop computers and servers and devises not requiring extraordinary power, unless written permission to do otherwise shall first have been obtained from Landlord, or its representative, and at an agreed cost to Tenant. 6. Landlord and Agent shall have the right to enter the Demised Premises at all reasonable hours for the 12 purpose of making any repairs, alterations or additions which he or they shall deem necessary for the safety, preservation, or improvement of said Building, and the Landlord and Agent shall be allowed to make such repairs, improvements and additions, or any alterations for the benefit of the Tenant without in any way being deemed or held guilty of trespass or eviction of the Tenant; and the rent reserved shall not abate while said repairs, alterations, or additions are being made; and the Tenant shall not be entitled to maintain a set off or counterclaim for damages against the Landlord by reason or loss or interruption to the business of the Tenant because of the prosecution of any such work. All such repairs, decorations, additions and improvements shall be done during ordinary business hours, or if any such work is at the request of the Tenant to be done during any other hours, the Tenant shall pay for all overtime costs. 7. No sign, placard, picture, name, advertisement or notice visible from the exterior of any tenant's premises shall be inscribed, painted, affixed or otherwise displayed by any tenant on any part of the building without the prior written consent of Landlord. Landlord will adopt and furnish to tenant general guidelines relating to signs inside the building. Tenant agrees to conform to such guidelines. All approved signs or lettering on doors shall be printed, painted, affixed or inscribed at the expense of Tenant by a person approved by Landlord. Material visible from outside the building will not be permitted. Tenant shall be permitted to install its name in lettering on the current sign outside the building and on the entrance doors to the Demised Premises. 8. Roof; Walls: LANDLORD reserves the exclusive control of the roof and exterior walls of the Building. TENANT shall not install a radio, TV antenna, loudspeaker, searchlight, microwave dish, solar device, or similar facility on the roof or exterior walls of the Building. Tenant shall have the right to install a small dish-type antenna on the building to receive satellite television signals. II.USE 9. No animals, birds, bicycles, motorbikes, motorcycles or other vehicles shall be allowed in the offices, halls, corridors, elevators or elsewhere in the building. 10. Tenant shall not (without the Landlord's written consent) put up or operate any steam engine, boiler, machinery or stove upon the Demised Premises, or carry on any mechanical business thereon, or do any cooking thereon or use or allow to be used upon the Demised Premises oil, burning fluids, camphene, gasoline or kerosene for heating, warming or lighting. No article deemed extra hazardous on account of fire and no explosives and no firearms shall be brought in said Demised Premises. No offensive gases or liquids will be permitted. Any firearm violation will be deemed a serious offense and cause for immediate termination of lease. 11. Canvassing, soliciting, distribution of handbills or any other written material and peddling in the building are prohibited, and each tenant shall cooperate to prevent the same. 12. The buildings are non-smoking buildings. Smoking is prohibited in the buildings (offices, hallways, stairwells and corridors). Tenants and their visitors will be responsible for proper disposal of tobacco products. 13. Trash Disposal: Each Tenant shall store all its trash and refuse within its premises in containers approved by Landlord. All trash and refuse disposal shall be made only through entryways and elevators provided for such purposes and at such times as Landlord shall designate. No materials shall be placed in the hallways or in trash receptacles if such materials are of such nature that they may not be disposed of in the ordinary and customary manner of removing such trash or refuse material in accordance with local ordinances and requirements or with those of the contract carrier accepting such trash or refuse. Tenant shall not be permitted to dispose of any more trash during a business day than is generated during a normal business day. If Tenant has any excess trash removal or disposal beyond the amount generated during a normal business day, for example, large items such as file cabinets, the Tenant shall arrange for its removal. Tenant shall not deposit any trash in the dumpster servicing the Building without prior notice to Landlord. TENANT agrees not to dispose any hazardous, medical, or contaminated waste in wastebaskets to be emptied by Landlord. Further, Tenant is responsible for removal and proper disposal of all hazardous, medical, or contaminated waste, as may be created on said premises by Tenant or as a result of Tenant's business or profession, in accordance with all applicable laws and ordinances. Recycling of refuse trash is necessary, therefore Tenant agrees to cooperate with Landlord in whatever means necessary to comply with all laws, ordinances, rules, and regulations in effect now or which may come into effect during the duration of the Lease. If Tenant fails to comply with accepted recycling practices, Landlord may, at its option, take steps necessary to assure Tenant is in compliance. Tenant agrees to immediately upon 13 demand reimburse Landlord for any costs incurred to insure Tenant's compliance. 14. The Tenant will keep all doors opening to the exterior of the building, all fire doors and all smoke doors closed at all times. 15. Tenant shall not obstruct, alter or in any way impair the efficient operation of Landlord's heating, ventilating, electrical, fire, safety or lighting systems, nor shall Tenant tamper with or change the setting of any thermostat or temperature control valves in the building other than those located in the Demised Premises. III.GENERAL 16. Tenant shall NOT: A. Do or permit to be done anything that will invalidate or increase the insurance coverage on the Building or the Demised Premises. Read in conjunction with Section 3.1.F. B. Do or permit to be done anything in the Building or on the Demised Premises that may obstruct or interfere with the rights of other tenants or occupants of the Building. C. Use, allow or permit the Demised Premises to be used for any unlawful purpose. D. Cause, maintain or permit any nuisance in or about the Demised Premises. E. Install in the Demised Premises or bring into the Building any fixtures, equipment, furniture, materials or other objects that will (1) overload, damage, or obstruct any utility lines or HVAC equipment or systems providing services to the Building or (2) overload the floors in the Demised Premises or in any way affect the structural capacity or design of the Building. F. Install or affix any window coverings, window shades, or draperies unless approved in advance by Landlord. It being understood and agreed by Tenant, that uniformity of all tenants of the Building is essential to Landlord's successful operation and management of the Building. G. Install, remove from, or move into the Demised Premises any furniture, fixtures, equipment, materials, supplies, or other objects (other than normal office supplies) except on such days and at such times as approved in advance by Landlord; it being important to Landlord's operation and management of the Building to insure relatively free and uninterrupted access to other Tenant's without undue interference from Tenant. 17. Outside Contract Services: Except with the prior written approval of Landlord, no person other than those approved by Landlord shall be permitted to enter the Building for cleaning or other contract services. 18. Tenant shall not enter the mechanical rooms, air-conditioning rooms, electrical closets, janitorial closets or similar areas or go upon the roof of the building without the prior consent of Landlord. Landlord shall have the right to make changes or additions to these Rules and Regulations after the Lease Date, without Tenant's approval provided such changes or additions, except those affecting the safety and security of the Building, do not unreasonably affect Tenant's use of the Demised Premises and Tenant agrees to abide by, and be bound by, such amended Rules and Regulations immediately upon receipt of a copy of such amended or changed Rules and Regulations from Landlord. Landlord shall not be liable for failure of any tenant to obey such Rules and Regulations. Failure by Landlord to enforce any current or subsequent Rules or Regulations against any tenant of the Building shall not constitute a waiver thereof or a default by Landlord. _______ Initial _______ Initial 14 Exhibit "D" W O R K P L A N S TENANT SHALL HAVE PERMISSION FOR THE INSTALLATION OF TWO 208 VOLT OULETS IN THE COMPUTER SERVER ROOM. TENANT SHALL USE A LANDLORDS ELECTRICIAN WITH LANDLORD APPROVAL _________ Initial _________ Initial 15 GUARANTY OF LEASE Sonics Foundry, hereinafter "Tenant", is desirous of entering into a Lease Agreement ("Lease") with Stonewood East Partners ("Landlord"), to which this Guaranty of Lease ("Agreement") is attached and CoManage, hereinafter "Guarantor", has requested Landlord to enter into said Lease and Landlord has refused to enter into said Lease unless Guarantor guaranties said Lease in the manner hereinafter set forth. NOW THEREFORE, to induce Landlord to enter into said Lease, which Lease is dated this day and is being executed simultaneously herewith, the Undersigned, Guarantor, hereby agrees: 1. Guarantor unconditionally guaranties to the Landlord and its successors and assigns the full and punctual performance and observance, by Tenant, of all the terms, covenants and conditions in said Lease contained on Tenant's part to be kept, performed or observed. This guaranty shall include any liability of Tenant which shall accrue under said Lease for any period preceding as well as any period following the term in said Lease specified. The Guarantor waives notice or any breach or default by Tenant. 2. If, at any time, default shall be made by Tenant in the performance or observance of any of the terms, covenants or conditions in sail Lease contained on Tenant's part to be kept, performed or observed, Guarantor will keep, perform and observe the same, as the case may be, in place and stead of Tenant. The total liability of Guarantor under this Guaranty shall be unlimited. 3. Any act of Landlord, or its successors or assigns, consisting of a waiver of any of the terms or conditions of said Lease, or the giving of any consent to any manner or thing relating to said Lease, or the granting of any indulgences or extensions of time to Tenant, may be done without notice to Guarantor and without releasing the obligations of Guarantor hereunder. 4. The obligations of Guarantor hereunder shall not be released by Landlord's receipt, application or release of security given for the performance and observance of covenants and conditions in said Lease contained on Tenant's part to be performed or observed; nor by any modification of such lease, but in the case of any such modification the liability of Guarantor shall be deemed modified in accordance with the terms of any such modification of the Lease. 5. The liability of Guarantor hereunder shall in no way be affected by: (a) the release or discharge of Tenant in any creditors, receivership, bankruptcy or other proceedings; (b) the impairment, limitation or modification of the liability of the Tenant or the estate of the Tenant in bankruptcy, or of any remedy for the enforcement of Tenant's said liability under the Lease, resulting from the operation of any present or future provision of the National Bankruptcy Act or other statute or from the decision in any court; (c) the rejection or disaffirmance of the Lease in any such proceedings; (d) the assignment or transfer of the Lease by Tenant; (e) any disability or other defense of Tenant; or (f) the cessation from any cause whatsoever of the liability of Tenant. 16 6. Until all the covenants and conditions in said Lease on Tenant's part to be performed and observed are fully performed and observed, Guarantor (a) shall have no right of subrogation against Tenant by reason of any payments or acts of performance by the Guarantor, in compliance with the obligations of the Guarantor hereunder; (b) waives any right to enforce any remedy which Guarantor now or hereafter shall have against Tenant by reason of any one or more payments or acts of performance in compliance with the obligations of Guarantor hereunder; and (c) subordinates any liability or indebtedness of Tenant now or hereafter held by Guarantor to the obligations of Tenant to Landlord under said Lease. 7. This Guaranty shall apply to the said Lease, any extension or renewal thereof and to any holdover term following the term hereby granted or any extension or renewal thereof. 8. This instrument may not be changed, modified, discharged or terminated orally or in any manner other than by an agreement in writing signed by Guarantor and Landlord. IN WITNESS WHEREOF, the parties herein have hereunto set their hands. Witness Landlord - Stonewood East Partners ______________________________ /s/ John C. Baun ---------------------------------- By: John C. Baun, General Partner Date: 1-13-02 ------- Witness ______________________________ Guarantor- CoManage Corporation /s/ Dave Nelsen ---------------------------------- By:Dave Nelsen, CEO Date: ___________ 17 EX-10.26 5 dex1026.txt ASSET PURCHASE AGREEMENT Exhibit 10.26 ASSET PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT (the "Agreement") made as of this 6th day of February, 2002, among Sonic Foundry Media Services, Inc., a Maryland corporation ("Buyer"), and a wholly owned subsidiary of Sonic Foundry, Inc., a Maryland corporation ("Parent"), Digital Savant, Inc., a California corporation ("Seller") and Alex Shohet, ("Shohet"), an adult resident of California. Parent joins in this Agreement solely as to Sections 2.2(b), 4.1, 4.2, 4.3, 4.4, 4.6 and 5.2 and Shohet joins in this Agreement solely as to Sections 3, 6.4 and 7. R E C I T A L S: A. Seller is engaged, among other things, in the business of developing, marketing and licensing its proprietary digital asset management software and services known generally as Media Taxi(TM) (the "Business"). B. Buyer desires to purchase from Seller, and Seller desires to sell to Buyer, the Business and substantially all of Seller's assets related to the Business. NOW, THEREFORE, in consideration of the foregoing, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Purchase and Sale of Assets. 1.1 Assets to be Transferred by Seller. Subject to the terms and conditions of this Agreement, at the Closing (as defined in Section 6), Seller shall sell, convey, transfer, assign and deliver to Buyer, and Buyer shall purchase and accept, certain assets, properties and business of Seller used or held by it in the conduct of, or in connection with, the Business, whether tangible or intangible and wherever located (but excluding the Excluded Assets, as defined below) (the "Purchased Assets"). The Purchased Assets consist of the following assets: (a) Intentionally Deleted; (b) Trade Rights. All of Seller's interest in any Trade Rights related to the Business. As used herein, the term "Trade Rights" shall mean and include: (i) all trademark rights, business identifiers, logos, trade dress, service marks, trade names, domain names, email names, domain name registrations and brand names (including without limitation, all rights in "Media Taxi"); (ii) all copyrights and all other rights associated therewith and the underlying works of authorship; (iii) all patents and all proprietary rights associated therewith; (iv) all contracts or agreement granting any right, title, license or privilege with respect to the intellectual property rights of any third party or Seller; (v) all inventions, know-how, discoveries, improvements, designs, trade secrets, shop and royalty rights, employee covenants and agreements respecting intellectual property and non-competition and all other types of intellectual property; (vi) all registrations of any of the foregoing, all applications therefor, all goodwill associated with any of the foregoing, and all claims for infringement or breach thereof; and (vii) plans, drawings, schematics and all computer source code, object code, programs and other software of Seller, including all machine readable code, printed listings of code, documentation and related property and information of Seller related to the Business. The Trade Rights include, but are not limited to, the items listed on Schedule 1.1(b) attached hereto; (c) Contracts. Seller's contracts, contractual rights, licenses, and other agreements existing as of the Closing Date, all as related to the Business, as described on Schedule 1.1(c) attached hereto (collectively, the "Assumed Contracts"); (d) Advertising; Website. All of Seller's sales, advertising and promotional materials, and similar materials related to the Business, and all rights of Seller in and to Seller's worldwide web home page(s) and addresses, world wide web advertisements and all electronic mail accounts, all related to the Business; (e) Records. All of Seller's books, records, files, papers and other information and records relating to the Business, except for those listed below as Excluded Assets; (f) Goodwill. All of Seller's goodwill related to the Business; and (g) Customer Lists/Prospective Customer Lists. All of Seller's customer and prospective customer lists and contact information, including email lists, solely as related to the Business. (h) Warner Brothers Cash and Receivable. The WBITD Asset (defined in Section 1.2(b). (i) Other. All causes of action, choses in action and rights of recovery with respect to any of the foregoing. 1.2 Excluded Assets. Seller shall not sell to Buyer, and Buyer shall not purchase from Seller, the following assets of Seller (collectively the "Excluded Assets"): (a) Digital Savant Trade Rights. Seller's rights in the registered trademarks for "Digital Savant", Digital Savant logo and "It Works"; provided, however, that neither Seller, nor any of its officers, directors, shareholders or other agents shall use, or license such Digital Savant Trade Rights in any manner that would be reasonably deemed competitive with the Business; (b) Cash and Receivables. All cash, cash items, marketable securities, certificates of deposit and other investments of Seller, and all accounts and notes receivable of Seller; provided, however, Seller shall assign and remit to Buyer, and Buyer shall take, as a Purchased Asset, all accounts receivable that relate to all non-hosting revenue related to Warner Brothers International Television Distribution and arising after January 8, 2002 and all associated cash. (the "WBITD Asset"). (c) Corporate Records. Any corporate franchise, articles of incorporation, corporate seal, stock books, minute books and other corporate records having exclusively to do with Seller's corporate organization and capitalization; provided, however, that Buyer or its designated agents shall have reasonable access to such books and records and may make copies thereof and/or excerpts therefrom; (d) Tax Returns. Seller's tax returns and records; provided, however, that Buyer and its designated agents shall have reasonable access to such records and may make copies thereof and/or excerpts therefrom from time to time; and -2- (e) Tax Refunds. Seller's income tax refunds, including those arising from amended income tax returns of Seller. 1.3 Assumption of Liabilities. Subject to the terms and conditions of this Agreement, on the Closing Date, Buyer shall assume and agree to perform and discharge the following specific debts, liabilities and obligations of Seller (collectively, the "Assumed Liabilities"): (a) all liabilities and obligations arising or accruing with respect to periods after the Closing Date under or pursuant to the Assumed Contracts. 1.4 Liabilities Not to be Assumed. Except as and to the extent specifically set forth in Section 1.3, Buyer is not assuming any debts, liabilities or obligations of Seller. 1.5 Assets Not Assignable. (a) If any interest in any of the Purchased Assets is not capable of being assigned without the consent of a third person or if such assignment would constitute a breach under any agreement related to any Purchased Asset, or a violation of any law or is not immediately practicable, this Agreement shall not constitute an assignment of such interest ("Restricted Interests"). To the extent not a violation of the agreement related to a Restricted Interest, the entire beneficial interest in any Purchased Assets subject to a restriction as described above, and any other interests in such Purchased Assets which are transferable notwithstanding such restriction, shall be transferred (net of expenses incurred by Seller in connection with a Restricted Interest) from Seller to Buyer as provided in this Section 1.5. (b) Anything in this Agreement to the contrary notwithstanding, Seller shall not be obligated to transfer to Buyer any Restricted Interests without Buyer or Seller first having obtained all consents and authorizations necessary for such transfers. In consultation with each other as to the practicalities of proposed actions, Seller and Buyer shall use all reasonable efforts to assist each other in obtaining such consents and authorizations and to resolve any impracticalities of assignment referred to in Section 1.5(a) hereof. (c) If the consents and authorizations referred to in Section 1.5(a) hereof are not obtained by Buyer or Seller, or until the impracticalities of transfer referred to therein are resolved, Seller shall use all reasonable efforts to (i) provide to Buyer, at Buyer's request, the benefits of any Restricted Interests (net of expenses incurred by Seller in connection with such Restricted Interests), (ii) cooperate in reasonable and lawful arrangements designed to provide such benefits to Buyer, and (iii) enforce, at Buyer's request and for Buyer's account, any rights of Seller and Shareholders arising from any Restricted Interests (including the right to elect to terminate in accordance with the terms thereof upon request from Buyer). 2. Purchase Price and Payment. 2.1 Purchase Price. The purchase price for the Purchased Assets (the "Purchase Price") shall be the sum of (a) One Hundred Thousand Dollars ($100,000) (the "Cash"); (b) 221,000 shares of Parent common stock (the "Stock"); and (c) the Assumed Liabilities. 2.2 Payment of Purchase Price. The Purchase Price shall be paid to Seller as set forth in this Section 2.2. -3- (a) Cash At Closing. On the Closing Date, Buyer shall pay to Seller the Cash, by certified or cashier's check or by wire transfer to an account as directed by Seller. (b) Stock. On the Closing Date, Parent shall issue the Stock, fully paid, non-assessable and unencumbered (except set forth herein), to Seller. On the Closing Date, Buyer shall deliver to Seller a certificate representing the shares of Stock. The Seller has been informed that, unless there is an exemption from applicable securities laws, before Buyer delivers any shares of Stock to Seller, Seller may be required to execute and deliver to Buyer a shareholder sophistication certification to the extent such certification is reasonably necessary to comply with applicable securities laws. 2.3 Allocation. The Purchase Price shall be allocated among the Purchased Assets in the manner specified in Schedule 2.3 attached hereto, which Schedule shall be completed before or on the Closing Date. The parties anticipate that the purchase price allocation shall be divided among intellectual property and good will. None of the parties shall take a position for income tax reporting purposes that is inconsistent with such allocation. The parties shall cooperate in the filing of an Internal Revenue Service Form 8594 that is consistent with the allocation set forth in Schedule 2.3. 3. Representations and Warranties of Seller and Shohet. Seller and Shohet jointly and severally represent and warrant to Buyer as follows: 3.1 Corporate. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of California with all requisite power and authority to own and lease its properties and to operate its business as and where it is now being conducted and to enter into this Agreement and perform the transactions contemplated hereby, including without limitation, full legal right, power and authority to transfer the Purchased Assets to Buyer. 3.2 Authority. The execution and delivery of this Agreement and the other documents and instruments to be executed and delivered by Seller pursuant hereto and the consummation of the transactions contemplated hereby and thereby have been duly authorized by Seller's Board of Directors and shareholders. No other corporate act or proceeding on the part of Seller is necessary to authorize this Agreement or the other documents and instruments to be executed and delivered by Seller pursuant hereto or the consummation of the transactions contemplated hereby and thereby. This Agreement constitutes, and when executed and delivered, the other documents and instruments to be executed and delivered by Seller pursuant hereto will constitute, valid and binding agreements of Seller enforceable in accordance with their respective terms. 3.3 No Violation. Neither the execution and delivery of this Agreement or the other documents and instruments to be executed and delivered by Seller pursuant hereto, nor the consummation by such parties of the transactions contemplated hereby and thereby, will: (a) to Seller's or Shohet's knowledge, violate any statute or law, or any rule of any governmental authority; (b) Claims to Seller's or Shohet's knowledge, require any authorization, exemption by or notice to any court or governmental agency; or (c) violate or constitute a default under, or will result in the termination of, or accelerate the performance required by, or result in the creation of any security interest or encumbrance upon any of Seller's assets, any term or provision of Seller's Articles of Incorporation or Bylaws or of any contract, commitment, understanding, arrangement, agreement or restriction of any kind or character to which Seller is a party or by which Seller or any of its assets or properties may be bound or affected. 3.4 Claims. To Seller's and Shohet's knowledge after due inquiry, and except for the Nadar Group claims and the claims by Warner Bros. asserted in the action between Seller and the Nadar -4- Group, there is no litigation, action, claim, suit or investigation pending or threatened against Seller or any of the Purchased Assets, including without limitation any patent, copyright or trademark infringement claim. 3.5 No Default. Seller is not in default under any lease, contract or commitment, nor has any event or omission occurred which through the passage of time or the giving of notice, or both, would constitute a default thereunder or cause the acceleration of any of Seller's obligations or result in the creation of any lien on any of the assets owned, used or occupied by Seller. To Seller's and Shohet's best knowledge, no third party is in default under any lease, contract or commitment to which Seller is a party, nor has any event or omission occurred which, through the passage of time or the giving of notice, or both, would constitute a default thereunder or give rise to an automatic termination, or the right of discretionary termination, thereof. 3.6 Financial Statements. Seller has previously provided Buyer with copies of its unaudited financial statements consisting of balance sheets of Seller as of December 31, 2001 and 2000 and the related statements of income for the twelve-month periods then ended (the December 31, 2001 financial statements, the "Recent Financial Statements"). All of such financial statements (including all notes and schedules contained therein or annexed thereto) are true, complete and accurate, have been prepared in a consistent manner, but not in accordance with generally accepted accounting principles, have been prepared in accordance with the books and records of Seller, and fairly present the assets, liabilities and financial position, and the results of operations of Seller as of the dates and for the years and periods indicated. Since the date of the Recent Financial Statements, there has been no material adverse change in the financial condition, assets, liabilities, business, prospects or operations of Seller. 3.7 Compliance with Laws. (a) Compliance. Except for allegations related to the Nadar Group claims, which Seller disputes (except for the allegation that Nadar's final paycheck was not paid when due), Seller believes it is in compliance with all applicable federal, state, local and foreign laws, ordinances, orders, rules and regulations, including laws relating to employees, employee benefits, employment practices, hazardous substances and the environment. Seller has not received any notice of any violation or alleged violation of any federal, state, local or foreign laws, ordinances, orders, rules or regulations. (b) Licenses and Permits. Seller has all licenses and permits required for the conduct of the Business (as presently conducted by Seller). 3.8 Title to Purchased Assets. Except for any liens created by an capital equipment leases listed in the Assumed Contracts, Seller has good and marketable title to the Purchased Assets and the Purchased Assets shall be free and clear of all liens, claims, security interest and other encumbrances as of the Closing Date. 3.9 Intellectual Property Warranty. Seller is the exclusive owner of the intellectual property included in the Purchased Assets, free and clear of all claims, liens, and encumbrances. Neither Shohet nor any other employee or former employee of Seller owns, directly or indirectly, in whole or in part, any patents or applications therefor, trademarks, trade names, copyrights, trade secrets, works-in-process, or inventions which Seller is using or intends to use, or the use of which is necessary for the conduct of, or would compete with, the Business. None of the Purchased Assets infringe any patent, trademark, trade secret rights, copyrights or other intellectual property rights of any third party. Neither -5- Seller nor Shohet has any knowledge of any facts or alleged claims that should reasonably lead them to believe that any part of the Purchased Assets infringes any intellectual property rights of any third party. 3.10 Contracts and Commitments. Seller is not in default under any of the Assumed Contracts, nor to Seller's or Shohet's knowledge, has any event occurred which through the passage of time or the giving of notice, or both, would constitute a default thereunder or cause the acceleration of any of Seller's obligations or result in the creation of any lien, encumbrance or restriction on any of the Purchased Assets. To Seller's and Shohet's knowledge, no third party is in default under any of the Assumed Contracts. Notwithstanding the foregoing representations in this Section 3.10, Seller advises Buyer that in the action between Seller and the Nadar Group, Warner Bros. has asserted that it has rights to the Media Taxi software, solely as incorporated into the customized Media Taxi application developed by Seller for Warner Bros., and those claims are broader than what Seller believes those rights to be. Seller does not know, and makes no representation as to, the effect of such claim should Warner Bros. prevail on such claim in said action. 3.11 Brokers and Finders. Neither Seller nor Shohet has retained, employed or used any broker or finder in connection with this Agreement or the negotiation thereof; nor have they agreed to allow any such party to share or participate in any way in the payment of any commission or finder's fee in connection therewith. 3.12 Tax Matters. (i) Seller has filed all Tax Returns (as defined below) that it was required to file through calendar year 2000; (ii) all such Tax Returns were correct and complete in all material respects, except to the extent amended returns have been or may be filed; (iii) all Taxes (as defined below) due and owing by Seller, whether or not shown on any Tax Return, have been paid; (iv) Seller is not currently the beneficiary of any extension of time within which to file any Tax Return; (v) no claim has ever been made by an authority in a jurisdiction where Seller does not file Tax Returns that it is or may be subject to taxation by that jurisdiction; (vi) there are no liens, security interests or other encumbrances on any of Seller's assets that arose in connection with any failure (or alleged failure) to pay any Tax; and (vii) Seller has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder or other third party. As used herein, "Tax" means any federal, state, local or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, capital stock, franchise, income, profits, withholding, social security, unemployment, disability, real property, personal property, sales, use, transfer, registration, alternative or estimated or other tax of any kind whatsoever, including any interest, penalty or addition thereto, whether disputed or not. As used herein, "Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. 3.13 Disclosure. No representation or warranty by Seller or Shohet in this Agreement, nor any statement, certificate, schedule, document or exhibit hereto furnished or to be furnished by or on behalf of Seller or Shohet pursuant to this Agreement or in connection with transactions contemplated hereby, contains or shall contain any materially untrue statement of material fact or omits or shall omit a material fact necessary to make the statements contained therein not misleading. 3.14 Guarantees. Seller has not guaranteed the payment or performance of any person, firm or corporation, agreed to indemnify any person or act as a surety, or otherwise agreed to be contingently or secondarily liable for the obligations of any person. -6- 3.15 Labor and Employment Issues. Seller is in compliance with all applicable statutes, laws, ordinances, rules or regulations ("Laws") respecting employment and employment practices, terms and conditions of employment and wages and hours, and is not and has not, engaged in any unfair labor practice; (b) except for claims by or on behalf of Nadar Hamzei, Alex Altman, Rick Zaki and Igor Turovsky (collectively, the "Nadar Group"), there is no unfair labor practice charge or complaint against Seller pending or threatened; (c) no grievance respecting employment and employment practices which might have a material adverse effect on Seller is pending and no such claim therefor exists; and (f) there are no administrative charges or court complaints against Seller concerning alleged employment discrimination or other employment related matters pending or threatened before the U.S. Equal Employment Opportunity Commission or any other federal or state government entity, which, individually or in the aggregate, are reasonably likely to have a material adverse effect on Seller. 3.16 Restricted Securities. Seller and Shohet understand that at Closing, and until any applicable registration statement is declared effective by the SEC, the Stock will not be registered under the Securities Act of 1933, or under any state securities laws, and is being offered and sold in reliance upon federal and state exemptions for transactions not involving a public offering. 4. Representations and Warranties of Buyer. Buyer hereby represents and warrants to Seller as follows: 4.1 Existence. Parent and Buyer are corporations duly organized, validly existing and in good standing under the laws of the State of Maryland with all requisite power and authority to enter into this Agreement and perform the transactions contemplated hereby, including without limitation full legal right, power and authority to purchase and accept the Purchased Assets from Seller. 4.2 Authority. The execution and delivery of this Agreement and the other documents and instruments to be executed and delivered by Buyer pursuant hereto and the consummation of the transactions contemplated hereby and thereby have been duly authorized by Buyer's and Parent's Board of Directors. No other act or proceeding on the part of Buyer and Parent is necessary to authorize this Agreement or the other documents and instruments to be executed and delivered by Buyer pursuant hereto, or the consummation of the transactions contemplated hereby and thereby. This Agreement constitutes, and when executed and delivered, the other documents and instruments to be executed by Buyer pursuant hereto will constitute, valid and binding agreements of Buyer, enforceable in accordance with their respective terms. 4.3 No Violation. Neither the execution and delivery of this Agreement or the other documents and instruments to be executed and delivered by Buyer and Parent pursuant hereto, nor the consummation by Buyer of the transactions contemplated hereby and thereby, will: (a) violate any statute or law or any rule, of any governmental authority; (b) require any authorization, notice to any court or governmental agency; or (c) violate or constitute a default under any term or provision of Buyer's or Parent's Certificate of Incorporation or Bylaws or of any contract, commitment, understanding, arrangement, agreement or restriction of any kind or character to which Buyer or Parent is a party or which Buyer's or Parent's assets or properties may be bound or affected. 4.4 SEC Filings. Buyer has made available to Seller all forms, reports and other documents required to be filed by Parent with the Securities and Exchange Commission (the "SEC") since January 1, 1998 (the year in which the Parent first had to file with the SEC). All such required forms, reports and other documents (including those that Parent may file after the date hereof until the Closing) are referred to herein as the "Parent SEC Reports." The Parent SEC Reports (i) were or will be filed on a timely basis, (ii) were or will be prepared in compliance in all material respects with the -7- applicable requirements of the Securities Act and the Exchange Act, as the case may be, and the rules and regulations of the SEC thereunder applicable to such Parent SEC Reports, and (iii) did not or will not at the time they were or are filed contain any untrue statement of a material fact or omit to state a material fact required to be stated in such Parent SEC Reports or necessary in order to make the statements in such Parent SEC Reports, in the light of the circumstances under which they were made, not misleading. 4.5 Brokers and Finders. Buyer has not retained, employed or used any broker or finder in connection with this Agreement or the negotiation thereof; nor has it agreed to share or participate in any way in the payment of any commission or finder's fee to such a party. 4.6 Litigation; No Reliance on Projections. There is no pending litigation against Buyer or Parent that would materially effect either Buyer's or Parent's obligations (or the performance of such obligations) hereunder; moreover, Buyer acknowledges that it has not relied on any forward looking financial projections (as distinguished from records of actual past financial activity of Seller) related to the Business and that Seller has not made any representations or guarantees about existing customers of the Business remaining customers after the Closing. 5. Conduct of Business Pending Closing. From and after the date of this Agreement and until the Closing: 5.1 Full Access. Buyer and its authorized agents shall have reasonable access during normal business hours to all properties, books, records, contracts and documents of Seller pertaining to the Business, the Purchased Assets, and Seller shall furnish or cause to be furnished to Buyer and its authorized agents all information with respect to the Business and the Purchased Assets as Buyer or its authorized representatives and agents may reasonably request. Seller shall have reasonable access to those records of Buyer reasonably related to Seller's evaluation of this transaction, and shall further have the cooperation of Buyer's senior executives in answering Seller's questions about Buyer and Parent. 5.2 Carry on Regular Course. Except as otherwise set forth in this Agreement, Seller shall carry on the Business, and Parent and Buyer shall carry on their respective businesses, substantially in the manner as heretofore conducted and shall not enter into any transaction outside the ordinary course of business. 5.3 Preservation of Business. From the date hereof until the Closing Date, Seller shall carry on the Business diligently and shall use all reasonable efforts to keep Seller's business organization intact, including its present relationships with employees and customers and others having business relations with it. 5.4 Exclusive Dealing. Neither Seller nor any of its agents or representatives will take, directly or indirectly, any action to initiate, continue, assist, solicit, receive, negotiate, encourage or accept any offer or inquiry from any person (a) to engage in any Business Combination (as defined below), (b) to reach any agreement or understanding for, or otherwise attempt to consummate, any Business Combination, or (c) to furnish or cause to be furnished any information with respect to Seller or its assets to any person (other than as contemplated in this Agreement) who Seller knows or believes to be in the process of considering any Business Combination. For purposes hereof, "Business Combination" means any merger, consolidation or combination to which Seller is a party, any sale, dividend, split or other disposition of capital stock or other equity interest of Seller or any sale or other disposition of all or substantially all of Seller's assets. The obligation of Seller under this Section shall terminate if the Closing does not occur on or before March 18, 2002. -8- 5.5 Supplemental Disclosure. On the Closing Date, Seller shall inform Buyer in writing of all information, events or actions which, if this Agreement were signed on the Closing Date, would be required to be disclosed in the exhibits hereto in order to make Seller's representations and warranties contained herein true and correct. 5.6 No Material Contracts. No contract or commitment will be entered into, and no purchase of supplies and no sale of goods or services (real, personal, or mixed, tangible or intangible) will be made, by or on behalf of Seller, except contracts, commitments, purchases or sales which are in the ordinary course of business and consistent with past practice, are not material to Seller (individually or in the aggregate). 6. Closing. 6.1 Closing Date. The closing of this transaction (the "Closing") shall take place at the offices of Sonic Foundry, Inc., 1617 Sherman Avenue, Madison, Wisconsin 53704, at 11:30 a.m. on the 28th day of January, 2002, or at such other date or time as the parties may agree upon, but in any event not later than March 18, 2002 (the "Closing Date"). If the Closing does not occur on or before March 18, 2002 for any reason other than Seller's affirmative decision (evidenced by written notice to Buyer) to terminate this Agreement, and neither party has yet terminated the Agreement pursuant to Section 10 of this Agreement, Buyer shall pay to Seller the sum of Fifteen Thousand Dollars ($15,000); provided such amount shall be credited towards the Purchase Price (if the Closing does subsequently occur). In no event however, shall Buyer be obligated to pay Seller more than Fifteen Thousand Dollars ($15,000) total for not closing by March 18, 2002 and/or terminating the Agreement under Section 10. 6.2 Conditions Precedent to Obligations of Seller. Each and every obligation of Seller under this Agreement to be performed at the Closing shall be subject to the fulfillment by Buyer, prior to or at the Closing, of each of the following conditions unless waived in writing by Seller: (a) Each representation and warranty made by Buyer in this Agreement or any Exhibit hereto shall be true and correct in all material respects on and as of the Closing Date with the same effect as though each such representation and warranty has been made or given as of the Closing Date; (b) Buyer shall have performed and complied in all material respects with all of its obligations under this Agreement that are to be performed or complied with by it prior to or at the Closing Date; (c) Buyer shall have executed and delivered to Seller each of the documents described in Section 6.5; (d) No investigation, suit, action or other proceeding shall be threatened or pending before any court or governmental agency in which it is sought to restrain, prohibit or obtain damages or other relief in connection with this Agreement or the consummation of the transactions contemplated hereby. 6.3 Conditions Precedent to Obligations of Buyer. Each and every obligation of Buyer under this Agreement to be performed at the Closing shall be subject to the fulfillment by Seller and/or Shohet, prior to or at the Closing, of each of the following conditions unless waived in writing by Buyer: -9- (a) Buyer completing, to its reasonable satisfaction, its due diligence investigation of Seller; provided, however, such investigation must be completed no later than March 9, 2002; (b) Each representation and warranty made by Seller and/or Shohet in this Agreement or any Exhibit hereto shall be true and correct in all material respects on and as of the Closing Date with the same effect as though each such representation and warranty had been made or given as of the Closing Date; (c) Seller shall have performed and complied in all material respects with all of its obligations under this Agreement that are to be performed or complied with by it before or at the Closing Date; (d) Seller and Shohet shall have executed and delivered to Buyer each of the documents described in Section 6.4; (e) The parties shall have obtained all necessary consents and licenses with respect to the transaction contemplated hereby, including, without limitation, the transfer of the Purchased Assets, to Buyer, the absence of which would have a material adverse effect on Buyer's rights under this Agreement, or which would constitute a breach pursuant to the provisions of, or which would result in the termination or loss of any material right associated with or under any Assumed Contract or without which Buyer would be precluded or materially impeded from conducting the business or obtaining the benefit of the Purchased Assets; the only exception to the requirement set forth in this subparagraph (e) being the hosting contract with WBIT. (f) From the date of this Agreement until the Closing Date, there shall have occurred no material adverse change in the Business, the Purchased Assets or the Business' financial condition or prospects from that disclosed to Buyer in this Agreement; (g) No investigation, suit, action or other proceeding shall be threatened or pending before any court or governmental agency in which it is sought to restrain, prohibit or obtain damages or other relief in connection with this Agreement or the consummation of the transactions contemplated hereby; and (h) Except as otherwise provided in this Agreement, including without limitation, liens and encumbrances described in the Assumed Contracts, Seller shall have removed any liens or other encumbrances on the Purchased Assets and provided sufficient proof, reasonably acceptable to Buyer, that all such liens or other encumbrances are removed at or before the Closing. 6.4 Items to be Delivered by Seller and/or Shohet. At the Closing, Seller and/or Shohet shall deliver to Buyer the following documents, all duly executed by Seller or Shohet, as the case may be: (a) The Bill of Sale Agreement in the form attached hereto as Exhibit A, and such other instruments of sale, conveyance, transfer or assignment as may be reasonably requested by Buyer to carry out the purposes of this Agreement; (b) A Confidentiality Agreement in the form attached hereto as Exhibit B; -10- (c) The Stock Restriction and Registration Agreement in the form attached hereto as Exhibit C; (d) Copyright, trademark and domain name assignments for the Trade Rights; (e) Amend Shohet's Employment Agreement[s] with Seller to remove all restrictions on Shohet's ability to work for Buyer or Parent; (f) A certificate signed by the President of Seller that each of the representations and warranties made by Seller in this Agreement is true and correct in all material respects on and as of the Closing Date with the same effect as though such representations and warranties had been made or given on and as of the Closing Date (except for any changes permitted by the terms of this Agreement or consented to in writing by Buyer), and that Seller has performed and complied with all of Seller's obligations under this Agreement which are to be performed or complied with by it on or prior to the Closing Date; (g) A copy of Seller's articles of incorporation, certified by the California Secretary of State; (h) Certified resolutions of Seller's Board of Directors and shareholders approving this Agreement and the consummation of the transactions contemplated by this Agreement; (i) One or more assignment documents transferring to Buyer all of Seller's rights and interests under the Assumed Contracts; including, without limitation, the Warner Brothers International Television Distribution agreement; (j) One or more payoff letters from Seller's lenders, with respect to any debts or liens or other encumbrances on the Purchased Assets that are to be removed at or before the Closing, if applicable; and (k) All other documents, instruments or writings required to be delivered to Buyer at or prior to the Closing pursuant to this Agreement, and such other certificates of authority and documents as Buyer may reasonably request. 6.5 Items to be Delivered by Buyer. At the Closing, Buyer shall deliver to Seller the following documents, all duly executed by Buyer: (a) An Assumption Agreement, in the form attached hereto as Exhibit E, evidencing the Buyer's assumption of the Assumed Liabilities; (b) The Cash as described in Section 2.2(a) hereof; (c) The Stock as described in Section 2.2(b) hereof; (d) The Confidentiality Agreement; (e) The Stock Restriction and Registration Agreement; (f) Certified resolutions of Buyer's and Parent's Board of Directors approving this Agreement and the consummation of the transactions contemplated by this Agreement; and -11- (g) A certificate signed by the President of Buyer that each of the representations and warranties made by Buyer in this Agreement is true and correct in all material respects on and as of the Closing Date with the same effect as though such representations and warranties had been made or given on and as of the Closing Date (except for any changes permitted by the terms of this Agreement or consented to in writing by Seller), and that Buyer has performed and complied with all of Buyer's obligations under this Agreement which are to be performed or complied with by it on or prior to the Closing Date. 7. Post Closing Covenants. 7.1 Seller's and Shohet's Covenants. (a) Debt Repayment. Seller shall use the Purchase Price to satisfy all of its creditors and employees (past and present), except for repayment of any deferred salary owing to Shohet which shall be repaid only once Seller has reduced all other of its obligations by 50% or more (as measured by, and existing on, the Closing Date), and then only on a pro rata basis with all of Seller's other creditors. (b) Intentionally Deleted. (c) Future Applications. Neither Company nor Shohet (except as Buyer's employee and for Buyer), shall, at any time following Closing and for so long as Buyer continues the Business, but not more than a period of two (2) years, develop applications that compete with the Purchased Assets, including without limitation, Media Taxi; subject to California law restrictions on non competition clauses. (d) Unemployment Compensation. Seller shall, upon the request of Buyer, cooperate with Buyer in any efforts by Buyer to obtain the transfer of Seller's portion of the California unemployment compensation fund[s], to the extent permitted by applicable Law. In connection therewith, Seller will execute such documents as Buyer may reasonably request in order to effectuate such transfer. 7.2 Buyer's Covenants. Buyer shall employ Shohet beginning Monday, February 11, 2002, on the terms set forth in his employment letter, a draft of which he has received. The Buyer shall register the Sonic Foundry stock pursuant to the terms of the Stock Restriction and Registration Agreement. 8. Survival of Representations, Warranties and Covenants. The representations, warranties, obligations and covenants of each party contained in this Agreement or in any document referred to herein or delivered at the Closing shall survive the Closing for a period of two years. 9. Indemnification. 9.1 Seller's Indemnity. Seller shall indemnify, defend and hold Buyer harmless at any time and from time to time against any and all of Buyer's losses, liabilities, costs, claims, actions, damages and expenses, including, without limitation, reasonable attorneys' fees and disbursements (collectively "Damages"), resulting from, arising out of, or incurred with respect to: -12- (a) the material falsity or material breach of any representation, warranty, covenant or agreement of Seller or Shohet in this Agreement or in any document or instrument referred to in this Agreement or delivered by Seller or Shohet at the Closing; (b) the ownership and conduct of the Business at any time before the Closing Date; (c) any claim, including without limitation, claims by the Nadar Group, or anyone of them, and any other employment or labor related claims, made by any party other than Buyer, or suit or other proceeding commenced by any such party alleging facts that, if true, would entitle Buyer to indemnification pursuant to this Section 9. 9.2 Buyer's Indemnity. Buyer shall indemnify, defend and hold Seller harmless at any time and from time to time against any and all of Seller's Damages resulting from, arising out of or incurred with respect to: (a) the material falsity or material breach of any representation, warranty, covenant or agreement of Buyer in this Agreement or in any document or instrument referred to in this Agreement or delivered by Buyer at the Closing; (b) the ownership and conduct of the Business at any time after the Closing Date, but not including Damages caused by Shohet intentionally or maliciously (i.e. for example, and not by limitation, what Seller alleges Mr. Nadar did to Seller in the Fall of 2001); (c) any claim made by any party other than Seller or suit or proceeding commenced by any such party alleging facts that, if true, would entitle Seller to indemnification pursuant to this Section 9; and (d) any of the Assumed Liabilities. 9.3 Procedure for Asserting Indemnification. (a) The party seeking indemnification (the "Indemnitee") shall give the party from whom he or it is seeking indemnification (the "Indemnitor") written notice of any matter with respect to which he or it seeks to be indemnified (the "Claim") within a reasonable time after Indemnitee has knowledge of acts forming a sufficient basis for the Claim, but in any event at least thirty (30) days prior to commencing any action. Such notice shall state the nature of the Claim and, if known, the approximate amount of the loss, cost or expense. Indemnitor shall have the right to contest any Claim by a third party by notifying Indemnitee of an election to exercise such right within thirty (30) days after Indemnitor shall be notified of such Claim. (b) Except for the Claim of a third party as to which Indemnitor has timely notified Indemnitee that he or it will contest, unless Indemnitor objects to the determination or computation of the total amount of the indemnification shown in the written notice specified in Subsection 9.3(a), such amount shall be promptly paid to Indemnitee. If Indemnitor objects to such determination or computation, each party will have all remedies available at law or in equity. -13- 9.4 Limitations on Indemnification. (a) Seller's indemnification obligation shall not extend to any claim made by Warner Brothers International Television Distribution ("WBITD"), or any of its affiliates or corporate parents, that pursuant to the 1999 Website Development and Hosting Agreement by and among Seller and WBITD, that WBTID or its affiliates or corporate parents may use, extend, modify, or exploit the Media Taxi software solely for any internal purpose (as opposed to any purpose whereby WBTID, its affiliates or corporate parents, or such corporate parents' affiliates, purport to sublicense or otherwise provide, on a commercial or non-commercial basis, the software to parties other than WBITD, or any of its affiliates, its corporate parents or such corporate parents' affiliates). (b) Except in the case of actual and intentional fraud by Seller or Shohet, in no event shall Seller's indemnification obligation under this Agreement exceed an amount equal to 110,500 shares of Sonic Foundry stock times the per share closing price of Sonic Foundry common stock on the day of Closing. In lieu of recovering such indemnification amounts from Seller, Buyer shall first offset any amounts Seller owes Buyer against any Sonic Foundry shares still then restricted under the Stock Registration and Restriction Agreement, and any remaining amount shall be payable by Seller pursuant to this Agreement, subject to the overall limitation of 110,500 shares times the closing price of Sonic Foundry stock on the day of Closing. 10. Termination. This Agreement may be terminated at any time prior to the Closing Date, by written notice by the terminating party to the other party as follows: (a) by Buyer, if it is not satisfied, for any reason or no reason, with the results of its due diligence investigation; (b) by Seller, if it is not reasonably satisfied by the results of its due diligence investigation of Buyer; or (c) by Seller, if Seller's Board of Director's or shareholder's approval of the Agreement shall not have been obtained. Provided, however, that if Buyer terminates this Agreement it shall pay to Seller Fifteen Thousand Dollars ($15,000) within twenty (20) days of such notice or by March 18, 2002, whichever is earlier. Provided, further, that if Buyer provides written notice to Seller it is satisfied with the results of its due diligence investigation, Seller's right of termination under (b) above terminates immediately as of the date Buyer sends such notice. 11. Miscellaneous. 11.1 Expenses Incident to Transaction. Each party shall pay its own expenses and costs relating to the negotiation, execution and performance of this Agreement. 11.2 Governing Law. This Agreement shall be construed and interpreted according to the internal laws and decisions of the State of Wisconsin. 11.3 Notices. All notices, requests, demands and other communications hereunder shall be deemed to be duly given when personally delivered, sent by telecopier, facsimile transmission or other electronic means of transmitting written documents, or when mailed, certified mail, with postage prepaid and (a) If to Buyer, to Sonic Foundry Media Services, Inc. 1617 Sherman Avenue -14- Madison, Wisconsin 53704 Attn: General Manager Fax: 608.256.7300 with a copy to Sonic Foundry, Inc. 1617 Sherman Avenue Madison, Wisconsin 53704 Attn: General Counsel Fax: 608.204.8804 (or at such other address or with a copy to such other person or address as may have been designated from time to time by notice in writing); or (b) If to Seller to Alex Shohet 8530 Appian Way Los Angeles, CA 90046 with a copy to Attorney Steven C. Spronz Steven C. Spronz, P.C. 6534 Whitworth Drive Los Angeles, CA 90035-2529 Fax: 323.857.1008 (or at such other address or with a copy to such other person or address as may have been designated from time to time by notice in writing). 11.4 Entire Agreement. This instrument replaces all prior Agreements among Seller and Buyer and embodies the entire agreement among the parties hereto with respect to the subject matter hereof, and supersedes any and all prior agreements, discussions and warranties. 11.5 Modification; Waiver. No modification or waiver of any provisions of this Agreement or consent to any departure therefrom shall be effective unless in writing and signed by the party against whom it is sought to be enforced. 11.6 Assignment; Binding Nature. Except as specifically set forth herein, this Agreement shall not be assignable by any party without the express written consent of the other parties, which consent shall not be unreasonably withheld; provided, however, that Buyer may assign all or any part of its rights under this Agreement to an entity that is majority owned and controlled by Buyer or to Parent. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and permitted assigns. -15- 11.7 Further Assurance. After the Closing Date, Seller will execute and deliver such further instruments of conveyance and transfer and take such other action as Buyer may reasonably request to convey and transfer effectively to Buyer any of the Purchased Assets, and will assist Buyer in the collection or reduction to possession of any such Purchased Assets. 11.8 Counterparts. This Agreement may be executed simultaneously 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, provided that all such counterparts, in the aggregate, shall contain the signatures of all parties hereto. 11.9 Third-Party Beneficiaries. No third-party beneficiary rights shall be implied from anything contained in this Agreement. 11.10 Arbitration. All controversies, claims and disputes arising under or relating to this Agreement, or the construction, interpretation, breach, termination, or enforceability hereof, whether such dispute is based upon statute, tort, contract, common law or otherwise, and whether such dispute existed prior to or arises after the date of this Agreement, shall be resolved first by not less than two (2) full days of mediation with a single mediator mutually agreeable by the parties, and if the parties do not reach full agreement (evidenced by a written agreement signed by the parties) within said time, then by binding arbitration. If the parties are unable to agree on the mediator within fifteen (15) business days after one party gives notice to the other that a dispute exists, or if the parties are unable to agree on the arbitrator within fifteen (15) business days after the termination of the mediation, then the mediator or arbitrator, as applicable, shall be chosen by the American Arbitration Association. The mediation and arbitration shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association to the extent that a particular matter is not covered by the provisions of this Arbitration Clause. The costs of the mediation and arbitration proceeding shall be borne equally by the parties and each party shall bear the expense of its own counsel and experts. Any issue as to whether or the extent to which a dispute is subject to arbitration, including but not limited to the validity or enforceability of this Agreement to arbitrate, the applicability of any statute of limitations or other defense relating to the timeliness of the assertion of any claim or any matter relating to the arbitrability of such claim, shall be decided by the arbitrator. In order to achieve the purposes of alternative dispute resolution to save time and expense, if the matter goes to arbitration, the parties shall not have the right to conduct discovery, but shall instead provide all evidence at in person hearings conducted by the arbitrator. The arbitration proceeding shall commence with a preliminary hearing before the arbitrator for the purpose of making opening statements to educate the arbitrator about the parties' respective positions in the dispute. Such preliminary hearing shall begin not later than ten calendar days following the selection of the arbitrator. The arbitrator shall render a written, reasoned decision. The arbitrator shall be bound by the laws of the State of Wisconsin, and shall have the authority to award any remedy or remedies which the arbitrator deems appropriate, within the bounds of such governing law; provided, however, that any award of injunctive relief or punitive damages shall be subject to judicial review at the election the party against whom such relief is granted. -16- IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement, or caused it to be duly executed, as of the date first set forth above. BUYER: SELLER: SONIC FOUNDRY MEDIA SERVICES, INC. DIGITAL SAVANT, INC. By: /s/ Kenneth A. Minor By: /s/ Alex Shohet --------------------------------- ---------------------------------- Kenneth A. Minor, Vice President Alex Shohet, President Solely as to Sections 2.2(b), 4.1, Solely as to Sections 3, 6.4 and 7: 4.2, 4.3, 4.4, 4.6 and 5.2: SONIC FOUNDRY, INC. By: /s/ Kenneth A. Minor /s/ Alex Shohet --------------------------------- ----------------------------------- Kenneth A. Minor, Chief Financial Alex Shohet, individually Officer -17- Schedule 1.1(b) Trade Rights SOFTWARE - -------- Media Taxi: All copies of source code, object code, back ups, documentation, specifications, proposals, flow charts, html/xml code, templates, database architecture and design, non-client owned databases, betas, discs, cd roms, print outs. Fox Flash: All copies of source code, object code, back ups, documentation, specifications, proposals, flow charts, html/xml code, templates, database architecture and design, non-client owned databases, betas, discs, cd roms, print outs.(The parties acknowledge that Fox TV, not Seller, owns the rights in the name "Fox Flash.") Source Safe: All copies of documentation, back ups. Office Software/OS All copies of documentation, back ups. TRADEMARKS/TRADENAMES - --------------------- Media Taxi Digital News COPYRIGHTS - ---------- Media Taxi (TXu-929-218) in all of its existing versions and forms, regardless of name (i.e. Fox Flash, Digital News and any other name.) DOMAIN NAMES - ------------ softwaretaxi.com cliptaxi.com markettaxi.com marketfilms.com fleamarketfilms.com cinemarche.com fleemarketfilms.com newstaxi.com sporttaxi.com mactaxi.com filmtaxi.com computertaxi.com gametaxi.com gamebizdata.com prtaxi.com mediataxi.com Schedule 1.1(c) Assumed Contracts CUSTOMER CONTRACTS
- -------------------------------------------------------------------------------------------------------------------- Client Name Contact Contract Terms - -------------------------------------------------------------------------------------------------------------------- Fox Domestic TV Richard Kosters Hosting: 10201 W. Pico $.50 per MB per month up to 3GB. Bldg. 100/3075 $.35 per MB per month up to 3GB-10GB Los Angeles, CA 90035 richardk@fox.com ---------------- (310) 369-4417 Verbal agreement -------------- - -------------------------------------------------------------------------------------------------------------------- Warner Bros. Intl TV Lisa Gregorian $.50 per MB per month up to 3GB. 4000 W. Alameda, 3rd floor #3028 $.35 per MB per month up to 3GB-10GB Burbank, CA 91522-1703 $.25 per MB per month 10GB or more (818) 977-6681 -------------- lisa.gregorian@warnerbros.com 1999 Contract for Phase I - Front-end Redesign not covered under 1999 contract - Rights Catalog Reporting not covered under 1999 contract - SPEC document not covered under 1999 contract; language on Invoice - -------------------------------------------------------------------------------------------------------------------- Fox Latin America - TV, Diego Londono $.50 per MB per month up to 3GB. Kids (Spanish & Portuguese) 11833 Mississippi Ave. $.35 per MB per month up to 3GB-10GB Los Angeles, CA 90025 (310) 447-7307 -------------- diegol@fox.com Verbal agreement -------------- - -------------------------------------------------------------------------------------------------------------------- Fox Latin America - Sports Viviana Gorton $.50 per MB per month up to 3GB. (North and South) 1440 S. Sepulveda Blvd $.35 per MB per month up to 3GB-10GB 2nd floor, Off 271 Los Angeles, CA 90025 (310) 444-8494 Verbal agreement vgorton@foxsportsintl.com ------------------------- - -------------------------------------------------------------------------------------------------------------------- USA Films Michael Carvaines $1,500 per month license 9333 Wilshire Blvd. Floor G Beverly Hills, CA 90210 Monthly license plus hosting: (310) 385-6625 $.50 per MB per month up to 3GB. - --------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------- `michael.carvaines@usafilms.net' $.35 per MB per month up to 3GB-10GB $.25 per MB per month 10GB or more Verbal agreement - -------------------------------------------------------------------------------------------------------------------- New Line Cinema Gordon Paddison Failure to pay hosting and development fees 116 North Robertson Blvd. - terminated by DS for failure to Pay Los Angeles, CA 90048 (310) 967-6615 Gordon@paddison.com - -------------------------------------------------------------------------------------------------------------------- Fox Home Entertainment Russell Vare New Home Video system built by Bakersman 2121 Ave. of the Stars, 25th Floor included Ad-Pub system Los Angeles, CA 90067 (310) 369-0392 `russellv@fox.com' - --------------------------------------------------------------------------------------------------------------------
EQUIPMENT LEASES ---------------- Lessor Equipment Type Lease No. Spaulding Capital Group Computer 776300 Spaulding Capital Group Computer 769170 Spaulding Capital Group Computer 786943 GE Capital Colonial Pacific Computer 341826001 Dell Computer Laptop 15399305** **Only being assumed if Nader returns the Laptop by Closing. Alchemy Communications NOC Agreement - ------------------------------------ Schedule 2.3 Purchase Price Allocation CLASS OF ASSETS AGREED VALUE --------------- ------------ Exhibit A --------- BILL OF SALE KNOW ALL MEN BY THESE PRESENTS, that Digital Savant, Inc., a California corporation ("Seller"), pursuant to that certain Asset Purchase Agreement dated February 6, 2002 (the "Agreement") among Seller, Sonic Foundry Media Services, Inc., a Maryland corporation ("Buyer") and a wholly-owned subsidiary of Sonic Foundry, Inc., a Maryland corporation, has bargained and sold, and by these presents does grant, bargain, sell, assign, convey, transfer, set over and deliver to Buyer, its successors and assigns, all of the Purchased Assets (as such term is defined in the Agreement). TO HAVE AND TO HOLD all of the Purchased Assets hereby conveyed unto Buyer, its successors and assigns, to and for its own use and benefit forever. Seller hereby irrevocably constitutes and appoints Buyer, its successors and assigns, the true and lawful attorney of Seller, with full power of substitution, and gives and grants to Buyer, its successors and assigns, full power and authority in the name of Seller, at any time and from time to time, to demand, sue for, recover, receive, compound, acquit, release and discharge any and all rights, demands, monies, claims and choses in action of every kind and description, arising out of, incident to, or in connection with, the Purchased Assets, or any of them, and upon the same or any part thereof to make acquittance or other discharge with respect thereto, and generally from time to time to make, execute, do and perform such further acts and things concerning the subject matter of this paragraph with like power and as fully as Seller could do or might have done, hereby ratifying and confirming all and whatever Buyer, its successors and assigns shall lawfully do or cause to be done. Seller hereby further undertakes that it will execute in accordance with the provisions of the Agreement such additional documents and take such further actions as may be reasonably required in order to confirm and further effectuate the sale and assignment of the Purchased Assets to Buyer. This instrument shall be binding upon Seller, its successors and assigns, and shall inure to the benefit of Buyer and its successors and assigns. IN WITNESS WHEREOF, Seller has caused this instrument to be duly executed as of this ___ day of _________________, 2002. DIGITAL SAVANT, INC. By: _________________________________ Alex Shohet, President STATE OF CALIFORNIA ) ) ss. COUNTY OF __________ ) Personally came before me this _____ day of February, 2002 the above named ALEX SHOHET the President of Digital Savant, Inc., and to me known to be the person who executed the foregoing instrument and acknowledges the same. ______________________________________________ *_____________________________________________ Notary Public, _________ County, California [NOTARIAL SEAL] My Commission: _____________________ -2- Exhibit B EMPLOYEE CONFIDENTIALITY, INVENTION ASSIGNMENT AND NON- SOLICITATION AGREEMENT THIS AGREEMENT made as of the ___ day of February 2002 and immediately effective by and between SONIC FOUNDRY, INC., and SONIC FOUNDRY MEDIA SERVICES, INC., (collectively, "Sonic Foundry") and the Employee whose name and signature appears below ("Employee"). WHEREAS, Sonic Foundry and Employee desire to enter into this Agreement, ("Agreement") which will set forth the terms and conditions of Employee's use of confidential information obtained during the course of employment with Sonic Foundry, assignment of inventions and solicitation of employees and clients. NOW THEREFORE, in consideration of the premises to this Agreement and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Sonic Foundry and Employee agree as follows: 1. Obligation of Confidentiality. Employee understands that in the course of ----------------------------- his/her employment with Sonic Foundry, he/she shall or may be making use of, acquiring, or adding to confidential information of a special and unique nature and value relating to such matters as Sonic Foundry's trade secrets, systems, inventions, programs (including, without limitation, Sonic Foundry's computer software programs), procedures, manuals, confidential reports and communications, and lists of customers and clients. Employee also understands that any information, data and materials received by Sonic Foundry from third-parties in confidence (or subject to nondisclosure or similar covenants), including but not limited to customers, prospective customers, joint ventures, parties to cooperative agreements or partners, shall be deemed to be and shall be confidential information. Employee hereby confirms that he/she has not and shall not, except with the express, prior written consent of Sonic Foundry, or except if he/she is acting as an employee of Sonic Foundry solely for the benefit of Sonic Foundry in connection with Sonic Foundry's business and in accordance with Sonic Foundry's business practices and employee policies, at any time during or for one (1) year following the termination of his/her employment by Sonic Foundry for any reason, directly or indirectly, disclose, divulge, reveal, report, publish, transfer or use, for any purpose whatsoever, any of such information which is within the definition of Protected Information, hereinafter defined, which has been obtained by or disclosed to him or her as a result of his/her employment by Sonic Foundry. Further, Employee agrees to be bound by all nondisclosure or similar covenants between Sonic Foundry and any third-party, and of which, Employee is, or reasonably should be, aware. 2. Scope of Protected Information. Employee further understands that all of ------------------------------ the following information and materials are "Protected Information" belonging to Sonic Foundry and shall be kept strictly confidential, even if not physically marked as such: a. Applications, operating system, database, communication and other computer software, whether now or hereafter existing, developed by, or on Sonic Foundry's behalf, for use on any operating system, all modifications, enhancements and versions and all options available with respect thereto, and all future products developed or derived therefrom; b. Source and object codes, flowcharts, algorithms, coding sheets, routines, sub-routines, compilers, assemblers, design concepts, and related documentation and manuals; c. Products, inventions, production processes, marketing techniques and arrangements, mailing lists, purchasing information, pricing policies, quoting procedures, financial information, customer and prospect names and requirements, employee, customer supplier and distributor data, and other materials and information relating to Sonic Foundry's business and activities and the manner in which Sonic Foundry does business; d. Research and development of proprietary products related to video imaging, transfer of film-originated NTSC to PAL or SECAM, PAL to NTSC or SECAM or SECAM to NTSC or PAL (as such terms are known in the television and film imaging industries), media conversion, encoding and transfer; e. Proprietary discoveries, concepts and ideas including, without limitation, the nature and results of research and development activities, processes formulas, inventions, computer-related equipment or technology, techniques, "know-how", designs, drawings, and specifications; Sonic Foundry Employee Confidentiality, Invention, Solicit Agreement - ABC f. Any other materials or information related to the business or activities of Sonic Foundry that are not generally known to others engaged in similar businesses or activities; g. All ideas which are derived from or relate to Employee's access to or knowledge of any of the above enumerated materials and information; and h. All information, data and materials received by Sonic Foundry from third-parties in confidence (or subject to nondisclosure or similar covenants), including, but not limited to, information, data and materials received by Sonic Foundry from customers, prospective customers, joint ventures, parties to cooperative agreements or partners. Notwithstanding the foregoing, Protected Information shall not include such information as the Employee can prove (i) was in the public domain, being publicly and openly known, prior to the date hereof, or, subsequent to such date, became part of the public domain, being publicly and openly known, through lawful and proper means, (ii) was independently developed or acquired by the Employee without reliance in any way on other protected information of Sonic Foundry or any customer or (iii) was approved by Sonic Foundry for use and disclosure by the Employee without restriction. 3. Ownership of Inventions; Copyrights. ------------------------------------ (a) The Employee acknowledges that he or she is performing work for Sonic Foundry at Sonic Foundry's request and expense. Without further compensation, the Employee hereby agrees promptly to disclose to Sonic Foundry, and the Employee hereby assigns and agrees to assign to Sonic Foundry or its designee, the Employee's entire right, title, and interest in and to all Inventions (as defined below) relating to Sonic Foundry's business that the Employee has conceived or made, or conceives or makes, during the course of his employment by Sonic Foundry. Any Invention relating to Sonic Foundry's business that is disclosed by the Employee within one (1) year following the termination of his/her employment with Sonic Foundry shall also be Sonic Foundry's property, unless the Employee proves through clear and convincing evidence that the Invention was conceived following the termination of the Employee's employment. Any copyright works relating to Sonic Foundry's business created by the Employee during the term of his or her employment shall be considered works made for hire and the initial ownership therein shall be in Sonic Foundry. To the extent such works are not covered by the definition of a "work made for hire" under the Copyright Act, such that Employee would be regarded as the copyright author and owner, Employee hereby assigns and agrees to assign to Sonic Foundry, and Sonic Foundry accepts and agrees to accept, Employee's entire right, title, and interest in and to such works for all media now known or later developed. When requested by Sonic Foundry, whether during or after his or her employment, the Employee shall execute patent and copyright applications and other instruments as considered necessary by Sonic Foundry to apply for and obtain patents or copyrights in the United States and foreign countries that cover such Inventions. The Employee shall make assignments and execute any other instruments necessary to convey to Sonic Foundry the ownership and exclusive rights in such Inventions, copyright works, patent applications and patents. Sonic Foundry shall bear all out-of-pocket expenses connected with such patents, patent applications, copyright applications and maintenance of patent protection. If the Employee does not so execute the requested documents promptly after Sonic Foundry's requests therefor, the Employee hereby appoints Sonic Foundry as the Employee's attorney in fact for the limited purpose of executing such documents. "Invention" means any inventions, improvements, discoveries, computer programs, know-how or ideas (whether or not patentable or subject to copyright protection) of the Employee that are included in any of the following classes: those for which any equipment, supplies, facilities or trade secret information of Sonic Foundry were used; those which were developed in any part on Sonic Foundry's time; or those that (i) relate to Sonic Foundry's actual research or development, and (ii) result from work performed by the Employee for Sonic Foundry. Notwithstanding the foregoing, no rights are hereby conveyed in products, designs, ideas or inventions, if any, (i) made by the Employee prior to the Employee's employment with Sonic Foundry which are identified in a sheet attached to and made a part of this Agreement, if any (which attachment contains no confidential information) or (ii) to which Sonic Foundry enjoys no claim under California Labor Code Section 2870. 2 (b) The Employee represents that his or her performance of all the terms of this Agreement and as an employee of Sonic Foundry does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by him or her in confidence or in trust prior to his or her employment with Sonic Foundry, and the Employee will not disclose to Sonic Foundry, or induce Sonic Foundry to use, any confidential or proprietary information or material belonging to any previous employer or other third party. The Employee will not enter into any agreement, either written or oral, in conflict with this Agreement. (c) This Agreement does not apply to any product, design, idea or invention that qualifies fully under the provisions of Section 2870 of the California Labor Code or any successor version thereof. Sonic Foundry shall have no right to any product, design, idea or invention or to claim that the Employee shall have any obligation to assign to Sonic Foundry any product, design, idea or invention that the Employee develops or developed entirely on the Employee's own time without using Sonic Foundry's equipment, supplies, facilities, or trade secret information; provided, however, that the foregoing limitation shall not apply to Invention(s) that either (a) relate at the time of conception or reduction to practice of the product, design, idea or invention to Sonic Foundry's business, or Sonic Foundry's actual research or development or (b) result from work performed by the Employee for Sonic Foundry. Section 2870 provides as follows: "(a) Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of its or his rights in an invention to its or his employer shall not apply to an invention that the employee developed entirely on its or his own time without using the employer's equipment, supplies, facilities, or trade secret information except for those inventions that either: (1) Relate at the time of conception or reduction to practice of the invention to the employer's business or actual or demonstrably anticipated research or development of the employer; or (2) Result from any work performed by the employee for the employer. (b) To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is unenforceable." (d) The Employee agrees to disclose all product, design, idea or invention made by the Employee and that Employee reasonably believes to be covered by this Agreement, to Sonic Foundry in confidence in order to permit a determination as to whether or not the product, design, idea or invention should be the property of Sonic Foundry. 4. Non-Solicitation. ---------------- (a) Employee agrees that during the term of his/her employment with Sonic Foundry, and for a period of one (1) year from the voluntary or involuntary termination of employment with Sonic Foundry for any reason whatsoever, Employee shall not, either personally or in conjunction with others, induce any existing customer of Sonic Foundry to cease doing business in whole with Sonic Foundry. (b) Employee agrees that during the term of his/her employment with Sonic Foundry, and for a period of one (1) year from the voluntary or involuntary termination of employment with Sonic Foundry for any reason whatsoever, Employee shall not, either personally or in conjunction with others either (a) solicit, interfere with, or endeavor to cause any employee of Sonic Foundry to leave such employment or (b) otherwise induce or attempt to induce any such Employee to terminate employment with Sonic Foundry. 5. Return of Materials. At Sonic Foundry's request, or, in the absence of such ------------------- a request, upon termination of Employee's employment with Sonic Foundry, Employee agrees to turn over to Sonic Foundry all notes, data tapes, lists, reference items, sketches, drawings, memoranda, records, and other materials in any way relating to any financial data, Protected Information and Inventions, and other documents that are in his/her possession or control belonging to Sonic Foundry. 3 6. Employment Termination. Nothing in this Agreement shall be interpreted to ---------------------- impair Employee's right or the right of the Company to terminate the employment relationship. 7. Relief; Forum. Employee understands that a breach of this Agreement ------------- including, but not limited to, unauthorized copying, assignment, transfer or distribution of Protected Information and Inventions will result in irreparable or immeasurable damage to Sonic Foundry and that Sonic Foundry is authorized to seek injunctive relief against Employee. Employee also agrees that the Federal District Court for the Western District of Wisconsin located in Madison, Wisconsin, is an appropriate, but not exclusive, forum for resolution of any dispute arising from this Agreement, including issuance of an injunction. Employee understands that this provision regarding the issuance of an injunction does not limit any remedies at law or equity otherwise available to Sonic Foundry. 8 No Other Agreements; Merger. No oral arrangements have been made between the --------------------------- parties hereto and this Agreement may be amended only in writing signed by both parties. This Agreement replaces any and all previous agreements relating to the same or similar subject matter. 9. Successors and Assigns. The rights and obligations of Sonic Foundry under ---------------------- this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of Sonic Foundry. Sonic Foundry shall have the right to assign its rights hereunder to any successor in interest. Employee may not assign his/her obligations under this Agreement. 10. Severability. If a court of competent jurisdiction shall declare any ------------ provision of this Agreement invalid or unenforceable, the remainder of this Agreement shall not be affected thereby and shall continue in full force and effect. 11. Choice of Law. This Agreement shall be construed in accordance with the ------------- internal laws of the State of California. 12. Nothing in this Agreement or elsewhere is intended to, and shall not be interpreted to, restrict in any way Employee's ability to work in any field following the termination (whether by Employer or Employee) of Employee's employment with Sonic Foundry, including, without limitation, as a systems integration consultant both within and outside the media asset management field,; provided, however, that Employee shall not, whether in such consultancy position or otherwise, disclose or use Protected Information in violation of this Agreement. IN WITNESS WHEREOF, the parties hereto have set their hands and seals as of the day and year first above written. EMPLOYEE: SONIC FOUNDRY MEDIA SERVICES, INC. Sign:____________________________ By: _______________________ Print Name: Alex Shohet Print Name: SONIC FOUNDRY, INC. By:_______________________ Print Name: 4 Exhibit C ------- STOCK RESTRICTION AND REGISTRATION AGREEMENT -------------------------------------------- THIS STOCK RESTRICTION AND REGISTRATION AGREEMENT (the "Agreement") dated as of February ____, 2002, is by and among Sonic Foundry, Inc., a Maryland corporation ("Parent") and Digital Savant, Inc., a California corporation (the "Seller"). WHEREAS, Parent and its wholly-owned subsidiary, Sonic Foundry Media Services, Inc. ("Buyer") are parties, along with Seller, to an Asset Purchase Agreement dated as of the date hereof (the "Purchase Agreement") pursuant to which Buyer will acquire certain of the assets and assume certain of the liabilities of the Seller; and WHEREAS, the parties desire to provide for certain restrictions and other matters relating to the Two Hundred Twenty One Thousand (221,000) shares (the "Shares") of Parent's common stock ("Stock") to be issued to Seller as part of the Purchase Price for the Business and Purchased Assets. NOW, THEREFORE, the parties agree as follows: ARTICLE I --------- TERM OF AGREEMENT ----------------- Term of Agreement. This Agreement and the rights and obligations of ----------------- the parties under this Agreement, shall terminate on the earliest to occur of the following: (a) one year following the Closing Date or (b) immediately before the consummation of (i) the sale of all, or substantially all, of Parent's assets or capital stock either through a direct sale or merger, consolidation, reorganization or any other form of business combination or acquisition in which Parent is the target of such acquisition; provided, however that Parent's registration obligations under this Agreement shall be completed not later than the closing date of the said event, or (ii) the sale of 50% or more of Parent's capital stock pursuant to a "change in control" of Parent, provided, however, that Parent's registration obligations under this Agreement shall be completed not later than immediately before the closing date of the said event, and that Seller shall at all times comply with all applicable requirements of federal and state securities law, including Rule 144, with respect to the sale of the Shares. ARTICLE II ---------- LOCK-UP PROVISIONS ------------------ Section 2.1 Lock-up Provisions. Seller hereby agrees that, without the ------------------ prior written consent of Parent, it will not (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of or assign, directly or indirectly, any Restricted Shares as described in Section 2.2 below or (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Restricted Shares. Section 2.2 Definition of Restricted Shares. Restricted Shares shall ------------------------------- mean all Shares acquired by Seller at the Closing, provided, however, that the amount of Shares deemed "Restricted Shares" shall decrease with time according to the schedule set forth below: ------------------------------------------------------------------- Time Period Amount of Restricted Shares ----------- --------------------------- ------------------------------------------------------------------- Until 6 months following the 100% of the Shares acquired by Closing Seller at the Closing shall be deemed Restricted Shares. ------------------------------------------------------------------- Beginning 6 months following the 50% of the Shares acquired by Closing Seller at the Closing shall be deemed Restricted Shares. ------------------------------------------------------------------- Beginning 12 months following the 25% of the Shares acquired by Closing Seller at the Closing shall be deemed Restricted Shares. ------------------------------------------------------------------- Beginning 18 months following the 0% of the Shares acquired by Closing Seller at the Closing shall be deemed Restricted Shares. ------------------------------------------------------------------- ARTICLE III ----------- REGISTRATION ------------ Section 3.1 Shelf Registration. Parent shall (i) file with the ------------------ Securities and Exchange Commission (the "SEC") a registration statement for the Shares on Form S-3 (the "Shelf Registration") within One Hundred Twenty (120) days of the date of Closing, (ii) use its best efforts to have such registration statement declared effective with the SEC as soon as practicable, and (iii) use its best efforts to maintain the effectiveness of the Registration Statement for a period not less than two (2) years from the Closing. Should the Shelf Registration not be declared effective or should its effectiveness lapse for any reason during the period set forth above, Parent shall use its best efforts to have the Shares registered on another registration statement as soon as reasonably practicable. Section 3.2 Survival of Restrictions. Notwithstanding any registration ------------------------ pursuant to Article IV hereof, the remaining provisions of this Agreement shall survive the registration of the Shares, as set forth herein. Section 3.3 Indemnification. Parent will indemnify and hold Seller harmless to the maximum extent permitted by law from and against any loss, claim, liability, damage or expense (including reasonable attorneys' fees) resulting from a claim that the Shelf Registration, prospectus or amendment thereof or supplement thereto, which includes the Shares, contains a material misstatement or omission, unless such claim is based upon information provided by Seller; and Seller will indemnify and hold harmless Parent, its directors, officers and agents and each person, if any, who controls (within the meaning of the Securities Act of 1933 or the Securities Exchange Act of 1934) Parent against any loss, 2 claim, liability, damage or expense (including attorneys' fees) resulting from any such claim relating to information provided by Seller. Section 3.4 Assistance. Parent will take all commercially reasonable ---------- actions, not inconsistent with any applicable securities law, rule or regulation, to allow Seller to dispose of some or all of the Shares that are no longer Restricted Shares promptly upon such Shares no longer being Restricted Shares. ARTICLE IV GENERAL PROVISIONS ------------------ Section 4.1 Specific Enforcement. Because the Shares cannot be readily -------------------- purchased or sold in the open market, the parties hereby acknowledge and agree that they may be irreparably damaged in the event that this Agreement is not specifically enforced. Upon a breach or threatened breach of the terms, covenants and/or conditions of this Agreement by any party, the other parties shall, in addition to all other remedies, be entitled to a temporary or permanent injunction, without showing any actual damage, and/or a decree for specific performance, in accordance with the provisions hereof. Section 4.2 Legend. All certificates evidencing the Shares subject to ------ this Agreement shall also bear a legend substantially as follows during the term of this Agreement: "The shares represented by this certificate are subject to restrictions on transfer and may not be sold, exchanged, transferred, pledged, hypothecated or otherwise disposed of except in accordance with and subject to all the terms and conditions of a certain Stock Restriction and Registration Agreement, a copy of which the Company will furnish to the holder of this certificate upon request and without charge." Upon any Shares becoming non-Restricted Shares as described in this Agreement, Parent shall exchange the applicable Certificates evidencing the Shares for Certificates which do not contain the foregoing, or any similar, legend. Section 4.3 Governing Law; Successors and Assigns. This Agreement ------------------------------------- shall be construed in accordance with and governed by the laws of the State of Wisconsin and shall be binding upon the heirs, personal successor, executors, administrators, successors and assigns of the parties. Section 4.4 Notices. Notices given hereunder shall be deemed to have ------- been duly given (i) on the date of personal delivery or (ii) one business day following delivery by express overnight courier service, to the party being notified at its address set forth in the Purchase Agreement or such other address as it may subsequently notify the other party in writing. Section 4.5 Entire Agreement and Amendments. This Agreement ------------------------------- constitutes the entire agreement of the parties with respect to the subject matter hereof, and may not be modified, amended or terminated except by the written consent of Parent and by Seller. Section 4.6 Waivers. No waiver of any breach or default hereunder ------- shall be considered valid unless in writing, and no such waiver shall be deemed a waiver of any subsequent breach or default of the same or similar nature. 3 Section 4.7 Severability. If any provision of this Agreement shall be ------------ held to be illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render illegal, invalid or unenforceable any other severable provision of this Agreement, and this Agreement shall be carried out as if any such illegal, invalid or unenforceable provision were not contained herein. Section 4.8 Counterparts. This Agreement may be executed in one or ------------ more counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same instrument. Section 4.9 Termination. In the event that the Purchase Agreement is ----------- terminated, this Agreement shall terminate and be of no further force or effect. Section 4.10 Defined Terms. Capitalized terms that are not defined ------------- herein shall have the same meaning ascribed to them in the Purchase Agreement. Section 4.11 Attorneys' Fees. In the event of any legal proceeding ----------------------------- between the parties arising out of, or in connection with, this Agreement, the court shall determine which party is the prevailing party, and the prevailing party shall be entitled to recover its reasonable attorneys' fees and costs in such proceeding from the other party. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first noted above. SONIC FOUNDRY, INC. DIGITAL SAVANT, INC. By:__________________________________________ By:___________________________ Kenneth A. Minor, Chief Financial Officer Alex Shohet, President 4 Exhibit E ------- ASSUMPTION AGREEMENT The undersigned Sonic Foundry Media Services, Inc., ("Buyer") a Maryland corporation and a wholly-owned subsidiary of Sonic Foundry, Inc., pursuant to that certain Asset Purchase Agreement dated February 6, 2002 (the "Agreement") among Buyer and Digital Savant, Inc., a California corporation ("Seller"), hereby assumes and agrees (subject to the terms and conditions set forth in the Agreement) to pay, perform and discharge, as and when due, all those liabilities and obligations of Seller specified in Section 1.3 of the Agreement, to the extent specified therein. PROVIDED, HOWEVER, that the undersigned does not hereby assume any debts, liabilities, obligations or contracts of Seller other than those specifically referred to above. IN WITNESS WHEREOF, the undersigned has caused this instrument to be duly executed as of the _____ day of February, 2002. SONIC FOUNDRY MEDIA SERVICES, INC. By:_______________________________ STATE OF WISCONSIN ) ) ss. COUNTY OF DANE ) Personally came before me this _____ day of __________________, 2002 the above named __________________, to me known to be the ________________ and to me known to be the person who executed the foregoing instrument and acknowledges the same. _______________________________________________ * [NOTARIAL SEAL] _______________________________________________ Notary Public, Dane County, Wisconsin My Commission: ________________________________ EX-10.30 6 dex1030.txt SOFTWARE LICENSE EXHIBIT 10.30 SOFTWARE LICENSE AND MARKETING AGREEMENT Sonic Foundry Products This Software License and Marketing Agreement (this "Agreement") is entered into as of March 25, 2002, (the "Effective Date") between Broderbund Properties LLC ("Broderbund"), a Delaware limited liability company, and Sonic Foundry, Inc. a Maryland corporation ("Licensor"). WHEREAS, Broderbund is in the business of developing, distributing, licensing, marketing and publishing computer software products in the form of computer programs and written documentation relating to their use; WHEREAS, Licensor is the creator of the consumer computer software programs listed on Exhibit A to this Agreement and the related documentation; and WHEREAS, Licensor and Broderbund desire that Broderbund publish and distribute the consumer computer software programs listed on Exhibit A, subject to and in accordance with the terms of this Agreement. NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties hereto agree as follows: 1. DEFINITIONS. ----------- 1.1 "Affiliate" means, as to any person or entity, any other person or entity that controls, is controlled by or is under common control with it (whether by virtue of ownership, voting power, management or otherwise). 1.2 Intentionally omitted. 1.3 Intentionally omitted. 1.4 "Cost of Goods" means all costs and expenses associated with the manufacture and delivery of the Products, including without limitation, cartridges, floppy disks and CD-ROMs, external and internal packaging, documentation, inserts, assembly, warehousing and manufacturing fees due to third parties. 1.5 "Final Version" means a non-copy protected and unencrypted disk master of a Product, recorded in executable object code form according to the agreed upon specifications attached hereto as Exhibit C (the "Specifications") with any necessary supporting software and data and which Broderbund accepts as conforming in all material respects to the Specifications and is completely debugged and tested. All Final Versions shall contain an updated privacy policy in the 1 End User License Agreement, which allows Licensor to share end user data with Broderbund (the "End User Data"). 1.6 "Licensed Media" means all computer-readable media now known or hereafter to become known including, without limitation, magnetic media storage devices, CD-I, CD-ROM, CD-DVD, laser discs, integrated circuit card or chip, cartridges, interactive video discs, personal digital assistants (PDA), electronic downloading, Internet and any other human or machine readable medium. 1.7 "Net Receipts" means gross monies actually received by Broderbund from the sale or license of the Products less: (a) Cost of Goods (b) taxes, duties, freight, shipping, handling, actual bad debt, and other demonstrable costs incurred by Broderbund not directly attributable to the purchase price of the Products but charged to its customers, and (c) the following credits to the extent Broderbund reimburses these amounts: credits for discounts (including price protection), replacements, returns, refunds, and the like. Marketing expenses such as MDF, co-operative advertising, promotional materials incurred by Broderbund shall be paid by Broderbund and shall not be included in determining Net Receipts. The terms "sell," "sale," and other similar terms, when used in this Agreement in conjunction with the Products will mean the granting of a license or sublicense and will not be deemed for any purpose to mean a transfer of title or other rights of ownership in any such Products (other than the rights to use, reproduce and distribute as specifically set forth in this Agreement). 1.8 "Product" or "Products" means the object code only of the software programs identified on Exhibit A, including all data and resources --------- therein, whether visual or numeric, for publication in the Licensed Media, and all related documentation. 1.9 Intentionally omitted. 1.10 "SRP" of any Product means the Product's suggested retail price established by Broderbund. The SRP of each Product as of the date hereof is listed on Exhibit A and is subject to change at Broderbund's sole discretion at --------- any time. 1.11 "Territory" means those countries identified on Exhibit A. --------- 1.12 "Update" means revisions, modifications, updates and corrected versions for the Products that may be developed by Licensor, in its sole discretion, during the Term of this Agreement and that consist of substantially identical content to a previous version. Updates are usually designated by the same numeric prefix but different numeric suffix (e.g., 1.3 would be an Update to 1.2). 1.13 Intentionally omitted. 2 2. LICENSE AND RIGHTS. ------------------ 2.1. Super Duper Music Looper Exclusive License. Subject to the terms ------------------------------------------ of this Agreement, Licensor hereby grants to Broderbund the exclusive right and license (except as noted herein) to publish, use, reproduce, have localized (by Licensor, in Licensor's discretion, and at the rate of [*******] per hour plus all associated costs) sublicense (to end users) and distribute (all at its own cost) the Super Duper Music Looper product only and the associated trademarks and trade names owned by or licensed to Licensor in the Licensed Media, for sale, resale and/or license to end users throughout the Territory, in all channels of trade including without limitation (a) directly to end users, and (b) in the retail channel, including sales through dealers and distributors (including license agreements with international distributors). Broderbund acknowledges that Licensor currently distributes Super Duper Music Looper through various distributors. As of the date hereof, Licensor shall no longer fulfill distributor orders for such Product and will direct them to Broderbund; however, Broderbund acknowledges that some amount of Super Duper Music Looper, (not to exceed 850 units), will remain in various channels after the effective date of this Agreement and that shall not constitute a breach of this Agreement. 2.2 OEM Non-Exclusive License. Subject to the terms of this ------------------------- Agreement, Licensor hereby grants to Broderbund the non-exclusive right and license to publish, use, reproduce, have localized (by Licensor, in Licensor's discretion, and at the rate of [******] per hour plus all associated costs) sublicense and distribute the Products (including Super Duper Music Looper) solely through arrangements with original equipment manufacturers ("OEMs"), provided, however, such OEM deals shall only involve providing an OEM with a disc containing one or more Products. Subject to the terms of this Agreement, the rights granted hereunder include all marketing, production, retail, wholesale, television offer, direct mail and telesales rights, and all other sales and distribution rights for the Products. 2.3 Limitation on Exclusive License. Notwithstanding the rights ------------------------------- granted above, Licensor retains the right to reproduce, license, sublicense, translate and distribute the Super Duper Music Looper product directly (via Licensor's catalog, website or other direct marketing efforts) and in the k-12 school channel either directly or through other distributors. 3. TITLE TO THE PRODUCTS AND INTELLECTUAL PROPERTY RIGHTS. ------------------------------------------------------ 3.1 Title to the Products. Licensor retains all right, title and --------------------- ownership to the Products and no such rights shall pass to Broderbund, except to the extent to which such rights are expressly granted to Broderbund under this Agreement during the Term of this Agreement. However, all forms of Licensed Media copies of the Products made by or for Broderbund, as well as any collateral materials developed by Broderbund or for its benefit, shall be the property of Broderbund. *******Omitted and filed separately with the SEC 3 3.2 Product Name and Title to Intellectual Property. Broderbund will ----------------------------------------------- market and distribute the Products under Licensor's names set forth on Exhibit ------- A, - - 4. PRODUCT AND DOCUMENTATION. ------------------------- 4.1 Delivery of Master Copies. On or before a Product's Delivery ------------------------- Date (as defined in, and identified on, Exhibit A), Licensor shall deliver to --------- Broderbund two (2) master copies of the Final Version of the each of the Products in both CD ROM and machine readable format. 4.2 End User Registration Information. Licensor will change its --------------------------------- current End User License Agreement for the Products to inform users that End User Data shall be shared with Broderbund for marketing purposes (such rights include but are not limited to marketing of upgrades, Broderbund products or products of third parties as well as allowing Broderbund to allow third parties to use this information for similar purposes). Licensor shall provide End User Data information to Broderbund on a monthly basis, including the name of the Product purchased by each user. Broderbund will share End User Data, subject to its privacy policy, customer consent and applicable law, for the purposes of providing end-user technical support as provided in this Agreement. Neither party will disclose, distribute, license or sell End User Data to any third party without the consent of the other party. 5. PRODUCT UPDATES, UPGRADES AND SUPPORT. ------------------------------------- 5.1 Updates. If Licensor releases an Update during the term of this ------- Agreement, Licensor shall supply master disks or documentation to Broderbund within twenty (20) after Licensor's first such release and Broderbund may elect to begin immediately to market and sell the new version of the Product, at its discretion. The Updated version of such Product shall be subject to all of the terms and conditions of this Agreement. Licensor further agrees to notify Broderbund in writing, and Broderbund agrees to inform Licensor in writing, promptly upon the discovery of any defects or errors in the Program. 5.2 Engineering Resources. For any work Broderbund requests, and to --------------------- which Licensor agrees, Licensor shall charge Broderbund [******] per hour. 5.3 Product Support. Broderbund's representatives and sub-licensees --------------- shall be responsible for all support of the Products to end-users and third parties for initial contact and first level support issues and Licensor shall provide second level technical support to Broderbund technical support staff as outlined in Exhibit E. Licensor agrees to provide Broderbund's representatives --------- with such reasonable assistance and technical support throughout the Term of this Agreement (as defined in Section 9 below) as is reasonably necessary for Broderbund to give support to end-users and third parties. ******Omitted and filed separately with the SEC 4 6. ROYALTIES. --------- 6.1 Intentionally omitted. --------------------- 6.2 Regular Royalty. Except as provided in Section 6.3, 6.4 and 6.5 --------------- Broderbund shall pay the royalty rates identified on Exhibit A on the Net --------- Receipts derived by Broderbund from the sale of the Products (the "Royalty Rate"). All royalties shall be subject to a fifteen percent [15%] royalty reserve against returns. If Broderbund does not use the full amount of the royalty reserve within 180 days from the quarter in which it is taken any excess amount will be returned to Licensor with its next quarterly royalty statement. Except as specifically provided on Exhibit A, any royalties to any third parties --------- for any content, code, technology, and the like, included in the Products are the sole responsibility of Licensor. 6.3 Royalty Exceptions. ------------------ (a) Broderbund shall be entitled to use and distribute a reasonable number of Products without charge for internal purposes, promotional purposes, as sales inducements (other than as inducements to end users) or otherwise to distributors, dealers, reviewers and others, and no royalties shall be payable to Licensor on such Products. In no event shall Broderbund use the Products as "loss leaders" or give the Products away for free or nominal value, except as set forth above. (b) No royalties shall be paid to Licensor on any revenue derived from Broderbund's inclusion of any promotional information or advertising placed on the Licensed Media. 6.4 Royalties on Bundling by Broderbund. In cases where Broderbund ----------------------------------- bundles a Product with other software programs for distribution by Broderbund for a single price, the royalty payable to Licensor shall be calculated as follows: (a) Broderbund's SRP for the bundled Product shall be divided by the sum of the then current SRPs for all of the software programs bundled in the transaction in question. The resulting percentage shall be Licensor's share of the transaction's Net Receipts for the bundled Product. (b) Licensor's share of the transaction's Net Receipts shall be multiplied by the Royalty Rate. (c) If there is no established SRP for a product that is included in such a transaction, Broderbund shall determine a commercially reasonable SRP based on such factors as 5 competitive products on the market, comparable products with equivalent functionality, and lines of code contained in comparable products. If a reasonable SRP for any title cannot be reasonably determined, the royalty shall be determined by using the product of Net Receipts multiplied by a fraction, the numerator of which is the sum of the number of Products in the Bundle, and the denominator shall be the number of all titles in the Bundle. 6.5 Royalties on OEM Sales. In cases where Broderbund sublicenses the ---------------------- rights to manufacture a Product to an OEM or other similar distributor, the license fee that Broderbund receives from such OEM for the Broderbund products shall be pro rated among the Products sublicensed to such OEM according to the number of units actually replicated and distributed each quarter. 7. Intentionally omitted. 8. TERMS AND CONDITIONS OF PAYMENT. ------------------------------- Royalties will be paid in accordance with the provisions of Section 6 of this Agreement. Net Receipts shall be calculated and royalties shall be paid to Licensor quarterly. Payments shall be accompanied by a reasonably detailed royalty report showing the calculation of the royalties. All payments will be issued within forty five (45) days after the closing of the applicable quarterly period. Late payments shall bear interest at the rate of 1.5% per month or the maximum allowed by law, whichever is less beginning twenty (20) days after the date notice of late payment. 9. TERM AND TERMINATION. -------------------- 9.1 Term of Agreement. Unless terminated earlier pursuant to this ----------------- Section 9 this Agreement shall have a term of Effective Date through March 15, 2004 (the "Term"). 9.2 Intentionally omitted. --------------------- 9.3 Termination For Cause. --------------------- (a) Bankruptcy. Either party may immediately terminate this ---------- Agreement upon written notice to the other party if proceedings in bankruptcy or insolvency are instituted by or against the other party, or a receiver is appointed, or if any substantial part of the assets of the other party is the object of attachment, sequestration or other type of comparable proceeding, and such proceeding is not vacated or terminated within sixty (60) days after its commencement or institution. 6 (b) Material Breach. Either party may terminate this ---------------- Agreement if one party commits a material breach of any of the terms or provisions of this Agreement and does not cure such breach within sixty (60) days after receipt of written notice given by the other party. 9.4 Termination by Broderbund or Licensor. Broderbund may terminate ------------------------------------- this Agreement at any time by upon sixty (60) days prior written notice to Licensor provided, however, termination by Broderbund shall not entitle it to a refund of any portion of the Guaranteed Royalty, the obligation to pay same or to pay any royalties due for Products licensed or sold before and after termination. Licensor may terminate this Agreement only with respect to the right granted to Broderbund to sublicense the Products in the OEM channel on (90) days prior written notice to Broderbund, provided that the provisions of Section 9.5 shall apply to any OEM sublicense agreement entered into by Broderbund prior to the termination. In the event that Licensor exercises this termination right, Broderbund will have no obligation to pay any unpaid Guaranteed Royalty payments outlined in Exhibit A. --------- 9.5 Sell-Off Rights. Upon termination of this Agreement, Broderbund --------------- shall immediately cease all manufacturing of the Products; provided, however, -------- ------- that Broderbund may continue to market and sell any inventory in existence as of the date of such termination for a period of nine (9) months after termination and royalties shall be payable on such Products pursuant to Section 6. All OEM sublicense agreements entered into by Broderbund prior to the expiration of this Agreement shall continue in full force and effect after the expiration. Notwithstanding the foregoing, in the event that Broderbund terminates this Agreement pursuant to Section 9.3(b) above the sell-off period shall be eighteen (18) months from the effective date of the termination. 9.6 Survival of Terms. Sections 3.1, 6, 9.5, 10, 12, 14 and 15 of ----------------- this Agreement shall survive any termination of this Agreement. 10. REPRESENTATIONS, WARRANTIES AND INDEMNIFICATION. ----------------------------------------------- 10.1 Licensor Warranties. Licensor represents and warrants to ------------------- Broderbund the following: (a) Licensor either owns all right, title and interest in or is the exclusive licensee (with the right to grant the sublicenses) of the Products and possesses the necessary rights to grant Broderbund the rights granted hereunder. (b) Licensor has the full power and authority to enter into this Agreement and to fulfill its obligations hereunder and has not granted any licenses that would prevent it from granting the rights set forth herein. 7 (c) Licensor's performance of the terms of this Agreement and of its obligations hereunder will not breach any separate agreement. (d) Licensor has obtained all necessary releases, consents, assignments and similar instruments in order to perfect its rights in the Products. (e) The Products do not infringe upon or misappropriate any copyright, patent right, right of publicity or privacy (including but not limited to defamation), trademark, trade secret or other proprietary rights of any third party. (f) The Products contain no matter that is obscene, indecent, pornographic or otherwise inappropriate. (g) The Products are Year 2000 compliant, which means that (i) no value for current date will cause any interruption in operation, (ii) date-based functionality must behave consistently for dates prior to, during and after year 2000, (iii) in all interfaces and data storage, the century in any date must be specified either explicitly or by unambiguous algorithms or inferencing rules, and (iv) year 2000 must be recognized as a leap year. 10.2 Licensor Indemnities. Licensor agrees to indemnify, hold harmless -------------------- and defend Broderbund from all claims, liabilities, damages, defense costs (including reasonable attorneys' fees), judgments and other expenses arising out of or on account of: (a) the alleged infringement or violation of any copyright, patent right, right of publicity or privacy (including but not limited to defamation), trademark, trade secret or other proprietary right with respect to the Products, except to the extent such claim is based on Broderbund's actions that modify or alter the Products or any of their trademarks; (b) any unfair trade practice, defamation or misrepresentation claim based on any promotional material, packaging, documentation or other materials provided by Licensor with respect to the Products, except to the extent such claim is based on Broderbund's actions that modify or alter the Products; and (c) the breach of any covenant, representation or warranty set forth in this Agreement. 10.3 Licensor Indemnification Option. In the case of an infringement ------------------------------- claim, at Licensor's option, Licensor may at its expense: (i) procure a license from any claimants with respect to the challenged Product that will enable Broderbund to continue marketing and using the Product, (ii) modify the challenged Product so as to make it non-infringing, or (iii) take appropriate action or seek available legal remedies to enable the continued manufacturing, use and distribution of the challenged Product. 8 10.4 Broderbund Warranties. Broderbund represents and warrants to --------------------- Licensor the following: (a) Broderbund possesses full power and authority to enter into this Agreement and to fulfill its obligations hereunder. (b) Broderbund's performance of the terms of this Agreement and of Broderbund's obligations hereunder will not breach any separate agreement by which Broderbund is bound. 10.5 Broderbund Indemnification. Broderbund agrees to indemnify, hold -------------------------- harmless and defend Licensor from all claims, liabilities, damages, defense costs (including reasonable attorneys' fees), judgments and other expenses arising out or on the account of any unfair trade practice, trade libel or misrepresentation claim based on any promotional material, packaging, documentation or other materials developed by Broderbund, to the extent such materials are not based upon the Products or other materials provided by Licensor. 10.6 Claims. With respect to any claims falling within the scope of ------ the foregoing indemnifications: (a) each party agrees to notify the other promptly of and keep the other fully advised with respect to such claims and the progress of any suits in which the other party is not participating; (b) each party shall have the right to participate, at its own expense, in the defense of a claim or suit made or filed against the other party; (c) each party shall have the right to assume any suit instituted against it and to approve any attorneys selected by the other party to defend such suit, which approval shall not be unreasonably withheld or delayed; and (d) a party assuming or participating in the defense of a claim or suit against the other party shall not settle such claim or suit without the prior written approval of the other party, which approval will not be unreasonably withheld or delayed. 10.7 LIMITATION ON LIABILITY, REMEDIES. EXCEPT AS EXPRESSLY PROVIDED --------------------------------- IN THIS SECTION 10 WITH RESPECT TO INDEMNIFICATION, NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR ANY INCIDENTAL, CONSEQUENTIAL, SPECIAL OR PUNITIVE DAMAGES OF ANY KIND OR NATURE, INCLUDING LOST PROFITS, WHETHER SUCH LIABILITY IS ASSERTED ON THE BASIS OF CONTRACT, TORT (INCLUDING NEGLIGENCE OR STRICT LIABILITY) OR 9 OTHERWISE, EVEN IF EITHER PARTY HAS WARNED OR BEEN WARNED OF THE POSSIBILITY OF ANY SUCH LOSS OR DAMAGE. 10.8 Third Party Infringement. It is understood and each party shall ------------------------ have the non-exclusive right to take prompt and all necessary actions against any infringement of the Products. No settlement of such action shall be made by either party without the approval of the other party, which approval will not be unreasonably withheld or delayed. 11. OBLIGATION TO REPAIR. -------------------- If, after valid acceptance of any Product by Broderbund, Broderbund reports to Licensor a material error or defect in the performance of such Product or the documentation including the manual for such Product, Licensor will use its reasonable efforts to correct such error or defect within twenty (20) days. If after said twenty (20) days, Licensor has not corrected the problem, Broderbund shall give Licensor an additional ten (10) days' notice and at the end of said ten (10) days if the material error or defect is not corrected, Broderbund shall have the right to terminate this Agreement immediately. In the event that Broderbund terminates this Agreement pursuant to this Section 11, Broderbund will have no obligation to pay any unpaid Guaranteed Royalty payments outlined in Exhibit A. --------- 12. ACKNOWLEDGMENTS. --------------- Licensor hereby agrees that Broderbund has full discretion with respect to the marketing of the Products pursuant to the licenses granted herein including, but not limited to, the licensing of the Products alone or as part of a bundle of other software or related products, the pricing of the Products and the distribution of the Products. Licensor also acknowledges that nothing in this Agreement shall require Broderbund to begin to market, or, once begun, to continue to market, the Products if Broderbund, in its sole discretion, determines that it would not be commercially reasonable to do so; provided, however, upon any failure of Broderbund to market such Products that continues for more than a continuous period of thirty (30) days or more, then upon notice Licensor may terminate this Agreement immediately. 13. ACCOUNTING. ---------- Licensor may request a certified audit of Broderbund's sales records pertaining to the Products for the preceding four (4) full quarters to be performed by an independent certified public accountant that (a) shall be reasonably acceptable to Broderbund and (b) shall not be compensated on a contingency basis or otherwise have any financial interest in the outcome of such audit. Any such audit shall be at the expense of Licensor. Licensor may not request such an audit more than one (1) time within any twelve (12) month period. The accountant shall be required to execute a confidentiality and non-disclosure agreement if requested by Broderbund and shall hold all information confidential. The accountant may reveal to Licensor only the 10 amounts of any underpayment. The accountant shall provide to Broderbund a final report of its work, including both overpayment and underpayment information. The audit shall take place at Broderbund's principal place of business in the United States for domestic sales or at Broderbund's applicable international offices for foreign sales, during normal business hours and at a mutually agreed upon time. If the audit reveals that Broderbund underpaid the royalties payable with respect to the period for which the audit was performed by an amount in excess of 5% of the amount owed, Broderbund shall promptly pay to Licensor the amount of such underpayment plus the reasonable cost of the audit (not to exceed $15,000). Any dispute relating to the audit findings shall be subject to the arbitration provisions in this agreement. 14. CONFIDENTIALITY. --------------- 14.1 Confidential Information. All documentation and information ------------------------ designated in writing at the time of disclosure as proprietary or confidential ("Confidential Information") by the party disclosing the information (the "Disclosing Party"), including without limitation drawings, source code, computer program listings, techniques, algorithms and processes and technical and marketing information, shall be treated confidentially by the recipient of the Confidential Information and its employees (the "Recipient") and shall not be disclosed by the Recipient without the Disclosing Party's prior written consent. The terms of this Agreement shall be deemed Confidential Information without further designation or marking. 14.2 Exceptions. Information shall not be considered to be Confidential ---------- Information if it (i) is already or otherwise becomes publicly known through no act of the Recipient, (ii) is lawfully received from third parties subject to no restriction of confidentiality, (iii) can be shown by Recipient to have been independently developed by it, (iv) is disclosed by the Disclosing Party to third parties without restriction on subsequent disclosure, or (v) is required to be disclosed in the context of an administrative or judicial proceeding, except that in such case the Recipient agrees to provide the Disclosing Party with prompt notice of such requirement in order to allow the Disclosing Party to seek an appropriate protective order. 14.3 Term of Confidentiality. The Recipient's obligations under this ----------------------- Section 14 shall survive the termination or expiration of this Agreement for a period of two (2) years. 15. MISCELLANEOUS. ------------- 15.1 Notices. All notices or other communications required or permitted ------- to be given pursuant to this Agreement shall be in writing and shall be considered as properly given or made (a) when received, if hand delivered, sent by facsimile transmission (the receipt of which is confirmed) or sent by express overnight courier service, or (b) two (2) business days after deposit in the mail if mailed by first class mail, postage prepaid: If to Broderbund, to: If to Licensor, to: 11 Broderbund Properties LLC Sonic Foundry, Inc. Attention: Chief Financial Officer 1617 Sherman Ave. 500 Redwood Boulevard Madison, WI 53704 Novato, California 94947 Attn: Brad Reinke Telephone: (415) 382-4400 Telephone: (608) 204-8067 Facsimile: (415) 382-4572 Facsimile: (608) 204-8806 With a copy to: With a copy to: Broderbund Properties LLC Sonic Foundry, Inc. Attention: General Counsel Attn: General Counsel 500 Redwood Boulevard 1617 Sherman Avenue Novato, California 94947 Madison, WI 53704 Telephone: (415) 382-4400 Telephone: 608.256.3133 Facsimile: (415) 382-4411 Fax: 608.204.8804 or to such other address as any such party may have designated by like notice forwarded to the other party hereto. 15.2. Relationship Manager. Each of the parties shall designate a -------------------- "relationship manager" who shall serve as the primary contact person for the other party for purposes of this Agreement, including, without limitation, with respect to any requests for marketing, sales, development, accounting, financial or other information by any party, any complaints or any performance issues relating to this Agreement. Each party shall cause its relationship manager to be reasonably accessible to the other party, to meet from time to time with the other party and to promptly respond to any requests or inquiries from the other party. In the event of any absence of any relationship manager of any party, whether due to vacation, illness or otherwise, such party shall promptly consult with the other party regarding a replacement relationship manager and following such consultation shall designate such replacement. 15.3 Injunctive Relief. Each party hereto further agrees that any breach ----------------- of Sections 2, 10 or 14 of this Agreement is likely to result in irreparable injury to the other, and each party agrees that the other shall be entitled, if it so elects, to institute and prosecute proceedings in any court of competent jurisdiction to enforce the specific performance of this Agreement by such party, or to enjoin such party from activities in violation of this Agreement. 15.4 Entire Agreement. This Agreement contains the entire understanding of ---------------- the parties hereto relating to the Products, supersedes any prior written or oral agreement or understandings between the parties with respect to the Products, and cannot be changed or 12 terminated orally. This Agreement may be amended only by a writing signed by the parties hereto. 15.5 Waiver. A waiver by either party of any term or condition of this ------ Agreement in any instance will not be deemed or construed as a waiver of such term or condition for the future or any subsequent breach thereof. All remedies, rights, undertakings, obligations or agreements contained in this Agreement will be cumulative and none of them will limit any other remedy, right, undertaking, obligation or agreement of either party. 15.6 Enforceability. The invalidity or unenforceability of any provision -------------- of this Agreement will not affect the validity or enforceability of any other provision of this Agreement. 15.7 Assignment. Neither this Agreement nor the rights or obligations ---------- hereunder may be assigned by a party without the other party's prior written consent, which consent shall not be unreasonably withheld; provided however, -------- ------- that a party may assign this Agreement to an Affiliate or upon the merger of that party or the sale of that party's business, all without the consent of the other party, if the transferring party gives notice to the other party of such assignment. In the event of such an assignment, this Agreement shall be binding upon such successors and assignees. 15.8 Section Titles. The titles of the sections of this Agreement are for -------------- convenience only and will not in any way affect the interpretation of any section or of the Agreement itself. 15.9 Independent Contractors. Licensor and Broderbund shall perform their ----------------------- duties pursuant to this Agreement as independent contractors. Nothing in this Agreement shall be construed to create a joint venture, partnership or other joint relationship between Licensor and Broderbund. Neither party shall have the ability to incur any obligation on behalf of the other party. 15.10 U.S. Dollars. All dollar amounts herein are expressed in United ------------ States funds. 15.11 Governing Law. This Agreement and its validity, construction and ------------- performance shall be governed in all respects by the internal laws of the State of California. 15.12 Broderbund Affiliates. The rights granted to Broderbund under this --------------------- Agreement shall be deemed to include all Affiliates of Broderbund; and therefore all references herein to "Broderbund" shall also refer to Broderbund's Affiliates. Moreover, Broderbund shall remain liable and responsible to Licensor hereunder for all actions and obligations of Broderbund and its Affiliates and Licensor may, in its discretion, look solely to Broderbund for redress or other relief hereunder. 13 15.13 Force Majeure. Neither party shall be responsible for any failure to ------------- perform due to unforeseen, non-commercial circumstances beyond its reasonable control, including but not limited to acts of God, war, riot, embargo, acts of civil or military authorities, fire, flood, earthquake, accident, strike, or shortage of fuel or energy. In the event of any such delay, any applicable period of time for action by said party may be deferred for a period equal to the time of such delay. 15.14 Contract Interpretation. Ambiguities, inconsistencies or conflicts in ----------------------- this Agreement shall not be strictly construed against the drafter of the language but will be resolved by applying the most reasonable interpretation under the circumstances, giving full consideration to the parties' intentions at the time this Agreement is entered into. 15.15 No Third Party Rights. This Agreement is not for the benefit of any --------------------- third party, and shall not be considered to grant any right or remedy to any third party whether or not referred to in this Agreement. 15.16 Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same instrument. 15.17 Press Releases. Licensor shall not make any public announcement or -------------- issue any press release relating to this Agreement or the services to be provided in connection therewith without the reasonable prior written consent of Broderbund and subject to Licensor's obligations under law. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed under seal as of the date first set forth above. BRODERBUND PROPERTIES LLC SONIC FOUNDRY, INC. By:____________________________ By:____________________________ Name: Name: Title: Title: 14 EXHIBIT A 1. Products and Royalty Rates: -------------------------- Licensor will deliver the following Products that do not include any third party content for which Broderbund will be obligated to pay any additional royalties to any third parties. In addition, Licensor will deliver versions of the Sound Forge(R) XP Studio, Acid Music and Video Factory that have the following royalties to third parties. By way of example, Licensor will deliver one version of Acid Music that contains third party content for which Broderbund will be obligated to pay royalties and one version of Acid Music which does not contain third party content for which Broderbund will be obligated to pay royalties.
- ------------------------------------------------------------------------------------------------------------------ Licensor Product Broderbund Version Application Royalty SRP Name Product Name Rate - ------------------------------------------------------------------------------------------------------------------ Acid(TM) Music Acid(TM) Music Most Win [******]% N/a recent 98/2000/ME for OEM /XP - ------------------------------------------------------------------------------------------------------------------ Sound Forge(R) XP Sound Forge(R) Most Win [******]% N/a Studio XP Studio recent 98/2000/ME for OEM /XP - ------------------------------------------------------------------------------------------------------------------ Video Factory(TM) Video Factory (TM) Most Win [******]% N/a recent 98/2000/ME for OEM /XP - ----------------------------------------------------------------------------------------------------------------- Acid(TM) Techno Acid(TM) Techno Most Win [******]% N/a recent 95/98/2000/ for OEM NT/ME/XP - ------------------------------------------------------------------------------------------------------------------ Acid(TM) DJ Acid(TM) DJ Most Win [******]% N/a recent 98/2000/ME/XP for OEM /XP - ------------------------------------------------------------------------------------------------------------------ Super Duper Music Super Duper Most Win [******]% Looper(TM) Music Looper(TM) recent 95/98/2000/ in all NT/ME/XP channels - ------------------------------------------------------------------------------------------------------------------
Note: Regarding operating system compatibility, the current build of all Products except for Super Duper Music Looper, have some features that will not work in Windows 95 or NT. Broderbund will be obligated to pay the royalties to third parties, specifically identified below, for the Products, if Broderbund elects to distribute versions of the Products that contain third ******Omitted and filed separately with the SEC 15 party royalty bearing technology. These Products will be subject to the royalty obligations described above plus the following amounts based on net units sold, as follows: Sound Forge XP Studio MP3 [******] Acid Music MP3 [******] Video Factory: MPEG I [******] Broderbund shall pay these royalties directly to Licensor at the same time as the royalties due to Licensor hereunder. Licensor must give thirty days prior notice of any termination, modification or renewal of the agreements relating to the third party content. If, during the term, the third party licenses are renewed or altered resulting in a different royalty rate, Broderbund will pay the new amount. Licensor shall be responsible for all royalty reporting and payments to the third party licensors. Licensor agrees to indemnify and hold harmless Broderbund from any claims relating to Licensor's failure to pay these third party royalties, except to the extent such failure is the result of Broderbund's failure to pay Licensor for such royalties. Except for the third party royalties specifically described in this Agreement, Licensor shall be solely responsible for any third party royalty obligations relating to the Products to the extent Licensor decides to include any third party technology in the Products that would require such additional third party royalties. 2. Guaranteed Royalty. Broderbund guarantees that Licensor shall receive no ------------------ less than one hundred thousand dollars ($100,000) in royalties under this Agreement in the first full year of the Agreement (the "Guaranteed Royalty"). If after the first two full quarterly royalty periods, Licensor has not received $50,000 in royalties from Broderbund, Broderbund will pay the difference with the next quarterly royalty payment which shall be credited as an advance against future royalties. If after four full quarterly royalty periods, Licensor has not received $100,000 in royalties from Broderbund, Broderbund will pay the difference with the next quarterly royalty payment, which shall be credited as an advance against future royalties. The Guaranteed Royalty is non-refundable under all circumstances and is due regardless of termination of this Agreement, unless Licensor terminates the Agreement pursuant to Section 9.4 and in such case the Guaranteed Royalty paid to date is not refundable, but Broderbund shall not owe any Guaranteed Royalty not due and owing as of the date of termination. 3. Purchase of Super Duper Music Looper Products. Upon execution of this --------------------------------------------- Agreement, Broderbund will issue a purchase order for 2,500 units of Super Duper Music Looper at [******] per unit. Broderbund shall pay for these units net 30 days after delivery to Broderbund. As needed to fulfill customer demand, Broderbund will purchase an additional 7,500 units of the Super Duper Music Looper product on a consignment basis at [******] per unit. Broderbund ******Omitted and filed separately with the SEC 16 will pay the per unit fee for these products within thirty (30) days of receipt of payment by Broderbund from its customers with respect to the consigned products. All products will be in resale condition. Broderbund shall receive a credit for all Product that is not in resale condition. Broderbund will not pay the [******]% royalty on these of Super Duper Music Looper products. Broderbund will sell the Super Duper Music Looper products in the following order: 1) the 2,500 purchased units, 2) the 7,500 consignment units and 3) any units manufactured thereafter. 4. Delivery Dates: Licensor will deliver fully functional and tested versions of -------------- the Products and all documentation and other materials, including digital files, and in-box manuals in PDF format, all suitable for replication within twenty (20) business days following the Effective Date. 5. Territory: The World. --------- ******Omitted and filed separately with the SEC 17 EXHIBIT B Copyright and Trademark Notices Broderbund will use the copyright and trademark notices as contained on the Final Versions of the Products delivered by Licensor. 18 EXHIBIT C Specifications. The Final Versions shall consist of the current versions of the Products listed on Exhibit A, with the end user license agreements modified as required in --------- Section 4.2. Broderbund shall be deemed to have accepted the Final Versions if it does not provide Licensor with written notice to the contrary within thirty (30) days of Licensor delivering such Products to Broderbund. 19 EXHIBIT D Intentionally omitted. 20 Exhibit E Technical Support First Level Support First Level Support will be resolved by Broderbund Technical Support department, following these guidelines. ... Broderbund technical support will be furnished with knowledge base content of issues related to the operation of the program, including navigational, how-to's, incompatibilities, etc., and the logs of calls history on all the Products by Licensor. ... Licensor will provide up to one week of training on the Products at Broderbund's technical support facility at its sole expense. ... Broderbund technical support will be furnished with access to all available patches, software updates or other downloadable content that will be a benefit to resolving the customer's issue. ... All knowledge base and downloadable content will be placed out on the Broderbund Support site for customer's to access for self-help. ... The Broderbund representatives will answer customer's questions by using the above-mentioned knowledge base content as well as using standard operating system trouble shooting techniques. ... If the issue was resolved using standard operating system trouble shooting techniques, but is not in the knowledge base, Broderbund will add this as a new issue for other representatives and customers to use in the future. ... If, after these resources have been utilized, and the representative cannot solve the customer's issue, the customer will be escalated to Second Level Support. Second Level Support Second Level Support will be handled by Licensor, subject to the terms and conditions of its then, if any, technical support. Broderbund technical support staff will work directly with Licensor, ensuring that customer interface remains only with Broderbund. The following are examples of the types of situations that fall under second level support. Sonic Foundry, Inc. currently charges customers for technical support at a rate of $3.00 for the first minute and $1.00 for each additional minute. This policy and procedure would apply to Broderbund technical support staff, after 10 hours of technical support provided free to Broderbund technical support staff per month. ... Any issue that cannot be resolved by using the content provided by Licensor or by using standard operating system trouble shooting techniques. ... Incompatibilities with newly released technologies, including operating systems, hardware, and/or software applications that interact with the program (i.e., Windows XP, Internet Explorer, printers, etc.). If a solution is tested and proven to resolve the issue, the content can be added to the Broderbund knowledge base for first level support. ... Issues that originated from the design of the program that Broderbund is not provided with a patch or solution to resolve the customer's situation. 21 EX-10.31 7 dex1031.txt AMENDED & RESTATED LICENSE AGREEMENT EXHIBIT 10.31 AMENDED AND RESTATED LICENSE AGREEMENT Carnegie Mellon University - Mediasite, Inc. This Amended and Restated License Agreement (hereinafter "this Agreement") entered into effective as of the 15/th/ day of October, 2001 by and between Carnegie Mellon University, a Pennsylvania not-for-profit corporation, having a principal place of business at 5000 Forbes Avenue, Pittsburgh, Pennsylvania ("CMU") and Sonic Foundry Systems Group, Inc., a Maryland for-profit corporation having its place of business at 1617 Sherman Avenue Madison, WI 53704,303, and its corporate parent, Sonic Foundry, Inc., a Maryland corporation having its place of business at 1617 Sherman Avenue Madison, WI 53704 (hereinafter collectively referred to as "Licensee"). WITNESSETH WHEREAS, CMU owns certain rights in certain technology and software relating to CMU Informedia Project, in the general field of image, sound and text analysis, segmentation, characterization, search, retrieval, processing, presentation, display, and other functions, and is interested in licensing same; WHEREAS, CMU and MediaSite, Inc. (f/k/a islipMedia Network, Inc.) entered into that certain License Agreement dated October 22, 1997, amended on November 24, 1999 (collectively, the "License Agreement"). WHEREAS, Licensee acquired substantially all of the assets of MediaSite and assumed certain of its liabilities, including the License Agreement, pursuant to an asset purchase agreement dated September 6, 2001 and which asset purchase was effective as of October 15, 2001. WHEREAS, the parties desire to amend the License Agreement in the manner set forth in this Agreement and desire to have this Agreement completely supercede the License Agreement. NOW THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the parties agree as follows: 1. Certain Definitions ("Defined Terms") 1.1. "Code" shall mean computer programming code in both Source Code and Object Code form. 1.2. "Object Code" shall mean Code, substantially or entirely in binary form, which is intended to be directly executable by a computer after suitable processing but without the intervening steps of compilation or assembly. 1.3. "Source Code" shall mean Code, other than Object Code, and related source code level system documentation, comments and procedural code, such as job control language, which may be printed out or displayed in human readable form. 1.4. "Copyrights" shall mean any CMU copyrights in licensed Code and other information licensed under this Agreement. 1.5. The "Informedia Project" shall mean Informedia: Integrated Speech, Image, and Language Understanding for Creation and Exploration of Digital Video Libraries conducted under grant No. IRI-9411299 from September, 1994 to September, 1998 and related, contributing technology from other projects developed prior to October 1, 1998, which is necessary to implement the technology developed under grant No. IRI-9411299. -1- 1.6. "Patent(s)" shall mean and include all or any of the following: (i) U.S. Patent No. 5,664,227 entitled System and Methods for Skimming Digital Audio/Video Data, and foreign counterparts (ii) U.S. Patent No. 5,835,667 entitled Method and Apparatus for Creating a Searchable Digital Video Library and a System and Method of Using Such a Library, and foreign counterparts, and (iii) any additional patent application(s) which may be applied for by and be issued to CMU related to the Licensed Technology (as defined under Section 1.7 herein), and (iv) any continuation, continuation-in-part, re-examination, divisional, or reissue of such patents, in the USA or in any other country. 1.7. Licensed Technology (Also see Attachment A) 1.7.1 "Licensed Technology" or "Technology" shall mean the following related to the CMU Informedia Project: (1) technology developed under the Informedia Project, pursuant to grant No. IRI-9411299, through and including September 30, 1998, (2) background technology not developed under such grant but which is needed and used in the Informedia Project, to the extent that CMU has the right to license same; (3) all claims under the Patents and any modifications, divisions, extensions, continuations, amendments, or foreign counterparts thereto; (4) all Code, copyrights, trade secrets, know-how, trademarks and tradenames owned by CMU, related to the foregoing technology listed in items (1-3) above, existing as of the Effective Date; and (5) derivatives of the foregoing technology if designed for use in the Informedia Project and developed by CMU after the Effective Date and before September 30, 1998 ("the Additional Period"), and which (a) has been defined in the annually submitted NSF program plans that extend to the normal end date of the NSF funding, and/or incremental extensions and renewals that may occur for the base project or (b) constitute improvements and enhancements which do not introduce new functionality beyond that found in the technology subject to the foregoing parts 2 and 3 of this Section 1.7.1. 1.7.2 "Initial Technology" shall mean Licensed Technology "as is" on the Effective Date. 1.7.3 "Additional Technology" shall mean the Licensed Technology developed after the Effective Date, CMU has no obligation to Licensee to develop such. 1.8. "Technology Release Date" shall mean the date when a portion of Licensed Technology is to be released by CMU to Licensee, in accordance with Section 2.3 herein, in a format and manner mutually agreed upon case by case by the parties. 1.9. "Derivative" shall mean the technology developed by Licensee, which includes, or is based in whole or in part on, the Licensed Technology, including, but not limited to, translations of the Licensed Technology to other foreign or computer languages, adaptation of the Licensed Technology to other hardware platforms, abridgments, condensations, revisions, and software incorporating all or any part of the Licensed Technology which may also include Licensee-created modifications, enhancements or other software. Licensee shall be entitled to establish all proprietary rights for itself in the intellectual property represented by Derivatives, whether in the nature of trade secrets, copyrights, patents or other rights, subject to Copyrights; provided, however, Licensee shall promptly notify CMU of Licensee-originated bug fixes to the Licensed Technology. Any copyright registration by Licensee for Derivatives shall give full attribution to CMU's Copyrights. 1.10. "Licensed Product" or "Product" shall mean any product and/or service which is based on or utilizes wholly or in part Licensed Technology and/or any and all Derivatives. 1.11. "Year" shall mean a twelve (12) month period ending December 31. "Year 1", "Year 2", etc. shall mean the first, second, etc. Year following the Effective Date. Year 1 shall commence January 1, 1998. 1.12. "Fiscal Quarter" or "Quarter" shall mean a normal quarterly accounting period of Licensee within Licensee's fiscal year. -2- 1.13. "Dispose or Disposition" shall mean the sale, lease or other transfer of Licensed Products. 1.14. "Revenue" shall mean the U.S. Dollar value of all consideration realized by Licensee for the Disposition of Licensed Products. In the case of Licensed Products that include more than the Licensed Technology, the calculation of Revenue shall subtract (a) the price paid by Licensee for purchased hardware or software (except software which, in whole or part, is within the definition of Licensed Technology) that is sold as part of Licensed Products (other than services) or, in the case of a lease, the proportionate share of said price based upon the length of the useful life of the purchased hardware compared to the length of the lease and/or (b) royalty payments to other parties which arise because of the Disposition of other than the Licensed Technology. 1.15. "Net Sales" shall mean the total Revenues received by Licensee (i) from the manufacture, use or Disposition of Licensed Products, and (ii) from services related to Licensed Technology, including but not limited to software, curriculum, consulting and training services, less the total of all -- (a) Actual rebates and discounts provided by Licensee in ordinary course of business in an arm's length transaction with an unrelated party; (b) Sales tariffs, duties and/or taxes imposed on the Licensed Technology; (c) Outbound transportation prepaid or allowed; and (d) Amounts allowed or credited on returns. No deduction shall be made for commissions paid to individuals whether they are individual sales agents or persons regularly employed by Licensee. 1.16. "Royalties" shall mean disposition royalties which are calculated as a percentage of Net Sales and will be payable by Licensee to CMU under the provisions of this Agreement. 1.17. "Deferred Royalties" shall mean Royalties for which the cash payment to CMU is deferred in accordance with Section 4.3 herein. 1.18. "Trigger Date" shall mean the date up to which the cash payment to CMU of Royalties may be deferred by Licensee; it shall be deemed to be October 12, 2001. 1.19. "Effective Date" of this Agreement shall mean October 22, 1997. 1.20. "Dollar", "U.S. Dollar" and "U.S. $" shall mean lawful money of the United States of America. 1.21. "Prime Rate" shall mean the interest rate per annum announced from time to time by Mellon Bank, N.A., Pittsburgh, Pennsylvania, as its prime rate. 2. License Grant 2.1. License Grant. CMU hereby grants to Licensee, and Licensee hereby accepts for the Term of this Agreement the exclusive (exclusive solely as to the parties listed below as the "Prohibited Licensees"), world-wide right to use the Licensed Technology to develop, have developed, make, have made, use and Dispose of Licensed Products and to create Derivatives, within all fields of use and to sublicense the Licensed Technology to others within the provisions of Section 2.4 herein. CMU shall not license the Patents to any of Adobe, Loudeye, Convera, Virage and/or Avid or any of their successors in interest which shall include any company or entity that acquires all or substantially all of the assets, or all or substantially all of the stock, of any of the foregoing. As consideration for the inclusion of Adobe as a Prohibited Licensee, Licensee shall -3- pay to CMU a one-time fee of ten thousand dollars ($10,000) which is payable in five equal installments beginning in February 2002. 2.2. Technology Release Dates. The Technology Release Date for the Initial Technology shall be the Effective Date. Additional Technology shall be available by CMU for Release to Licensee at the end of each month during the Additional Period, or at other times if mutually agreed upon. 2.3. Sublicensing. 2.3.1. Sublicense Template. CMU will provide Licensee with a template for consideration by Licensee for any sublicense under Exception 2 of the Sublicense Grant ("Sublicense Template"); this Template will incorporate the general terms and conditions which will be mandatory for all such sublicenses (other than under Exception 1, Section 2.3.2.). Any sublicense must meet the material requirements of the Sublicense Template. 2.3.2. Sublicense Grant. No right to sublicense the Licensed Technology is hereby granted to Licensee except - Exception 1: Licensee may sublicense Licensed Technology to its direct customers as required to enable such customers to use and practice Licensed Technology. Exception 2: Licensee may sublicense Licensed Technology to another party or parties which were specifically pre-approved by CMU, in writing. Licensee shall make sublicense royalty payments to CMU, based upon such sublicense, equal to or greater than the following percentages of the revenue (all consideration) realized by sub-licensee from the Disposition of Licensed Product (provided that payments by sub-licensee to Licensee shall not be included in Net Sales): Years following Effective Date 0-5 6-10 11 and thereafter --- ---- ------------------ 10% 8% 6% Exception 3: For different terms and conditions than specified in Exceptions 1 or 2, Licensee may sublicense Licensed Technology only with the specific written agreement by CMU with regard to all provisions of such a proposed sublicense. 2.3.3. Possibility of Additional Specific Sublicense Templates in the Future. It is recognized that, over a period of time, certain sublicensing patterns may evolve which are in the common interest and acceptable to CMU and which could result in CMU's pre-approval of Specific Sublicense Templates for specific markets and other specific circumstances. 2.3.4. Sublicensing Agreements, Accounting, and Payment Terms. Licensee will furnish CMU with current copies of all Sublicense agreements which were executed under Exceptions 2 and 3. Licensee will maintain separate accounting records for the sublicense income payable to CMU, and will report such income to CMU as provided for under Section 8.1 herein. Sublicense royalties payable to CMU shall be payable by Licensee to CMU quarterly, on the last day of the month immediately following the Quarter during which any payment of royalties from a sub licensee was received by Licensee. 2.4. Grant backs. During the term of the Agreement, CMU shall have the right to use, free of charge, any product or process, solely developed and owned by Licensee which contains or is based on any of Licensed Technology, patents, or Licensed Product and/or Derivatives solely, for CMU research, educational, academic, or administrative purposes. This subsection 2.4 does not include a right by CMU to sublicense others. None of the restrictions of this subsection 2.4 apply to Bug Fixes reported to CMU under subsection 9.5. -4- 2.6. CMU / Licensee R&D and other Contract Relationships. No provision of this Agreement shall restrict CMU's or Licensee's ability to conduct further research and development in the area of Licensed Technology or other areas. 2.7. Regulations. All Licensed Products shall be manufactured, sold and performed by Licensee in compliance with all applicable governmental laws, rules and regulations. Licensee shall keep CMU fully informed of, and shall move expeditiously to resolve, any complaint by a commercial and/or governmental body relevant to the products or the services, except for complaints subject to Section 23 of this Agreement. 3. Term of this Agreement The term of this Agreement shall conclude at the end of twenty (20) years from the Effective Date of this Agreement, or on the expiration date of the last-to-expire Patent, whichever comes later, unless otherwise terminated pursuant to another provision of this Agreement. If Licensee elects to utilize any know-how or other Licensed Technology, which is not subject to any Patents, it may do so provided that doing so constitutes an agreement by Licensee to comply with the Royalties, sublicense royalty payment provisions, and the other provisions of this Agreement except for (a) the reference to Patents in Subsection 11.1 and (b) Section 23. 4. Royalties 4.1. General. As partial consideration for the rights and values received under this License, Licensee shall pay CMU royalties in accordance with the provisions of this Section 4 herein, in addition to the payments due from Licensee under the provisions of 2.3. 4.2 Calculation of Royalties. Royalties payable by Licensee to CMU shall be calculated by Licensee each Quarter as a percentage of Net Sales ("Calculated Royalties") at the following rates ("Royalty Rates"): - - five percent (5%) for the first five Years beginning on the Effective Date (Years 1 through 5) or until the end of the Year when cumulative Revenues have reached $100 million; whichever occurs sooner; then - - - four percent (4%) for the next five Years (Years 6 through 10) or until the end of the Year when cumulative Revenue have reached $200 million, whichever occurs sooner; then - - - three percent (3%) thereafter until the earlier of (a) the expiration of twenty (20) years from the Effective Date of this Agreement and (b) the expiration date of the last to expire patent; provided, however, that Royalty Rates shall be subject to the following "Most Favored Pricing" provision : Should CMU issue a commercial license of the Licensed Technology to any other party at a lower royalty rate than a Royalty Rate herein specified (without regard to whether CMU holds any equity interest in Licensee or said other party), Licensee's Royalty Rate shall be reduced to that lower rate as of the date and for the length of time when the lower rate of the other license becomes and remains in effect. 4.3 Deferred Royalties. 4.3.1 Deferred Royalties. Cash Payment of Calculated Royalties may initially be deferred by Licensee until the Trigger Date. 4.3.2.1 Amortization Schedule. Following the Trigger Date, accumulated Deferred Royalties shall be payable by Licensee to CMU in accordance with the following amortization schedule ("Amortization Schedule"): -5- October 12, 2002 50% January 1, 2002 15% May 1, 2002 15% June 30, 2002 20% The first payment shall not be made in U.S. Dollars, but rather shall be made by Licensee by providing CMU with a number of shares of Sonic Foundry common stock equal to the dollar amount that would otherwise be due on said date divided by $1.185. The balance of the payments under the Amortization Schedule shall be made in U.S. Dollars. 4.4 Normal Payment Terms for Royalties. Subsequent to the Trigger Date, Royalties shall be payable quarterly on the sixtieth (60) day immediately following the Quarter for which such Royalties were Calculated; such payments shall be made promptly by Licensee, with no invoicing by CMU to be required. 4.5. No Right to Suspend Payments. Notwithstanding the pendency of any infringement (or other) claim or action by or against Licensee, Licensee shall have no right to terminate or suspend (or escrow) payment of any amounts required to be paid to CMU pursuant to this Agreement. 5. Reserved. 6. Minimum Performance Requirements 6.1 Licensee shall use its best efforts to introduce Licensed Technology into the commercial markets as soon as possible; thereafter, until the expiration of this Agreement, Licensee shall keep Licensed Technology reasonably available to the public and actively promoted in commerce. 6.2 Licensee must achieve Net Sales of at least $500,000 in Year 4, $1 million in Year 5, $1.5 million in Year 6, $2 million in Year 7, $2.5 million per Year thereafter during the remaining unexpired Term of the License or, alternatively, make payments of Royalties under Section 4 as though those Net Sales requirements had been achieved. 6.3 Licensee's failure to perform in accordance with Sections 6.1 or 6.2 herein shall be grounds for CMU to terminate this Agreement pursuant to Section 12.2 herein. 7. General Payment Terms 7.1. Royalties shall be paid by Licensee to CMU as defined in Section 5 herein until this Agreement expires or is terminated in accordance with this Agreement. If this Agreement terminates before the end of a Fiscal Quarter, the payment for that terminal fractional portion of a Fiscal Quarter shall be made within ninety days of the date of termination of this Agreement. 7.2. All Royalties hereunder shall be paid in U.S. Dollars and shall be made by wire transfer to CMU's account No. 197-9003 ABA043000261 CMU Ref. No. 1-1-96377-7760 at Mellon Bank's - Oakland office, or by Licensee's check sent in accordance with Section 24 (Notices). 7.3. All Royalties payable hereunder which are overdue shall bear interest until paid at a rate equal to the Prime Rate in effect at the date such royalties were due, but in no event to exceed the maximum rate of interest permitted by applicable law. This provision for interest shall not be construed as a waiver of any rights CMU has as a result of Licensee's failure to make timely payment of any amounts. -6- 8. Reports and Audits 8.1. Reporting Requirements. Licensee shall provide to CMU statements with respect to royalties and other amounts payable under this Agreement within sixty (60) days following the end of each of Licensee's Fiscal Quarter ("Reporting Date"). Each report must be fully and accurately completed and signed and certified as accurate by Licensee. Each statement shall provide information for all information items listed below for that Fiscal Quarter and, cumulatively, for the Year to date, until two years after the Trigger Date when items hereafter marked with an asterisks (*) are no longer required to be reported if payment of all Deferred Royalties has been duly completed : - - Net Sales - - Operating Profits * - - Calculated Royalties, - - Royalties payable and due, - - Deferred Royalties *; - - Royalty payment Trigger Date * - - Cumulative total Deferred Royalties since Effective Date * - - Deferred Royalty Amortization amount due * - - Sublicense royalties received and payable to CMU, by specific sublicensees. 8.2. Accurate Books. Licensee shall maintain accurate books and records such that the Royalties due and payable hereunder can be easily ascertained. Such books and records shall be maintained at Licensee's primary offices and shall be available for inspection by CMU or its representatives during the normal business day upon not less than ten (10) days prior written notice, provided that CMU or its representatives agree to protect the confidentiality of the information as to Licensee's customers. 8.3. Audits. CMU shall have the right to have Licensee's books and records audited by a certified public accounting firm or representative of its selection, and Licensee agrees to cooperate fully in any such audit, provided that the auditors agree to protect the confidentiality of all information obtained as result of the audit. Any such audit shall not be more frequent than annually. In the event that such audit determines that the amount of Royalties paid CMU was in error by more than five (5%) percent, Licensee shall pay the costs of the audit. 9. Improvements and Collaborations 9.1. Discussion Only. The parties intend that there will be no collaboration. If there is any collaboration in violation of this intent, all resulting property shall be owned as set forth in this Section 9. Discussion of a problem during collaboration between the parties to this License Agreement will not create any rights to any ownership of patents, Patents, copyrights, trade secrets or any other intellectual property rights. 9.2. Licensee Ownership. Licensee will own all of the right, title and interest (including patents, copyrights, trade secrets and any other intellectual property rights) in and to the results of the collaboration between the parties that are created solely by Licensee employees or agents. 9.3. CMU Ownership. CMU will own all of the right, title and interest (including patents, Patents, copyrights, trade secrets and any other intellectual property rights) in and to the results of the collaboration between the parties that are created solely by CMU employees or agents. 9.4. If a joint development effort related to the Licensed Technology or other technology is undertaken, the project shall be evidenced by a writing executed by Licensee and the Associate Provost of CMU and the rights of the parties in any work product or Intellectual Property Rights arising from such efforts shall be as -7- set forth in such writing. In the absence of such writing, CMU shall own all right, title and interest in and to any work product or Intellectual Property Rights arising from such joint development efforts. 9.5. Bug Fixes. All reported Licensee-originated bug fixes to the Licensed Technology shall become the property of CMU and may be incorporated in the Code and licensed to others; Licensee may utilize such bug fixes pursuant to the terms of this License Agreement. 9.6. No Separate License. Except as provided in this Section 9, nothing in this Agreement shall be deemed to grant any license or rights in any other technology in addition to the Licensed Technology. 10. Patents and Other Intellectual Property 10.1. CMU Property. Intellectual property rights to Licensed Technology such as Patent(s), Copyrights, and trademark(s) which may be obtainable will remain the property of CMU, but subject to the license granted in this License Agreement. Licensee shall be the owner of all proprietary rights for itself in the intellectual property represented by Derivatives, whether in the nature of patents, trade secrets, copyrights, or other rights, provided that any and all uses of Derivatives is subject to the existence, term and other provisions of this Agreement. Licensee shall be entitled to apply for patents, trademarks, and copyrights with respect to Derivatives in its own name. 10.2. Patenting Expenses. CMU will determine the patenting expenses paid for by CMU for each six month period starting October 12, 2001 until the end of the Term of the Agreement ("Calculation Period"); total Patenting Expenses for such a Calculation Period will hereafter be referred to as "Expense Increment"; CMU will also determine the number of licenses for all or essentially all of the Licensed Technology which were in effect at any time during each Calculation Period ("Number of Licensees"); Licensee shall reimburse CMU for the dollar amount calculated by (i) dividing each Expense Increment by (ii) the Number of Licensees for that Calculation Period; provided, however, that if Licensee should be the sole licensee of all or most of the Licensed Technology during a Calculation Period, Licensee shall reimburse CMU for half the Expense Increment. Payment by Licensee to CMU of such reimbursements shall be due within thirty (30) days after the invoicing of such amounts by CMU to Licensee. 10.3. International Patent Coverage. 10.3.1. Basic Coverage. CMU intends to prosecute international patent coverage for some or all of the Patents in certain major industrial countries under the expense-sharing arrangements provided for in Section 10.2 herein ("Basic Coverage"). CMU reserves the right to increase or decrease the extent of such coverage at its own discretion throughout the Term of the License. For applications for Patents filed after the Effective Date, Licensee must notify CMU within thirty (30) days after receipt of notice from CMU whether Licensee agrees to reimburse, CMU for payment for Patenting Expenses. If Licensee does not so notify CMU of such agreement to reimbursement of CMU, Licensee shall not have any rights under this Agreement concerning the technology covered by said application in the country covered by said application. 10.3.2. Additional Coverage. If Licensee should, at any stage of the patenting process during the Term of the LICENSE, desire to have CMU obtain more than such Basic Coverage ("Additional Coverage"), CMU will pursue such Additional Coverage at Licensee's expense to the extent that such protection is reasonably obtainable. CMU will account for such additional Patenting Expenses (by country) and will invoice Licensee after the end of each Quarter for such additional Expenses ("Additional Expenses"); such invoices will be payable by Licensee to CMU within thirty (30) days. Provided, however, that Licensee may later deduct fifty percent (50%) of such Additional Expenses from the payment of Royalties to CMU to the extent that such -8- Royalties and/or sublicense Royalties which were based on Revenue due to conduct in a country which was included in such Additional Coverage. 11. Markings, Trademarks and Trade Names 11.1. Licensee shall have included in all sales and marketing literature relating to Licensed Products a statement to the effect that "this product or portions thereof is produced under license from Carnegie Mellon University" and "U.S. Patent Number X,XXX,XXX." 11.2. Licensee shall have marked the appropriate portions of all Licensed Products with the applicable United States of America and foreign Patent numbers in accordance with the applicable laws of the countries in which the materials are intended to be used. Licensee shall neither register nor use any CMU trademarks or trade names and shall require its sub-licensees not to do so. 11.3. Licensee acknowledges that it does not have any rights or any title whatsoever in or to CMU's technology, trade name or in or to any of CMU's trademarks, except as provided under this Agreement. Any reference by Licensee to CMU beyond the above may only be done with express written permission of CMU's Director of Technology Transfer. 12. Termination 12.1. If Licensee shall cease to carry on its business, this Agreement shall terminate upon written notice by CMU. 12.2. In the event that either party to this Agreement defaults in the performance of any of its obligations hereunder and fails to cure such default within thirty (30) days after written notice of such default from the other party or (in the event that the default is of such nature that it cannot be cured within said thirty (30) days) the defaulting party is not diligently pursuing efforts to cure such default, the other party shall have the right by written notice to the defaulting party within sixty (60) days after the expiration of such thirty (30) day period to terminate this Agreement. 12.3. The termination of this Agreement pursuant to this Section 12 (or pursuant to Section 3 of this Agreement) shall not terminate (i) the obligation of Licensee to promptly pay CMU Royalties which were due or earned by CMU prior to the effective date of the termination, and other amounts, which are accrued or which are otherwise to be paid by Licensee under the terms of this Agreement or (ii) the obligations of Licensee specified under Sections 7, 8, 10, 12, 13, 14, 15, 16, 17, 18, 22, and 23 hereunder. 12.4. Provided that if a sublicense was pre-approved by CMU and contains royalty payments at least equal to those set forth in Exception 2, in Subsection 2.4.2, upon termination of this Agreement by CMU Subsections 12.1 or 12.2 hereof, CMU will accept assignment of such sublicense(s) which is then in effect if the sub-licensee is not then in default. However, acceptance of such assignment shall not release Licensee from any responsibility under this Agreement. 13. Taxes Licensee shall pay all sales taxes which may be assessed or levied on, or on account of the Licensed Technology Disposed of hereunder and all taxes (other than taxes imposed by the United States of America or the Commonwealth of Pennsylvania or jurisdictions within such Commonwealth) levied on or on account of the amounts payable to, or for the account of, CMU under this Agreement. -9- 14. Warranties ANY INFORMATION, MATERIALS OR SERVICES FURNISHED BY CMU PURSUANT TO THIS AGREEMENT ARE ON AN "AS IS" BASIS. ANY INFORMATION, MATERIALS OR SERVICES FURNISHED BY CMU PURSUANT TO THIS AGREEMENT ARE ON AN "AS IS" BASIS. CMU MAKES NO WARRANTIES OF ANY KIND, EITHER EXPRESSED OR IMPLIED, AS TO ANY MATTER INCLUDING, BUT NOT LIMITED TO, WARRANTY OF FITNESS FOR PURPOSE, OR MERCHANTABILITY, EXCLUSIVITY OR RESULTS OBTAINED FROM USE OF ANY INTELLECTUAL PROPERTY DEVELOPED UNDER THIS AGREEMENT, NOR SHALL EITHER PARTY HERETO BE LIABLE TO THE OTHER FOR INDIRECT, SPECIAL, OR CONSEQUENTIAL DAMAGES SUCH AS LOSS OF PROFITS OR INABILITY TO USE SAID INTELLECTUAL PROPERTY OR ANY APPLICATIONS AND DERIVATIONS THEREOF. CMU DOES NOT MAKE ANY WARRANTY OF ANY KIND WITH RESPECT TO FREEDOM FROM PATENT, TRADEMARK, OR COPYRIGHT INFRINGEMENT, OR THEFT OF TRADE SECRETS AND DOES NOT ASSUME ANY LIABILITY HEREUNDER FOR ANY INFRINGEMENT OF ANY PATENT, TRADEMARK, OR COPYRIGHT ARISING FROM THE USE OF THE INFORMATION, TECHNOLOGY, OR RIGHTS GRANTED OR PROVIDED TO IT HEREUNDER. LICENSEE AGREES THAT IT WILL NOT MAKE ANY WARRANTY ON BEHALF OF CMU, EXPRESSED OR IMPLIED, TO ANY PERSON CONCERNING THE APPLICATION OF OR THE RESULTS TO BE OBTAINED WITH THE TECHNOLOGY UNDER THIS AGREEMENT. 15. Costs All costs and expenses incurred by Licensee in carrying out its obligations under this Agreement shall be paid by Licensee, and Licensee shall not be entitled to reimbursement from royalties hereunder or otherwise therefor from CMU. Licensee shall possess or obtain at its own expense all necessary licenses and permits and shall comply with all laws, ordinances, rules or regulations affecting the importation into and/or resale or transfer of Licensed Product. 16. Confidentiality and Trade Secrets 16.1. "Confidential Information" shall mean any information relating to the Licensed Technology, the terms of this Agreement (as from time to time amended), patent applications, copyright applications, trade secrets and know-how and other information covered by this Agreement or information disclosed to Licensee in the matter set forth hereinafter. All such information shall be Confidential Information to the technology disclosed, including information disclosed to Licensee prior to the date of this Agreement, unless such information (1) was already in Licensee's possession prior to the disclosure thereof by CMU as provided in sub-Section 16.2 hereof, (2) has been published or is published hereafter, unless such publication is a breach of this Agreement, (3) is received by Licensee from a third party not under an obligation of confidentiality with respect thereto, or (4) is independently developed by Licensee. 16.2. Prior Knowledge. In the event that such information shall be established to have been known to Licensee prior to the disclosure thereof by CMU by reference to any publication thereof by Licensee or by reference to any internal writing or other business record maintained by any of the entities that comprise Licensee in the ordinary course of business, such information shall not be deemed to be Confidential Information to that particular entity for purposes of this Agreement following notification to CMU of such fact. 16.3. Marking as Confidential. With respect to any information not related to the Licensed Technology which is thought by CMU to be Confidential Information subject to this Agreement, CMU shall mark such information as "Confidential" prior to disclosing it to Licensee. -10- 16.4. Notification. With respect to any oral communication not related to the Licensed Technology which is deemed by CMU to be Confidential Information subject to this Agreement, CMU shall notify Licensee of such fact and within thirty (30) days thereafter CMU shall send a memorandum to Licensee outlining the information deemed to be Confidential Information. 16.5. Term of Confidentiality. Licensee shall maintain in confidence and shall not disclose to any person not a party hereto, nor shall Licensee use or exploit in any way without CMU's written agreement, any Confidential Information until three (3) years after the later of the date of the termination of this Agreement unless such information ceases to be Confidential Information prior to the end of such period through no fault of Licensee or CMU and Licensee enter into an agreement authorizing same. 16.6. Reasonable Precautions. Licensee shall exercise all reasonable precautions to prevent the disclosure of Confidential Information by its employees or representatives, and in any event shall maintain with respect to such Confidential Information a standard of care which is no less than that standard which Licensee maintains to prevent the disclosure of its own Confidential Information. 16.7. Termination. Upon termination of this Agreement, Licensee agrees to return at once to CMU, without copying, all originals and copies of all materials (other than this Agreement) containing any Confidential Agreement. 16.8 CMU shall keep Confidential technical or financial information and/or business plans of Licensee, if the document disclosing such to CMU is marked "Confidential," for a period of three (3) years from the date of said disclosure unless such information (1) was already in CMU's possession prior to said disclosure, (2) has been published or is published hereafter, unless said publication is a breach of this Agreement, (3) is received by CMU from a third party not under an obligation of confidentiality with respect thereto, (4) is independently developed by CMU, or (5) ceases to be Confidential prior to the end of such three year period or Licensee and CMU agree that CMU need no longer treat such as confidential. 17. Indemnification Licensee hereby agrees to defend, indemnify and hold harmless CMU, its trustees, officers, employees, attorneys and agents from all claims or demands made against them (and any related losses, expenses or costs) arising out of or relating to Licensee's and/or its sub-licensees' use of, Disposition of, or conduct regarding the Licensed Technology and/or Licensed Product, or presence on the premises of CMU, including but not limited to, any claims of product liability, personal injury (including, but not limited to, death), damage to property or violation of any laws or regulations. This indemnification includes, but is not limited to, indemnification by Licensee and any sub-licensees of acts of negligence by CMU or CMU's trustees, officers, employees, attorneys, or agents against employees of Licensee while on CMU's premises. 18. Insurance Licensee shall obtain and maintain appropriate coverage of general liability, product liability, and public liability insurance in the amount of no less than two million dollars (US $2,000,000). 19. Breach No acquiescence in any breach of this Agreement by either party shall operate to excuse any subsequent or prior breach. -11- 20. Prior Agreement Except for any Confidential Disclosure Agreement executed by the parties, this Agreement supersedes all previous agreements relating to the subject matter hereof, whether oral or in a writing, and constitutes the entire agreement of the parties hereto and shall not be amended or altered in any respect except in a writing executed by the parties. 21. Interpretation This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the Commonwealth of Pennsylvania, United States of America, without regard to conflict of law principles. 22. Dispute Resolution 22.1. Arbitration. Any controversy or dispute arising under this Agreement shall be referred to and finally settled by arbitration in the City of Pittsburgh, Pennsylvania, under the auspices of, and conducted in accordance with, the rules of the American Arbitration Association. All arbitration proceedings shall be before a board of three (3) arbitrators, for each of which each party shall select one (1) arbitrator and the selected arbitrators shall select the third arbitrator. The costs of the third arbitrator shall be divided equally between the parties, and each party shall pay the costs of the arbitrator selected by it. Any award of the arbitrators shall be final and conclusive on the parties to this Agreement, and judgment upon such award may be entered in any court having jurisdiction thereof. 22.2. Injunctive Relief. Either party may seek injunctive relief from a court for violation by the other party of Sections 11, 13, 14, 15, 16, 17, 18, and 22 herein, for enforcement of any arbitration award or for enforcement of any non-arbitrable matter. The prevailing party shall be entitled to recover from the other all costs, including attorney's fees, related to the action for injunctive relief. 22.3. Court Action. Licensee hereby irrevocably and unconditionally -- (i) agrees that any action, suit or proceeding contemplated by Sections 22.2 and 22.2 hereof (collectively, "Related Litigation") may be brought in any state or federal court of competent jurisdiction sitting in Allegheny County, Pennsylvania, submits to the jurisdiction of such courts, and to the fullest extent permitted by law agrees that it will not bring any Related Litigation in any other forum (but nothing herein shall affect the right of CMU to bring any action, suit or proceeding in any other forum); (ii) waives any objection which it may have at any time to the laying of venue of any Related Litigation brought in any such court, waives any claim that any such Related Litigation has been brought in an inconvenient forum, and waives any right to object, with respect to any Related Litigation brought in any such court, that such court does not have jurisdiction over LICENSEE; and (iii) consents and agrees to service of any summons, complaint or other legal process in any Related Litigation by registered or certified mail, postage prepaid, to LICENSEE at the address for notices described in Section 24 hereof, and consents and agrees that such service shall constitute in every respect valid and effective service (but nothing herein shall affect the validity or effectiveness of process served in any other manner permitted by law). 23. Infringement 23.1. Licensee shall have the right during the term of this Agreement to commence an action for infringement of the Patents, Copyrights, and/or Confidential Information against any third party for any infringement, only if (a) Licensee has provided CMU ninety (90) days' prior written notice of such infringement and of Licensee's desire to file such action and (b) CMU has not -12- initiated an action against the alleged infringer before the expiration of said ninety (90) day period after receipt of Licensee's notice. CMU shall have the right at its own expense to appear in such action by counsel of its own selection. If required by the jurisdictional laws of the forum that any such action be prosecuted in the name of the owner of the Patent, Copyright, and/or Confidential Information, CMU shall voluntarily appear at Licensee's expense; provided that if such appearance subjects CMU to any unrelated action or claim of a third party or Licensee in such jurisdiction, then CMU shall have the right to decline such appearance. Any settlement shall require the consent of CMU and, absent agreement between CMU and Licensee to the contrary, any settlement amount or recovery for damages shall be applied as follows: (i) first, to reimburse the parties for their expenses in connection with the litigation; and (ii) second, CMU shall receive four percent (4%) of any monies remaining. 23.2. CMU shall have the right in its absolute discretion during the term of this Agreement to commence an action for infringement of the Patents, Copyrights, and/or Confidential Information against any third party for any infringement occurring anywhere in the world. 24. Notices Any notice under any of the provisions of this Agreement shall be deemed given when deposited in the mail, postage prepaid, certified first class mail return receipt requested and addressed to the applicable party at the address stated on the signature page hereof, or such other address as such party shall specify for itself by like notice to other party. Each party shall transmit to the other a facsimile copy of each such notice promptly after such deposit in the mail. 25. Assignment Licensee shall neither assign nor transfer this Agreement or any interest herein without the prior written consent of CMU. If Licensee wishes to dispose of the business of which this Agreement forms part or if all or substantially all of the assets of Licensee shall be acquired by another corporation, such consent by CMU to assignment to such acquiring corporation shall not be unreasonably withheld or delayed. 26. Headings The Section headings contained in this Agreement are set forth for the convenience of the parties only, do not form a part of this Agreement and are not tobe considered a part hereof for the purpose of construction or interpretation hereof, or otherwise. Balance of page intentionally left blank. -13- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed in duplicate counterparts, each of which shall be deemed to constitute an original, effective as of the date first above written. The undersigned verify subject to the penalties of 18 Pa. C.S.(S) 4904 relating to unsworn falsification to authorities that they have the authority to bind to this Agreement the party on behalf of which they are executing below. Carnegie Mellon University Sonic Foundry Systems Group, Inc. By: /s/ /s/ ----------------------------- --------------------------------- Susan Burkett Associate Provost Chief Executive Officer Date: 1/16/02 Date: 1/15/02 ----------------------------- --------------------------------- -14- Attachment A Description of Licensed Technology "Licensed Technology" is defined in Section 1.7 of this Agreement, and includes both Initial Technology and Additional Technology. A. "Initial Technology" is defined in Section 1.7.21 of this Agreement; it includes but is not necessarily limited to the following as of the Effective Date of the Agreement: 1. Informedia/1/ processing and tools for content creation, indexing and abstraction, both automated and manually assisted. This shall be deemed to include, but not be limited, to the following: - - Segmentor - - Database cataloging - - Automated database testing - - Sphinx-II, Sphinx-III and the CMPSL (CMU Portable Speech library) - - Speaker differentiation/identification - - Image understanding analysis library components used for: * scene analysis, scene segmentation, frame histogramming, * poster-frame selection, image matching, region and object extraction, * text and face detection and matching (neural-net based algorithms), * video text OCR, video skim creation and image characterization. - - Natural language and statistical processing algorithms and code as applied to video segmentation, titling, abstracts, latent semantic indexing, and topic detection and categorization. - - Integrated processing and statistical correlation of face/name/place/event as applied to "Name-It" and "Spot-it" functionality - - Automated processing algorithms, code, scripts and procedures 2. Informedia data structures, data organization and data distribution server architecture specification and code, including flat file and RDBMS implementations. 3. Informedia client and display, Windows and HTML/Java versions for full video and "slide show" presentation. 4. Search and retrieval specification and code, including the Pursuit engine; derivatives developed in Informedia, subject to limiting prevenient agreements. 5. Informedia Netbill interface specification and code related to video data delivery, subject to limiting prevenient agreements. B. "Additional Technology" is defined in Section 1.7.32 of this Agreement. Note: 1. Most of the expected Additional Technology relates to improvement of the quality of performance (e.g., precision, accuracy, speed) or enhancement and perfection of the techniques presently applied in many areas; primarily, those areas where the initial implementation or methods are in error, incomplete, or inadequate. The Informedia Project does not anticipate entirely new research problems providing new functionality to be pursued during the Additional Period. -15- 2. Additional Technology shall not include new functionality and/or inventions which are not part of the Informedia program plans specified under Section 1.7.13(I) and/or which are not in domains thus specified; examples of such new functionality are, such as multilingual Informedia or summarization across multiple stories. /1/ "Informedia or Informedia Project" means: Integrated Speech, Image, and Language Understanding for Creation and Exploration of Digital Video Libraries, conducted under Grant No. IRI-9411299 from September 1994 to September 1998 and related, contributing technology from other projects developed prior to October 1, 1998, which is necessary to implement the technology developed under Grant No. IRI-9411299 and underway. -16- -----END PRIVACY-ENHANCED MESSAGE-----