-----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, GJ6yJeMv1jckMe3aonT/NtZfY+N/FRApmUq0iteZ0+BbbE54YLscDRTRNlbA98Lr Gk+c+9s7YXFr94XIWSKt5Q== 0001012870-00-002920.txt : 20000518 0001012870-00-002920.hdr.sgml : 20000518 ACCESSION NUMBER: 0001012870-00-002920 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 20000516 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NOOSH INC CENTRAL INDEX KEY: 0001076870 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 770495080 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-95377 FILM NUMBER: 638219 BUSINESS ADDRESS: STREET 1: 3401 HILLVIEW AVE STREET 2: BLDG 4 CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 6508588300 MAIL ADDRESS: STREET 1: COOLEY GODWARD LLP STREET 2: 5 PALO ALTO SQ 3000 EL CAMINO REAL CITY: PALO ALTO STATE: CA ZIP: 94306 S-1/A 1 AMENDMENT #4 TO FORM S-1 As filed with the Securities and Exchange Commission on May 16, 2000 Registration No. 333-95377 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 -------------- Amendment No. 4 to FORM S-1 REGISTRATION STATEMENT Under The Securities Act of 1933 -------------- NOOSH, INC. (Exact name of registrant as specified in its charter) Delaware 7379 77-0495080 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number)
-------------- 3401 Hillview Avenue, Palo Alto, California, 94304 (650) 320-6000 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) -------------- Ofer Ben-Shachar President, Chief Executive Officer and Chairman 3401 Hillview Avenue, Palo Alto, California 94304 (650) 320-6000 (Name, address, including zip code, and telephone number, including area code, of agent for service) -------------- Copies To: Laura A. Berezin, Esq. Steven B. Stokdyk, Esq. Cooley Godward LLP Sullivan & Cromwell Five Palo Alto Square 1888 Century Park East Blvd., 21st Floor 3000 El Camino Real Los Angeles, California 90067 Palo Alto, CA 94306-2155 (310) 712-6600 (650) 843-5000
-------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the "Securities Act"), check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the Prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment that specifically states that this registration statement shall thereafter become effective in accordance with section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the commission, acting pursuant to said section 8(a), may determine. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +The information in this prospectus is not complete and may be changed. These + +securities may not be sold until the registration statement filed with the + +Securities and Exchange Commission is effective. This preliminary prospectus + +is not an offer to sell nor does it seek an offer to buy these securities in + +any jurisdiction where the offer or sale is not permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subject to Completion. Dated May 16, 2000. 4,000,000 Shares [LOGO OF NOOSH, INC.] NOOSH, Inc. Common Stock ---------- This is an initial public offering of common stock of NOOSH, Inc. All of the 4,000,000 shares of common stock are being sold by NOOSH. Prior to this offering, there has been no public market for our common stock. We estimate the initial public offering price will be between $11.00 and $13.00 per share. We have applied to have our common stock listed for quotation on the Nasdaq National Market under the symbol "NOSH". See "Risk Factors" beginning on page 8 to read about factors you should consider before buying shares of our common stock. ---------- Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense. ----------
Per Share Total --------- ----- Initial public offering price.................................. $ $ Underwriting discount.......................................... $ $ Proceeds, before expenses, to NOOSH............................ $ $
To the extent that the underwriters sell more than 4,000,000 shares of common stock, the underwriters have the option to purchase up to an additional 600,000 shares from NOOSH at the initial public offering price less the underwriting discount. ---------- The underwriters expect to deliver the shares in New York, New York on , 2000. Goldman, Sachs & Co. Robertson Stephens Banc of America Securities LLC PaineWebber Incorporated E*OFFERING ---------- Prospectus dated , 2000 [Description of Inside Front Cover Graphic: Graphic depicts the print job work-flow and communication process before and after Noosh.com. The graphic on the left-hand side of the page depicts the process before Noosh.com and contains circles, squares and triangles, arranged in a circular pattern, representing the parties involved in the print production process. In the center of the circle is a square representing a print broker, a circle representing the printing sales representative and a triangle representing the print buyer. Connecting the three parties in the center of the circle with the parties forming the outside of the circle are numerous lines representing the multiple interactions among the multiple parties prior to deploying our Noosh.com service. The graphic on the right-hand side of the page depicts the process after Noosh.com and also contains circles, squares and triangles, arranged in a circular pattern, representing the parties involved in the print production process. In the center of the circle is the Noosh logo. Lines connect the Noosh logo with each of the parties forming the outside of the circle representing the fact that Noosh acts as a central location enabling collaboration among all the parties involved in the print production process.] Top caption: Noosh leverages the power of the Internet to improve the process of managing the design, procurement and production of print projects. Caption below Caption below left-hand graphic: right-hand graphic: Traditional Process of Process of Managing Print Using Noosh.com Managing Print [Description of gatefold graphics: Graphic depicts Web site page views of our Noosh.com service. In the center is a depiction of the first page of our Web site. Underneath, in a semi-circle, are five additional graphics depicting other Web site page views correlating to features available on Noosh.com. Features highlighted are "Open Job", "Request/Accept Estimates", Collaborate", "Order Management/Event Tracking", "Ship Completed Jobs" and "Management Reporting." Open Jobs: The Jobs page contains current job status, due date, and key contact information. Request/Accept Estimates: Print jobs can be created and submitted by buyers and quoted online by print vendors. Collaborate: Users can build job teams consisting of participants from multiple organizations. Order Management/Event Tracking: The noosh.com service provides online ordering, confirmation and order status reports. Ship Completed Jobs: Print buyers can choose to ship projects to one or multiple locations, and noosh.com tracks the status of shipments. Management Reporting: Noosh.com provides access to real-time job-management reports. PROSPECTUS SUMMARY You should read the following summary together with the more detailed information regarding NOOSH, Inc., and our financial statements and the related notes appearing elsewhere in this prospectus. Unless otherwise indicated, this summary and all the information in this prospectus assumes the automatic conversion of all outstanding shares of our preferred stock into shares of common stock upon the closing of this offering and no exercise of the underwriters' over-allotment option. Our Business We are a provider of business-to-business e-commerce solutions for the printing industry. We have developed and operate noosh.com, an Internet-based service for managing the design, procurement and production of print orders. Our service can be used to manage print products as diverse as business cards and stationery, promotional brochures and direct mail, customized packaging and labels, and books and magazines. Our service leverages the benefits of the Internet to enable print buyers, print vendors and other providers of related services to communicate and collaborate efficiently through the complex, multi- step process of a print job. Our service is primarily targeted at large corporations which budget at least $10 million annually for their print buying requirements and their print vendors. Print vendors who use our service generally pay us a transaction fee based on the size and volume of the print order, and print buyers who use our service generally pay us a monthly fee. As of May 11, 2000 over 40 print buyers have signed agreements with us to use our service. Of these, Bank of America Corp., the General Electric Company and Wells Fargo & Company have encouraged their printers to use our noosh.com service. In addition, to promote the acceptance of our service by large national corporations, we have entered into agreements with national vendors in the print industry under which they have agreed to market our service to their customers. To date, we have entered into four such print vendor agreements with Consolidated Graphics, Inc., Moore North America, Inc., R.R. Donnelley & Sons Company and Wallace Computer Services, Inc. under which they have agreed to market our services to their customers. As of May 11, 2000, we have also entered into agreements to use our service with over 198 smaller printers, pre-press vendors and print brokers. None of our company agreements obligate the print buyers, print vendors, pre-press vendors and print brokers to use our service and as of March 31, 2000 we had not generated significant revenue from these agreements. From January 1, 2000 through March 31, 2000, over 487 print orders have been issued by print buyers and accepted by print vendors through our noosh.com service. We were incorporated in August 1998 and have a limited operating history. For the three-month period ended March 31, 2000, we had revenue of $68,000. From inception through December 31, 1999, we were a development stage company and did not have any revenue. We also have a history of significant losses. We incurred a net loss of $17.6 million for the year ended December 31, 1999 and a net loss of $20.7 million for the three-month period ended March 31, 2000. As of March 31, 2000, we had an accumulated deficit of $38.6 million. We anticipate that we will continue to incur operating losses and negative operating cash flow in the foreseeable future. In addition, we operate in a competitive industry in which new competitors can enter with little difficulty. Accordingly, we expect competition in the market for print management services to intensify in the future. See "Risk Factors" beginning on page 6 to read about these and other factors you should consider before buying our shares. 3 Corporate Information We were incorporated in California in August 1998 and reincorporated in Delaware in March 2000. Our corporate offices are located at 3401 Hillview Avenue, Palo Alto, California 94304. Our telephone number at that location is (650) 320-6000. Information contained on our Web site does not constitute part of this prospectus. We have filed for federal trademark registration for NOOSHSM, the NOOSHSM logo and LiveJobsSM. Other trademarks and tradenames appearing in this prospectus are the property of their holders. 4 The Offering Common stock offered by NOOSH.............. 4,000,000 shares Common stock to be outstanding after this offering.................................. 37,602,173 shares Use of proceeds............................ For working capital and general corporate purposes. See "Use of Proceeds". Proposed Nasdaq National Market symbol..... "NOSH"
The number of shares of common stock to be outstanding after this offering is stated as of April 4, 2000 and includes: . 21,981,137 shares of common stock and Class B common stock to be issued upon automatic conversion of preferred stock upon completion of this offering, based on an assumed initial public offering price of $12.00 per share; . 4,000,000 shares of common stock to be issued upon completion of this offering; and . 35,000 shares of common stock issuable upon exercise of a portion of an outstanding warrant at an exercise price of $7.45 per share prior to this offering. The number of shares of common stock to be outstanding after this offering excludes: . 14,950,000 shares of common stock authorized for issuance under our employee stock option plans, non-employee directors' stock option plan and our employee stock purchase plan, of which 4,392,538 shares, at a weighted average exercise price of $2.06, were subject to outstanding options as of April 4, 2000; . warrants for 1,573,308 shares of common stock and Class B common stock that are exercisable as of April 4, 2000 at a weighted average exercise price of $11.31; and . warrants for an additional 2,785,250 shares of common stock that may become exercisable in the future based on the holders meeting stated volume targets for business conducted over our service. Upon completion of this offering, our executive officers, directors, principal stockholders and their affiliates will beneficially own, in the aggregate, approximately 64.3% of our outstanding common stock. In addition, following this offering, our existing stockholders will own approximately 89.4% of our stock. As a result, these stockholders may be able to control all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, which could delay or prevent a change of control of NOOSH. 5 SUMMARY FINANCIAL DATA The following summary financial data are derived from our financial statements included elsewhere in this prospectus. The pro forma balance sheet data reflects the receipt of net proceeds of $10.0 million upon the issuance and sale of 769,231 shares of Series E preferred stock to GE Capital Equity Investments, Inc., an affiliate of the General Electric Company, in April 2000. The pro forma as adjusted balance sheet data reflects the receipt of net proceeds from the sale of 4,000,000 shares of common stock offered by us at an assumed initial public offering price of $12.00 per share after deducting an assumed underwriting discount and estimated offering expenses payable by us. The pro forma as adjusted balance sheet data also assumes the exercise of a portion of an outstanding warrant for a total of 35,000 shares of common stock at an exercise price of $7.45 per share prior to this offering. We have assumed that this portion of the warrant will be exercised prior to this offering because the exercise price is less than the assumed initial public offering price and this portion of the warrant expires on the closing of the offering.
Period from Period from August 3, August 3, 1998 (date 1998 (date Period from of of August 3, inception) inception) Three Months Ended 1998 (date of to Year Ended to March 31 inception) to December 31, December 31, December 31, ---------------------- March 31, 1998 1999 1999 1999 2000 2000 ------------ ------------ ------------ --------- ----------- ------------- (in thousands, except share and per share data) Revenue................. -- -- -- -- 68 68 Cost of Revenue......... -- -- -- -- 141 141 --------- ----------- --------- --------- ----------- --------- Gross Profit............ -- -- -- -- (73) (73) Statements of Operations Data: Operating expenses: Research and development (exclusive of non-cash compensation expense of $771, $17 (unaudited) and $718 (unaudited) in the year ended December 31, 1999, and the three month periods ended March 31, 1999 and 2000, respectively reported below)....... $ 111 $ 3,053 $ 3,164 273 2,039 5,203 Sales and marketing (exclusive of non-cash compensation expense of $984, $18 (unaudited) and $2,266 (unaudited) in the year ended December 31, 1999, and the three month periods ended March 31, 1999 and 2000, respectively and value of warrants granted of $1,468 and $3,914 (unaudited) in the year ended December 31, 1999 and the three month periods ended March 31, 2000, respectively reported below)....... 96 9,412 9,508 300 9,979 19,487 Value of warrants granted in connection with marketing agreements............ -- 1,468 1,468 -- 3,914 5,382 General and administrative (exclusive of non-cash compensation expense of $813, $1 unaudited and $1,289 unaudited in the year ended December 31, 1999, and the three month periods ended March 31, 2000 respectively reported below)....... 107 1,795 1,902 128 1,197 3,099 Amortization of deferred stock compensation.......... -- 2,568 2,568 36 4,273 6,841 --------- ----------- --------- --------- ----------- --------- Total operating expenses.............. 314 18,296 18,610 737 21,402 40,012 --------- ----------- --------- --------- ----------- --------- Loss from operations... (314) (18,296) (18,610) (737) (21,475) (40,085) Interest income, net.... -- 648 648 4 801 1,449 --------- ----------- --------- --------- ----------- --------- Net loss................ $ (314) $ (17,648) $ (17,962) (733) (20,674) (38,636) --------- ----------- --------- --------- ----------- --------- Net loss per share-- basic and diluted...... $ (0.12) $ (4.13) $ (4.77) $ (0.22) $ (3.91) $ (7.76) ========= =========== ========= ========= =========== ========= Shares used in per share calculation--basic and diluted................ 2,521,485 4,275,090 3,763,399 3,405,069 5,292,410 4,978,794 ========= =========== ========= ========= =========== ========= Pro forma net loss per share--basic and diluted................ $ (1.15) $ (0.79) =========== =========== Shares used in pro forma net loss per share--basic and diluted................ 15,356,918 26,025,280 =========== ===========
6
As of March 31, 2000 ------------------------------ Pro Forma Actual Pro Forma As Adjusted ------- ---------- ----------- (in thousands) Balance Sheet Data: Cash and cash equivalents........................ $48,917 $58,917 $102,618 Working capital.................................. 49,076 59,076 102,777 Total assets..................................... 56,327 66,327 110,028 Long-term debt................................... 79 79 79 Total stockholders' equity....................... 54,213 64,213 107,914
7 RISK FACTORS You should carefully consider the following risk factors and all other information contained in this prospectus before purchasing our common stock. Investing in our common stock involves a high degree of risk. The risks and uncertainties described below are those we currently believe are material to our business, our industry and this offering. If any of the following risks actually occurs, our business, operating results and financial condition could be seriously harmed. In addition, the trading price of our common stock could decline due to the occurrence of any of these risks, and you may lose all or part of your investment. See "Note Regarding Forward-Looking Statements". Risks Related to Our Business We only incorporated in August 1998 and generated no revenue through December 31, 1999. Because our limited operating history makes it difficult to evaluate our business, our future financial performance may disappoint investors and result in a decline in our common stock price. We were incorporated in August 1998 and have a limited operating history, which makes an evaluation of our current business and prospects difficult. Through December 31, 1999, we did not generate any revenue and, we have had only limited revenue for the three-month period ended March 31, 2000. In addition, the revenue and income potential of our business is unproven. Due to our limited operating history, it will be difficult to predict accurately our future revenue or results of operations. This may result in one or more quarters where our financial performance falls below expectations of investors. As a result, the price of our common stock may decline. The market for Internet-based print management services is at an early stage of development and, if our noosh.com service does not achieve widespread commercial acceptance, we will be unable to generate revenue. Because the market for Internet-based print management services is at an early stage of development, our noosh.com service may fail to achieve market acceptance. The acceptance of our Internet-based service may be hindered by: . the reluctance of prospective customers to change their existing print purchasing habits and alter the nature of their direct print vendor relationships; . our failure to effectively communicate the value of our service to prospective customers; . the inability of national printers with whom we have a relationship to effectively co-market our service to their customers; and . the emergence of new technologies or industry standards that could cause our service to be less competitive. If our potential customers do not recognize the value of, or choose not to adopt, our service, we will be unable to generate revenue. Because print buyers and print vendors currently coordinate print orders through a medium other than the Internet, they may not accept our Internet- based print management service and our business could suffer. Most print buyers and print vendors currently coordinate the procurement and management of customized print orders through either a combination of telephone, facsimile and paper or through proprietary software solutions. Growth in the demand for our noosh.com service depends on the adoption of e- commerce and Internet services by print buyers and print vendors, which requires their 8 acceptance of a new way of managing the design, procurement and production of print orders. However, we may not be able to persuade print buyers or print vendors to abandon their traditional print management processes because of comfort with these processes and because of the existing direct relationships between print buyers and their vendors. Our business could suffer if Internet- based print management services are not accepted or not perceived to be effective by print buyers and print vendors. We expect to incur significant future operating losses and may never achieve profitability. From inception through December 31, 1999, we were a development stage company and did not have any revenue. In addition, we incurred a net loss of $17.6 million for the year ended December 31, 1999 and a net loss of $20.7 million for the three-month period ended March 31, 2000. We anticipate that we will continue to incur operating losses and net losses for the foreseeable future. The extent of our future losses are dependent, in part, on the amount of growth in our revenue relative to our operating expenses. However, we currently expect to increase our operating expenses significantly as we incur expenses related to the development, operation and marketing of our service. In turn, our ability to generate revenue depends on our ability to convert our current users to paying customers and obtain new customers. If we fail to generate significant revenue, or if our operating expenses increase without a corresponding increase in revenue, our losses will continue to increase in future periods. Through the remainder of fiscal 2000, we intend to commit significant resources to sales and marketing and research and development activities. In particular, we intend to increase our sales and marketing expenses to hire additional sales and marketing personnel, to develop relationships with print buyers, print vendors and providers of related services and to build brand recognition. Similarly, we intend to increase our research and development activities to hire additional personnel and enhance the features and functionality or our noosh.com service for the print market, as well as for other print-related markets such as creative design process management and file and data storage. We expect to use the proceeds of this offering primarily to fund the development of our noosh.com service, including development of new versions of our service, enhanced functionality and improvements of our LiveJobs technology. In addition, we expect to use a portion of the proceeds to increase our sales and marketing activities. Any remaining proceeds will be used for general and administrative purposes. In that regard, we are currently looking for additional space in anticipation of the expiration of our current lease. Converting our users to revenue-generating customers and attracting new customers is a complex and time-consuming process which may take longer than we expect. If we are unable to maintain or attract customers which agree to pay reasonable amounts for our service, we will be unable to generate sufficient revenue. Our user agreements do not obligate our users to use our service. We cannot assure you that we will be able to convert our existing users to revenue- generating customers or what price these customers will be willing to pay for our service. In addition, the enterprise-wide implementation of our service by large print buyers or vendors can be complex and time consuming because it may require us to perform a workflow analysis to determine how our noosh.com service can best be used within the enterprise, input contact lists and past documents as templates, train individuals within the print buyer's or print vendor's organization in the use of our noosh.com service and, with the help of our customer service representatives, begin the process of creating print jobs. Depending on the size of the customer, and the number of individuals that need to be trained, this process may take several weeks to complete. Therefore, to sell our service successfully, we must educate our potential customers on the uses and benefits of our service, which can require significant time and resources 9 on our part. Consequently, we can not assure you that we will be able to attract new customers. If we are unable to convert our existing users to revenue-generating customers or attract new customers, our ability to expand our business will be hindered. Intense competition in our industry could substantially impair our business and our operating results. We expect competition in the market for Internet-based print management services to intensify significantly in the future because new competitors can enter the market with little difficulty and can launch new Internet-based services for a relatively low cost. Competitors may offer Internet-based print management services superior to our current or proposed offerings and achieve greater market acceptance. In addition, because we have only recently implemented a pricing structure for our service, we cannot be certain that current users and future customers will be willing to pay the prices we have set. If we do not achieve market acceptance before our competitors offer more attractive services, we will lose customers and our market share will decline. We currently compete with several companies that offer business-to-business Internet-based services or enterprise software applications for the printing industry. Currently, our three principal competitors include Collabria, Inc., printCafe, Inc. and Impresse Corporation. We potentially will compete with a number of other companies, including print vendors offering traditional methods of buying and managing print orders, such as R.R. Donnelley, and companies that provide proprietary management software. These companies may develop alternative print procurement and management services. In addition, existing print vendors, including some of our users, may develop competing Internet- based services for the management of print orders. These vendors have well- established relationships with our current print buyers and potential customers, a large base of installed customers, extensive knowledge of our industry and significantly greater financial and marketing resources than we do. In addition, existing print vendors may not charge additional fees for their Internet-based service. To the extent existing print vendors elect to offer their services over the Internet, their relationships with their customers, industry knowledge and pricing flexibility may provide them with a competitive advantage because print buyers may be unwilling to adopt or pay for a new Internet-based system or may be more comfortable adopting the Internet- based services offered by their current print vendors. We believe that the principal competitive factors affecting our market include adoption by a significant number of print buyers and print vendors, core technology, product quality and performance, breadth and depth of product features, industry-specific expertise, customer service and support and value of solution. We may not be able to maintain our competitive position against current and potential competitors, especially those with significantly greater financial, marketing, service, support, technical and other resources. Because our quarterly operating results are difficult to predict and likely to fluctuate in future periods, we may fail to meet the expectations of investors, which may cause the market price of our common stock to decrease. Operating results are difficult to predict and are likely to vary significantly from quarter to quarter in the future. We compete in the general printing market, which is characterized by individual orders from customers for specific printing projects rather than long-term contracts. Continued engagement for successive print orders depends on the customers' satisfaction with our service. Therefore, the number, size and profitability of print orders may fluctuate from quarter to quarter. As a result, our quarterly operating results are difficult to predict and may fall below the expectations of current or potential investors in some future quarters, which could lead to a significant decline in the market price of our stock. 10 Because we have granted some of our print vendors and print buyers performance- based warrants, we expect to incur substantial non-cash charges which will reduce our operating results. We expect to incur substantial non-cash charges associated with the grant of performance-based warrants for an aggregate of 4,393,559 shares of common stock to four print vendors and three print buyers. These warrants are exercisable in increments ranging from 5,000 shares of common stock to 900,000 shares of common stock when the holders meet stated volume targets for business conducted through our noosh.com service. These volume targets range from $5 million in print orders to $1.5 billion in print orders. For the quarter ended December 31, 1999, we recorded a charge of $1.5 million in connection with portions of warrants issued to two print vendors, and for the quarter ended March 31, 2000, we recorded a charge of $3.9 million in connection with a portion of the warrant issued to a third print vendor. In addition, based on an assumed initial public offering price of $12.00 per share, we expect to record a charge of $5.7 million for the quarter ending June 30, 2000 in connection with a portion of a warrant issued to a print buyer. The remaining portions of these warrants and the remaining warrants are exercisable when the holders meet stated volume targets for business conducted on or through our noosh.com service. The magnitude of each additional charge will be measured and the charge will be taken when it becomes probable that applicable volume targets will be achieved. Although, the magnitude of these potential charges cannot be currently calculated, we expect that the charges will be relatively large and will reduce our operating results or increase our losses on an aggregate and per share basis in the year these charges are expensed. In addition, to the extent holders exercise their warrants, the total number of shares we have outstanding would increase correspondingly. As a result, investors would suffer additional dilution of their ownership interest and in the book value of their investment. Because we may issue additional performance-based warrants in the future to encourage print buyers and print vendors to conduct business through our noosh.com service, investors may suffer additional dilution when these warrants are exercised, and we may incur additional non-cash charges which would harm our operating results. In order to attract additional users and to provide an incentive for our current users to increase their use of our noosh.com service, we may issue additional performance-based warrants. These warrants may become exercisable when the holders meet pre-determined targets for business conducted through our service. To the extent we issue these warrants at an exercise price that does not correspond to the market value of our common stock on the date the warrants are exercised, we may incur substantial non-cash charges which would reduce our operating results or increase our losses, on an aggregate and per share basis, in the year we record the charge. In addition, to the extent these warrants are exercised, investors would suffer additional dilution in their ownership interest and in the book value of their investment. If we are unable to expand our sales, marketing and customer support infrastructure successfully, our ability to increase sales of our service will be compromised. Our ability to expand our business will depend in part on recruiting and training additional direct sales, marketing and customer support personnel, including additional personnel in new geographic markets as we expand. Competition for qualified sales, marketing and customer support personnel is intense. We may not be able to expand our direct sales force successfully, which would limit our ability to expand our customer base. We may be unable to hire highly trained customer support personnel, which would make it difficult for us to meet customer demands. Any difficulties we may have in expanding our sales, marketing or customer support organizations will have a negative impact on our ability to attract new customers and retain existing users. 11 Our key management and technical personnel are critical to our business and if they do not remain with us in the future, our remaining management may become distracted, our reputation may be harmed and our operating expenses could increase. Our future success will depend to a significant extent on the continued services of Ofer Ben-Shachar, our President and Chief Executive Officer, David Hannebrink, our Vice President of Marketing and Business Development, Lawrence Slotnick, our Vice President of Engineering, and Robert Shaw, our Senior Vice President of Sales. The loss of the services of any of these individuals could cause us to incur increased operating expenses and divert other senior management time in searching for their replacements. The loss of their services could also harm our reputation as our users could become concerned about our future operations. We do not have long-term employment agreements with any of these personnel. If we are unable to continually attract and retain qualified personnel, we may not be able to support the growth of our business. In order for our business to be successful, we must be able to continually attract and retain qualified personnel. In particular, we may hire additional experienced sales and marketing personnel, software developers, qualified engineers and other employees. Competition for these individuals is intense, especially in the Internet industry. We cannot be certain that we will be successful in attracting and retaining such personnel. If we fail to recruit and retain additional key personnel, we may be unable to expand our business and sell the noosh.com service. Because many of the members of our management team have been employed with us for less than one year, we cannot be certain that they will be able to manage our business successfully. We are dependent on the successful integration of our management team in order for our business to be successful. Because of our limited operating history, many of our existing management personnel have been employed by us for less than a year. Therefore, we cannot be certain that we will be able to allocate responsibilities satisfactorily and that the new members of our management team will succeed in their roles. Our inability to integrate members of our current management team or any additional qualified personnel would make it difficult for us to manage our business successfully and pursue our growth strategy. If we are unable to update the features and functionality for our service in response to rapid changes in technologies, customer demands and competitive offerings, our service may become obsolete and we will be unable to compete. The market for e-commerce solutions for the printing industry is subject to rapidly changing technologies and customer demands. In particular, in recent years, the market for printed business materials has experienced significant changes due to advances in computer and communication technologies. These changes have led to the implementation of new industry standards. For example, certain products that were once commercially printed are now generated on computers through desktop publishing software. In addition, some information is now disseminated in a digital or electronic format rather than in a paper format. To meet these challenges, we must correctly interpret the trends in the market for printed business materials and in customers needs, enhance the features and functionality of our current service in response to these trends and develop and introduce new services in a timely and cost-effective manner. We cannot be certain that the features and functionality that we currently offer, or the features and functionality that we may offer in the future, will be sufficient to encourage and facilitate the use of our noosh.com service. For example, the trend to digital and electronic dissemination could reduce the demand for printing of some communications. If we or our customers are focused on these types of communications, we would need to focus on 12 other types of printing jobs. If we are unable to accurately determine the needs of print buyers and print vendors or the direction of trends in the market for printed business materials, we will be unable to design or implement the appropriate features and functionality for our noosh.com service which would result in decreased demand for our noosh.com service and a corresponding decrease in our revenue. We may incur substantial expenses pursuing new or complementary business objectives, which may harm our operating results. Part of our strategy is to pursue new or complementary business opportunities within and outside the printing industry and to expand internationally. We may not be able to expand our service offerings and related operations in a cost- effective or timely manner. Expansion of our business into other print-related markets such as creative design process management and file and data storage will require significant additional expenditures and strain our personnel and resources. For example, we may need to incur significant marketing expenses to develop relationships with new suppliers and customers. In addition, we cannot be certain that we will be able to use our Live Jobs technology to expand our service offerings outside the printing industry in a timely and cost-effective manner. Even if we are successful in applying our technology to non-print related markets, our new service offerings may not achieve market acceptance, which could damage our reputation. Because we have recently granted stock options to our employees at exercise prices significantly below the assumed initial public offering price, we will recognize a significant deferred stock compensation expense which could harm our operating results. Since inception in August 1998 through April 2000, we have granted options to employees at exercise prices which, based on the assumed initial public offering price of $12.00, we determined are below the deemed fair market value of our common stock for financial reporting purposes. As a result, we have recorded deferred stock-based compensation of $32.0 million for the period since inception through March 31, 2000. Of this $32.0 million, we recognized deferred stock compensation expense of $2.6 million for the year ended December 31, 1999 and $4.3 million for the three-month period ended March 31, 2000. The remainder will be amortized as stock-based compensation over the vesting period of the options, or through 2004. Third parties may increase the fees they charge us for their technology or refuse to license technology to us, which may increase our costs or harm our service. We rely on third parties to provide us with software for which we pay fees. For example, we license software from Oracle Corporation and WebLogic, Inc. to support our noosh.com service. These parties may increase their fees significantly or refuse to license their software to us. While other vendors may provide similar technology, this software provides the infrastructure on which our service operates and is therefore important to our business. We cannot be certain that we would be able to obtain the required substitute technology on favorable terms or on a timely basis. If we cannot obtain the required technology at a reasonable cost or this technology is inadequate, we may incur additional expenses or experience delays or disruptions in our service. Our inability to protect our intellectual property rights from third-party challenges may significantly impair our competitive position. If we fail to protect our proprietary rights adequately, our competitors could offer similar services, potentially harming our competitive position. We rely on a combination of copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights. We have filed for trademark protection for NOOSH, the NOOSH logo and LiveJobs. We also have four U.S. patent applications pending in connection with the internally developed software applications that 13 comprise our LiveJobs technology. However, we do not have any issued patents to date, and we can not be sure any patents will issue. We cannot be certain that the steps we have taken to protect our intellectual property rights will be adequate or that third parties will not infringe or misappropriate our proprietary rights. We also cannot be sure that competitors will not independently develop technologies that are substantially equivalent or superior to the proprietary technologies employed in our Internet-based service. Our service may infringe on the intellectual property rights of third parties, which may result in lawsuits and prevent us from selling our service. In recent years, there has been significant litigation in the United States concerning patents and other intellectual property rights involving companies in the Internet industry. The software code relating to our noosh.com service or our methods of providing our noosh.com service may infringe on the proprietary rights of others and other parties may assert infringement claims against us. In February 2000, we received a letter from an individual, Henry B. Freedman, advising us that his patent may cover the software code comprising our noosh.com service and requesting that we consider licensing the patent. We are currently evaluating the patent. If this matter, or any similar future matters or claims, cannot be resolved through a license or similar arrangement, we could become a party to litigation. Intellectual property claims and any resulting lawsuits, if successful, could subject us to significant liability for damages and result in invalidation of our proprietary rights. In addition, these claims, regardless of whether they result in litigation and regardless of the outcome of the litigation, would be time-consuming and expensive to resolve and divert management time and attention. Any intellectual property dispute may cause us to do one or more of the following: . stop selling or using our service; . attempt to obtain from the owner of the infringed intellectual property right a license to sell or use the relevant technology, which license may not be available on reasonable terms or at all; or . redesign the service. If we are forced to take any of these actions, our business may be harmed. Although we carry general liability insurance, our insurance may not cover claims of this type or may not be adequate to indemnify us for all liability that may be imposed. Risks Related to the Internet Industry We depend on the increasing use of the Internet and on the growth of electronic commerce. If businesses do not accept Internet-based print management services, our business will fail. For us to succeed, the Internet must continue to be adopted as a significant business-to-business tool for managing vital business functions such as managing and producing printed business materials. To date, many businesses have been deterred from using the Internet for a number of reasons, including: . unavailability of cost-effective, high-speed Internet access; . inconsistent quality of service; . potentially inadequate development of the global Internet infrastructure; and . the difficulty of integrating existing business software applications with online systems. Although the Internet has been widely adopted for business transactions, it may not achieve broad market acceptance for managing the design, procurement and production of print orders. Companies that have already invested substantial resources in traditional methods of managing and producing printed business materials may be reluctant to adopt new Internet-based services. 14 Any damage to or failure of our service could disrupt our business and undermine our reputation. Our operations depend in part on our ability to protect our systems against physical damage from fire, earthquakes, power loss, telecommunications failures, computer viruses, hacker attacks, physical break-ins and similar events. Any software or hardware damage or failure that causes interruption or an increase in response time of our online service could reduce customer satisfaction and decrease usage of our service. Although current utilization of our system processing capacity is limited, our capacity needs and limitations have been relatively untested to date. In addition, our plans for increasing system processing capacity whenever utilization exceeds 25% could result in a significant expense which would divert resources from sales and marketing or research and development and which may reduce our ability to compete or may cause our losses to increase or profitability to decrease. We have entered into a colocation agreement with AboveNet, Inc. to provide data center colocation, Internet connectivity, conditioned power and support and maintenance of our hardware and software at AboveNet's San Jose, California facility. We have also entered into an agreement with InterNAP Network Services Corporation for Internet connectivity services at InterNAP's Fremont, California facility. Since our data warehousing and network facilities are located in California, an earthquake, other natural disaster, or telecommunications failure could affect our operations unexpectedly and prevent us from offering our service. We cannot be certain, and neither InterNAP nor AboveNet guarantee, that our service will be uninterrupted, error-free or secure. For example, on three prior occasions, our users have experienced disruptions in service. On one of these occasions, the service interruption lasted for six hours and was the result of system-wide network failure at our vendor's facility. On the other occasions, the interruptions lasted from one to two hours and were the result of either power failure at our vendor's facility or maintenance problems within Noosh. Any future interruptions, errors or breaches of security could harm our business and our reputation. Security risks and concerns may deter the use of the Internet for conducting e- commerce, which may inhibit the use of our service and limit our growth. Secure transmission of confidential information over public networks is critical for conducting e-commerce. Advances in computer capabilities, new discoveries in the field of cryptography or other events or developments could result in compromises or breaches of our security systems. If any well-publicized compromises of security were to occur, they could have the effect of substantially reducing the use of the Internet for commerce and communications, which could reduce usage of our service and harm our business. Anyone who circumvents our security measures could misappropriate proprietary information or cause interruptions in our service or operations. In the past, computer viruses or software programs that disable or impair computers, have been distributed and have rapidly spread over the Internet. Computer viruses could be introduced into our systems or those of our users, which could disrupt our network or make it inaccessible to users. We may be required to expend significant capital and other resources to protect against the threat of security breaches or to alleviate problems caused by breaches. To the extent that our activities may involve the storage and transmission of proprietary information, security breaches could expose us to a risk of loss or litigation and possible liability. Our security measures may be inadequate to prevent security breaches, and our business would be harmed if we do not prevent them. Because the volume of data traffic over the Internet, in general, and our Web site, in particular, has increased significantly over a short period of time, users may experience performance problems with our service which may hinder the adoption of our Internet-based print management service. Our success in attracting and retaining customers and convincing them to increase their reliance on our Internet-based print management service depends on our ability to offer customers reliable 15 and continuous service. This requires us to ensure continuous and error-free operation of our systems. To the extent that the volume of data traffic on our web site and other systems increases, we must upgrade and enhance our technical infrastructure to accommodate the increased demands placed on our systems. Our ability to increase the speed and reliability of our service, however, is limited by and depends upon both the infrastructure supporting the Internet and the internal networks of our existing users and future customers. As a result, the success of our service is dependent upon improvements in networking infrastructure. If these improvements are not available or are not implemented in a timely fashion by our current users and future customers, we will have difficulty in retaining current users or attracting new customers, and our business would be harmed. Increasing governmental regulation of electronic commerce could limit our growth. The adoption of new laws or the adaptation of existing laws to the Internet may decrease the growth in the use of the Internet, which could in turn decrease the demand for our service, increase our cost of doing business or otherwise harm our business. Federal, state, local and foreign governments are considering legislative and regulatory proposals relating to Internet user privacy, security, taxation, pricing, quality of products and services and intellectual property ownership. How existing laws will be applied to the Internet in areas such as property ownership, copyright, trademark, trade secret and defamation is uncertain. In addition, the recent growth of Internet commerce has been attributed by some to the lack of sales and value-added taxes on interstate sales of goods and services over the Internet. Numerous state and local authorities have expressed a desire to impose such taxes on sales to consumers and businesses in their jurisdictions. The Internet Tax Freedom Act of 1998 prevents imposition of such taxes through October 2001. If the federal moratorium on state and local taxes on Internet sales is not renewed, or if it is terminated before its expiration, sales of goods and services over the Internet could be subject to multiple overlapping tax schemes, which could substantially hinder the growth of Internet-based commerce, including sales of our service. Risks Related to this Offering In the future, we may need to raise additional capital to fund our operations. Any difficulty in obtaining additional financial resources could force us to curtail our operations or prevent us from pursuing our growth strategy. We believe that our existing cash and cash equivalents will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next twelve months. However, even with the proceeds of this offering, we may need to raise additional capital in the future in order to fund our planned expansion of operations, to pursue additional customer sales and to pursue our growth strategy. Our future capital requirements will depend on many factors that are difficult to predict, including our rate of revenue growth, our operating losses, the cost of obtaining new customers, the cost of upgrading and maintaining our infrastructure and other systems and the size, timing and structure of any acquisition that we complete. As a result, we cannot predict with certainty the timing or amount of our future capital needs. We have no commitments for additional financing, and we may experience difficulty in obtaining additional funding on favorable terms or at all. If adequate funds are not available or not available on acceptable terms, we may be unable to fund our expansion, promote our brand identity, take advantage of unanticipated acquisition opportunities, develop or enhance services or respond to competitive pressures. Any such inability could force us to curtail our operations and would have a negative effect on our business. Any future funding may dilute the ownership of our stockholders or impose limitations on our operations. If we raise additional funding through the issuance of equity, the percentage of our company owned by our then current stockholders will be correspondingly reduced. 16 Our stock price may be volatile, and you may not be able to resell your shares at or above the initial public offering price. Prior to this offering, there has been no public market for our common stock. The initial public offering price of our common stock will be determined through negotiations between us and the representatives of the underwriters. However, we cannot predict whether the market price of our common stock following this offering will be below, at, or above the initial public offering price. We also cannot be certain whether an active trading market in the common stock will develop following this offering and how liquid that market will be. As a result, if you decide to purchase our shares, you may not be able to resell your shares at or above the initial public offering price. In addition, in the past, we have issued performance-based warrants to print buyers and print vendors in order to encourage their use of our service. Because these warrants become exercisable based on usage by the holder, they encourage the holder to use the noosh.com service. If the market price for our common stock is volatile, our ability to issue warrants to print buyers and vendors may be compromised and our ability to grow our business may be impaired. The market price for our shares of common stock may be volatile. A number of factors can contribute to volatility in our stock price, including: . actual or anticipated variations in our quarterly operating results; . changes in market valuations of other Internet or online business-to- business e-commerce companies such as Ariba, Inc. or Commerce One, Inc.; . the gain or loss of significant relationships with national printers such as Consolidated Graphics, Inc., Moore North America, Inc., R.R. Donnelley & Sons Company and Wallace Computer Services or major print buyers; . announcements of technological innovations or significant contracts by us or our primary competitors, Collabria, Inc., printCafe, Inc. and Impresse Corporation; . acquisitions, strategic partnerships, joint ventures or capital commitments; . additions or departures of key personnel such as Ofer Ben-Shachar, David Hannebrink, Lawrence Slotnick and Robert Shaw; and . general conditions in the Internet commerce and printing industries. In addition, the stock market in general has experienced extreme price and volume fluctuations that have been unrelated to the operating performance of particular companies. This is particularly characteristic of many companies in the technology and emerging growth sectors. A prolonged decline in our stock price could make it difficult to attract or retain employees. For example, recent declines in the stock prices of many technology companies have resulted in a substantial increase in employee attrition. Some companies have been forced to grant additional stock options or reprice existing options to retain employees. In addition, a prolonged decrease in our stock price could make it more difficult to raise additional capital by accessing the public markets. Our failure to raise additional capital through the public markets would have an adverse affect on our liquidity and on the growth of our business unless we can locate other sources of funding. In the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of its securities. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and divert management's attention. In addition, any litigation could harm our operating results or our ability to attract and retain new employees. 17 Our existing stockholders will be able to exercise significant control over all matters requiring stockholder approval. On completion of this offering, our executive officers, directors and greater than 5% stockholders, consisting of Accel Partners, Advanced Technology Ventures, Meritech Capital and R.R. Donnelley and their affiliates, will beneficially own, in the aggregate, approximately 64.3% of our outstanding common stock. As a result, these stockholders, acting together, would be able to exercise significant control over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, which may have the effect of delaying or preventing a third party from acquiring control over us. Provisions of our charter documents and Delaware law contain provisions that may discourage a takeover, which could limit the price investors might be willing to pay in the future for our common stock. Provisions of our certificate of incorporation and our bylaws may have the effect of delaying or preventing an acquisition, a merger in which we are not the surviving company or changes in our management. These provisions: . establish a classified board of directors so that not all members of the board may be elected at one time; . authorize the issuance of "blank check" preferred stock that could be issued by our board of directors to increase the number of outstanding shares and thwart a takeover attempt; . limit who may call a special meeting of the stockholders; . prohibit stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders; and . establish advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings. In addition, because we reincorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law. These provisions may prohibit large stockholders, in particular those owning 15% or more of the outstanding voting stock, from consummating a merger or combination including us. These provisions could limit the price that investors might be willing to pay in the future for our common stock. 18 Future sales of our common stock may depress our stock price. Sales of our common stock into the market could cause the market price of our common stock to drop significantly, even if our business is doing well. After this offering, we will have outstanding 37,602,173 shares of common stock assuming no exercise of the underwriters' over-allotment option. All the 4,000,000 shares sold in this offering will be freely tradable at the date of this prospectus. The remaining 33,602,173 shares of our common stock that will be outstanding after this offering will be eligible for sale as follows:
Number of Shares Date eligible for sale ---------------- ---------------------- 20,106,997 180 days after the date of this prospectus, if sales meet the restrictions under federal securities laws 13,495,176 Beginning in November 2000, if sales meet the restrictions under federal securities laws
The table above gives effect to lockup agreements with the underwriters or agreements with us under which our directors, officers, employees and other stockholders have agreed not to sell, transfer or otherwise dispose of their shares of common stock for 180 days after the date of this prospectus. Although there is no agreement or understanding for the underwriters to waive the lock- up agreements, Goldman, Sachs & Co. may, in its sole discretion and at any time without prior notice, release all or any portion of the common stock subject to lock-up agreements. Additionally, of the 4,392,538 shares that may be issued upon the exercise of outstanding options as of April 4, 2000, approximately 2,416,264 shares will be vested and eligible for sale 180 days after the date of this prospectus. As of April 4, 2000, warrants for 1,573,308 shares of common stock and Class B common stock were exercisable and warrants for an additional 2,785,250 shares of common stock and Class B common stock may become exercisable in the future based on the holders meeting stated volume targets for business conducted over our service. If exercised, the earliest that these shares will be eligible for sale under Rule 144 is December 2000. For a further description of the eligibility of shares for sale into the public market following this offering, see "Shares Eligible for Future Sale". 19 NOTE REGARDING FORWARD-LOOKING STATEMENTS Some of the statements under "Prospectus Summary", "Risk Factors", "Management's Discussion and Analysis of Financial Condition and Results of Operations", "Business" and elsewhere in this prospectus constitute forward- looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different than any expressed or implied by these statements. In some cases, you can identify statements by terminology such as "may", "will", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential", "continue" or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in the statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We are under no duty to update any of the statements after the date of this prospectus to conform these statements to actual results or events except to the extent required under law. 20 USE OF PROCEEDS AND PLAN OF OPERATION We estimate that the net proceeds to us from the sale of the shares being offered will be $43.4 million, at an assumed initial public offering price of $12.00 per share, after deducting an assumed underwriting discount and estimated offering expenses payable by us. If the underwriters exercise their over-allotment option in full, then we estimate that the net proceeds to us from the sale of the shares being offered will be $50.1 million. We intend to use all of the proceeds for working capital and general corporate purposes. However, we have not made a specific allocation of the proceeds. The primary purposes of this offering are to fund our operations, increase our visibility in the marketplace, create a public market for our common stock and facilitate future access to public equity markets. We may also use a portion of the net proceeds to acquire complementary technologies or businesses. However, we currently have no commitments or agreements and are not involved in any negotiations involving any of these transactions. Through the remainder of fiscal 2000, we intend to commit significant resources to sales and marketing and research and development activities. In particular, we intend to increase our sales and marketing expenses to hire additional sales and marketing personnel, to develop relationships with print buyers, print vendors and providers of related services and to build brand recognition. Similarly, we intend to increase our research and development activities to hire additional personnel and enhance the features and functionality or our noosh.com service for the print market as well as for other print-related markets such as creative design process management and file and data storage. In addition to the proceeds from this offering, we may require additional funds to support our growth. We may seek to obtain additional funds after this offering through equity or debt financings. We cannot be certain that additional financing will be available to us on favorable terms, if at all. If adequate funds are not available to us on acceptable terms, our business will be harmed. If we are unable to obtain additional funds, we estimate that our current cash resources, interest income and the proceeds of this offering will be sufficient to fund our operations for the next 18 months, depending on the amount of sales and market and research and development activities actually conducted. However, this estimate is based on assumptions regarding the growth of our business and our expenses. If these assumptions prove to be wrong and if we do not generate significant revenue from our business, we may need to raise additional funds prior to that time. Pending use of the net proceeds of this offering, we intend to invest the net proceeds in interest-bearing, investment grade securities. DIVIDEND POLICY We have never declared or paid cash dividends on our capital stock. We do not anticipate paying any cash dividends in the foreseeable future. We currently intend to retain any future earnings to finance the expansion of our business. 21 CAPITALIZATION The following table sets forth our capitalization as of March 31, 2000 on an actual, pro forma and pro forma as adjusted basis. The pro forma column reflects the receipt of net proceeds of $10.0 million upon the issuance and sale of 769,231 shares of Series E preferred stock to GE Capital Equity Investments in April 2000 and the automatic conversion of all shares of outstanding preferred stock, into 21,981,137 shares of common stock and Class B common stock upon the closing of this offering, based on an assumed initial public offering price of $12.00 per share. The pro forma as adjusted column reflects our pro forma capitalization plus: . our sale of 4,000,000 shares of common stock at an assumed initial public offering price of $12.00 per share, after deducting an assumed underwriting discount and estimated offering expenses payable by us; and . 35,000 shares of common stock issuable upon exercise of a portion of an outstanding warrant at an exercise price of $7.45 per share prior to this offering. We have assumed that this portion of the warrant will be exercised prior to the closing of this offering because the exercise price is less than the assumed initial public offering price and this portion of the warrant expires on the closing of the offering. None of the columns reflect: . 14,950,000 shares of common stock authorized for issuance under our employee stock option plans, non-employee directors' stock option plan and our employee stock purchase plan of which 4,392,538 shares were subject to outstanding options as of April 4, 2000; . warrants for 1,573,308 shares of common stock and Class B common stock that were exercisable as of April 4, 2000 at a weighted average exercise price of $11.31; and . warrants for an additional 2,785,250 shares of common stock and Class B common stock outstanding as of April 4, 2000 that may become exercisable in the future based on the holders meeting stated volume targets for business conducted over our service. You should read the table below along with our balance sheet as of March 31, 2000 and the related notes.
As of March 31, 2000 -------------------------------- Pro Forma Actual Pro Forma As Adjusted -------- --------- ----------- (in thousands, except share data) Cash and cash equivalents...................... $ 48,917 $58,917 $102,618 ======== ======== ======== Long-term debt................................. $ 79 $ 79 $ 79 -------- -------- -------- Stockholders' equity: Preferred stock, par value $0.001; 16,035,000 shares authorized, actual; 15,200,000 shares authorized pro forma; 5,000,000 shares authorized, pro forma as adjusted; 14,614,631 shares issued and outstanding, actual; no shares issued and outstanding, pro forma and pro forma, as adjusted ...................... 14 -- -- Common stock, par value $0.001; 45,000,000 shares authorized, actual and pro forma; 75,000,000 shares authorized, pro forma as adjusted; 11,586,036 shares outstanding, actual; 33,562,215 shares outstanding pro forma; 37,597,215 shares outstanding pro forma as adjusted ........................... 11 32 36 Additional paid-in capital.................... 121,036 131,029 174,726 Deferred stock compensation................... (25,171) (25,171) (25,171) Notes receivable from common stockholders..... (3,041) (3,041) (3,041) Deficit accumulated during the development stage........................................ (38,636) (38,636) (38,636) -------- -------- -------- Total stockholders' equity ................... 54,213 64,213 107,914 -------- -------- -------- Total capitalization......................... $ 54,292 $ 64,292 $107,993 ======== ======== ========
22 DILUTION Our pro forma net tangible book value as of March 31, 2000 was $64.2 million, or $1.87 per share. Pro forma net tangible book value per share represents the amount of our total tangible assets, reduced by the amount of our total liabilities, divided by the total number of shares of common stock outstanding after giving effect to the sale and issuance of 769,231 shares of Series E preferred stock in April 2000 and the automatic conversion of all shares of outstanding preferred stock into 21,981,137 shares of common stock and Class B common stock upon the closing of this offering based on an assumed initial public offering price of $12.00 per share. Dilution in net tangible book value per share represents the difference between the amount paid per share by purchasers of shares of common stock in this offering and the net tangible book value per share of common stock immediately after the completion of this offering. After giving effect to the sale of the 4,000,000 shares of common stock offered by us at an assumed initial public offering price of $12.00 per share, after deducting an assumed underwriting discount and estimated offering expenses payable by us and after giving effect to the issuance of 35,000 shares of common stock upon the exercise of a portion of a warrant at an exercise price of $7.45 per share prior to this offering, our pro forma net tangible book value at March 31, 2000 would have been $107.9 million or $2.81 per share of common stock. We have assumed that this portion of the warrant will be exercised prior to this offering because the exercise price is less than the assumed initial public offering price and this portion of the warrant expires on the closing of the offering. This represents an immediate increase in pro forma net tangible book value of $0.94 per share to existing stockholders and an immediate dilution of $9.19 per share to new investors purchasing shares at the assumed initial offering price. The following table illustrates this dilution on a per share basis: Assumed initial public offering price per share............... $12.00 Pro forma net tangible book value per share at March 31, 2000....................................................... $1.87 Increase per share attributable to new investors............ 0.94 ----- Net tangible book value per share after the offering.......... 2.81 ------ Dilution per share to new investors........................... $ 9.19 ======
The following table summarizes, as of March 31, 2000, after giving effect to the Series E preferred stock issued and the issuance of 35,000 shares of common stock upon the exercise of a portion of a warrant, the differences between the existing stockholders and new investors in this offering with respect to the number of shares of common stock and preferred stock purchased from us, the total consideration paid to us and the average price per share paid:
Shares Purchased Total Consideration Average ------------------ -------------------- Price Number Percent Amount Percent per Share ---------- ------- ------------ ------- --------- Existing stockholders......... 33,597,215 89% $ 92,801,000 66% $ 2.76 New investors................. 4,000,000 11 48,000,000 34 12.00 ---------- --- ------------ --- Totals...................... 37,597,215 100% 140,801,000 100% ========== === ============ ===
The preceding tables assume no issuance of shares of common stock or Class B common stock under warrants or our stock plans after March 31, 2000. As of April 4, 2000, there were outstanding: . 4,392,538 shares subject to outstanding options at a weighted average exercise price of $2.06 per share; . warrants for 1,573,308 shares of common stock and Class B common stock that are exercisable at a weighted average exercise price of $11.31; and 23 . warrants for an additional 2,785,250 shares of common stock and Class B common stock that may become exercisable in the future based on the holders meeting stated volume targets for business conducted over our service. If all of these options were exercised, then the total dilution per share to new investors would be $8.34. 24 SELECTED FINANCIAL DATA The following selected financial data should be read together with our financial statements and related notes, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus. The statements of operations data and the balance sheet data presented below have been derived from financial statements that have been audited by PricewaterhouseCoopers, independent accountants, included elsewhere in this prospectus.
Period from Period from August 3, August 3, 1998 (date 1998 (date of of Period from inception) inception) Three Months Ended August 3, 1998 to Year Ended to March 31, (date of December 31, December 31, December 31, ---------------------- inception) to 1998 1999 1999 1999 2000 March 31, 2000 ------------ ------------ ------------ --------- ----------- -------------- (in thousands, except share and (unaudited) per share data) Revenue................. $ -- $ -- $ -- $ -- $ 68 $ 68 Cost of Revenue......... -- -- -- -- 141 141 --------- ----------- --------- --------- ----------- --------- Gross Profit............ -- -- -- -- (73) (73) Statements of Operations Data: Operating expenses: Research and development (exclusive of non-cash compensation expense of $771, $17 (unaudited) and $718 (unaudited) in the year ended December 31, 1999 and the three month periods ended March 31, 1999 and 2000 respectively reported below)........ 111 3,053 3,164 273 2,039 5,203 Sales and marketing (exclusive non-cash compensation expenses of $984, $18 (unaudited) and $2,266 (unaudited) in the year ended December 31, 1999 and the three month periods ended March 31, 1999 and 2000 respectively and value of warrants granted of $1,468 and $3,914 unaudited in the year ended December 31, 1999 and the three month period ended March 31, 2000, respectively, reported below)........ 96 9,412 9,508 300 9,979 19,487 Value of warrants granted in connection with marketing agreements............. -- 1,468 1,468 -- 3,914 5,382 General and administrative (exclusive of non-cash compensation expense of $813, $1 (unaudited), $1,289 (unaudited) in the year ended December 31, 1999 and the three month periods ended March 31, 1999 and 2000, respectively reported below)........ 107 1,795 1,902 128 1,197 3,099 Amortization of deferred stock compensation..... -- 2,568 2,568 36 4,273 6,841 --------- ----------- --------- --------- ----------- --------- Total operating expenses............ 314 18,296 18,610 737 21,402 40,012 --------- ----------- --------- --------- ----------- --------- Loss from Operations.... (314) (18,296) ( 18,610) (737) (21,475) (40,085) Interest income, net.... -- 648 648 4 801 1,449 --------- ----------- --------- --------- ----------- --------- Net loss................ $ (314) $ (17,648) $ (17,962) $ (733) $ 20,674 $ (38,636) ========= =========== ========= ========= =========== ========= Net loss per share, basic and diluted...... $ (0.12) $ (4.13) $ (4.77) $ (0.22) $ (3.91) $ (7.76) ========= =========== ========= ========= =========== ========= Shares used in per share calculation--basic and diluted................ 2,521,485 4,275,090 3,763,399 3,405,069 5,292,410 4,978,794 ========= =========== ========= ========= =========== ========= Pro forma net loss per share--basic and diluted................ $ (1.15) $ (0.79) =========== =========== Shares used in pro forma net loss per share-- basic and diluted...... 15,356,918 26,025,280 =========== ===========
25
As of December 31, As of -------------- March 31, 1998 1999 2000 ------ ------- --------- (in thousands) Balance Sheet Data: Cash and cash equivalents.............................. $1,117 $48,349 $48,917 Working capital........................................ 902 47,238 49,076 Total assets........................................... 1,239 53,029 56,327 Long-term debt......................................... -- 79 79 Total liabilities...................................... 241 2,137 2,114 Total stockholders' equity............................. 998 50,892 54,213
26 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a discussion of our operations and should be read together with our financial statements and related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of factors including, but not limited to, those set forth under "Risk Factors" and elsewhere in this prospectus. We were incorporated in August 1998, and we initiated testing of our service with users, whom we refer to as beta users, in July 1999. On October 1, 1999, we made our service commercially available to users other than our beta users. From inception through December 31, 1999, we were a development stage company, and we did not generate any revenue, and our operating activities were related primarily to the design and development of our noosh.com service, building our corporate infrastructure, establishing relationships with print buyers and vendors and raising capital. During this period, we expanded our organization by hiring personnel in key areas, particularly sales and marketing and research and development. From inception through December 31, 1999, we accumulated net losses of $18.0 million. Our net losses for the three-month period ended March 31, 2000 were $20.7 million. We first recognized revenue in connection with the use of our noosh.com service during the three-month period ended March 31, 2000. During this period, approximately 487 print orders were issued by print buyers and accepted by print vendors through our service. We recognized revenues of approximately $68,000 during this quarter. The aggregate amount paid or payable by print buyers to print vendors for these print orders was approximately $3.1 million, with an average order size in excess of $6,300. Generally, we charge print vendors a transaction fee based on the size of the print order and the aggregate volume of orders processed by the particular user. We enter into agreements with print vendors that typically have a term of one to two years. These agreements do not require the print vendors to use our service. Some large print vendors will receive discounts based on aggregate volume and other services they provide. In addition, print buyers generally pay us a monthly fee for using our service. However, our pricing strategy has only recently been implemented and, as a result, the fees that we charge and the volume discounts that we offer to print buyers and print vendors vary widely and may change in the future. To date, we have charged print vendors transaction fees which usually range from approximately 1% to 3% of the aggregate dollar volume of the print order, and we have charged print buyers monthly fees which usually range from several hundred to several thousand dollars per month. We determine the amount of our fees based on the size and bargaining leverage of the user, the aggregate monthly dollar volume of usage and the volume of print orders that we expect to be processed through our noosh.com service in the future. As we seek to expand our business, we intend to continue to commit significant resources to sales and marketing and research and development activities. We expect that we will incur losses and generate negative cash flow from operations for the foreseeable future. Our ability to achieve profitability depends upon our ability to increase our sales substantially. In view of the rapidly changing nature of our business and our limited operating history, we believe that period-to-period comparisons of our operating results, including our operating expenses, may not be predictive of our future performance. In December 1999, we entered into agreements with two print vendors, Consolidated Graphics and Wallace Computer Services, under which they will be able to process print orders placed by their customers using our service. In connection with these agreements, we issued a warrant to Wallace Computer Services to purchase 270,000 shares of common stock and a warrant to Consolidated Graphics to purchase 225,000 shares of common stock. A total of 140,000 shares subject to the Wallace warrant were immediately exercisable. Of these 140,000 shares, the right to purchase 35,000 shares will terminate upon the closing of this offering. An additional 35,000 shares subject to the 27 Wallace warrant are exercisable on December 31, 2000, or earlier, if certain targets for business conducted over our service are met, at an exercise price of $7.45 per share. The value of these portions of the warrant, $1,468,000, was charged to operations for the year ended December 31, 1999 because there were no performance targets associated with their exercise. A total of 75,000 shares subject to the Consolidated Graphics warrant were immediately exercisable at an exercise price of $11.00 per share. The value of this portion of the warrant, $373,000, was also charged to operations for the year ended December 31, 1999 because there were no performance targets associated with its exercise. The remaining portions of these two warrants become exercisable only when these print vendors meet stated volume targets for business conducted over our service at exercise prices ranging from $7.45 per share to the fair market value of our common stock on the date the volume targets are met. The remaining shares under the warrants will be valued and a charge will be taken in a similar manner when it becomes probable that the volume targets will be met. In January 2000, we entered into an agreement with a print buyer, Bank of America Technology and Operations, Inc., under which Bank of America will be able to process its print orders using our service. In connection with that agreement, we issued Bank of America a warrant to purchase 50,000 shares of common stock. All of the shares are exercisable at an exercise price of $11.00 per share, but only if Bank of America meets a stated volume target for business conducted over our service. A charge on these shares will be taken using the Black-Scholes option pricing model, assuming a term of three years and expected volatility of 60%. This charge will be taken when it becomes probable that the volume target will be met. In January 2000, we entered into an agreement with R.R. Donnelley to co- market and make our noosh.com service available to R.R. Donnelley's customers. In connection with the agreement, R.R. Donnelley purchased 1,272,727 shares of series D preferred stock for a total of $14.0 million. In addition, we issued two warrants to R.R. Donnelley to purchase an aggregate of 2,780,158 shares of common stock at an exercise price of $11.00 per share. A total of 946,308 shares of common stock are issuable immediately upon the exercise of portions of the warrants. The remaining portions of the warrants are exercisable when R.R. Donnelley or, in the case of one of the warrants, a specific business unit of R.R. Donnelley, meets volume targets for business conducted over our service at an exercise price of $11.00 per share. Using the Black-Scholes option pricing model and assuming a term of two years and expected volatility of 60%, the fair value of the shares that are immediately exercisable under the warrants approximated $3.9 million. Accordingly, we recorded a charge of $3.9 million for the quarter ending March 31, 2000 in connection with these warrants. The remaining shares under the warrants will be valued and a charge will be taken in a similar manner when it becomes probable that the volume targets will be met. We have also granted R.R. Donnelley the right to require us to register the sales of the shares of common stock issuable to them upon conversion of the warrants. In February 2000, we entered into agreements with a print vendor, ColorGraphics, Inc., and a print buyer, J.Crew Group Inc., under which they will be able to process their print orders using our service. In connection with these agreements, we issued a warrant to ColorGraphics to purchase 100,000 shares of common stock and a warrant to J.Crew to purchase 10,000 shares of common stock. The ColorGraphics warrant is exercisable on the date following the first anniversary of the date of grant and only to the extent ColorGraphics meets volume stated targets for business conducted over our service. The exercise price of the ColorGraphics warrant ranges from the initial public offering price to the fair market value of our common stock as of the end of the calendar quarter during which the volume target is met. The J. Crew warrant is exercisable on the date following the first anniversary of the date of grant and only to the extent J. Crew meets a target for business conducted over our service. The exercise price for the J. Crew warrant is equivalent to the initial public offering price per share. In April 2000, we entered into an agreement with a print buyer, General Electric Capital Services, Inc., an affiliate of the General Electric Company, under which GE, and any affiliate of GE, 28 will be able to process their print orders using our service. In connection with this agreement, GE Capital Equity Investments, Inc., another affiliate of the General Electric Company, purchased 769,231 shares of Series E preferred stock for a total of $10.0 million. The shares of Series E preferred stock held by GE Capital Equity Investments will convert into Class B common stock upon the closing of this offering. In addition, we issued GE Capital Equity Investments a warrant to purchase up to 958,400 shares of capital stock. A portion of the warrant, for a total of 432,000 shares of capital stock, is immediately exercisable. The remaining portion of the warrant becomes exercisable in increments when GE, together with its affiliates, meets stated volume targets for business conducted over our service and recommends our service to a stated percentage of identified print vendors and customers of GE Capital's Card Services. Initially, the exercise price of the warrant is $13.00 per share. Upon the automatic conversion of our Series E preferred stock upon the closing of this offering, the exercise price of the warrant will be adjusted to the lesser of $13.00 per share or the conversion price of the Series E preferred stock in effect immediately prior to such conversion. Initially, the warrant is exercisable for Class B common stock. At the option of GE Capital Equity Investments, on the date 90 days after this offering, a portion of the warrant may be exercisable for common stock. In addition, on the earlier of April 4, 2001 or the date 180 days after this offering, the remainder of the warrant will become exercisable for common stock. Using a Black-Scholes option pricing model and assuming a term of four years, an initial public offering price of $12.00 per share and expected volatility of 60%, the fair value of the shares that are immediately exercisable under the warrant approximated $5.7 million. Accordingly, we will record a charge of $5.7 million for the quarter ending June 30, 2000 in connection with this portion of the warrant. The remaining shares under the warrant will be valued and a charge will be taken in a similar manner when its becomes probable that the targets applicable to the shares will be met. GE Capital Equity Investments also has the right to require us to register the sales of the common stock issuable upon conversion of the warrant. We expect to incur substantial non-cash charges associated with the grant of these performance-based warrants. These warrants are exercisable in increments ranging from 5,000 shares of our common stock to 900,000 shares of our common stock when the holders meet stated volume targets for business conducted through our service. These volume targets range from $5 million in print orders to $1.5 billion in print orders. However, our user agreements with Consolidated Graphics, Wallace Computer Services, Bank of America, R. R. Donnelley, ColorGraphics, J. Crew and General Electric Capital Services do not obligate these users to use our noosh.com service. Further, because we have only limited revenue to date, we can not determine whether these users will be able to meet the volume targets stated in their warrant agreements. We may grant performance-based warrants in the future to provide an incentive for our users to increase their use of our noosh.com service. These warrants would become exercisable when the holders meet pre-determined targets for business conducted through our service. To the extent we issue these warrants at an exercise price that does not correspond to the market value of our common stock on the date the warrants are exercised, we may incur substantial non-cash charges which would reduce our operating results or increase our losses, on an aggregate and per share basis, in the year we record the charge. In addition, to the extent these warrants are exercised, investors would suffer additional dilution in their ownership interest and in the book value of their investment. Options granted to our employees from our inception through March 31, 2000 have been granted at exercise prices which, based on the assumed initial public offering price of $12.00 per share, we determined are below the deemed fair market value for financial reporting purposes. Since inception through March 31, 2000, we had recorded aggregate deferred stock compensation for these options of $32.0 million. The deferred stock compensation is being amortized over the vesting periods of the stock options. We recognized no deferred stock compensation expense during the period ended December 31, 1998, $2.6 million for the year ending December 31, 1999 and $4.3 29 million for the three month period ended March 31, 2000. Future amortization based on options granted through March 31, 2000 is anticipated to be approximately:
Nine Months Ending December 31, Amount(s) ------------------------------- ----------- 2000......................................................... $12,934,000 Year Ended December 31, ----------------------- 2001......................................................... 7,696,000 2002......................................................... 3,553,000 2003......................................................... 980,000 2004......................................................... 8,000
Results of Operations Three-Month Period Ended March 31, 1999 and March 31, 2000 Revenue From inception through the period ended December 31, 1999 we were a development stage company, and we did not have any revenue. For the three-month period ended March 31, 2000, we recognized revenue of approximately $68,000. This revenue was derived from transaction fees for the use of our noosh.com service. We typically charge print vendors a transaction fee based on the size of the print order and the aggregate volume of orders processed by the print vendor. We also typically charge print buyers monthly service fees. Revenue from transaction fees is recognized upon completion of the associated print project. Revenue from monthly service fees is recognized ratably over the month. Cost of Revenues Cost of revenues consists primarily of all direct and indirect labor expenses related to the customer support organization. Cost of revenues increased from $0 for the three-month period ended March 31, 1999 to $141,000 for the three- month period ended March 31, 2000. This increase primarily resulted from the addition of customer support personnel and the development of our customer support call center. Operating Expenses We categorize our operating expenses into research and development, sales and marketing, general and administrative, value of warrants granted in connection with marketing agreements and amortization of deferred stock compensation. Research and Development. Research and development expenses consist of personnel and other expenses associated with developing and enhancing software in support of our noosh.com service. Research and development expenses increased from $273,000 for the three-month period ended March 31, 1999 to $2,039 million for the three-month period ended March 31, 2000. The increase was primarily due to additional personnel and associated costs related to the design, development and maintenance of our noosh.com service, and content and design expenses. We believe that our success is dependent in large part on continued enhancement of our noosh.com service. Accordingly, we expect research and development expenses to increase in future periods. Sales and Marketing. Sales and marketing expenses consist primarily of participation in trade shows, advertisements, training, operations personnel and related costs for our sales, marketing, training and operations staff. Sales and marketing expenses increased from $300,000 for the three-month period ended March 31, 1999 to $10.0 million for the three-month period ended March 31, 2000. This increase primarily resulted from expenses related to increases in sales and marketing personnel and participation in industry trade shows. We intend to increase our sales and marketing expenses in future periods to develop relationships with print buyers, print vendors and providers of related services and to build brand recognition. 30 General and Administrative. General and administrative expenses consist primarily of salaries to employees and fees for professional services. General and administrative expenses increased from $128,000 for the three-month period ended March 31, 2000 to $1.2 million for the three-month period ended March 31, 2000. The increase was primarily due to the addition of finance and administrative personnel as well as expenses related to increased professional service fees. We expect general and administrative expenses to increase in future periods to the extent we continue to expand operations and bear the increased expenses associated with being a public company. Value of Warrants Granted in Connection with Marketing Agreements. For the three-month period ended March 31, 2000, we recognized costs totaling $3.9 million related to the valuation of the portions of warrants exercisable without performance obligations to R.R. Donnelley. Amortization of Deferred Stock Compensation. For the three-month period ended March 31, 2000, we recorded aggregate deferred stock compensation of $14.1 million in connection with some of the stock options we have granted. We expensed $4.3 million of deferred stock compensation in the three-month period ended March 31, 2000. The deferred compensation amounts are being amortized over the vesting period of the stock options, generally four years. We recognized deferred stock compensation expense of $36,000 during the three- month period ended March 31, 1999. Interest Income, Net Interest income, net has been derived primarily from earnings on cash investments. Interest income, net increased to $801,000 for the three-month period ended March 31, 2000 from $4,000 for the three-month period ended March 31, 1999. The increase was primarily due to higher average cash balances during the three-month period ended March 31, 2000. We expect our interest income to increase in the short term as a result of our investing the proceeds from our sale of Series E preferred stock and this offering. Period Ended December 31, 1998 and Year Ended December 31, 1999 Revenue From inception through the period ended December 31, 1999, we were a development stage company and had no revenue. Operating Expenses Research and Development. Research and development expenses increased from $111,000 for the period ended December 31, 1998 to $3.1 million for the year ended December 31, 1999. These expenses in 1998 were comprised primarily of salaries for an initial development team. In 1999, these expenses consisted principally of staffing and associated costs related to the design and development and maintenance of our noosh.com service, and content and design expenses. Sales and Marketing. Sales and marketing expenses increased from $96,000 for the period ended December 31, 1998 to $9.4 million for the year ended December 31, 1999. These increases primarily resulted from expenses related to increases in sales and marketing personnel and an increase in expenses associated with the development and implementation of our branding, promotion and marketing campaigns, for a full fiscal year. General and Administrative. General and administrative expenses increased from $107,000 for the period ended December 31, 1998 to $1.8 million for the year ended December 31, 1999 primarily as a result of operations for the full fiscal year and the addition of finance and administrative personnel as well as expenses related to increased professional service fees. Value of Warrants Granted in Connection with Marketing Agreements. For the year ended December 31, 1999, we recognized costs totaling $1,468,000 related to the valuation of the portions of warrants exercisable without performance obligations to two print vendors. 31 Amortization of Deferred Stock Compensation. We recorded aggregate deferred stock compensation of $17.9 million in connection with some of the stock options we granted through December 31, 1999. We expensed $2.6 million of this deferred stock compensation in the year ended December 31, 1999, related to these stock options. The deferred compensation amounts are being amortized over the vesting period of the stock options, generally four years. Interest Income, Net We had no interest income, net for the period ended December 31, 1998 and $648,000 for the year ended December 31, 1999, which resulted from higher average cash balances for a full fiscal year. Income Taxes We incurred operating losses and accordingly did not record a provision for income taxes for any of the periods presented. On December 31, 1999, for federal and state income tax purposes, we had net operating loss carryforwards of $13.1 million and $150,000. These net operating losses will expire in the years 2005 through 2019 if not utilized. Future changes in our share ownership, as defined in the Tax Reform Act of 1986 and similar state provisions, may restrict the utilization of carryforwards. Liquidity and Capital Resources Since our inception in August 1998 through March 31, 2000, we have funded our operations primarily through the sale of $79.6 million of equity securities. As of March 31, 2000, our principal sources of liquidity were cash and cash equivalents of $48.9 million. In addition, in April 2000, we raised an additional $10.0 million from the sale of our equity securities. Net cash used in operating activities was $123,000 for the period ended December 31, 1998, $12.0 million for the year ended December 31, 1999 and $13.0 million for the three-month period ended March 31, 2000. Net cash used in operating activities for the period ended December 31, 1998 primarily resulted from operating losses of $314,000 incurred during the period. Net cash used in operating activities for the year ended December 31, 1999 primarily resulted from operating losses of $17.6 million, partially offset by $4.0 million of amortization of deferred stock compensation and the value of warrants granted in connection with marketing agreements. Net cash used in operating activities for the three-month period ended March 31, 2000 primarily resulted from operating losses of $20.7 million, partially offset by $8.2 million of amortization of deferred stock compensation and the value of warrants granted in connection with marketing agreements. Net cash used in investing activities was $72,000 for the period ended December 31, 1998, $3.7 million for the year ended December 31, 1999, and $1.7 million for the three-month period ended March 31, 2000. The cash used in investing activities in these periods was related principally to purchases of computer equipment and, to a lesser extent, software and office furniture to support expansion of our operations. Net cash provided by financing activities was $1.3 million for the period ended December 31, 1998, $62.9 million for the year ended December 31, 1999 and $15.6 million for the three-month period ended March 31, 2000. Cash provided by financing activities was primarily from proceeds of the sale of our preferred stock. As of March 31, 2000, we had operating lease obligations of $2.3 million for 2000, $1.5 million for 2001 and $1.0 million for 2002. In future periods, we anticipate significant increases in operating expenses primarily as a result of planned investment to support increased sales and marketing activities and ongoing research and development activities. We believe that our current balances of cash and cash equivalents, without the proceeds of this offering, will be sufficient to meet our anticipated cash needs for working capital, operating expenses and capital expenditures for at least the next twelve months. We expect to use the 32 proceeds of this offering primarily to fund the development of our noosh.com service, including development of new versions of our service, enhanced functionality, and improvements of our LiveJobs technology. In addition, we may use a portion of the proceeds to increase our sales and marketing activities. Any remaining proceeds may be used for general and administrative purposes, including facilities expansion. In that regard, we are currently looking for additional facilities when the lease on our corporate headquarters expires in December 2000. We believe our current cash resources, interest income and the proceeds of this offering will be sufficient to fund our activities for 18 months, even if we do not generate revenue from operations. After that, we may need additional capital if we are unable to generate sufficient revenue to support our business. This estimate is based on assumptions regarding the expected growth of our business, our anticipated hiring and facilities needs and our expectations as to further product development expenses. If these assumptions prove to be wrong, we may need to raise additional funds prior to that time to fund additional expansion, develop new or enhanced services, respond to competitive pressures or make acquisitions. Moreover, if we generate significant revenue from our operations, the proceeds of this offering may not be fully utilized within 18 months. Although we have no current plans to do so, we may seek to raise additional funds after this offering through equity or debt financings if we need additional capital after we have utilized the proceeds of this offering. We cannot be certain that additional financing will be available to us on favorable terms, if at all. If adequate funds are not available on acceptable terms, our business will be harmed. If additional funds were raised through the issuance of equity securities, the percentage ownership of Noosh by our stockholders would be reduced. Furthermore, such equity securities might have rights, preferences or privileges senior to our common stock. See "Risk Factors--In the future, we may need to raise additional capital to fund our operations. Any difficulty in obtaining additional financial resources could force us to curtail our operations or prevent us from pursuing our growth strategy." Year 2000 Readiness Disclosure Many currently installed computer systems and software products are coded to accept or recognize only two digit entries in the date code field. These systems and software products will need to accept four digit entries to distinguish dates before and after January 1, 2000. This could result in system failures or miscalculations causing disruption of operations for any company using computer programs or hardware. As a result, many companies' computer systems may need to be upgraded or replaced in order to avoid year 2000 issues. The majority of software and hardware we use to manage our business has been purchased or developed by us within the last 24 months. While this does not completely protect us against year 2000 exposure, we believe our exposure is limited because the technology we use to manage our business is not based upon hardware and software systems that were already developed or installed. To date, we have not experienced any material interruptions in our operations related to the year 2000 issue. We have not incurred material costs with respect to our year 2000 remediation efforts and do not expect that future costs will be material. However, if we, or third-party providers of hardware, software and communications services fail to remedy any future year 2000 issues, the result could be lost revenues, increased operating expenses, the loss of users and other business interruptions, any of which could harm our business. The failure to adequately address year 2000 compliance issues in the delivery of products and services to our users could result in claims against us of misrepresentation or breach of contract and related litigation, any of which could be costly and time consuming to defend. We have not developed and do not plan to develop any specific contingency plans for year 2000 issues. Our worst case scenario for year 2000 problems would be our inability to operate our noosh.com service. 33 Quantitative and Qualitative Disclosures About Market Risk The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive from our investments without significantly increasing risk of loss. Most of our cash equivalents and short-term investments are at fixed interest rates. Therefore, the value of these investments is subject to market risk. This means that a change in prevailing interest rates causes the market value of the investment to fluctuate. For example, if we hold a security that was issued with a fixed interest rate at the then-prevailing rate and the prevailing interest rate later rises, the market value of our investment will decline. To minimize this risk in the future, we intend to maintain our portfolio of cash equivalents and short-term investments in a variety of securities, including commercial paper, money market funds, government and non-government debt securities. In general, money market funds are not subject to market risk because the interest paid on such funds fluctuates with the prevailing interest rate. The average duration of all of our investments as of December 31, 1999 and March 31, 2000 was less than one year. Due to the short term nature of these investments, we believe we have no material exposure to interest rate arising from our investments. Therefore, no tabular disclosure is required. As of March 31, 2000, we did not have any hedging instruments. We operate solely in the United States and all expenses to date have been made in United States dollars. Accordingly, we have not had any exposure to foreign currency rate fluctuations or weak economic conditions in foreign markets. However, in future periods, we expect to sell in foreign markets, including Europe and Asia. As our sales are made in U.S. dollars, a strengthening of the U.S. dollar could cause our service to be less attractive in foreign markets. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 establishes accounting and reporting standards, requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 is effective for fiscal years beginning after June 30, 2000. Because we do not currently hold any derivative instruments and do not engage in hedging activities, we do not believe that the adoption of SFAS No. 133 will have a material impact on our financial position or results of operations. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP') No. 98-1, "Software for Internal Use" which provides guidance on accounting for the cost of computer software developed or obtained for internal use. SOP No. 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998. The adoption of this SOP did not have any significant effect on our financial statements. In December, 1999, SAB 101 was issued which summarizes the Security and Exchange Commission's views in applying generally accepted accounting principles to revenue recognition in financial statements. SAB 101 is effective in the second quarter of 2000. We do not expect SAB 101 to have a material effect on our financial position, results of operation or cash flow. In March 2000, the Financial Accounting Standards Board issued Interpretation No. 44, "Accounting for Certain Transaction Involving Stock Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). This interpretation clarifies the definition of employee for purposes of applying Accounting Practice Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), the criteria for determining whether a plan qualifies as a noncompensatory plan, the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and the accounting for an exchange of stock compensation awards in a business combination. This interpretation is effective July 1, 2000, but certain conclusions in this interpretation cover specific events that occur after either December 15, 1998, or January 12, 2000. We do not expect the adoption of FIN 44 to have a material effect on our financial statements. 34 BUSINESS Overview We are a provider of business-to-business e-commerce solutions for the printing industry. We have developed and operate noosh.com, an Internet-based service for managing the design, procurement and production of print orders. Our service is designed to address the complex, multi-step process of completing a print order. It leverages the benefits of the Internet to enable print buyers, print vendors and other providers of related services to communicate and collaborate efficiently throughout the life cycle of a print order. Our service is primarily targeted at large corporations which budget at least $10 million annually for their print buying requirements and their print vendors. Print vendors who use our service generally will pay us a transaction fee based on the size and volume of the print order, and print buyers who use our service generally will pay us a monthly fee. As of May 11, 2000, over 243 print buyers and print vendors have signed agreements with us for the use of our service. Of these, Bank of America and Wells Fargo have encouraged their print vendors to adopt our noosh.com service, and GE has agreed to encourage its print vendors, the print vendors of its affiliates and the major retail customers of G.E. Capital's Card Services to adopt noosh.com. In addition, to promote the acceptance of our service by large corporations, we have entered into co-marketing agreements with national vendors in the print industry. To date, these vendors include Consolidated Graphics, R.R. Donnelley, Moore and Wallace Computer Services. Industry Background Growth of Business-to-Business Commerce on the Internet The Internet has emerged as one of the fastest growing communications mediums in history and is fundamentally reshaping the way businesses interact with other businesses. The Internet enables businesses to integrate complex business processes, exchange information easily with multiple partners and provide buyers and sellers with a consistent means of executing transactions. As a result, companies of all sizes are adopting Internet strategies to conduct business. According to Forrester Research, business-to-business e-commerce is expected to grow from $43 billion in 1998 to $1.3 trillion in 2003. The widespread adoption of business-to-business e-commerce is driving the demand for industry-specific solutions that offer business environments that can accommodate increasingly large numbers of users. These e-commerce solutions provide businesses with opportunities to reduce the costs of accessing information and to expand their ability to conduct transactions with multiple parties. Business-to- business e-commerce solutions are being targeted at and are most likely to be accepted by industries characterized by a large number of buyers, sellers and intermediaries, a high degree of fragmentation, significant dependence on information exchange, high transaction volumes and broad user adoption of the Internet. The U.S. Printing Industry The U.S. printing industry is very large, with numerous print buyers, print vendors and other providers of related services, interacting with one another in the process of managing the design, procurement and production of printed business materials. Total sales in the U.S. printing industry were $149 billion in 1998, according to Printing Industries of America, an industry trade association. Total worldwide sales in the printing industry were $365 billion in 1998 according to TrendWatch, an independent market research firm. The printing industry includes the following product categories: . Basic business printing, which includes simple, standardized products such as business cards, stationery and business forms; 35 . Promotional printing, which consists of customized products such as brochures, direct mail and catalogs; . Bill-of-material printing, which consists of customized packaging, labels and other shipping materials; . Publications, which includes newspapers, magazines and books; and . Specialty printing, such as T-shirts, calendars and souvenirs. The traditional process of designing, procuring and producing a print order can require extensive collaboration by multiple parties and can be highly inefficient. CAP Ventures, Inc., an independent print research firm, estimates that for every $1 paid by a print buyer to a print vendor, there are $5 to $8 of additional costs associated predominantly with late fees, reworks, obsolete materials and shipping. These expenses result from the traditional labor- intensive process of managing a print order, as well as delays from and miscommunications among the many people from multiple organizations who must collaborate through the various steps required to complete a print order. Key processes that require the coordination of multiple parties include job design and specification, submitting requests for estimates, vendor selection, job revision, production, warehousing, shipment and payment. The U.S. printing industry is highly fragmented, with an estimated 51,000 printing businesses, 60,000 related creative concerns such as advertising agencies, graphic design firms, publishers and corporate design groups, 12,000 print brokers and thousands of print-buying organizations. Contributing to this fragmentation is the capital-intensive nature of print production, which causes print vendors to specialize in specific print products based on the type of equipment they own. Therefore, print vendors generally offer a limited selection of customizable products. This high degree of industry fragmentation and specialization generally leads print buyers, particularly large enterprises with a broad range of printing needs, to establish relationships with multiple print vendors. According to CAP Ventures, a large print buying company spends between 6% and 15% of its annual revenues to design, develop, procure, produce, distribute and store printed and electronic documents and business communications programs. Each individual print order typically involves the collaboration of multiple parties across such varied organizations as the print buyer, print vendor, advertising agency, independent designer, prepress specialist, bindery specialist, direct mailer and print broker. Further, most large print buyers lack standardized procurement, print management and tracking tools, hindering the development of their spending and operating controls. According to CAP Ventures, over 80% of print buyers manage the print process inefficiently, resulting in up to a 40% waste of investment in annual print spending. Limitations of Existing Print Management Processes The typical process of producing a customized print product involves multiple interactions among many people within numerous organizations, or a "many-to- many" workflow process. For example, a large print buyer may engage advertising and creative agencies to design, specify and buy print on its behalf. Alternatively, print buyers may coordinate these processes in-house or rely on a print broker to act as a sales middleman or project manager. Once a print order is completed, direct mail and fulfillment companies often coordinate the receipt, packaging and mailing of print products from several printers simultaneously. As a result of this complicated production chain, we believe that a print order which costs several thousand to several hundred thousand dollars may require the collaboration of 10 to 30 people across three to seven organizations. 36 Lacking a centralized system for coordinating these many-to-many workflow processes, the production of customized print products traditionally has been characterized by significant inefficiencies, including: Print Buyer . Numerous communications across multiple mediums, including telephone, facsimile, email, voicemail and paper; . Cumbersome, error-prone procurement cycle; . Labor-intensive print vendor selection process; . Inconsistent pricing from numerous print vendors; . Difficulty managing, coordinating and accounting for numerous print orders across multiple organizations and from numerous print vendors; . Unreliable storage and delivery of content files; and . Obsolete inventory, accounting for a significant percentage of annual print spending. Print Vendor . High customer acquisition and retention costs; . Costly sales order administration and customer service; . Difficulty managing, coordinating and accounting for numerous print orders across multiple organizations; . Manual reconciliation of internal job specifications, changes, file and production instructions; . Rework resulting from poorly documented specifications and other errors; and . Inefficient equipment utilization. In addition, agencies and brokers who serve as intermediaries between print buyers, print vendors and other providers of related services face many of these same inefficiencies. The most common method today for coordinating the procurement and management of customized print orders remains a combination of telephone, facsimile and paper. Using these "one-to-one" communication tools, print buyers and vendors manually conduct the multiple steps required to manage the print order, including project design, proofing, rework and delivery. More recently, some print buyers and vendors have adopted software solutions designed to automate different elements of the design, procurement and production processes. While these proprietary software solutions improve on some of the inefficiencies of traditional paper and phone-based methods, they too are largely inadequate because they are based on one-to-one processes, while corporate print orders generally require many-to-many communications. More specifically, one-to-one methods are inadequate because: . the production of a customized print product requires extensive interaction and collaboration across many organizations and among numerous parties; . the creative process of producing a customized print product is dynamic and highly iterative, requiring all parties to have input throughout the process; and . full automation of any single print buyer/print vendor solution can require a substantial investment in proprietary software and system integration that often cannot be leveraged across multiple print buyer/print vendor relationships. Collectively, these shortcomings make one-to-one solutions difficult to scale and thus limit their widespread adoption by the printing industry. We believe that print buyers, print vendors and the numerous providers of related services involved in the production of a print order desire a standardized, collaborative environment where they can easily manage the entire print order life 37 cycle. We believe that these needs can be addressed with a comprehensive, Internet-based communication and collaboration service for the management of the design, procurement and production of print. The Noosh.com Service We have developed and operate noosh.com, an Internet-based service for managing the design, procurement and production of print orders. Our noosh.com service is designed specifically to address the complex needs of the printing industry and offers a set of features that are not generally available from off-the-shelf software solutions. Key elements of our service include: . providing a central location where all current information about a print order is readily accessible through an Internet browser; . enabling collaboration among all parties involved at each step of the print order life cycle in an Internet environment in which additional parties can be added rapidly and cost-effectively; and . enabling parties to build project specific working groups consisting of participants from multiple organizations. We believe that the principal benefits to print buyers, print brokers and advertising agencies using our noosh.com service are: Increased Productivity. We provide online, real-time access to information regarding the status of a print order. This capability reduces the time it takes print buyers to determine the progress of their print job and to identify the status of proposed changes. This capability can also substantially reduces the manual communication methods involved in the traditional process of producing a print order, enabling more efficient job management. As a result, our service can be particularly helpful to users who manage multiple jobs from several print vendors simultaneously. Reduced Print Purchasing Costs. Our service can reduce print purchasing costs by allowing print buyers to analyze purchasing trends and conduct a broader request for quotes process. As a result, print buyers can reduce procurement costs and benefit from better vendor management. Shortened Job Lead Times. Noosh.com enables print buyers to design, procure and produce print orders more efficiently by providing a centralized location where the multiple parties involved in the print supply chain can collaborate with each other in real time regarding the print order. This collaboration capability can reduce miscommunications among the parties, which in turn results in fewer errors and shorter job lead times. Better Tracking and Communication. Our service maintains a detailed history of changes to job specifications and tracks print budgets and usage. Our service also allows users to send messages and assign tasks to one another within a standard communication environment. We believe that our service also offers significant benefits to print vendors, related suppliers, print brokers and advertising agencies, including: Enhanced Customer Relationships. By allowing print vendors to manage print orders through our collaboration and messaging capabilities, noosh.com can simplify the daily routine of the vendor's customer service personnel, thereby allowing for improved responsiveness and higher quality customer service relative to traditional methods of managing print. Reduced Print Production Costs. Our service centralizes information regarding a print project. This helps users to reduce paperwork and improve accuracy by identifying job problems early in the print job life cycle that, if left unattended, could result in costly reworks, document distributions and higher administrative costs. 38 Higher Sales Productivity. Because our service streamlines the procurement process, print vendors are able to reduce their selling and marketing costs while extending their reach. Print vendors, therefore, have the opportunity to access new customers and markets through our service. In addition, because noosh.com simplifies the process for managing print orders, printers can allocate sales and marketing resources to developing new client relationships. Minimal Initial Investment. Because noosh.com is an entirely Internet-based service and, other than a browser, does not require the purchase of any software, print buyers and print vendors are able to establish an Internet presence easily and quickly with little or no initial investment. Our Strategy To grow our business and customer base and increase usage of our service, we intend to: Capitalize on Market Position. We believe that we are one of the first companies to offer a completely Internet-based service for managing the design, procurement and production of print orders. As of May 11, 2000 over 243 print buyers and print vendors have signed agreements with us to use our service. To increase the number of print buyers, print vendors and other related parties using our service, we intend to build on the existing print relationships of our current users with other companies in the print supply chain. Our direct sales force, comprised of 70 professionals as of March 31, 2000, targets primarily large print buyers and print vendors. Build Brand Recognition. We intend to develop the most well-known and trusted brand as the leading Internet-based service for managing the design, procurement and production of print orders. We intend to pursue an aggressive brand development strategy through targeted advertising and promotions, press coverage and participation in trade association and industry events. Additionally, we will also rely on our co-marketing relationships with national print vendors in order to build our brand recognition. Develop Relationships with National Printers. We intend to develop relationships to increase our customer base, broaden our service offerings and enhance our technology platform. Specifically, we are seeking co-marketing relationships with national printers. We have already entered into these types of agreements with Consolidated Graphics, R.R. Donnelley, Moore and Wallace Computer Services under which they have agreed to co-market our service to their customers. By aggressively pursuing these types of relationships, we believe we can help strengthen our value proposition for both print buyers and vendors and generate increased usage of our noosh.com service. Maintain Technology Leadership. We intend to maintain our technology leadership by continuously improving the functionality of our services to meet the evolving needs of our current users and our future customers. For example, we intend to develop business relationships with enterprise resource planning and business-to-business e-commerce software vendors by using our technology to integrate our noosh.com service with the enterprise resource planning or management software systems of these vendors. This capability would enable our current users and our future customers to use both our noosh.com service and the products and services of these vendors to conduct e-commerce. Additionally, we plan on developing links with the information systems of print vendors and graphic file transfer and management services to improve production workflow, reduce data entry at the print vendors' sites and provide complementary services for print vendors. Foster Our Commitment to Customer Service. We focus on serving the interests of our users because we believe a loyal base of users will afford us a significant competitive advantage. Throughout each phase of the design and implementation of our service, we maintain an active 39 dialogue with our users. At every stage of our design process, we seek user feedback to develop new versions of and add enhancements to our system to better serve the needs of our users. We also intend to enhance our customer service capabilities by expanding our customer support and account management teams and improving our online training tools. Pursue Additional Revenue Opportunities. We intend to pursue additional revenue opportunities by expanding our business and using our LiveJobs technology in other print-related markets, such as creative design process management and file and data storage. We also plan to expand internationally into other markets that we believe would benefit from our service. Further, we see applications for our technology in other non print-related markets. Additionally, we intend to pursue selective acquisitions of, or investments in, complementary products, services and businesses. Products and Services We provide a comprehensive, business-to-business, Internet-based service for managing the design, procurement and production of print orders. Our service uses our patent-pending LiveJobs technology to enable print buyers, print vendors and other providers of related services involved in the print production and management process to communicate and collaborate with each other regarding any print order. Each user with a noosh.com password can access the noosh.com web site with a standard Internet browser. Using their password- protected account, each user can have access to the print jobs they are working on, to lists of their customer and business contacts and to reports of historical performance. Print buyers can easily create job specifications, submit the specifications to print vendors for bids, award the print order to the chosen print vendor, post the resulting print order online and collaborate with necessary parties throughout the design, procurement and production stages of the print order. Print vendors have access to the print buyer's specifications after they have been asked to quote on a print order through noosh.com. Print vendors may submit quotes and subsequently manage print orders through our collaboration and messaging capabilities. As the print order progresses, print buyers and print vendors may notify each other of status changes, pose specification questions, revise schedules, and collaborate on other aspects of the print order in real time so that problems are resolved expeditiously. Our service can be accessed through standard web browsers by corporations, their print vendors and other participants in the print supply chain, such as graphic design, advertising and marketing agencies. Other than the browser, there is no special software required to use noosh.com. With our service, we create a standardized environment which addresses the printing industry's communications and procurement needs by: . providing a central location where all current information about a print order, including specifications, job status, estimates, change orders and shipping instructions, is located; . enabling collaboration among print buyers, print vendors and other providers of related services involved in the print production and management process; . enabling parties to build a team on a project and print order basis consisting of participants from multiple organizations; . assigning roles and privileges to individual team members, designating their status and ability to view or make changes to a print order; and . providing secure and selective access on print orders. 40 Our service enables print buyers, print vendors and other providers of related services to communicate and collaborate efficiently throughout the life cycle of a print order. The key features of our service are: Estimating, Quoting and Specifications Management. Print jobs can be created and submitted by buyers, and quoted online by print vendors. The buyer decides which and how many print vendors can bid on a job. Job specifications and order revisions are managed consistently, enabling buyers and print vendors to share common order description formats. Order Management. Noosh.com provides online ordering, confirmation and order status from design through delivery. This enables collaborative management and tracking of orders by print buyers, print vendors, graphic designers and direct mail and fulfillment companies. Online records of complete order history and revisions give everyone involved in the order a comprehensive, relevant, up-to- the-minute status. Management Reporting. Noosh.com provides print buyers with access to a range of detailed performance reports, including purchasing, client history and print vendor activity. Noosh.com also provides print vendors with a variety of detailed reports, including account history and sales performance. Content Delivery and File Management. Noosh.com allows for text and graphic file transfers, real-time proofing and job file archiving, which are key features needed to develop an integrated and full-service online environment for creating and producing complex print orders. Integration with Other Systems. Our technology allows us to integrate our noosh.com service with our users' information systems, including their operating resource procurement, enterprise resource planning or print management systems. Industry Reference. Noosh.com provides profiles of print vendors registered with our service for review by print buyers and advertising agencies. Our service also contains reference information about the printing industry for all visitors, regardless of whether they have an account with us. 41 Users We primarily target major corporations which budget at least $10 million annually for their print buying requirements, together with their printers. In addition, we also target print brokers which serve these large print buyers, printers and advertising agencies. Since we initiated testing of our noosh.com service in July 1999 through May 11, 2000, over 243 print buyers and print vendors have signed agreements with us to use our service. The following is a list of print buyers, printers and other providers of related services who have entered into agreements to use our service and to pay us for training, technical support, implementation services or user or transaction fees in connection with their use of our service: Print Buyers Advantica Infusive Marketing Group Aetna Services, Inc. J.Crew Group Inc. American Leprosy Mission La Bov & Beyond, Inc. Ameritech Lake Design Bank of America Corp. Levi Strauss & Co. Blue Shield Blue Cross -- South Media Post Communications Carolina Merrill Lynch Asset Management Champion International Miller Freeman, Inc. Compact Air Products, Inc. MINDEF Cornell Dubilier Modus Media International, Inc. Cran Barry, Inc. Multiple Zones International Creative Producers Group Orbit Dean Johnson Design Para-Chem Southern Inc. Digital Art Exchange Publicis Technology Dunlop Slazenger Corporation Stimuli Lab, LLC E*TRADE Group, Inc. The Timberland Company Faith Inkubators Tom Peters Company General Electric Capital Services, Inc., Tribe Design an affiliate of the General Electric Upward Unlimited, Inc. Company Wells Fargo & Company Husk-Jennings Advertising West Publishing Corporation I Was Framed, Inc. Wizards of the Coast
Printers with Co-Marketing Agreements ColorGraphics, Inc. Consolidated Graphics, Inc. and their 63 affiliated companies Moore North America, Inc. R.R. Donnelley & Sons Company Wallace Computer Services, Inc. 42 Printers, Pre-Press Vendors and Print Brokers ABC Synnyvale F.C.L. Graphics Inc. Ace Printing Favorite Printing Action Printing FBK Group AD&P, Inc. Federal Envelope Co. Advanced Color Graphics First Impressions Lithographic Co. Adventures in Advertising Fong Brothers Printing Allied Printing Services, Inc. FoxIntegrity Graphics Inc. Alphagraphics Franklin Press American Lithographers, Inc. Frontier Printing, Inc. American Printing Co. Gamma One, Inc. Anchor Direct General Printing Applied Printing Technologies, L.P. Gopher State Litho, Inc. Artisan Press Inc. Grande & Associates, Inc. Assembly Services and Packaging Heart Printing & Graphics, Inc. Atlantic Envelope Co. Heinrich Envelope Corp. Automated Graphic Systems House of Printing Babor Forms, Inc. IC Group Baucom Press IGI/Earthcolor Bayshore Press, Inc. Image Systems, Inc. Bibbero Systems, Inc. Imperial Company, Inc. Bofors Inc. Impressions, Inc. Bomant Graphics Infinity Direct Business Card Express Florida Infographics Capital Printing Co., Inc Iridio Digital Printing Capstone Consulting Group, Inc. Japs-Olson Carqueville Graphics, Inc. Johnson & Quin, Inc. Castle-Pierce Printing Co. Just Solutions Challenge Printing, Inc. Kelvyn Press, Inc. Colorado Printing Co. LAgraphico.com ColorMagic, Inc. LA Label Company Color-Trek Inc. Liberty Graphic Systems, Inc. Colson Printing Co. Litho Press Inc. Commercial Printing Co. Litho Technical Services Corporate Express, Doc & Print Mgmt Louis Printing Services Creative Mailings, Inc. M&M Printing, Inc. Creative Retail Packaging Mackay Envelope Corp. Crowson-Stone Printing Co. Marketing IV, Inc. CRT Color Printing, Inc. Maximum Graphics Corporation Custom Tabs, Inc. McCallum Envelope & Printing Co. Cyberprinter/CP Direct Media Graphix, Inc. Daily Printing, Inc. Mercury Signs & Display, Inc. Dan Dolan Printing, Inc. Meredith-Webb Printing Co. Dean Litho Metro Printing, Inc. Deluxe Color Printers Metrographics DG Printing, Inc. Metropolitan Printing Service, Inc. Digidel, Inc. MidAtlantic Printers, Ltd. Direct Mail Express Miller Promotional Graphics (MPG) Diversified Graphics Incorporated Momentum Communications Eastern Rainbow Inc. Montague Spragens E.C.G., Inc. Moran Printing Company Ed Garvey and Company Nahan Printing, Inc. Elements National Indexing Systems, Inc. ESCO National Mail Graphics Corporation Etheridge Printing Company NCR Corporation F&T Graphics Inc. New Leaf Press
43 Newport Printing Systems Shapco Printing, Inc. No Other Impressions, Inc. Source, Inc. Northstar Computer Forms, Inc. Spencer & Worth, Ltd. Nova Graphics, Ltd. Stormm Graphicworks, Inc. Outlook Envelope Sweet Waverly Printing Co. Pacific Communication Concepts, Inc. Syracuse Colour Graphics Packaging Results, Inc. Systems Packaging Paramount Miller Graphics Tension Envelope Corporation Patterson Printing Company The Bureau of Engraving Inc. Penn Lithographics The Horah Group Perfect Image The Irving Press, Inc. PGI Web, Inc. The John Roberts Company Pikes Peak Litho The Journeyman Press Inc. Precision Direct, Inc. The Printery, Inc. Pride in Graphics TN Printing Princeton Press Transo Envelope Co. Print Craft, Inc. Tri Graphics Printergy, Inc. Tulip Graphics, Inc. Printers Unlimited, Inc. Unicorn Graphics Printing, Inc. Universal Printing Printing Control Victor Envelope Corp. Printing Express, Inc. Volume Press Prodigy Press, Inc. Waller Press Rainbow Graphics, Inc. Waters Lithograph Inc. Response Envelope Western Graphics Rhodes Productions Western Press Richardson & Edwards, Inc. Wetzel Brothers Rite Envelope & Graphics Wicklander Printing Corporation Royal Envelope Corp. Williams Printing Company RW Nielsen Associates Winchester Printers, Inc. Santa Cruz Web Integration and Design Wintry Press Schiele Group Wright Color Graphics Sexton Printing Service Envelope XYAN.com
Sales, Marketing and Customer Service We sell our service in the United States primarily through our direct sales organization. As of March 31, 2000, our direct sales force consisted of 70 sales professionals located in nineteen offices throughout the United States. We believe that we have hired top sales professionals from leading printing, graphic arts and enterprise software companies. Our sales force targets executive level decision makers in large print-buying organizations across a broad range of industries. We believe that these executives are also influential in promoting the adoption of our service among print vendors. We intend to expand our sales force into additional major markets across the country in order to broaden our customer base. Our marketing programs are designed to increase brand awareness, educate our target market about our services and generate new sales opportunities. As of March 31, 2000, our marketing team consisted of 30 marketing professionals. We have engaged in marketing activities that include trade shows, seminars, press relations, direct mailings, Web site marketing, trade association relations and industry analyst relations. We also have co-marketing agreements with national print vendors. To help increase our customer base, we also have entered into agreements to conduct co-marketing activities with corporate procurement system providers, including Commerce One, Inc. and, through a memorandum of understanding, Ariba Technologies, Inc. Our customer service organization assists users in planning, learning and implementing our noosh.com service. As of March 31, 2000, we employed twelve professionals in our customer service 44 organization. We have a technical support team available to users by telephone, over the Internet or by electronic mail in order to resolve their customer support requests. In addition, we offer training to users of our noosh.com service through live classes. We plan to expand the size of our sales and marketing and customer supports organizations and to establish additional sales offices. Our ability to do so will depend on recruiting and training additional direct sales, marketing and customer support personnel. If we are unable to hire highly trained sales, marketing and customer support personnel, we would be unable to either increase our customer base or meet customer demands. Commercial Relationships With National Printers and Print Buyers We are actively seeking to develop commercial relationships with national printers in which they would co-market our service to their customers and with national print buyers in which they would co-market and endorse our service to their printers and business partners. These relationships are intended to help us rapidly gain adoption of our service and, in some cases, involve capital investment and incentives to meet targeted dollar volume of usage through our noosh.com service. For example, we have entered into agreements with the General Electric Company, R.R. Donnelley, Consolidated Graphics, Moore and Wallace Computer Services. In January 2000, we entered into a co-development and co-marketing agreement with R.R. Donnelley, a leading North American commercial printer and information services company, to develop a co-branded Web site utilizing the noosh.com service for R.R. Donnelley's customers, particularly in the catalog, magazine and book publishing markets. In the fiscal year ended December 31, 1998, R.R. Donnelley reported that revenues from these markets accounted for over one-half of its consolidated net sales of $5.0 billion. Under the agreements, we and R.R. Donnelley committed to actively promote and market the noosh.com service to R.R. Donnelley's customers. In connection with the agreements, R.R. Donnelley purchased approximately $14.0 million of our Series D preferred stock. We issued R.R. Donnelley warrants to purchase our common stock. A portion of each warrant is exercisable only when R.R. Donnelley meets stated volume targets for business conducted over our service. R.R. Donnelley also agreed to pay to us a transaction fee based on the aggregate volume of print orders processed by them. R.R. Donnelley is not committed to any volume targets. In April 2000, we entered into a print buyer agreement with General Electric Capital Services, Inc., an affiliate of the General Electric Company, under which GE and its affiliates will be able to process their print orders using our noosh.com service. Under this agreement, GE committed to use reasonable commercial efforts to introduce and provide an endorsement of our noosh.com service to its print vendors and to major retail customers of GE Capital's Card Services and to recommend that these vendors and customers use noosh.com for their print jobs. GE also agreed to use reasonable commercial efforts to assist us in identifying and facilitating the deployment of our LiveJobs collaboration technology as a procurement solution in markets other than print and to serve as a beta customer for at least one such new offering. The parties also agreed to participate in mutually agreeable co-marketing activities and events designed to promote the parties' alliance. In connection with the agreement, General Electric Capital Corporation, an affiliate of GE, assigned to us rights relating to its technology designed to measure the quality of products and services rendered to GE by its vendors. In connection with the agreement, GE Capital Equity Investments, another affiliate of GE, purchased $10.0 million of our Series E preferred stock. In addition, we granted GE Capital Equity Investments a warrant to purchase an aggregate of 958,400 shares of our capital stock. Although GE is not committed to any volume targets under the print buyer agreement, portions of the warrant are exercisable only when GE, together with its affiliates, meets stated volume targets for business conducted over our service and recommends our service to a stated percentage of identified print vendors and customers of GE Capital's Card Services. 45 We rely on these types of relationships to help generate increased usage of noosh.com and strengthen our value proposition to our users. As a result, we expect to continue to devote engineering and marketing resources to develop these relationships. However, we cannot be certain that we will be able to enter into additional commercial relationships with national printers or print buyers. NOOSH Technology and System Architecture Our noosh.com service is an Internet-based application that allows us to add new users and support existing users and effectively control access to print projects, worldwide, from a single location. It resides on our servers colocated at AboveNet's San Jose, California facility. Our users access noosh.com using standard Internet browsers, which eliminates the need to install our software at the customer site and facilitates rapid integration of any enhancements to our service. Our principal technical assets are our internally developed software applications that comprise noosh.com. Noosh.com is built on a multi-layer system architecture, centered around our LiveJobs technology. By designing these software layers to function independently of each other and by taking advantage of multi-computer configurations at our AboveNet data center, we seek to provide continuous access to noosh.com, even in the event that some element of our system fails. Our service is designed to run on a variety of hardware platforms and will allow us to add capacity as transaction volumes increase. Communications Layer. The communications layer connects our service with our customers' desktop computers. The ability to integrate these diverse systems has enabled us to create a collaborative online environment supporting a wide range of users. The NOOSH firewall filters the incoming data stream and provides a first line of site security. Our communications architecture is based on standard industry technologies and protocols. Interface and Presentation Layer. The interface and presentation layer provides the "look and feel" of noosh.com. Based upon user requests and access rights, this layer retrieves information from the lower layers of the system and transforms it into presentable content, which is delivered to the desktop by the communications layer. LiveJobs Technology. Our LiveJobs technology delivers the business logic necessary to allow the user to access, manage and communicate information about each print order. Each print order is modeled in our application as a sequence of user-determined workflow steps. In order to facilitate communication between users, we have developed event notification and messaging capabilities that assist our users in completing each workflow step. This notification subsystem also enables communication with customers' third-party print management tools. Enterprise Services Layer. The enterprise services layer facilitates information exchange with our data repository. Our databases are implemented using industry-leading database software from Oracle and run on standard server hardware. We control access to our service through login, authentication and authorization mechanisms and user role definitions, allowing the automated enforcement of access privileges. Our LiveJobs technology helps assure that users only see the information to which they are permitted access based on their role in a job or project and their group manager's authorization. Intellectual Property We rely on a combination of copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights. We also enter into confidentiality agreements 46 with our employees and consultants and other third parties and control access to software, documentation and other proprietary information. Currently we have four U.S. patents pending relating to our noosh.com service. We do not have any issued patents. We have also filed for federal trademark registration for "NOOSH" and the "NOOSH" logo in the United States, Canada, Japan and Europe and for "LiveJobs" in the United States. However, we cannot be certain that the steps we have taken to protect our intellectual property rights will be adequate or that third parties will not infringe or misappropriate our proprietary rights. We also cannot be sure that competitors will not independently develop technologies that are substantially equivalent or superior to the proprietary technologies employed in our Internet-based services. If we fail to protect our proprietary rights adequately, our competitors could offer similar services, potentially harming our competitive position and decreasing our revenues in the United States and other jurisdictions. In addition, in recent years, there has been significant litigation in the United States involving patents and other intellectual property rights, including among companies in the Internet industry. The software code relating to our noosh.com service or our methods of providing our noosh.com service may infringe on the proprietary rights of others and they may assert infringement claims against us. In February 2000, we received a letter from an individual, Henry B. Freedman, advising us that his patent may cover the software code comprising our noosh.com service and requesting that we consider licensing the patent. We are currently evaluating the patent. However, based upon our preliminary review we do not believe that we require a license under the patent to operate our current service. If this matter or any other matters or claims that may be asserted against us in the future cannot be resolved through a license or similar arrangement, we could become a party to litigation. Any claim of infringement of proprietary rights of others, even if ultimately decided in our favor, could result in substantial costs and diversion of resources. In addition, we cannot be sure that licenses to third-party technology will be available to us at a reasonable cost, or at all. If we were unable to obtain a license on reasonable terms, we could be forced to redesign our service or to cease selling or using it. Competition We primarily encounter competition with respect to different aspects of our service from print vendors offering traditional methods of designing and managing print orders, such as R.R. Donnelley companies that offer business-to- business Internet-based procurement services focused on the print industry such as Collabria, Inc., printCafe, Inc. and Impresse Corporation, or traditional enterprise software companies that offer proprietary management software and may develop alternative print procurement and management services. In addition, some large commercial print vendors have developed proprietary e-commerce services and other print vendors may develop or acquire competing services. Because barriers to entry in the market for Internet-based print management services are relatively insubstantial, we expect additional competition from other established and emerging companies as the market continues to develop and expand. We believe that the principal competitive factors affecting our market include adoption by a significant number of print buyers and print vendors, product quality and performance, industry-specific expertise, customer service and support, core technology, breadth and depth of product features and value of solution. Although we believe that our solution currently competes favorably with respect to these factors, our market is relatively new and is evolving rapidly. We may not be able to maintain our competitive position against current and potential competitors, especially those with significantly greater financial, marketing, service, support, technical and other resources. Some of our current and potential competitors may develop Internet-based solutions that achieve greater market acceptance than our service. Many of our existing and potential competitors have greater name recognition, larger customer bases and significantly greater financial, technical and marketing resources than we do. Such competitors can undertake more extensive marketing 47 campaigns for their brands, products and services, adopt more aggressive pricing policies and make more attractive offers to customers, potential employees, distribution partners, and commercial print suppliers. In addition, current and potential competitors have established or may establish cooperative relationships among themselves or with third parties to increase the ability of their products to address customer needs. For example, other Internet-based print management services may establish relationships with business-to-business procurement system providers. Accordingly, it is possible that new competitors or alliances among competitors may emerge and rapidly achieve customer acceptance. Employees As of March 31, 2000, we had 214 full-time employees. Of these employees, we have 130 in sales and marketing, 48 in research and development, five in customer support and 31 in general and administrative services and operations. None of our employees is represented by a labor union, and we consider our labor relations to be good. Facilities We are headquartered in Palo Alto, California, where we lease approximately 23,000 square feet pursuant to a term lease that expires on December 31, 2000 and 9,000 square feet pursuant to a term lease that expires on December 31, 2001. These facilities are used for executive office space, including sales and marketing, finance and administration, research and design and customer support. We also lease an aggregate of approximately 38,000 square feet in Broomfield, Connecticut; Santa Monica and Irvine, California; Atlanta, Georgia; Chicago, Illinois; Cincinnati, Ohio; Dallas, Texas; Indianapolis, Indiana; Jacksonville, Florida; McLean, Virginia; Milwaukee, Wisconsin; Needham, Massachusetts; New York, New York; Parsippany, New Jersey; Plymouth, Minnesota; Portland, Oregon; and St. Louis, Missouri. These facilities are used for our sales activities. The term lease for our facility in Needham, Massachusetts expires on October 21, 2002, the term lease for our facility in New York, New York expires on November 15, 2000, the term lease for our facility in McLean, Virginia expires on November 15, 2004, the term lease for our facility in Parsippany, New Jersey expires on July 30, 2003, the term lease for our facility in Chicago, Illinois expires on May 1, 2003 and the term lease for our facility in Irvine, California expires on May 22, 2005. The other facilities are leased on a month-to-month basis. We believe that we will need to obtain additional space for our headquarters and additional sales offices in the near future and that this additional space can be obtained on commercially reasonable terms. Legal Proceedings From time to time, we may be involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Currently, we are not a party to any material litigation or arbitration proceedings. 48 MANAGEMENT Executive Officers, Directors and Certain Key Employees The following table sets forth information regarding our executive officers, directors and certain key employees as of April 4, 2000:
Name Age Position(s) ---- --- ---------- Ofer Ben-Shachar........ 39 President, Chief Executive Officer and Chairman of the Board Kevin Akeroyd........... 31 Vice President of Sales David Hannebrink........ 50 Vice President of Marketing and Business Development Raymond Martinelli...... 41 Vice President of Human Resources Timothy Moore........... 43 Vice President of Strategic Alliances, General Counsel and Secretary Hagi Schwartz........... 38 Vice President of Finance and Chief Financial Officer Robert Shaw............. 37 Senior Vice President of Sales Lawrence Slotnick....... 48 Vice President of Engineering Mathew Spolin........... 28 Chief Technology Officer Steven Baloff........... 44 Director Edward Barr............. 63 Director Kathy Levinson.......... 44 Director Arthur Patterson........ 56 Director
Ofer Ben-Shachar founded NOOSH and has served as our President, Chief Executive Officer and Chairman of the Board since August 1998. From December 1994 until February 1998, Mr. Ben-Shachar was the founder, Chairman and Chief Technical Officer of NetDynamics, Inc., an Internet-based technology company that was acquired by Sun Microsystems Inc. in summer 1998. Prior to NetDynamics, Mr. Ben-Shachar founded Software Xcellence, a software consulting company, and served as president until December 1994. From June 1987 to October 1990, Mr. Ben-Shachar served as a senior software engineer for Teknekron Software Systems, now Tibco Software Inc. Mr. Ben-Shachar holds a B.S. degree, cum laude, in Math and Computer Science from Hebrew University in Jerusalem and an M.S. in Computer Science from Washington State University. Kevin Akeroyd has served as our Vice President of Sales since August 1999. From July 1990 to August 1999, Mr. Akeroyd worked at R.R. Donnelley & Sons Company, a provider of printing and integrated services, in a variety of positions, including National Sales Vice President for their PreMedia division. Mr. Akeroyd holds a B.A. degree in Business Administration from the University of Washington. David Hannebrink has served as our Vice President of Marketing and Business Development since January 1999. From May 1997 to December 1998, he was a consultant providing general management and marketing services to small and mid-sized companies. In November 1982 he founded Covalent Systems Corporation, a supplier of enterprise software and data collection systems for the printing and electronic publishing industries. Mr. Hannebrink was with Covalent, and with Logic Associates, Inc. after it acquired Covalent, until April 1997. He served in several senior executive positions at Covalent, including service as President and Chief Executive Officer of Covalent from March 1991 to April 1995. Most recently, he served as Vice President Sales and Marketing of Logic. Mr. Hannebrink holds a B.S. degree in Mechanical Engineering from Cornell University, an S.M. degree in Mechanical Engineering from the Massachusetts Institute of Technology and an M.B.A. degree from the Leavey School of Business at Santa Clara University. Raymond Martinelli has served as our Vice President of Human Resources since September 1999. From July 1995 to September 1999, Mr. Martinelli was Vice President of Human Resources for Computer Curriculum Corporation, a provider of educational software and services for K-12 schools. From August 1988 to July 1995, Mr. Martinelli was Divisional Human Resources Manager at Apple 49 Computer, Inc. Mr. Martinelli holds a B.A. degree in Organizational Communications from California State University, Sacramento and an M.A. degree in Organizational Development from Golden Gate University. Timothy Moore has served as our Vice President of Strategic Alliances and General Counsel since January 2000. Mr. Moore has also served as our Secretary since inception. From October 1997 to January 2000, Mr. Moore was a partner in the law firm of Cooley Godward LLP, where his practice focused on the representation of emerging technology companies. Prior to joining Cooley Godward, Mr. Moore served for two years as Vice President, Strategic Investments and General Counsel of Verity, Inc. From 1986 to 1996, Mr. Moore practiced law at Gray Cary Ware & Freidenrich, where he was elected partner in 1991 and was a member of the compensation committee. Mr. Moore holds a J.D. degree from Stanford Law School and a B.A. degree in Economics, with distinction, from Stanford University. Hagi Schwartz has served as our Vice President of Finance and Chief Financial Officer since October 1999. From January 1996 to October 1999, Mr. Schwartz served as Chief Financial Officer and Vice President of Finance of Check Point Software Technologies Ltd., a worldwide leader in securing the Internet. From April 1991 to December 1995, Mr. Schwartz served as the acting Chief Financial Officer and Controller of Mercury Interactive Corporation, a software testing company. Mr. Schwartz holds a B.A. degree in Accounting and Economics from Bar Ilan University, Israel. Robert Shaw has served as our Senior Vice President of Sales since January 2000. From July 1985 to January 2000, Mr. Shaw worked at R.R. Donnelley & Sons Company, a provider of printing and integrated services, in a variety of capacities including Senior Vice President of Sales and Marketing for the Merchandise Media Business and Senior Vice President of Business-to-Business. Mr. Shaw holds a B.A. degree in Business Administration and a B.S. degree in Economics from Geneva College in Western Pennsylvania. Lawrence Slotnick has served as our Vice President of Engineering since April 1999. From April 1997 to April 1999, he served as Vice President of Internet and Enterprise Products at Apple Computer, Inc. where he was responsible for charting Apple's strategic course for networking, collaboration and communications products. From August 1995 to April 1997 he served as Vice President of Engineering for the Global Business Systems division of Octel Communications Corp. From March 1991 to June 1995, Mr. Slotnick served as Vice President of Product Development in Apple's Claris subsidiary. Mr. Slotnick holds B.S. and M.S. degrees in Computer Science from the University of California, Berkeley. Mathew Spolin has served as our Chief Technology Officer since January 1999. Prior to joining us, Mr. Spolin was professional services and product manager at Pangea Systems, Inc., a Java Fund startup specializing in development and maintenance of large enterprise systems for pharmaceutical research. From March 1993 to April 1997, he was the senior bioinformatics architect for Human Genome Sciences, Inc., a genomics and pharmaceutical company. Mr. Spolin holds a B.S. in Computer Information Systems from The American University in Washington D.C. Steven Baloff has served as a member of our board of directors since April 1999. Since February 1996, Mr. Baloff has worked for Advanced Technology Ventures, a venture capital firm, and currently serves as a General Partner. Prior to joining Advanced Technology Ventures, Mr. Baloff was Chief Executive Officer and founder of Worldview, a co-creator of Travelocity. Mr. Baloff has also held a variety of executive positions with Covalent Systems. Mr. Baloff serves on the boards of directors of several privately held companies. Mr. Baloff holds an A.B. degree in Economics from Harvard University and an M.B.A. degree from Stanford University. 50 Edward E. Barr has served as a member of our board of directors since March 2000. Since 1998, Mr. Barr served as Chairman of Sun Chemical Group, B.V., the holding company of Sun Chemical Corporation, a manufacturer of printing inks and organic pigments. From 1987 to 1998, Mr. Barr served as President and Chief Executive Officer of Sun Chemical. Mr. Barr also is Chairman of the Board of Kodak Polychrome Graphics, Sun Chemical's joint-venture with Kodak Company and a provider of printing supplies to the graphics art market. Mr. Barr also serves on the boards of directors of Sun Chemical's parent company, Dainippon Ink & Chemicals of Tokyo, Japan, United Water Resources, Inc., a provider of water and waste water services and First Union Corporation, a financial services company. Mr. Barr is a trustee of Northwestern Mutual Life Insurance Company. Mr. Barr holds a B.S. degree in Business from New York University's Stern School of Business and an M.S. degree in Economics from the University of Michigan. Kathy Levinson has served as a member of our board of directors since November 1999. Since January 1999, Ms. Levinson has served as President and Chief Operating Officer of E*TRADE Group, Inc., a global provider of electronic personal financial services. Since January 1996, Ms. Levinson served as President and Chief Operating Officer of E*TRADE Securities, Inc., a wholly owned subsidiary of E*TRADE Group, Inc. From 1980 to 1994, Ms. Levinson worked at Charles Schwab & Co., Inc., a securities brokerage firm, in a variety of senior executive positions. Ms. Levinson holds a B.A. degree in Economics from Stanford University. Arthur Patterson has served as a member of our board of directors since April 1999. He is currently General Partner at Accel Partners, a venture capital firm which he co-founded. He is currently on the board of directors of Actuate Corp., an Internet reporting company, Weblink Wireless Inc., a wireless messaging company, and Portal Software Inc., an Internet billing company, as well as several privately held Internet services companies. Mr. Patterson holds A.B. and M.B.A. degrees from Harvard University. Board Composition We currently have five directors. Prior to this offering, the holders of our Series A preferred stock, Series B preferred stock and common stock, each voting as a separate class, are entitled to elect one member of our board of directors. Currently, Mr. Baloff is serving as the Series A director, Mr. Patterson is serving as the Series B director and Mr. Ben-Shachar is serving as the common stock director. This right to elect directors will expire upon the closing of this offering. All remaining members of our board of directors are elected by the holders of our common stock and preferred stock, voting together as a single class. Upon the closing of this offering, the terms of office of the board of directors will be divided into three classes. As a result, a portion of our board of directors will be elected each year by the common stockholders. The division of the three classes, the initial directors and their respective election dates are as follows: . the class I directors will be Ofer Ben-Shachar and Arthur Patterson, and their terms will expire at the annual meeting of stockholders to be held in 2001; . the class II directors will be Steven Baloff and Edward Barr, and their terms will expire at the annual meeting of stockholders to be held in 2002; and . the class III director will be Kathy Levinson, and her term will expire at the annual meeting of stockholders to be held in 2003. At each annual meeting of stockholders after the initial classification, the successors to directors whose terms will then expire will be elected to serve from the time of election and qualification until the third annual meeting following election. In addition, our amended and restated certificate of incorporation provides that the authorized number of directors may be changed only by resolution of the board of directors. Any additional directorships resulting from an increase in the number of 51 directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors. This classification of the board of directors may have the effect of delaying or preventing changes in control or management of NOOSH. Board Committees . Audit Committee. Our audit committee reviews our internal accounting procedures and consults with, and reviews the services provided by, our independent auditors. Current members of our audit committee are Steven Baloff, Edward Barr and Kathy Levinson. . Compensation Committee. Our compensation committee reviews and recommends to the board of directors the compensation and benefits of all our officers and reviews general policy relating to compensation and benefits of our employees. The compensation committee also administers the issuance of stock options and other awards under our stock plans. Current members of the compensation committee are Steven Baloff and Arthur Patterson. Compensation Committee Interlocks and Insider Participation Neither member of the compensation committee has at any time been an officer or employee of NOOSH. No interlocking relationship exists between our board of directors or compensation committee and the board of directors or compensation committee of any other company, nor has any interlocking relationship existed in the past. Director Compensation We do not provide cash compensation to members of our board of directors for their services as members of the board or for attendance at committee meetings. Members of the board of directors are reimbursed for some expenses in connection with attendance at board and committee meetings. Under our 1998 equity incentive plan and our 2000 equity incentive plan, non-employee directors are eligible to receive stock option grants at the discretion of our board of directors or other administrator of the plan. In May 1999, Arthur Patterson, one of our non-employee directors, received an option to purchase 300,000 shares of common stock at an exercise price of $0.1375 per share. In November 1999, Kathy Levinson, one of our non-employee directors, received an option to purchase 100,000 shares of common stock at an exercise price of $1.50 per share. In January 2000, Steven Baloff, one of our non-employee directors, received an option to purchase 25,000 shares of common stock at $2.50 per share. In March 2000, Edward Barr, one of our non-employee directors, received an option to purchase 25,000 shares of common stock at an exercise price of $9.50 per share. These options vest over a three year period in equal monthly increments. In January 2000, we adopted our 2000 non-employee directors' stock option plan to provide for the automatic grant of options to purchase shares of our common stock to our directors who are not employees of NOOSH or any of our affiliates. Any non-employee director elected after the effective date of this offering will automatically receive an option to purchase 25,000 shares of common stock when elected to the board of directors. Starting at the annual stockholder meeting in 2001, all non-employee directors will receive an annual option to purchase 10,000 shares of common stock. See "--Stock Plans--2000 Non- Employee Directors' Stock Option Plan" for a more detailed explanation of the terms of these stock options. 52 Executive Compensation The following table sets forth information concerning the compensation received for services rendered to us by our Chief Executive Officer and our four other most highly compensated executive officers in 1999 who earned, or would have earned on an annualized basis, more than $100,000 during the fiscal year ended December 31, 1999. Summary Annual Compensation Table
Long-Term Compensation Awards Annual (Option Compensation Awards) ---------------- ------------ Number of Securities Underlying Name and Principal Position Salary Bonus Options --------------------------- -------- ------- ------------ Ofer Ben-Shachar................................. $163,333 -- -- President, Chief Executive Officer and Chairman of the Board Kevin Akeroyd(1)................................. 56,248 $25,004 100,000 Vice President of Sales David Hannebrink(2).............................. 143,750 60,000 416,000 Vice President of Marketing and Business Development Hagi Schwartz(3)................................. 32,290 65,000 300,000 Vice President of Finance and Chief Financial Officer Lawrence Slotnick(4)............................. 107,116 15,000 450,000 Vice President of Engineering
- -------- (1) Mr. Akeroyd joined NOOSH in August 1999. On an annualized basis, Mr. Akeroyd's base salary would have been $150,000. Mr. Akeroyd is guaranteed a minimum monthly commission of $6,250 until January 1, 2001. Until January 1, 2001, Mr. Akeroyd is also eligible to receive an additional monthly commission of $6,250 for achieving sales commission goals. (2) Mr. Hannebrink joined NOOSH in January 1999. On an annualized basis, Mr. Hannebrink's base salary would have been $150,000. Mr. Hannebrink is also eligible to receive a bonus of $30,000 for each fiscal year upon achievement of quarterly performance milestones. (3) Mr. Schwartz joined NOOSH in October 1999. On an annualized basis, Mr. Schwartz's base salary would have been $154,992. (4) Mr. Slotnick joined NOOSH in April 1999. On an annualized basis, Mr. Slotnick's base salary would have been $160,008. Mr. Slotnick is also eligible to receive a bonus of $30,000 for each fiscal year upon achievement of quarterly performance milestones. 53 Option Grants The following table sets forth information regarding stock options granted, if any, to our Chief Executive Officer and our four other most highly compensated executive officers during the fiscal year ended December 31, 1999. Percentage of total options as set forth below was calculated based on an aggregate of 5,294,990 shares of common stock granted under the 1998 equity incentive plan in fiscal 1999. The potential realizable value as set forth below was calculated based on the ten-year term of the option and assumed rates of stock appreciation of 5% and 10%, compounded annually from the date the options were granted to their expiration date based on the exercise price and an assumed initial public offering price of $12.00 per share. In addition, the 0% column calculates the value of the option on the date of grant based on the exercise price of the option and the deemed fair market value for financial reporting purposes that we used in calculating deferred stock compensation. Option Grants During Fiscal 1999
Percentage of Total Potential Realizable Value At Number of Options Assumed Annual Rates of Stock Securities Granted Exercise Price Appreciation for Option Underlying during Price Term Options Fiscal Per Expiration --------------------------------- Name Granted 1999 Share Date 0% 5% 10% - ---- ---------- ---------- -------- ---------- ---------- ---------- ----------- Ofer Ben-Shachar........ -- -- -- -- -- -- -- Kevin Akeroyd........... 100,000 1.9% $ 0.50 8/18/09 $ 400,000 $1,811,594 $ 2,779,537 David Hannebrink........ 416,000 7.9% 0.0325 1/24/09 108,160 7,730,710 11,757,355 Hagi Schwartz........... 300,000 5.7% 1.00 10/7/09 1,680,000 5,284,782 8,188,612 Lawrence Slotnick....... 400,000 8.5% 0.1375 6/7/09 441,000 7,391,375 11,263,149 50,000 1.00 10/7/09 280,000 880,797 1,364,769
The options listed in the table above are subject to vesting. The option shares vest over a four-year period, with 25% of the option shares vesting after one year and 2.08% vesting monthly thereafter. See "Stock Plans" for a description of the material terms of these options. 54 Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values The following table provides summary information concerning the shares of common stock represented by outstanding stock options held by our Chief Executive Officer and our four other most highly compensated executive officers as of December 31, 1999. Options granted to purchase shares of our common stock under our 1998 equity incentive plan are immediately exercisable by certain optionees at the discretion of the board, but are subject to a right of repurchase pursuant to the vesting schedule of each specific grant. The repurchase option generally lapses over a four year period, with 25% lapsing after the first year and 2.08% lapsing monthly thereafter. In the event that an employee ceases to provide service to us or our affiliates, we have the right to repurchase any of that employee's unvested shares of common stock at the original option price. Amounts shown in the value realized column were calculated based on the difference between the option exercise price and the fair market value of the common stock on the date of exercise, without taking into account any taxes that may be payable in connection with the transaction, multiplied by the number of shares of common stock underlying the option. Exercise prices ranged from $0.0325 to $1.00. We have calculated the value of unexercised in-the-money options based on the assumed initial public offering price of $12.00 per share of common stock without taking into account any taxes that may be payable in connection with the transaction, multiplied by the number of shares underlying the option, less the aggregate exercise price payable for these shares.
Number of Securities Underlying Unexercised Options at Value of Unexercised December 31, In-the-Money Options at Shares 1999 December 31, 1999 Acquired on Value --------------- ------------------------- Name Exercise Realized Vested Unvested Exercisable Unexercisable ---- ----------- -------- ------ -------- ----------- ------------- Ofer Ben-Shachar........ -- -- -- -- -- -- Kevin Akeroyd........... -- -- -- 100,000 $1,150,000 -- David Hannebrink........ 416,000(1) $0.00 -- -- -- -- Hagi Schwartz........... 300,000(2) 0.00 -- -- -- -- Lawrence Slotnick....... -- -- -- 450,000 5,025,000 --
- -------- (1) As of December 31, 1999, 416,000 shares held by Mr. Hannebrink were unvested and subject to repurchase by us. (2) As of December 31, 1999, 300,000 shares held by Mr. Schwartz were unvested and subject to repurchase by us. Employment Arrangements At the time of commencement of employment, our employees generally sign offer letters specifying the basic terms and conditions of employment. In October 1999, we entered into an employment offer letter with Hagi Schwartz, our Vice President of Finance and Chief Financial Officer. Under his employment offer letter, we granted Mr. Schwartz an option to purchase 300,000 shares of common stock at an exercise price of $1.00 per share. This option will vest 25% on the first anniversary of his date of hire with the remainder vesting monthly over the following three years. In the event Mr. Schwartz voluntarily terminates his employment or is involuntarily terminated without cause, he is entitled to six months continued salary and benefits and our repurchase right with respect to his option shares continues to lapse over the six-month period. In January 2000, we entered into an employment offer letter with Timothy Moore, our Vice President of Strategic Alliances, General Counsel and Secretary. Under his employment offer letter, we granted Mr. Moore an option to purchase 285,000 shares of common stock at an exercise price of $2.25 per share. This option will vest 25% on the first anniversary of his date of hire with the 55 remainder vesting monthly over the following three years. In the event Mr. Moore is terminated without cause, he is entitled to six months continued salary, benefits and vesting of stock options. In addition, in the event Mr. Moore is terminated without cause before the first anniversary of his date of hire, he is entitled to vesting for each month of employment. In January 2000, we entered into an employment offer letter with Robert Shaw, our Senior Vice President of Sales. Under his employment offer letter, we granted Mr. Shaw an option to purchase 270,000 shares of common stock at an exercise price of $2.50 per share. This option will vest 25% on the first anniversary of his date of hire with the remainder vesting monthly over the following three years. In the event Mr. Shaw is terminated without cause he is entitled to twelve months continued salary and benefits. In addition, in the event Mr. Shaw is terminated without cause before the first anniversary of his date of hire, 25% of his option shares would become immediately vested. We have also entered into employment offer letters with Mathew Spolin, our Chief Technology Officer, Lawrence Slotnick, our Vice President of Engineering, Kevin Akeroyd, our Vice President of Sales, and David Hannebrink our Vice President of Marketing and Business Development. These offer letters specify the basic terms of their employment, including their monthly salary, bonus arrangement, stock option grant and benefits package. Stock Plans 2000 Equity Incentive Plan Our board of directors adopted our 2000 plan in January 2000, and our stockholders approved the 2000 plan in March 2000. The 2000 plan will be effective on the effective date of this offering. At that time, no further option grants will be made under our 1998 plan described in more detail below. Share Reserve. A total of 6,000,000 shares of our common stock have been reserved for issuance under the 2000 plan. On the date of each annual stockholders' meeting, beginning with the annual stockholders' meeting in 2001, the share reserve will increase by the least of the following: . 4.5% of our total outstanding common stock; . 2,000,000 shares of our common stock; or . a lesser amount as determined by our board of directors. When a stock award expires or is terminated before it is exercised, the shares not acquired pursuant to the stock awards shall again become available for issuance under the 2000 plan. Eligibility. The 2000 plan permits the grant of options to employees, directors and consultants. Options may be either incentive stock options, or ISOs, within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, or nonstatutory stock options, or NSOs. In addition, the 2000 plan permits the grant of stock bonuses and rights to purchase restricted stock. The 2000 plan is administered by our board of directors. Our board of directors may delegate its authority to administer the 2000 plan to a committee of two or more board members appointed by the board of directors. The administrator has the authority to select the eligible persons to whom award grants are to be made, to designate the number of shares to be covered by each award, to determine whether an option is to be an ISO or NSO, to establish vesting schedules, to specify the exercise price of options and the type of consideration to be paid upon exercise and to specify other terms of awards. 56 In general, the term of the stock options granted under the 2000 plan may not exceed ten years. An optionholder may not transfer a stock option other than by will or the law of descent or distribution. The exercise price for an ISO cannot be less than 100% of the fair market value of our common stock on the date of grant. The exercise price for NSOs cannot be less than 85% of the fair market value of our common stock on the date of grant. In the event the optionholder is a 10% stockholder, then the exercise price per share of an ISO cannot be less than 110% of the fair market value of our common stock on the date of grant. Unless the terms of an optionholder's stock option agreement provide for earlier termination, in the event an optionholder's service relationship with us ceases due to death, the optionholder's beneficiary may exercise any vested options up to 18 months after the date the service relationship ends. In the event an optionholder's service relationship with us ceases due to disability, the optionholder may exercise any vested option up to twelve months after the date the service relationship ends. If an optionholder's relationship with us ceases for any reason other than disability or death, the optionholder may, unless the terms of the stock option agreement provide for earlier termination, exercise any vested options up to three months from the date the service relationship ends. ISOs may be granted only to our employees. The aggregate fair market value, determined at the time of grant, of shares of our common stock with respect to which ISOs are exercisable for the first time by an optionholder during any calendar year under all of our stock plans may not exceed $100,000. No ISO may be granted to any person who at the time of the grant owns or is deemed to own stock possessing more than 10% of the total combined voting power of us or any of our affiliates unless the term of the ISO award does not exceed five years from the date of grant. Effect on Options of a Change in Control. In the event of a change in control in the beneficial ownership of NOOSH, all outstanding stock awards under the 2000 plan either will be assumed, continued or substituted for by any surviving entity. If the surviving entity determines not to assume, continue or substitute for these awards, the vesting provisions of such stock awards will be accelerated and all outstanding awards will be immediately exercisable. Awards not exercised prior to the effective date of the change of control shall terminate and cease to be outstanding. In certain change in control circumstances the vesting provisions of the outstanding stock awards will be accelerated automatically. Furthermore, if a holder of a stock award is terminated due to a constructive termination or involuntarily terminated without cause within one month before or 13 months after a change in control, the vesting of that holder's stock awards will be accelerated. Other Provisions. The terms of any stock bonuses or restricted stock purchase awards granted under the 2000 plan will be determined by the administrator. The administrator may award stock bonuses in consideration of past services without a purchase payment. The purchase price of restricted stock under any restricted stock purchase agreement will not be less than 85% of the fair market value of our common stock on the date of grant. Shares sold or awarded under the 2000 plan may be subject to repurchase by us. Our board of directors may amend or modify the 2000 plan at any time. However, no amendment or modification shall adversely affect the rights and obligations with respect to options or unvested awards unless the participant consents to such an amendment or modification. In addition, the approval of our stockholders is required for our board of directors to: . increase the maximum number of shares issuable under the 2000 equity incentive plan (except for permissible adjustments in the event of certain changes in the company's capitalization); . materially modify the eligibility requirements for participation; or . materially increase the benefits accruing to participants. 57 1998 Equity Incentive Plan Our board of directors adopted and our stockholders approved our 1998 equity incentive plan in November 1998. The 1998 plan was amended in April 1999 and in December 1999, and our stockholders approved both amendments. An aggregate of 8,000,000 shares of common stock currently are authorized for issuance under the 1998 plan. Upon the effective date of this offering, no further option grants will be made under the 1998 plan. The options granted under the 1998 plan have substantially the same terms as will be in effect for grants made under the 2000 plan. With respect to change in control provisions, all outstanding options under the 1998 plan either will be assumed or substituted by any surviving entity. If the surviving entity determines not to assume or substitute such awards, the vesting schedule of all outstanding awards shall accelerate and all outstanding awards will be immediately exercisable. Awards not exercised prior to the effective date of the change in control shall terminate and cease to be outstanding on the effective date of a change in control. As of April 4, 2000, options to purchase a total of 3,490,050 shares of common stock had been exercised, none of which had been repurchased and 2,808,522 of which were subject to repurchase; options to purchase a total of 4,392,538 shares of common stock with a weighted average price of $2.06 per share were outstanding; and 117,412 shares remained available for future issuance under the 1998 plan. As of April 4, 2000, the board had not granted any stock bonuses or stock appreciation rights under the 1998 plan. 2000 Employee Stock Purchase Plan Our board of directors adopted the 2000 employee stock purchase plan in January 2000, and our stockholders approved the 2000 stock purchase plan in March 2000. Share Reserve. A total of 600,000 shares of common stock have been authorized for issuance under the 2000 purchase plan. On the date of each annual stockholders' meeting, beginning with the annual stockholders' meeting in 2001, the share reserve will increase by the least of the following: . 1.5% of our total outstanding common stock; . 600,000 shares of our common stock; or . a lesser amount as determined by the board of directors. The 2000 purchase plan is intended to qualify as an employee stock purchase plan within the meaning of Section 423 of the Internal Revenue Code of 1986, as amended. Under the 2000 purchase plan, eligible employees will be able to purchase common stock at a discount price in periodic offerings. The 2000 purchase plan will commence on the effective date of this offering. Eligibility. All employees are eligible to participate in the 2000 purchase plan so long as they are employed by us, or a subsidiary designated by the board of directors, for at least 20 hours per week and are customarily employed by us, or a subsidiary designated by the board of directors, for at least five months per calendar year. Any employee who is a 5% stockholder is not eligible to participate in the 2000 purchase plan. Under the 2000 purchase plan, employees who participate in an offering generally may have up to 15% of their earnings for the period of that offering withheld. The amount withheld is used on each purchase date of the offering period to purchase shares of common stock. The price paid for common stock on the purchase dates will equal the lower of 85% of the fair market value of the common stock on the first day of the offering period or 85% of the fair market value of the common stock on the purchase date. Employees may end their participation in the offering at any time during the offering period, and participation ends automatically on termination of employment. 58 Effect of a Change in Control. Upon a change in control of the beneficial ownership of us, our board of directors has discretion to provide that each right to purchase common stock will be assumed or an equivalent right substituted by the successor entity or the board of directors may provide for all sums collected by payroll deductions to be applied to purchase stock immediately prior to the effective date of the change in control transaction. Other Provisions. Our board of directors has the authority to amend or terminate the 2000 purchase plan; provided, however, that no amendment or termination of the 2000 purchase plan may adversely affect any outstanding rights to purchase common stock. Amendments generally will be submitted for stockholder approval only to the extent required by law. 2000 Non-Employee Directors' Stock Option Plan Our board of directors adopted the 2000 non-employee directors' stock option plan in January 2000, and our stockholders approved the 2000 non-employee directors' stock option plan in March 2000. The directors' plan will be effective on the effective date of this offering. Share Reserve. A total of 350,000 shares of our common stock have been reserved for issuance under the 2000 directors' plan. When a stock option expires or is terminated before it is exercised, the shares not acquired pursuant to the stock option shall again become available for issuance under the 2000 directors' plan. Eligibility and Option Terms. The directors' plan permits the grant of NSOs to non-employee directors. The 2000 directors' plan is administered by our board of directors. However, the grant of stock options is automatic. On the effective date of this offering, each non-employee director will automatically be granted an option to purchase 25,000 shares of common stock, unless that director has previously been granted an option. Any individual who becomes a non-employee director after this offering will automatically receive this initial grant upon being elected to the board of directors. On each annual stockholders' meeting, beginning with the annual stockholders' meeting in 2001, any person who is then a non-employee director will automatically be granted an option to purchase 10,000 shares of common stock. In general, the stock options granted under the directors' plan may not exceed ten years. An optionholder may not transfer a stock option other than by will or the law of descent or distribution. The exercise price for nonstatutory stock options will be 100% of the fair market value of the common stock on the date of grant. Unless the terms of an optionholder's stock option agreement provide for earlier termination, in the event an optionholder's service relationship with us ceases due to death, the optionholder's beneficiary may exercise any vested options up to 18 months after the date such service relationship ends. In the event an optionholder's service relationship with us ceases due to disability, the optionholder may exercise any vested option up to twelve months after the cessation of service. If an optionholder's relationship with us ceases for any reason other than disability or death, the optionholder may, unless the terms of the stock option agreement provide for earlier termination, exercise any vested options up to three months from the date the service relationship ends. Effect on Options of a Change in Control. In the event of certain changes in control in the beneficial ownership of us, the vesting provisions of all outstanding stock options under the directors' plan will be accelerated and the stock options will be terminated upon the change of control if not previously exercised. 59 Other Provisions. Our board of directors may amend or modify the directors' plan at any time. However, no such amendment or modification shall adversely affect the rights and obligations with respect to options unless the participant consents to such an amendment or modification. 401(k) Plan We sponsor a 401(k) plan, a defined contribution plan intended to qualify under Section 401(a) of the Internal Revenue Code of 1986, as amended. All employees are eligible to participate. Participants may make pre-tax contributions to the 401(k) plan of up to 25% of their eligible earnings, subject to a statutorily prescribed annual limit ($10,500 in 2000). Under the 401(k) plan, each employee is fully vested in his or her deferred salary contributions. Employee contributions are held and invested by the 401(k) plan's trustee. Each participant's contributions, and the corresponding investment earnings, are generally not taxable to the participants until withdrawn. Individual participants may direct the trustee to invest their accounts in authorized investment alternatives. Limitation of Liability of Directors and Indemnification Matters Our amended and restated certificate of incorporation limits the liability of directors to the maximum extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except liability for: . any breach of their duty of loyalty to the corporation or its stockholders; . acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; . unlawful payments of dividends or unlawful stock repurchases or redemptions; or . any transaction from which a director derives an improper personal benefit. This limitation of liability does not apply to liabilities arising under the federal securities laws and does not affect the availability of equitable remedies such as injunctive relief or rescission. Our amended and restated certificate of incorporation and bylaws provide that we will indemnify our directors and officers, and may indemnify our other employees and agents, to the fullest extent permitted by law. We believe that indemnification under our bylaws covers at least negligence and gross negligence on the part of indemnified parties. Our bylaws also permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in that capacity and certain other capacities, including serving as a director of another corporation at the request of our board, regardless of whether the bylaws would permit indemnification. We intend to enter into agreements to indemnify our directors and executive officers in addition to indemnification provided for in our certificate of incorporation and our bylaws. These agreements, among other things, provide for indemnification of our directors and executive officers for expenses specified in the agreements, including attorneys' fees, judgments, fines and settlement amounts incurred by any of these persons in any action or proceeding arising out of these persons' services as a director or officer for us, any of our subsidiaries or any other entity to which the person provides services at our request. We believe that these provisions and agreements are necessary to attract and retain qualified persons as directors and officers. At present, we are not aware of any pending or threatened litigation or proceeding involving a director, officer, employee or agent in which indemnification would be required or permitted. 60 Change of Control Arrangements In August 1998 and September 1998, we entered into founder stock purchase agreements with Ofer Ben-Shachar, our President, Chief Executive Officer and Chairman of the Board. Under the terms of the agreements, as amended in April 1999, approximately 33% of his shares were immediately vested with approximately 1.85% of his shares vesting monthly thereafter. Upon involuntary termination prior to a change of control of us, approximately 11% of his shares would become immediately vested. Upon involuntary termination following a change of control of us, 100% of his remaining unvested shares would become immediately vested. In October 1999, we entered into an employment offer letter with Hagi Schwartz, our Vice President of Finance and Chief Financial Officer, and in January 2000, we entered into an employment offer letter with Timothy Moore, our Vice President of Strategic Alliances, General Counsel and Secretary. Under the terms of their employment offer letters, Mr. Schwartz and Mr. Moore are entitled to full acceleration of the unvested portion of their option shares in the event of a change of control. According to the terms of the stock option grants to four of our directors, Steven Baloff, Edward Barr, Kathy Levinson and Arthur Patterson, vesting of their option shares will immediately accelerate upon a change of control transaction. For more information about the change of control provisions under our stock plans, See "--Stock Plans." 61 RELATED PARTY TRANSACTIONS The following executive officers, directors or holders of more than five percent of any class of our voting securities purchased securities in the amounts as of the dates shown below. For more detail on shares held by these purchasers see "Principal Stockholders." All preferred share amounts are listed on an as-converted to common stock basis.
Shares of Preferred Stock --------------------------------------- Warrants for Common Stock Series A Series B Series C Series D Common Stock ----------------- --------- --------- --------- --------- ------------ Ofer Ben-Shachar................ 8,000,000 2,999,998 160,000 100,671 45,455 -- Kevin Akeroyd................... 100,000 -- -- -- -- -- David Hannebrink................ 436,706 -- -- -- -- -- Raymond Martinelli.............. 75,000 -- -- -- -- -- Timothy Moore................... 285,000 -- -- -- -- -- Hagi Schwartz................... 310,000 -- 14,546 -- -- -- Robert Shaw..................... 270,000 -- -- -- -- -- Lawrence Slotnick............... 400,000 -- -- -- -- -- Mathew Spolin................... 216,720 -- -- -- -- -- Steven Baloff................... 25,000 -- -- -- -- -- Edward Barr..................... 25,000 -- -- -- -- -- Kathy Levinson.................. 100,000 -- -- -- -- -- Accel Internet Fund II L.P.(1).. -- -- 605,090 139,597 -- -- Accel Investors '98 L.P.(1)..... -- -- 401,456 92,617 -- -- Accel Keiretsu VI L.P.(1)....... -- -- 75,636 17,450 -- -- Accel VI L.P.(1)................ -- -- 4,736,000 1,092,618 -- -- Advanced Technology Ventures V, L.P.(2)........................ -- -- 2,106,582 560,913 -- -- ATV Entrepreneurs V, L.P.(2).... -- -- 75,236 20,033 -- -- MeriTech Capital Affiliates L.P. ............................... -- -- -- 32,215 -- -- MeriTech Capital Partners L.P. ............................... -- -- -- 1,981,208 -- -- R. R. Donnelley & Sons Company.. -- -- -- -- 1,272,727 2,780,158 Price Per Share................. $0.00125 to $9.50 $ 0.65 $ 2.75 $ 7.45 $ 11.00 $ 11.00 Date(s) of Purchase............. 8/98 to 3/00 11/98 4/99 11/99 1/00 1/00
- -------- (1) Arthur Patterson, one of our directors, is a general partner of Accel Partners. (2) Steven Baloff, one of our directors, is a general partner of Advanced Technology Ventures. We have entered into the following agreements with our executive officers, directors and holders of more than five percent of our voting securities. Co-Marketing Agreement. In January 2000, we entered into a co-development and co-marketing agreement with R.R. Donnelley, a beneficial holder of 6.5% of our common stock. Under the agreement, we and R.R. Donnelley are committed to actively promote and market the noosh.com service to R.R. Donnelley's customers, particularly in the catalog, magazine and book publishing markets. R.R. Donnelley also agreed to pay us a transaction fee based on the aggregate volume of print orders processed by them. R.R. Donnelley is not committed to any volume targets. Amended and Restated Investor Rights Agreement. We, the preferred stockholders described above and R.R. Donnelley have entered into an agreement, under which they and other stockholders will have registration rights with respect to their shares of common stock which we refer to as registrable shares, following this offering. These registration rights include two demand registration rights, an unlimited number of registration rights requiring us to register sales of their shares when we undertake a public offering, or piggyback registration rights, and an unlimited number of Form S-3 registration rights. In order to exercise their demand registration rights, 62 stockholders holding at least 30% of the registrable shares must submit a written request that we file a registration statement for a public offering of the registrable shares having an anticipated aggregated offering price of at least $15,000,000. In order to exercise their piggyback registration rights, each holder of registrable shares must submit written notice to us within 15 days of receiving notice from us that we intend to file a registration statement for the public offering of our common stock. In order to exercise their Form S-3 registration rights, stockholders holding at least 20% of the registrable shares must submit a written request that we effect a registration on Form S-3. See "Description of Capital Stock--Registration Rights" for a further description of the terms of this agreement. E*TRADE Agreement. In December 1999, we entered into our standard form of print buyer agreement with E*TRADE Group, Inc. Kathy Levinson, one of our directors, serves as president and chief operating officer of E*TRADE. Under the agreement, if E*TRADE uses our service, it has agreed to pay us a monthly service fee based upon applicable dollar volumes. Indebtedness of Management. From April 1999 to March 2000, we made loans to the following officers and directors:
Name Amount Due Date ---- -------- ---------------- David Hannebrink................................... $ 13,520 April 15, 2001 Hagi Schwartz...................................... 300,000 October 8, 2004 David Hannebrink................................... 100,000 November 1, 2000 Kevin Akeroyd...................................... 49,900 January 3, 2005 Raymond Martinelli................................. 59,925 January 3, 2005 Timothy Moore...................................... 641,250 January 3, 2005 Steven Baloff...................................... 61,475 January 15, 2005 David Hannebrink................................... 100,000 January 15, 2002 Robert Shaw........................................ 674,730 January 15, 2005 Hagi Schwartz...................................... 64,990 February 4, 2005 Edward Barr........................................ 237,475 March 15, 2005
Each loan was made under a promissory note secured by a pledge of early exercised common shares. The notes bear interest at between 6% and 6.8% per year. Stock Options. Stock option grants to our executive officers and directors are described in this prospectus under the captions "Management--Director Compensation" and "--Executive Compensation." Management Rights. In November 1999, we entered into a management rights letter agreement with MeriTech Capital, a holder of 6.0% of our common stock. Under the terms of the letter agreement, MeriTech is entitled to consult with and advise us on significant business issues and to attend all board meetings in a non-voting observer capacity. Executive Employment Arrangements. In October 1999, we entered into an employment offer letter with Hagi Schwartz, our Vice President of Finance and Chief Financial Officer. In January 2000, we entered into employment offer letters with Robert Shaw, our Senior Vice President of Sales, and Timothy Moore, our Vice President of Strategic Alliances and General Counsel. See "Management--Employment Arrangements." Indemnification Agreements. We intend to enter into indemnification agreements with our directors and executive officers for the indemnification of these persons to the full extent permitted by law. We also intend to execute these agreements with our future directors and officers. 63 PRINCIPAL STOCKHOLDERS The following table sets forth certain information with respect to the beneficial ownership of our outstanding common stock as of April 4, 2000, and as adjusted to reflect the sale of our common stock in this offering, by: . our Chief Executive Officer and each of our four other most highly compensated executive officers; . each director; . each stockholder who is known by us to own beneficially 5% or more of any class of our voting securities; and . all directors and executive officers as a group. Percentage of ownership in the following table is calculated based on 33,602,173 shares of common stock outstanding as of April 4, 2000 and 37,602,173 shares of common stock outstanding after completion of this offering. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options held by that person that are currently exercisable or exercisable within 60 days of April 4, 2000 are deemed outstanding. Those shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of each other person. Except as indicated in the footnotes to the table, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws where applicable. Unless otherwise indicated, the address of each of the individuals named above is: 3401 Hillview Avenue, Palo Alto, CA 94304.
Beneficial Ownership -------------------------------------------------------------- Number of Options or Shares Warrants NOOSH may Exercisable Repurchase Within Within Percent 60 Days of 60 Days of ----------------- Name and Address of Number of April 4, April 4, Before After Beneficial Owner Shares(1) 2000 2000(2) Total Offering Offering - ------------------- ---------- ----------- ---------- ---------- -------- -------- Ofer Ben-Shachar(3)..... 6,120,977 -- 1,185,147 7,306,124 21.7% 19.4% Kevin Akeroyd........... -- -- 100,000 100,000 * * David Hannebrink........ 142,039 -- 277,334 436,706 1.3 1.2 Hagi Schwartz........... 14,546 -- 310,000 324,546 * * Lawrence Slotnick....... -- -- 341,667 450,000 1.3 1.2 Steven Baloff(4)........ 3,078,094 -- 15,973 3,095,456 9.2 8.2 Edward Barr............. -- -- 23,612 25,000 * * Arthur Patterson(5)..... 7,160,464 108,333 -- 7,268,797 21.6 19.3 Kathy Levinson(6)....... 95,543 -- 83,334 178,877 * * Accel Partners(5)....... 7,160,464 -- -- 7,160,464 21.3 19.0 Advanced Technology Ventures(4)............ 3,070,456 -- -- 3,070,456 9.1 8.2 MeriTech Capital(7)..... 2,013,423 -- -- 2,013,423 6.0 5.4 R.R. Donnelley & Sons Company................ 1,272,727 961,308 -- 2,234,035 6.5 5.8 All directors and executive officers as a group (13 persons)(8).. 16,817,595 108,333 3,098,002 20,032,226 59.4% 53.1
64 - -------- * Less than 1% of the outstanding shares of common stock. (1) Excludes shares of common stock subject to a right of repurchase within 60 days of April 4, 2000. (2) The unvested portion of the shares of common stock is subject to a right of repurchase, at the original option price, in the event the holder ceases to provide services to Noosh and its affiliates or upon a change of control of NOOSH. The option exercise prices range from $0.0325 to $9.50. (3) Does not include 3,983,500 shares held by the Ben-Shachar Family Generation Skipping Trust. Mr. Ben-Shachar has no voting or investment power with respect to the shares and, therefore, does not have beneficial ownership of the shares. (4) Includes 2,975,187 shares held by Advanced Technology Ventures V, L.P., and 95,269 shares held by ATV Entrepreneurs V, L.P. Advanced Technology Ventures is located at 485 Ramona Street, Suite 200, Palo Alto, CA 94301. Mr. Baloff is a general partner of Advanced Technology Ventures and disclaims beneficial ownership of these shares except to the extent of his proportionate partnership interest in these shares. (5) Includes 744,687 shares held by Accel Internet Fund II L.P., 494,073 shares held by Accel Investors '98 L.P., 93,086 shares held by Accel Keiretsu VI L.P. and 5,828,618 shares held by Accel VI L.P. Accel Partners are located at 428 University Avenue, Palo Alto, CA 94303. Mr. Patterson is a general partner of Accel Partners and disclaims beneficial ownership of these shares except to the extent of his proportionate partnership interest in these shares. (6) Includes 78,877 shares held by Internet Experience, L.P. Internet Experience is located at 4500 Bohannan Drive, Menlo Park, CA 94025. Ms. Levinson is a general partner and a limited partner of Internet Experience and disclaims beneficial ownership of these shares except to the extent of her proportionate partnership interest in these shares. (7) Includes, 32,215 shares held by MeriTech Capital Affiliates L.P. and 1,981,208 shares held by MeriTech Capital Partners L.P. MeriTech Capital is located at 428 University Avenue, Palo Alto, CA 94303. (8) Total number of shares includes 10,309,797 shares of common stock held by entities affiliated with directors and executive officers. See footnotes 4 through 6 above. 65 DESCRIPTION OF CAPITAL STOCK Upon completion of this offering, our authorized capital stock will consist of 75,000,000 shares of common stock, $0.001 par value, 2,600,000 shares of Class B common stock, $0.001 par value, and 5,000,000 shares of undesignated preferred stock, $0.001 par value. The following description of our capital stock does not purport to be complete and is subject to, and qualified in its entirety by, our amended and restated certificate of incorporation and bylaws, which we have included as exhibits to the registration statement of which this prospectus forms a part. Common Stock and Class B Common Stock As of April 4, 2000, there were 33,602,173 shares of capital stock outstanding, held of record by 106 stockholders. These amounts assume the conversion of all outstanding shares of preferred stock into common stock and Class B common stock, based on an assumed initial public offering price of $12.00, which is to occur upon the closing of this offering. In addition, as of April 4, 2000, there were 4,392,538 shares of common stock subject to outstanding options. Upon completion of this offering, there will be 37,602,173 shares of common stock and Class B common stock outstanding, assuming no additional exercise of outstanding stock options. Each share of common stock entitles its holder to one vote on all matters to be voted upon by stockholders. Subject to preferences that may apply to any outstanding preferred stock, holders of common stock may receive ratably any dividends that the board of directors may declare out of funds legally available for that purpose. In the event of our liquidation, dissolution or winding up, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities and any liquidation preference of preferred stock that may be outstanding. The common stock has no preemptive rights, conversion rights or other subscription rights or redemption or sinking fund provisions. All outstanding shares of common stock are fully paid and non- assessable, and the shares of common stock that we will issue upon completion of this offering will be fully paid and non-assessable. The rights of holders of Class B common stock will be identical to the rights of holders of common stock except that the holders of Class B common stock do not have voting rights. Commencing on the date 90 days after this offering, twenty-five percent of the outstanding Class B common stock may be converted into common stock on a one-to-one basis at the option of the holder. In addition, commencing on the earlier of April 4, 2001, 180 days after this offering or upon our written consent, the remaining shares of Class B common stock may be converted into shares of common stock on a one-to-one basis. There are currently no shares of Class B common stock outstanding. Preferred Stock Upon the completion of the offering, each outstanding share of Series A and Series B preferred stock will automatically convert into two shares of common stock, each outstanding share of Series C and Series D preferred stock will automatically convert into one share of common stock and each outstanding share of Series E preferred stock will convert into the number of shares of Class B common stock that is equal to $13.00 divided by the lesser of the conversion price of the Series E preferred stock in effect immediately prior to the automatic conversion or 85% of the initial public offering price per share. Assuming an initial public offering price of $12.00 per share, upon completion of this offering, each share of Series E preferred stock will convert into 1.27 shares of Class B common stock. According to our amended and restated certificate of incorporation, our board of directors will have the authority, without further action by the stockholders, to issue up to 5,000,000 shares of preferred stock in one or more series. Our board shall designate the rights, preferences, privileges 66 and restrictions of the preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preference, sinking fund terms and number of shares constituting any series or the designation of any series. The issuance of preferred stock could have the effect of restricting dividends on the common stock, diluting the voting power of the common stock, impairing the liquidation rights of the common stock or delaying or preventing a change in control without further action by the stockholders. We have no present plans to issue any shares of preferred stock after the completion of this offering. Warrants As of April 4, 2000, we had outstanding the following warrants: . A warrant to purchase 270,000 shares of common stock, of which a total of 140,000 shares is immediately exercisable. Of these 140,000 shares, the right to purchase 35,000 shares will terminate upon the closing of this offering. An additional 35,000 shares are exercisable on December 31, 2000 or earlier if stated volume targets for business conducted over our service are met. The remaining portion of the warrant becomes exercisable in increments only upon the holder meeting stated volume targets. The exercise price for the warrant ranges from $7.45 per share to the fair market value of our common stock on the date the volume targets are met. This warrant expires in December 2002. . A warrant to purchase 225,000 shares of common stock, of which a total of 75,000 shares is immediately exercisable. The remaining portion of the warrant becomes exercisable in increments upon the holder meeting stated volume targets. The exercise price for the warrant ranges from $11.00 per share to the fair market value of our common stock at the end of the calendar quarter that the stated volume target is met. This warrant expires in December 2002. . Two warrants to purchase a total of 2,780,158 shares of common stock at an exercise price of $11.00 per share. A portion of the warrants, for a total of 961,308 shares of common stock, is immediately exercisable. The remaining portions of the warrants become exercisable in increments upon the holder meeting stated volume targets. These warrants expire in January 2003. . A warrant to purchase 50,000 shares of common stock at an exercise price of $11.00. The entire warrant becomes exercisable upon the holder meeting stated volume requirements. This warrant expires in January 2003. . A warrant to purchase 100,000 shares of common stock. The warrant becomes exercisable in increments one year from the date of grant and only to the extent the holder meets stated volume targets. The exercise price for the warrant ranges from the initial public offering price per share to the fair market value of our common stock as of the end of the calendar quarter during which the stated volume targets are met. This warrant expires in February 2003. . A warrant to purchase 10,000 shares of common stock. The entire warrant becomes exercisable one year from the date of grant and only if the holder meets a target for the conduct of business over our service. The exercise price will be the initial public offering price per share. This warrant expires in February 2003. . A warrant to purchase 958,400 shares of capital stock at an initial exercise price of $13.00 per share. A portion of the warrant, for a total of 432,000 shares of capital stock, is immediately exercisable. The remaining portion of the warrant becomes exercisable in increments upon the holder meeting stated targets. Initially, the warrant is exercisable for Class B common stock. At the option of the holder, on the date 90 days after this offering, a portion of the warrant will become exercisable for common stock. In addition, on the earlier of April 4, 2001 or the date 180 days after this offering, the remainder of the warrant will become exercisable for common stock. This warrant expires in April 2004. 67 Each of the warrants contains provisions for the adjustment of the exercise prices and the aggregate number of shares that may be issued upon exercise of the warrants in the event of a stock split, stock dividend, reorganization, reclassification or consolidation. In addition, the warrant that is initially exercisable for Class B common stock provides that the exercise price will adjust upon the closing of this offering to a price equal to the lesser of $13.00 or the conversion price of the Series E preferred stock in effect immediately prior to its automatic conversion into Class B common stock upon completion of this offering. In addition, each warrant allows for cashless exercise. Registration Rights The holders of 21,989,137 shares of the common stock currently outstanding or issued or issuable upon conversion of the preferred stock and Class B common stock, R.R. Donnelley, with respect to 2,780,158 shares of common stock issuable upon conversion of the warrants issued to it, and GE Capital Equity Investments, with respect to 958,400 shares of common stock issuable upon conversion of the Class B common stock issuable upon conversion of the warrant issued to it, are entitled to require us to register the sales of their shares under the Securities Act, under the terms of an agreement between us and the holders of these securities. Subject to limitations specified in the agreement, these registration rights include the following: . two demand registration rights that holders may exercise no sooner than 180 days after our initial public offering, which require us to register the sale of a holder's shares, subject to the discretion of our board of directors to delay the registration; . an unlimited number of registration rights that require us to register sales of a holder's shares when we undertake a public offering, subject to the discretion of the managing underwriter of the offering to decrease the amount that holders may register; and . an unlimited number of rights to require us to register sales of shares on Form S-3, a short form of registration statement permitted to be used by some companies, which holders may exercise if they request registration of the sale of more than $750,000 of common stock following the time we first qualify for the use of this form of registration with the Securities and Exchange Commission. In addition, the holders of 8,000,000 shares of the common stock that will be outstanding after this offering are entitled to the same piggyback and Form S-3 registration rights listed above. We will bear all registration expenses if these registration rights are exercised, other than underwriting discounts and commissions. These registration rights terminate as to a holder's shares when that holder may sell those shares under Rule 144(k) of the Securities Act, which for most parties means two years after the acquisition of the shares from us. Anti-Takeover Provisions Delaware Law We are subject to Section 203 of the Delaware General Corporation Law, which regulates acquisitions of some Delaware corporations. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years following the date the person becomes an interested stockholder, unless: . our board of directors approved the business combination or the transaction in which the person became an interested stockholder prior to the date the person attained this status; . upon consummation of the transaction that resulted in the person becoming an interested stockholder, the person owned at least 85% of the voting stock of the corporation outstanding at 68 the time the transaction commenced, excluding shares owned by persons who are directors and also officers; or . on or subsequent to the date the person became an interested stockholder, our board of directors approved the business combination and the stockholders other than the interested stockholder authorized the transaction at an annual or special meeting of stockholders. Section 203 defines a "business combination" to include: . any merger or consolidation involving the corporation and the interested stockholder; . any sale, transfer, pledge or other disposition involving the interested stockholder of 10% or more of the assets of the corporation; . in general, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; or . the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. In general, Section 203 defines an "interested stockholder" as any person who, together with the person's affiliates and associates, owns, or within three years prior to the determination of interested stockholder status did own, 15% or more of a corporation's voting stock. Certificate of Incorporation and Bylaw Provisions Our amended and restated certificate of incorporation and bylaws, to be effective upon the closing of this offering, divide our board into three classes as nearly equal in size as possible, with each class serving a three- year term. The terms are staggered, so that one-third of the board is to be elected each year. The classification of our board could have the effect of making it more difficult than otherwise for a third party to acquire control of us, because it would typically take more than a year for our stockholders to elect a majority of our board. In addition, our amended and restated certificate of incorporation and bylaws will provide that any action required or permitted to be taken by our stockholders at an annual or special meeting may be taken only if it is properly brought before the meeting, and may not be taken by written consent in lieu of a meeting. The bylaws will also provide that special meetings of the stockholders may be called only by our board of directors, our Chairman of the Board or our Chief Executive Officer. Under our bylaws, stockholders wishing to propose business to be brought before a meeting of stockholders will be required to comply with various advance notice requirements. Finally, our amended and restated certificate of incorporation and bylaws will not permit stockholders to take any action without a meeting. Transfer Agent and Registrar The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company. The transfer agent's address is 40 Wall Street, 46th Floor, New York, New York, 10005. 69 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no market for our common stock. Future sales of substantial amounts of our common stock in the public market could adversely affect prevailing market prices. Sales of substantial amounts of our common stock in the public market after any restrictions on sale lapse could adversely affect the prevailing market price of the common stock and impair our ability to raise equity capital in the future. Upon completion of the offering, we will have 37,602,173 outstanding shares of common stock, outstanding options to purchase 4,392,538 shares of common stock and outstanding warrants to purchase 4,358,558 shares of common stock and Class B common stock, assuming no additional option or warrant grants or exercises after April 4, 2000. We expect that the 4,000,000 shares sold in this offering, plus any shares issued upon exercise of the underwriters' over- allotment option, will be freely tradable without restriction under the Securities Act, unless purchased by our "affiliates" as that term is defined in Rule 144 under the Securities Act. In general, affiliates include officers, directors and 10% or greater stockholders. The remaining 33,602,173 shares outstanding and 8,606,133 shares subject to outstanding options and warrants are "restricted securities" within the meaning of Rule 144. Restricted securities may be sold in the public market only if the sale is registered or if it qualifies for an exemption from registration, such as under Rule 144, 144(k) or 701 promulgated under the Securities Act, which are summarized below. Sales of restricted securities in the public market, or the availability of such shares for sale, could adversely affect the market price of the common stock. As a result of contractual restrictions described below and the provisions of Rules 144, 144(k) and 701, the restricted shares will be available for sale in the public market as follows: . Beginning 180 days after the effective date, 20,106,997 shares will be eligible for sale pursuant to Rule 144, Rule 144(k) and Rule 701. . Beginning in November 2000, the remaining 13,495,176 shares will be eligible for sale under Rule 144, Rule 144(k) or Rule 701 once they have been held for the required period of time. Additionally, of the 4,392,538 shares that may be issued upon the exercise of outstanding options as of April 4, 2000, approximately 2,416,264 shares will be vested and eligible for sale beginning 180 days after the effective date. As of April 4, 2000, warrants for 1,573,308 shares of common stock and Class B common stock were exercisable and warrants for an additional 2,785,250 shares of common stock and Class B common stock may become exercisable in the future based on the holders meeting stated volume targets for business conducted over our service. If exercised, the earliest that these shares will be eligible for sale under Rule 144 is December 2000. Lock-Up Agreements Our directors, officers, employees and other stockholders, who together hold all of our securities, have entered into lock-up agreements in connection with this offering or are locked up under agreements with us. These lock-up agreements generally provide that these holders will not offer, sell, contract to sell, grant any option to purchase or otherwise dispose of our common stock or any securities exercisable for or convertible into our common stock owned by them for a period of 180 days after the date of this prospectus without the prior written consent of Goldman, Sachs & Co. Notwithstanding possible earlier eligibility for sale under the provisions of Rules 144, 144(k) and 701, shares subject to lock-up agreements may not be sold until these agreements expire or are waived by Goldman, Sachs & Co. 70 Rule 144 In general, under Rule 144 as currently in effect, after the expiration of the lock-up agreements, a person who has beneficially owned restricted securities for at least one year would be entitled to sell within any three- month period a number of shares that does not exceed the greater of: . one percent of the number of shares of common stock then outstanding, which will equal approximately 373,910 shares immediately after this offering; and . the average weekly trading volume of our common stock during the four calendar weeks preceding the sale. Sales under Rule 144 are also subject to requirements with respect to manner of sale, notice and the availability of current public information about us. Rule 144(k) Under Rule 144(k), a person who is not deemed to have been our affiliate at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, may sell these shares without complying with the manner of sale, public information, volume limitation or notice requirements of Rule 144. Rule 701 Rule 701, as currently in effect, permits our employees, officers, directors or consultants who purchased shares pursuant to a written compensatory plan or contract to resell such shares in reliance upon Rule 144, but without compliance with certain restrictions. Rule 701 provides that affiliates may sell their Rule 701 shares under Rule 144 90 days after effectiveness without complying with the holding period requirement and that non-affiliates may sell such shares in reliance on Rule 144 90 days after effectiveness without complying with the holding period, public information, volume limitation or notice requirements of Rule 144. Registration Rights On the date 180 days after the completion of this offering, the holders of 29,989,137 shares of our common stock will have rights to require us to register their shares under the Securities Act. Upon the effectiveness of a registration statement covering these shares, the shares would become freely tradable. Stock Options We intend to file a registration statement under the Securities Act after the effective date of this offering to register shares to be issued pursuant to our employee benefit plans. As a result, any options or rights exercised under the 1998 equity incentive plan, the 2000 equity incentive plan, the 2000 employee stock purchase plan and the 2000 non-employee directors' stock option plan will also be freely tradable in the public market. However, shares held by affiliates will still be subject to the volume limitation, manner of sale, notice and public information requirements of Rule 144, unless otherwise resalable under Rule 701. As of April 4, 2000 options to purchase 4,392,538 shares of common stock were outstanding, of which options to purchase 1,111,379 shares were vested and exercisable. In addition, as of that date, we had reserved 217,412 shares for possible future issuance under our 1998 equity incentive plan, and an aggregate of 6,950,000 shares for possible future issuance under our 2000 equity incentive plan, 2000 employee stock purchase plan and 2000 non-employee directors' stock option plan. 71 UNDERWRITING NOOSH and the underwriters named below have entered into an underwriting agreement with respect to the shares being offered. Subject to certain conditions, each underwriter has severally agreed to purchase the number of shares indicated in the following table. Goldman, Sachs & Co., FleetBoston Robertson Stephens Inc., Banc of America Securities LLC, PaineWebber Incorporated and E*OFFERING Corp. are the representatives of the underwriters.
Number of Underwriters Shares ------------ --------- Goldman, Sachs & Co. .............................................. FleetBoston Robertson Stephens Inc. ............................... Banc of America Securities LLC..................................... PaineWebber Incorporated........................................... E*OFFERING Corp. .................................................. ----- Total............................................................ =====
If the underwriters sell more shares than the total number set forth in the table above, the underwriters have an option to buy up to an additional 600,000 shares from NOOSH to cover such sales. They may exercise that option for 30 days. If any shares are purchased pursuant to this option, the underwriters will severally purchase shares in the same proportion as set forth in the table above. The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters by NOOSH which are expected to be a negotiated percentage of the initial public offering price. Such amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase 600,000 additional shares. Paid by NOOSH
No Full Exercise Exercise -------- -------- Per Share.................................................. $ $ Total...................................................... $ $
Shares sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to $ per share from the initial public offering price. Any such securities dealers may resell any shares purchased from the underwriters to certain other brokers or dealers at a discount of up to $ per share from the initial public offering price. If all the shares are not sold at the initial public offering price, the representatives may change the offering price and the other selling terms. NOOSH and its directors, officers, employees and other stockholders have agreed with the underwriters, except under limited circumstances, not to offer, sell, contract to sell, grant any option to purchase or otherwise dispose of our common stock or any securities exercisable for or convertible into our common stock owned by them for a period of 180 days after the date of this prospectus without the prior written consent of Goldman, Sachs & Co. See "Shares Eligible for Future Sale" for a discussion of transfer restrictions. 72 Prior to this offering, there has been no public market for the common stock. The initial public offering price for the common stock has been negotiated among NOOSH and the representatives of the underwriters. Among the primary factors considered in determining the initial public offering price of the shares, in addition to prevailing market conditions, were NOOSH's historical performance, estimates of NOOSH's business potential and earnings prospects, an assessment of Noosh's management and the consideration of the above factors in relation to market valuation of companies in related businesses. NOOSH has applied to have its common stock listed for quotation on the Nasdaq National Market under the symbol "NOSH." In connection with the offering, the underwriters may purchase and sell shares of common stock in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering. Stabilizing transactions consist of certain bids or purchases made for the purpose of preventing or retarding a decline in the market price of the common stock while the offering is in progress. The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short-sale covering transactions. These activities by the underwriters may stabilize, maintain or otherwise affect the market price of the common stock. As a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued by the underwriters at any time. These transactions may be effected on The Nasdaq National Market, in the over-the-counter market or otherwise. The underwriters do not expect sales to discretionary accounts to exceed five percent of the total number of shares offered. The underwriters have reserved for sale, at the initial public offering price, up to 600,000 shares or 15%, of the common stock offered hereby for print vendors, print buyers, professional service providers, consultants and other business partners designated by NOOSH who have expressed an interest in purchasing such shares of common stock in the offering. The number of shares available for sale to the general public will be reduced to the extent such persons purchase such reserved shares. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same basis as other shares offered hereby. These shares are not subject to lock-up agreements with the underwriters. A prospectus in electronic format may be made available on the web sites maintained by one or more underwriters or securities dealers. The representatives of the underwriters may agree to allocate a number of shares to underwriters for sale to their online brokerage account holders. Internet distribution will be allocated by the representatives to underwriters that may make Internet distributions on the same basis as other allocations. In addition, shares may be sold by the underwriters to securities dealers who resell shares to online brokerage account holders. NOOSH estimates that the total expenses of the offering, excluding underwriting discounts and commissions, will be approximately $1,200,000. These expenses include approximately $22,000 for the SEC and NASD filing fees, $95,000 for the Nasdaq National Market application fee, $20,000 for blue sky expenses, $250,000 for printing, $750,000 for legal and accounting fees and expenses, and $15,000 for transfer agent fees. NOOSH has agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933. 73 VALIDITY OF COMMON STOCK The validity of the common stock offered hereby will be passed upon for NOOSH by Cooley Godward LLP, Palo Alto, California and for the underwriters by Sullivan & Cromwell, Los Angeles, California. As of the date of this prospectus, Cooley Godward LLP, together with certain investment funds affiliated with the firm, own an aggregate of 120,834 shares of our common stock. EXPERTS The financial statements as of December 31, 1998 and 1999 included in this prospectus have been audited by PricewaterhouseCoopers LLP, independent accountants, as stated in their report appearing herein, and have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. ADDITIONAL INFORMATION We have filed with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act with respect to the common stock offered in this offering. This prospectus does not contain all of the information set forth in the registration statement and the exhibits and schedule thereto. For further information with respect to us and the common stock offered in this offering, we refer you to the registration statement and to the attached exhibits and schedules. Statements made in this prospectus concerning the contents of any document referred to in this prospectus are not necessarily complete. With respect to each such document filed as an exhibit to the registration statement, we refer you to the exhibit for a more complete description of the matter involved. The reports and other information we file with the SEC can be inspected and copied at the public reference facilities that the SEC maintains at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices located at 7 World Trade Center, 13th Floor, New York, New York 10048, and Suite 140, Citicorp Center, 50 West Madison Street, Chicago, Illinois 60661. Copies of these materials can be obtained at prescribed rates from the Public Reference Section of the SEC at the principal offices of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information regarding the operation of the public reference room by calling 1(800) SEC- 0330. The SEC also maintains a web site (http://www.sec.gov) that makes available the reports and other information we have filed with the SEC. 74 NOOSH, INC. (A COMPANY IN THE DEVELOPMENT STAGE) INDEX TO FINANCIAL STATEMENTS
Page ---- Report of Independent Accountants........................................ F-2 Balance Sheets as of December 31, 1998 and 1999 and March 31, 2000 (unaudited)............................................................. F-3 Statements of Operations for the period from inception to December 31, 1998, Year ended December 31, 1999, and the period from inception to December 31, 1999, the three month period ended March 31, 1999 (unaudited) and 2000 (unaudited), and the period from inception to March 31, 2000 (unaudited).................................................... F-4 Statements of Stockholders' Equity for the period from inception to March 31, 2000 (unaudited).................................................... F-5 Statements of Cash Flows for the period from inception to December 31, 1998, Year ended December 31, 1999, and the period from inception to December 31, 1999, the three month period ended March 31, 1999 (unaudited) and 2000 (unaudited), and the period from inception to March 31, 2000 (unaudited).................................................... F-7 Notes to Financial Statements............................................ F-8
F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and stockholders of NOOSH, Inc. In our opinion, the accompanying balance sheets and the related statements of operations, changes in stockholders' equity and cash flow present fairly, in all material respects, the financial position of NOOSH, Inc. (a company in the development stage) at December 31, 1998 and 1999 and the results of its operations and cash flows for the period from August 3, 1998 (date of inception) to December 31, 1998 and the year ended December 31, 1999, in conformity with generally accepted accounting principles in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards in the United States which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP San Jose, California January 21, 2000 F-2 NOOSH, INC. (A COMPANY IN THE DEVELOPMENT STAGE) BALANCE SHEETS (in thousands, except share data)
Pro Forma at December 31, December 31, March 31, March 31, 1998 1999 2000 2000 ------------ ------------ ----------- ------------ (Unaudited) (Unaudited) ASSETS Current assets: Cash and cash equivalents.. $1,117 $ 48,349 $ 48,917 $ 58,917 Prepaid expenses and other current assets............ 26 947 2,194 ------ -------- -------- Total current assets..... 1,143 49,296 51,111 Property and equipment, net........................ 69 3,339 4,640 Other assets................ 27 394 576 ------ -------- -------- Total assets............. $1,239 $ 53,029 $ 56,327 ====== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable........... $ 109 $ 634 $ 463 Accrued liabilities........ 132 1,424 1,572 ------ -------- -------- Total current liabilities............. 241 2,058 2,035 Long-term debt.............. -- 79 79 ------ -------- -------- Total liabilities........ 241 2,137 2,114 ------ -------- -------- Commitments (Note 4) Stockholders' equity: Convertible Preferred Stock: $0.001 par value; Series A, Authorized: 2,023,077 shares Issued and outstanding: 2,023,077 shares at December 31, 1998, December 31, 1999 and March 31, 2000 (unaudited)............... 2 2 2 -- Series B, Authorized: 4,363,637 shares Issued and outstanding: 4,363,637 shares at December 31, 1999 and March 31, 2000 (unaudited)............... -- 4 4 -- Series C, Authorized: 6,809,135 shares Issued and outstanding: 6,809,135 shares at December 31, 1999 and March 31, 2000 (unaudited)............... -- 7 7 -- Series D, Authorized: 2,000,000 shares Issued and outstanding: 1,418,182 shares at March 31, 2000 (unaudited)...... -- -- 1 -- Common Stock: $0.001 par value; Authorized: 45,000,000 shares actual; Issued and outstanding: 8,040,000, 9,414,673 and 11,581,078 at December 31,1998, December 31, 1999 and March 31, 2000 (unaudited) shares actual and 33,562,215 shares pro forma..................... 8 9 11 32 Additional paid-in capital................... 1,431 84,525 121,036 131,029 Deferred stock compensation.............. (129) (15,379) (25,171) (25,171) Notes receivable from common stockholders....... -- (314) (3,041) (3,041) Deficit accumulated during the development stage..... (314) (17,962) (38,636) (38,636) ------ -------- -------- -------- Total Stockholders' equity.................. 998 50,892 54,213 $ 64,213 ------ -------- -------- ======== Total liabilities and Stockholders' equity.. $1,239 $ 53,029 $ 56,327 ====== ======== ========
The accompanying notes are an integral part of these financial statements. F-3 NOOSH, INC. (A COMPANY IN THE DEVELOPMENT STAGE) STATEMENTS OF OPERATIONS (in thousands, except share and per share data)
Period from Period from August 3, August 3, 1998 (date 1998 (date Period from of of August 3, inception) inception) Three Months Ended 1998 (date of to Year Ended to March 31, inception) to December 31, December 31, December 31, ------------------------ March 31, 1998 1999 1999 1999 2000 2000 ------------ ------------ ------------ ----------- ----------- ------------- (Unaudited) (Unaudited) (Unaudited) Revenue................. $ -- $ -- $ -- $ -- $ 68 $ 68 Cost of revenue......... -- -- -- -- 141 141 ---------- ---------- ---------- ---------- ---------- --------- Gross profit............ -- -- -- -- (73) (73) Operating expenses: Research and development (exclusive of non- cash compensation expense of $771, $17 (unaudited) and $718 (unaudited) in the year ended December 31, 1999, and the three months periods ended March 31, 1999 and 2000, respectively, reported below)....... 111 3,053 3,164 273 2,039 5,203 Sales and marketing (exclusive of non- cash compensation expenses of $984, $18 (unaudited) and $2,266 (unaudited) in the year ended December 31, 1999, and the three months periods ended March 31, 1999 and 2000, respectively and value of warrants granted of $1,468 and $3,914 (unaudited) in the year ended December 31, 1999, and the three months period ended March 31, 2000, respectively reported below)................ 96 9,412 9,508 300 9,979 19,487 Value of warrants granted in connection with marketing agreements............ -- 1,468 1,468 -- 3,914 5,382 General and administrative (exclusive of non- cash compensation expense of $813, $1 (unaudited) and $1,289 (unaudited) in the year ended December 31, 1999, and the three months periods ended March 31, 1999 and 2000, respectively, reported below) ...... 107 1,795 1,902 128 1,197 3,099 Amortization of deferred stock compensation.......... -- 2,568 2,568 36 4,273 6,841 ---------- ---------- ---------- ---------- ---------- --------- Total operating expenses............ 314 18,296 18,610 737 21,402 40,012 ---------- ---------- ---------- ---------- ---------- --------- Loss from operations.... (314) (18,296) (18,610) (737) (21,475) (40,085) Interest income, net.... -- 648 648 4 801 1,449 ---------- ---------- ---------- ---------- ---------- --------- Net loss................ $ (314) $ (17,648) $ (17,962) $ (733) $ (20,674) (38,636) ========== ========== ========== ========== ========== ========= Net loss per share-- basic and diluted...... $ (0.12) $ (4.13) $ (4.77) $ (0.22) $ (3.91) $(7.76) ========== ========== ========== ========== ========== ========= Shares used in per share calculation--basic and diluted................ 2,521,485 4,275,090 3,763,399 3,405,069 5,292,410 4,978,794 ========== ========== ========== ========== ========== ========= Pro forma net loss per share--basic and diluted................ $ (1.15) $ (0.79) ========== ========== Shares used in pro forma net loss per share-- basic and diluted...... 15,356,918 26,025,280 ========== ==========
The accompanying notes are an integral part of these financial statements. F-4 NOOSH, INC. (A COMPANY IN THE DEVELOPMENT STAGE) STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands, except share data)
Deficit Convertible Notes Accumulated Preferred Shares Common Stock Additional Receivable Deferred During the Total ----------------- ---------------- Paid-In from Common Stock Development Stockholders' Shares Amount Shares Amount Capital Shareholders Compensation Stage Equity ---------- ------ --------- ------ ---------- ------------ ------------ ----------- ------------- Issuance of common stock to founders in August 1998 at $0.00125 per share, net................. -- $ -- 8,040,000 $ 8 $ 1 $ -- $ -- $ -- $ 9 Issuance of Series A Convertible Preferred Stock at $0.65 per share in November 1998, net of issuance costs... 2,023,077 2 -- -- 1,301 -- -- -- 1,303 Deferred stock compensation........ -- -- -- -- 129 -- (129) -- -- Net loss............. -- -- -- -- -- -- -- (314) (314) ---------- ---- --------- --- ------ ----- ------- ------- -------- Balances at December 31, 1998............ 2,023,077 2 8,040,000 8 1,431 -- (129) (314) 998 Issuance of common stock............... -- -- 1,200,220 1 497 (314) -- -- 184 Issuance of common stock in connection with services rendered............ -- -- 174,453 -- 700 -- -- -- 700 Issuance of Series B Convertible Preferred Stock at $2.75 per share in April 1999, net of issuance costs...... 4,363,637 4 -- -- 11,955 -- -- -- 11,959 Issuance of Series C Convertible Preferred Stock at $7.45 per share in November 1999, net of issuance costs... 6,809,135 7 -- -- 50,656 -- -- -- 50,663 Value of warrants granted in connection with marketing agreements.......... -- -- -- -- 1,468 -- -- -- 1,468 Deferred stock compensation........ -- -- -- -- 17,818 -- (17,818) -- -- Amortization of deferred stock compensation........ -- -- -- -- -- -- 2,568 -- 2,568 Net loss............. -- -- -- -- -- -- -- (17,648) (17,648) ---------- ---- --------- --- ------ ----- ------- ------- -------- Balances at December 31, 1999............ 13,195,849 13 9,414,673 9 84,525 (314) (15,379) (17,962) 50,892
F-5
Deficit Convertible Notes Accumulated Preferred Shares Common Stock Additional Receivable Deferred During the Total ----------------- ----------------- Paid-In from Common Stock Development Stockholders' Shares Amount Shares Amount Capital Shareholders Compensation Stage Equity ---------- ------ ---------- ------ ---------- ------------ ------------ ----------- ------------- Issuance of common stock............... -- -- 2,146,519 2 2,740 (2,727) -- -- 15 Issuance of common stock in connection with services rendered............ -- -- 19,886 -- 219 -- -- -- 219 Value of warrants granted in connection with marketing agreements.......... -- -- -- -- 3,914 -- -- -- 3,914 Issuance of Series D Convertible Preferred Stock at $11.00 per share in January 2000, net of issuance costs...... 1,418,182 1 -- -- 15,573 -- -- -- 15,574 Deferred stock compensation........ -- -- -- -- 14,065 -- (14,065) -- -- Amortization of deferred stock compensation........ -- -- -- -- -- -- 4,273 -- 4,273 Net loss............ -- -- -- -- -- -- -- (20,674) (20,674) ---------- --- ---------- --- -------- ------- -------- -------- ------- Balances at March 31, 2000 (unaudited)......... 14,614,031 $14 11,581,078 $11 $121,036 $(3,041) $(25,171) $(38,636) $54,213
The accompanying notes are an integral part of these financial statements. F-6 NOOSH, INC. (A COMPANY IN THE DEVELOPMENT STAGE) STATEMENTS OF CASH FLOWS (in thousands)
Period from August Period from Period from 3, 1998 August 3, 1998 Three Months August 3, 1998 (date of inception) Year Ended (date of inception) Ended March 31, (date of inception) to December 31, December 31, to December 31, ----------------------- to March 31, 1998 1999 1999 1999 2000 2000 ------------------- ------------ ------------------- ----------- ----------- ------------------- (Unaudited) (Unaudited) (Unaudited) Cash flows from operating activities: Net loss.............. $ (314) $(17,648) $(17,962) $ (733) $(20,674) $(38,636) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization......... 3 455 458 12 404 862 Value of warrants granted in connection with marketing agreements........... -- 1,468 1,468 -- 3,914 5,382 Amortization of deferred stock compensation......... -- 2,568 2,568 36 4,273 6,841 Issuance of common stock in connection with services rendered............. -- 667 667 -- 219 886 Changes in assets and liabilities: -- Prepaid expenses and other current assets.............. (26) (921) (947) (17) (1,247) (2,194) Accounts payable..... 109 525 634 60 (171) 463 Accrued liabilities.. 132 1,292 1,424 (64) 148 1,572 Other long-term assets.............. (27) (367) (394) (23) (182) (576) ------ -------- -------- ------ -------- -------- Net cash used in operating activities......... (123) (11,961) (12,084) (729) (13,316) (25,400) ------ -------- -------- ------ -------- -------- Cash flows from investing activities: Purchase of property and equipment........ (72) (3,725) (3,797) (133) (1,705) (5,502) ------ -------- -------- ------ -------- -------- Cash flows from financing activities: Proceeds from issuance of Convertible Preferred Stock net.. 1,303 62,622 63,925 -- 15,574 79,499 Proceeds from issuance of Common Stock, net.................. 9 184 193 -- 15 208 Proceeds from issuance of Common Stock in connection with services rendered.... -- 33 33 -- -- 33 Proceeds from long- term debt............ -- 79 79 -- -- 79 ------ -------- -------- ------ -------- -------- Net cash provided by financing activities......... 1,312 62,918 64,230 -- 15,589 79,819 ------ -------- -------- ------ -------- -------- Net increase (decreased) in cash and cash equivalents.. 1,117 47,232 48,349 (862) 568 48,917 Cash and cash equivalents at beginning of period... -- 1,117 -- 1,117 48,349 -- ------ -------- -------- ------ -------- -------- Cash and cash equivalents at end of period................ $1,117 $ 48,349 $ 48,349 $ 255 $ 48,917 $ 48,917 ====== ======== ======== ====== ======== ======== Noncash activities: Deferred stock compensation......... $ 129 $ 17,818 $ 17,947 $ 218 $ 14,065 $ 32,012 ====== ======== ======== ====== ======== ======== Issuance of Common Stock for notes receivable from shareholder.......... $ -- $ 314 $ 314 $ -- $ 2,727 $ 3,041 ====== ======== ======== ====== ======== ======== Value of warrants granted in connection with marketing agreements............ $ -- $ 1,468 $ 1,468 $ -- $ 3,914 $ 5,382 ====== ======== ======== ====== ======== ========
The accompanying notes are an integral part of these financial statements. F-7 NOOSH, INC. (A COMPANY IN THE DEVELOPMENT STAGE) NOTES TO FINANCIAL STATEMENTS (Information as of March 31, 2000 and/or for the periods ended March 31, 1999 and 2000 is unaudited) NOTE 1--THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES: NOOSH, Inc. (the "Company") was incorporated in the state of California and commenced operations on August 3, 1998. NOOSH is a provider of business-to- business e-commerce solutions for the printing industry. The Company has developed and operates noosh.com, an Internet-based communication and collaboration service for managing the design, procurement and production of print orders. The service leverages the benefits of the Internet to enable print buyers, print vendors and other providers of related services to communicate and collaborate efficiently through the complex, multi-step process of completing a print order. The Company is in the development stage and since inception has devoted substantially all of its efforts to developing its service and raising capital. Unaudited interim financial information The accompanying financial statements for the three month periods ended March 31, 1999 and 2000, together with the related notes, are unaudited but include all adjustments, consisting only of normal recurring adjustments which, in the opinion of management, are necessary for a fair presentation, in all material respects, of the operating results and cash flows for the period presented. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and cash equivalents The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents and are stated at amounts that approximate fair value, based on quoted market prices. Cash equivalents consist primarily of deposits in money market funds. Concentration of credit risk The Company's cash and cash equivalents are maintained at a major U.S. financial institution. Deposits in this institution may exceed the amount of insurance provided on such deposits. Fair value of financial instruments The carrying amounts of the Company's financial instruments, including cash and cash equivalents, accounts payable and accrued liabilities approximate fair value due to their short maturities. F-8 NOOSH, INC. (A COMPANY IN THE DEVELOPMENT STAGE) NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of March 31, 2000 and/or for the periods ended March 31, 1999 and 2000 is unaudited) Property and equipment Property and equipment are stated at cost and are depreciated on a straight- line basis over their estimated useful lives of three to five years. Leasehold improvements are amortized over the lesser of the useful life of the asset or the period of the lease. Maintenance and repairs are charged to operations as incurred. Revenue recognition Revenue consist of transaction fees from print vendors and is recognized upon completion of the associated print project. Research and development Research and development costs are charged to operations as incurred. Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed," requires that certain software development costs be capitalized after technological feasibility has been established. The Company defines technological feasibility as the establishment of a working model. Costs incurred subsequent to such point have been insignificant and have been expensed. Income taxes The Company accounts for income taxes under the liability method whereby deferred tax asset or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. Advertising The Company expenses advertising costs as they are incurred. Advertising expense for the period from August 3, 1998 to December 31, 1998 and the year ended December 31, 1999 was $0 and $272,000. Accounting for stock compensation The Company's stock-based compensation plan are accounted for in accordance with Accounting Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to Employees" and complies with the disclosure provisions of Statement of Financial Accounting Standards 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation." Under APB No. 25, compensation expense is based on the difference, if any, on the date of the grant, between the estimated fair value of the Company's stock and the exercise price of options to purchase that stock. Comprehensive income The Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 requires that all items recognized under F-9 NOOSH, INC. (A COMPANY IN THE DEVELOPMENT STAGE) NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of March 31, 2000 and/or for the periods ended March 31, 1999 and 2000 is unaudited) accounting standards as components of comprehensive income be reported in an annual financial statement that is displayed with the same prominence as other annual financial statements. The Company has no comprehensive income component other than net loss. Net loss per share Basic net loss per share is computed by dividing net loss available to common stockholders by the weighted average number of vested common shares outstanding for the period. Diluted net loss per share is computed giving effect to all dilutive potential common stock, including options, non vested common stock, preferred stock and common stock warrants. Options, non vested common stock, preferred stock and common stock warrants were not included in the computation of diluted net loss per share in the periods reported because the effect would be antidilutive. Antidilutive securities not included in net loss per share calculation for the periods:
Period from Period from Period from August 3, August 3, August 3, 1998 1998 (date 1998 (date of of (date of inception) inception) Three Months Ended inception) to Year Ended to March 31, to December 31, December 31, December 31, ----------------------- March 31, 1998 1999 2000 1999 2000 2000 ------------ ------------ ------------ ----------- ----------- ----------- (unaudited) (unaudited) (unaudited) Non vested common stock.................. 4,814,804 4,109,338 4,109,338 4,592,576 6,502,326 6,502,326 Common stock options.... 496,720 4,521,490 4,521,490 1,446,720 5,734,365 5,734,365 Convertible Preferred Stock.................. 2,023,077 13,195,849 13,195,849 2,023,077 14,614,031 14,614,031 Common stock warrants... -- 215,000 215,000 -- 1,176,309 1,176,309 --------- ---------- ---------- --------- ---------- ---------- 7,334,601 22,041,677 22,041,677 8,062,373 28,027,031 28,027,031 ========= ========== ========== ========= ========== ==========
Pro forma net loss per share (unaudited) Pro forma net loss per share for the year ended December 31, 1999 and the three months ended March 31, 2000 is computed using the weighted average number of common stock outstanding, including the pro forma effects of the automatic conversion of the Company's Series A, Series B, Series C and Series D convertible preferred stock into shares of the Company's common stock upon the closing of the Company's initial public offering (see Note 8--Subsequent Events) as if such conversion occurred on January 1, 1999, or at the date of original issuance, if later. Pro forma common equivalent shares, composed of unvested restricted common stock and incremental common shares issuable upon the exercise of stock options, are not included in pro forma diluted net loss per share because they would be anti-dilutive. Pro forma balance sheet (unaudited) Upon the closing of the Company's initial public offering, it is contemplated that the outstanding shares of Series A, Series B, Series C and Series D convertible preferred stock will convert into 21,000,745 shares of common stock (see Note 8--Subsequent Events). The pro forma column F-10 NOOSH, INC. (A COMPANY IN THE DEVELOPMENT STAGE) NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of March 31, 2000 and/or for the periods ended March 31, 1999 and 2000 is unaudited) reflects the receipt of net proceeds of $10.0 million upon the issuance and sale of 769,231 shares of Series E preferred stock in April 2000 and the effect of the conversion of Series A, Series B, Series C, Series D and Series E into common stock. Recent accounting pronouncement In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments and hedging activities and will be adopted in the year 2000. It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. The Company does not expect the adoption of SFAS 133 to have a material impact on its financial statements. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") No. 98-1, "Software for Internal Use," which provides guidance on accounting for the cost of computer software developed or obtained for internal use. SOP No. 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998. The adoption of this SOP did not have any significant effect on the Company's financial statements. In December, 1999, SAB 101 was issued which summarizes the SEC's views in applying generally accepted accounting principles to revenue recognition in financial statements. SAB 101 is effective in the second quarter of 2000. The Company does not expect SAB 101 to have a material effect on its financial position, results of operation or cash flow. In March 2000, the Financial Accounting Standards Board issued Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation--an interpretation of APB Opinion No. 25" ("FIN 44"). This Interpretation clarifies the definition of employee for purposes of applying Accounting Practice Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), the criteria for determining whether a plan qualifies as a noncompensatory plan, the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and the accounting for an exchange of stock compensation awards in a business combination. This Interpretation is effective July 1, 2000, but certain conclusions in this Interpretation cover specific events that occur after either December 15, 1998, or January 12, 2000. The Company expects the adoption of FIN 44 will not have a material effect on its financial statements. NOTE 2--PROPERTY AND EQUIPMENT: Property and equipment comprise (in thousands):
December 31, ------------ March 31, 1998 1999 2000 ---- ------ ----------- (Unaudited) Computer equipment................................... $31 $3,024 $4,457 Communication equipment.............................. 11 63 63 Leasehold improvements............................... -- 69 69 Furniture and fixtures............................... 30 641 913 --- ------ ------ 72 3,797 5,502 Less: Accumulated depreciation and amortization...... (3) (458) (862) --- ------ ------ $69 $3,339 $4,640 === ====== ======
F-11 NOOSH, INC. (A COMPANY IN THE DEVELOPMENT STAGE) NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of March 31, 2000 and/or for the periods ended March 31, 1999 and 2000 is unaudited) NOTE 3--INCOME TAXES: Deferred tax assets and liabilities consist of the following (in thousands):
December 31, ------------- 1998 1999 ----- ------ Deferred tax assets: Net operating loss carryforwards............................... $ 24 $5,231 Accrued employee benefits...................................... 14 52 Start-up costs................................................. 95 -- Other.......................................................... 5 (35) ----- ------ Total deferred tax assets.................................... 138 5,248 Valuation allowance.............................................. (138) (5,248) ----- ------ $ -- $ -- ===== ======
At December 31, 1998 and 1999, the Company had approximately $150,000 and $13,132,000 of California and federal net operating loss carryforwards which expire between 2005 to 2019, if not utilized beforehand. Under the Tax Reform Act of 1986, the amounts of and benefits from net operating loss carryforwards may be impaired or limited in certain circumstances. Events which cause limitations in the amount of net operating losses that the Company may utilize in any one year include, but are not limited to, a cumulative ownership change of more than 50%, as defined, in any three year period. Due to uncertainty of realizing the benefits of the deferred tax assets, the Company has provided a valuation allowance against the net deferred tax assets. The difference between the Company's effective income tax rate and the federal statutory rate is as follows (in thousands):
Period from Period from August 13, August 13, 1998 (date of 1998 (date of inception) to Year Ended inception) to December 31, December 31, December 31, 1998 1999 2000 ------------- ------------ ------------- Statutory tax benefit................ $(110) $(6,177) $(6,287) Permanent differences--non-deductible expenses............................ -- 1,674 1,674 State taxes, net of federal tax benefit............................. (18) (995) (1,013) Change in valuation allowance........ 138 5,110 5,248 Other................................ (10) 388 378 ----- ------- ------- Net tax provision.................... $ -- $ -- $ -- ===== ======= =======
NOTE 4--COMMITMENTS: Operating lease The Company leases its facilities under non-cancelable operating lease agreements expiring through October 2002. Under the terms of the lease, the Company is responsible for paying common F-12 NOOSH, INC. (A COMPANY IN THE DEVELOPMENT STAGE) NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of March 31, 2000 and/or for the periods ended March 31, 1999 and 2000 is unaudited) area expenses, as incurred by the lessor. Future minimum lease payments under the non-cancelable lease as of December 31, 1999 were as follows (in thousands):
Year Ending December 31, ------------ 2000............................................................ $1,679 2001............................................................ 606 2002............................................................ 102 ------ Total......................................................... $2,387 ======
Rent expense under the operating lease totaled $19,000, $616,000 and $610,000 for the period ending December 31, 1998, the year ended December 31, 1999 and the three months period ended March 31, 2000. NOTE 5--STOCKHOLDERS' EQUITY: Convertible Preferred Stock The convertible preferred stock at December 31, 1999 comprises:
Number of Number of Shares Liquidation Shares Issued and Value Authorized Outstanding Per Share ---------- ----------- ----------- Series A..................................... 2,023,077 2,023,077 $ 0.65 Series B..................................... 4,363,637 4,363,637 $ 2.75 Series C..................................... 6,809,135 6,809,135 $ 7.45 Series D..................................... 2,000,000 1,418,182 $11.00 ---------- ---------- 15,195,849 14,614,031 ========== ==========
The rights, preferences and privileges with respect to the Preferred Stock are as follows: Dividends Holders of Series A, Series B, Series C and Series D Preferred Stock, in preference to the holders of Common Stock of the Corporation, shall be entitled to receive, when and as declared by the Board of Directors, but only out of funds that are legally available therefor, cash dividends at the rate of eight percent (8%) of the "Original Issue Price" per annum on each outstanding share of Series A, Series B, Series C and Series D Preferred Stock (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares). Such dividends shall be payable only when, as and if declared by the Board of Directors and shall be non-cumulative. No dividends have been declared as of March 31, 2000. Liquidation preference Upon any liquidation, dissolution, or winding up of the Corporation, including a merger, acquisition or sale of assets where the beneficial owners of the Company's Common Stock and convertible preferred stock own less than 50% of the resulting voting power of the surviving entity, F-13 NOOSH, INC. (A COMPANY IN THE DEVELOPMENT STAGE) NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of March 31, 2000 and/or for the periods ended March 31, 1999 and 2000 is unaudited) whether voluntary or involuntary, before any distribution or payment shall be made to the holders of any Common Stock, the holders of Series A, Series B, Series C and Series D Preferred Stock shall be entitled to receive an amount per share equal to the Original Issue Price of $0.65, $2.75, $7.45 and $11.00 plus all declared and unpaid dividends. In the event funds are insufficient to make a complete distribution to holders of Preferred Stock as described above, the remaining assets will be distributed to the holders of Common Stock ratably among such holders of Common Stock. Voting rights The holders of Preferred Stock have one vote for each share of Common Stock into which such Preferred Stock may be converted. Conversion Each share of Preferred Stock is convertible at any time into shares of Common Stock at the option of the holder, subject to adjustment for dilution. Such conversion is automatic upon the earlier of the date specified by vote, written consent or agreement of a majority of the holders of such series then outstanding or immediately upon the closing date of a public offering of the Company's Common Stock for which the aggregate net proceeds exceed $10,000,000. The conversion ratio as of December 31, 1998 and 1999 and March 31, 2000 is 2:1 for Series A and B Preferred Stock after giving retroactive effect to the stock split effected in 1999. The conversion ratios as of December 31, 1999, and March 31, 2000 is 1:1 for Series C and Series D Preferred Stock. The conversion ratio of Series A, B, C and D Preferred Stock may be adjusted under circumstances described in the Company's Restated Articles of Incorporation. Common Stock The Company is authorized to issue 45,000,000 shares of Common Stock as of March 31, 2000. A portion of the outstanding shares of common stock are subject to repurchase by the Company over a four year period. As of December 31, 1998 and 1999 and March 31, 2000, there were 4,814,804, 4,109,338 and 6,502,326 shares of nonvested stock issued pursuant to a stock purchase agreement with the Company's founder and stock issued under early exercises of options all of which were subject to repurchase by the Company. The repurchase rights with respect to the Company's agreement with the founder lapse over 36 months and the repurchase rights with respect to the early exercises of options lapse over the original vesting period of the options. Incentive stock plan In November 1998, the Company adopted the 1998 Stock Option Plan (the "Plan") under which the Company may grant stock options for Common Stock to employees, consultants and outside investors. The Board of Directors has the authority to determine to whom options will be granted, the number of shares, the term and exercise price (which cannot be less than fair market value at date of grant for incentive stock options). If an employee owns stock representing more than 10% of the outstanding shares, the price of each share shall be at least 110% of fair market value, as determined by the Board of Directors. Options granted generally vest over four years. The Company has reserved 8,000,000 shares of Common Stock for issuance under the Plan. F-14 NOOSH, INC. (A COMPANY IN THE DEVELOPMENT STAGE) NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of March 31, 2000 and/or for the periods ended March 31, 1999 and 2000 is unaudited) A summary of activity under the Plan is as follows:
Number of Weighted Number of Shares Average Shares Issued and Exercise Aggregate Authorized Outstanding Price Price ---------- ----------- -------- ----------- Shares reserved................. 1,980,000 -- -- $ -- Options granted................. (496,720) 496,720 $0.0325 16,143 ---------- ---------- ----------- Balances, December 31, 1998..... 1,483,280 496,720 $0.0325 16,143 Shares reserved................. 6,020,000 -- -- Options granted................. (5,294,990) 5,294,990 $0.6278 3,324,195 Options exercised............... (1,200,220) $0.4149 (497,971) Options cancelled............... 70,000 (70,000) $0.0325 (2,275) ---------- ---------- ----------- Balances, December 31, 1999..... 2,278,290 4,521,490 $0.6281 $ 2,840,092 Options granted................. (2,062,125) 2,062,125 $ 4.38 9,032,108 Options exercised............... (2,146,519) $ 1.28 (2,741,608) Options cancelled............... 39,600 (39,600) $ 1.81 (71,662) ---------- ---------- ----------- 255,765 4,397,496 $ 2.06 $ 9,058,930 ========== ========== ===========
For financial reporting purposes, the Company has determined that the estimated value of common stock, based on the expected price per share of the common stock in the company's initial public offering, was in excess of the exercise price, which was considered to be the fair market value as of the date of grant for 496,720 options issued in 1998 and 5,294,990 options issued in the year ended December 31, 1999 and 2,062,125 options issued in the quarter ended March 31, 2000. In connection with the grants of such options, the Company has recorded deferred compensation of $129,000 in the period from August 3, 1998 to December 31, 1998 and $17,818,000 during the year ended December 31, 1999 and $14,065,000 during the quarter ended March 31, 2000. Deferred stock compensation will be amortized over the vesting period which is generally 48 months from the date of grant; $2,568,000 was expensed in the year ended December 31, 1999. Future amortization based on options granted through March 31, 2000 is expected to be $12,934,000, $7,696,000, $3,553,000, $980,000 and $8,000 in the nine month period ending December 31, 2000, and the years ended December 31, 2001, 2002, 2003 and 2004. The following table summarizes information about stock options outstanding at December 31, 1999:
Options Outstanding Options ------------------------------------------- Currently Exercisable Weighted Average Weighted ----------- Number Remaining Average Number Range of Exercise Price Outstanding Contractual Life Exercise Price Outstanding - ----------------------- ----------- ---------------- -------------- ----------- $ 0.0325................ 837,500 9.13 $0.0325 51,041 $ 0.1375................ 1,477,980 9.44 $0.1375 66,666 $ 0.5000................ 258,000 9.63 $0.5000 -- $ 0.8000................ 447,750 9.71 $0.8000 -- $ 1.0000................ 625,850 9.77 $1.0000 -- $1.250 - $1.750......... 555,960 9.87 $1.4728 2,500 $2.000 - $2.250......... 318,450 9.98 $2.1288 6,250 --------- ------- 4,521,490 126,457 ========= =======
F-15 NOOSH, INC. (A COMPANY IN THE DEVELOPMENT STAGE) NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of March 31, 2000 and/or for the periods ended March 31, 1999 and 2000 is unaudited) Fair value disclosures The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-based Compensation." Had compensation cost for the plan been determined based on the fair value at grant date for all awards consistent with the provisions of SFAS No. 123, the impact on the Company's financial statements would be as follows:
Period from August 13, Period from 1998 (date August 13, of 1998 (date inception) of to Year Ended inception) December 31, December 31, to December 1998 1999 31, 1999 ------------ ------------ ------------ Net loss: As reported......................... $(314,000) $(17,648,000) $(17,962,000) Pro forma........................... $(314,000) $(17,489,000) $(17,803,000) Basic and diluted net loss per share: As reported......................... $ (0.12) $ (4.13) $ (4.77) Pro forma........................... $ (0.12) $ (4.09) $ (4.73)
The fair value of each option grant is estimated on the date of grant using the minimum value method with the following weighted average assumptions:
1998 1999 ------- ------- Risk-free interest rate....................................... 4.38% 5.35% Expected life................................................. 4 years 4 years Expected dividends............................................ $ -- $ --
The weighted average per share fair value of common stock options granted during 1998 and 1999 was $0.02 and $3.55. Options granted to consultants are valued using the Black-Scholes method and this value is charged against income over the vesting period of the options. Warrants In connection with long-term marketing agreements entered into in December 1999, the Company issued two warrants to purchase up to an aggregate of 495,000 shares of common stock. A total of 140,000 shares subject to one of the warrants was immediately exercisable at an exercise price of $7.45 of which a portion of the warrant to purchase 35,000 shares will expire upon the closing of this Initial Public Offering. and a total of 75,000 shares subject to the other warrant was immediately exercisable at an exercise price of $11.00. An additional 35,000 shares subject to the first warrant will become exercisable on December 31, 2000 or earlier if certain volume targets are met. The remaining portions of the warrants will be exercisable when the holders meet stated volume targets for business conducted over the noosh.com service at exercise prices ranging from $7.45 per share to the fair market value of the common stock at the date the volume targets are met. The Company valued the portions of the warrants which have no performance requirements associated with their exercise on the date of issuance using the Black-Scholes method with the F-16 NOOSH, INC. (A COMPANY IN THE DEVELOPMENT STAGE) NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of March 31, 2000 and/or for the periods ended March 31, 1999 and 2000 is unaudited) following assumptions: dividend yield at 0%; expected warrant term of 3 years; risk free interest rate of 6.29% and expected volatility of 60%. The fair value of those portions was $1,468,000. The remaining warrants will be valued and charged to expense when it is probable that the performance targets will be met. In connection with a print buyer agreement entered into in January 2000, the Company has issued warrants to purchase up to an aggregate of 2,780,159 shares of common stock at an exercise price of $11.00 per share, of which warrants to purchase 961,309 shares were immediately exercisable and the remaining warrants will be exercisable in the future based on the holder meeting stated volume targets for business conducted over the noosh.com service. The fair value of portion of the warrants which was immediately exercisable was $3,914,000 using the Black-Scholes method and accordingly was charged to expense during the three months period ended March 31, 2000. In connection with a print buyer user agreement entered into in January 2000, the Company has issued a warrant to purchase up to 50,000 shares of common stock at an exercise price of $11.00 per share, all shares of which will be exercisable in the future based on the holder meeting a stated volume target for business conducted over the noosh.com service. In connection with a print buyer agreement entered into in February 2000, the Company has issued a warrant to purchase up to 10,000 shares of common stock at an exercise price equivalent to the initial public offering price per share. All shares subject to this warrant will be exercisable when the print buyer meets a stated target for business conducted over the noosh.com service. In connection with a print vendor agreement entered into in February 2000, the Company has issued a warrant to purchase up to 100,000 shares of common stock which will be exercisable in the future based on the holder meeting stated volume targets for business conducted over the noosh.com service at exercise prices ranging from the initial public offering price to the fair market value of the common stock at the date the volume targets are met. Employee Stock Purchase Plan In January 2000, the Company's Board of Directors adopted the 2000 Employee Stock Purchase Plan under which eligible employees will be able to purchase common stock at a discount price in periodic offerings. The purchase plan will commence on the effective date of the offering. A total of 600,000 shares of common stock have been authorized for issuance under the 2000 purchase plan. Non-Employee Directors' Stock Option Plan In January 2000, the Company's Board of Directors adopted the 2000 Non- Employee Directors' Stock Option Plan under which non-employee directors will automatically be granted options to purchase shares of common stock on the effective date of the offering and on each annual stockholders' meeting, beginning with the annual stockholders meeting in 2001. A total of 350,000 shares of common stock have been authorized for issuance under the 2000 Non-Employee Directors' Stock Option Plan. F-17 NOOSH, INC. (A COMPANY IN THE DEVELOPMENT STAGE) NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of March 31, 2000 and/or for the periods ended March 31, 1999 and 2000 is unaudited) 2000 Equity Incentive Plan In January 2000, the Company's Board of Directors adopted the 2000 Equity Incentive Plan under which 6,000,000 shares of common stock have been reserved for issuance of options to employees, directors and consultants. The 2000 Equity Incentive Plan will be effective on the effective date of the offering at which time no further option grants will be made under the 1998 Equity Incentive Plan. NOTE 6--UNAUDITED PRO FORMA LOSS PER SHARE AND PRO FORMA SHAREHOLDERS' EQUITY: Pro forma basic net loss per share has been computed as described in Note 1 and also gives effect to common equivalent stock from preferred shares that will convert upon the closing of the Company's initial public offering (using the as-if-converted-method). A reconciliation of the numerator and denominator used in the calculation of pro forma basic and diluted net loss per share follow:
Three Months Year Ended Ended December 31, March 31, 1999 2000 ------------ ------------ Pro forma net loss per share, basic and diluted: Net loss......................................... $(17,648,000) $(20,674,000) Shares used in computing net loss per share, basic and diluted............................... 4,275,090 5,292,410 Adjustment to reflect the effect of the assumed conversion of convertible preferred stock....... 11,081,828 20,732,870 ------------ ------------ Shares used in computing pro forma net loss per share, basic and diluted........................ 15,356,918 26,025,280 Pro forma net loss per share, basic and diluted.. $ (1.15) $ (0.79)
If the offering contemplated by this Prospectus is consummated as contemplated, all of the convertible preferred stock outstanding as of the closing date will be converted into an aggregate of approximately 19,582,563 shares of common stock based on the shares of convertible preferred stock outstanding at March 31, 2000. Unaudited pro forma shareholders' equity at March 31, 2000 as adjusted for the conversion of preferred stock, is disclosed on the balance sheet. NOTE 7--401(k) SAVINGS PLAN: The Company established a 401(k) Savings Plan (the "Plan") that covers substantially all employees. Under the Plan, employees are permitted to contribute a portion of gross compensation not to exceed standard limitations provided by the Internal Revenue Service. The Company maintains the right to match employee contributions, but for the period from August 3, 1998 (date of inception) March 31, 2000. F-18 NOOSH, INC. (A COMPANY IN THE DEVELOPMENT STAGE) NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of March 31, 2000 and/or for the periods ended March 31, 1999 and 2000 is unaudited) NOTE 8--SUBSEQUENT EVENTS: Initial public offering In January 2000, the Company's Board of Directors authorized the Company to file a registration statement with the Securities and Exchange Commission for the purpose of an initial public offering of the Company's common stock. Upon the completion of this offering, if the per share price in the offering is at least $11.00 and the gross proceeds are at least $20,000,000, the Company's preferred stock will automatically be converted into common stock. Patent Licensing The Company received a letter from an individual advising that his patent may cover certain aspects of the Company's service and requesting the Company to consider licensing the patent. The Company is currently evaluating the patent. However, based on the Company's preliminary review, management does not believe that the Company requires a license under the patent to operate its service. Amended and Restated Certificate of Incorporation In April 2000, the Company amended and restated its Certificate of Incorporation to increase the authorized number of shares of capital stock to 94,400,000 shares, of which 75,000,000 shares were designated common stock, 16,800,000 shares were designated preferred stock and 2,600,000 shares were designated Class B common stock. Of the 16,800,000 shares that were designated preferred stock, 800,000 shares were designated Series E preferred stock and 800,000 shares were designated Series E-1 preferred stock. Series E Preferred Financing In April 2000, the Company completed the closing of the Series E preferred stock financing. The Company raised $10.0 million and issued 769,231 shares of Series E preferred stock. The Series E preferred stock has substantially the same preferences as the Series A, B, C and D preferred stock except that the Series E preferred stock has a liquidation value of $13.00 per share plus all declared and unpaid dividends, is non-voting and is convertible into Class B common stock which is also non-voting. The conversion ratio for the Series E preferred stock into Class B common stock is one to one, except in the event of an initial public offering of the Company's equity securities or a sale of the Company, each share of Series E preferred stock will convert into such number of shares of Class B common stock that is equal to the result of of $13.00 divided by the lesser of the conversion price of the Series E preferred stock then in effect or 85% of the initial public offering price per share. In addition, the Class B common stock converts into common stock on a one-to-one basis at the option of the holder on the earlier of April 4, 2001, the date 180 days after an initial public offering or the Company's prior written consent, and the Class B common stock converts into common stock on a one-to-one basis automatically upon any transfer of the Class B common stock to a third-party that occurs on the earlier of April 4, 2001 or 180 days after an initial public offering. In connection with a print buyer user agreement entered into in April 2000, the Company has issued a warrant to purchase up to 958,400 shares of Class B common stock. A portion of the F-19 NOOSH, INC. (A COMPANY IN THE DEVELOPMENT STAGE) NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of March 31, 2000 and/or for the periods ended March 31, 1999 and 2000 is unaudited) warrant, for a total of 432,000 shares, is immediately exercisable. The remaining portion of the warrant becomes exercisable in increments upon the holder meeting stated targets. Initially, the exercise price of the warrant is $13.00 per share. Upon the automatic conversion of the Company's Series E preferred stock to Class B common stock immediately prior to an initial public offering, the exercise price of the warrant is adjusted to the lesser of $13.00 per share or the conversion price of the Series E preferred stock in effect immediately prior to such conversion. F-20 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date. -------------- TABLE OF CONTENTS
Page ---- Prospectus Summary....................................................... 3 Risk Factors............................................................. 8 Note Regarding Forward-Looking Statements................................ 20 Use of Proceeds.......................................................... 21 Dividend Policy.......................................................... 21 Capitalization........................................................... 22 Dilution................................................................. 23 Selected Financial Data.................................................. 25 Management's Discussion and Analysis of Financial Condition and Results of Operations .......................................................... 27 Business................................................................. 35 Management............................................................... 49 Related Party Transactions............................................... 62 Principal Stockholders................................................... 64 Description of Capital Stock ............................................ 66 Shares Eligible for Future Sale.......................................... 70 Underwriting............................................................. 72 Validity of Common Stock................................................. 74 Experts.................................................................. 74 Additional Information................................................... 74 Index to Financial Statements............................................ F-1
-------------- Through and including , 2000 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 4,000,000 Shares NOOSH, Inc. Common Stock -------------- [NOOSH, INC. LOGO APPEARS HERE] -------------- Goldman, Sachs & Co. Robertson Stephens Banc of America Securities LLC PaineWebber Incorporated E*OFFERING Representatives of the Underwriters - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution. The following table sets forth all expenses, other than the underwriting discounts and commissions, payable by us in connection with the sale of the common stock being registered. All the amounts shown are estimates except for the registration fee, the NASD filing fee and the Nasdaq National Market application fee. Registration fee................................................. $ 15,788 NASD filing fee.................................................. 6,480 Nasdaq National Market application fee........................... 95,000 Blue sky qualification fee and expenses.......................... 20,000 Printing and engraving expenses.................................. 250,000 Legal fees and expenses.......................................... 500,000 Accounting fees and expenses..................................... 250,000 Transfer agent and registrar fees................................ 15,000 Miscellaneous.................................................... 47,738 ---------- Total............................................................ $1,200,000 ==========
Item 14. Indemnification of Officers and Directors. As permitted by Delaware law, our amended and restated certificate of incorporation provides that no director of ours will be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director, except for liability for: . any breach of duty of loyalty to us or to our stockholders; . acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; . unlawful payment of dividends or unlawful stock repurchases or redemptions; or . any transaction from which the director derived an improper personal benefit. Our amended and restated certificate of incorporation further provides that we must indemnify our directors and officers and may indemnify our other employees and agents to the fullest extent permitted by Delaware law. We believe that indemnification under our amended and restated certificate of incorporation covers negligence and gross negligence on the part of indemnified parties. We intend to enter into indemnification agreements with each of our directors and executive officers. These agreements, among other things, require us to indemnify each director and executive officer for some expenses including attorneys' fees, judgments, fines and settlement amounts incurred by any of these persons in any action or proceeding, including any action by or in the right of NOOSH, arising out of these persons' services as our director or executive officer, any subsidiary of ours or any other company or enterprise to which the person provides services at our request. The underwriting agreement will provide for indemnification by the underwriters of NOOSH, our directors, our officers who sign the registration statement, and our controlling persons for some liabilities, including liabilities arising under the securities act. II-1 Item 15. Recent Sales of Unregistered Securities. Since inception, we have sold and issued the following unregistered securities: (1) From August 15, 1998 to April 4, 2000, we granted stock options to purchase 7,992,188 shares of the our common stock to employees, consultants and directors pursuant to our 1998 equity incentive plan. Of these stock options, 109,600 shares have been cancelled without being exercised, 3,490,050 shares have been exercised, 0 have been repurchased and 4,392,538 shares remain outstanding. (2) On August 15, 1998, we issued an aggregate of 40,000 shares of common stock to Cooley Godward LLP at $0.00125 per share for an aggregate purchase price of $50. (3) In August 1998 through September 1999, we issued an aggregate of 8,000,000 shares of common stock to Ofer Ben-Shachar at $0.00125 per share for an aggregate purchase price of $10,000. (4) In November 1998, we issued an aggregate of 2,000,000 shares of Series A preferred stock to Asset Management Partners, Baloff Investors, LLC, GC&H Investments and eight individual investors at $0.65 per share for an aggregate purchase price of $1,300,000. Shares of Series A preferred stock are convertible into shares of common stock at the rate of two shares of common stock for each share of Series A preferred stock owned. (5) In December 1998, we issued an aggregate of 23,077 shares of Series A preferred stock to one individual investor at $0.65 per share for an aggregate purchase of $15,000. Shares of Series A preferred stock are convertible into shares of common stock at the rate of two shares of common stock for each share of Series A preferred stock owned. (6) In January 1999 through March 1999, we issued an aggregate of 76,986 shares of common stock to four consultants at $0.325 per share for an aggregate purchase price of $2,502. (7) On April 26, 1999, we issued an aggregate of 4,363,637 shares of Series B preferred stock to The Levinson Family Trust, The McDonald Family Trust, The Pidwell Family Living Trust, Accel VI L.P., Accel Internet Fund II L.P., Accel Investors '98 L.P., Accel Keiretsu VI L.P., Advanced Technology Ventures V, L.P., ATV Entrepreneurs V, L.P., Angel Investors LP, Asset Management Partners, Beams Technology Investments Ltd., ELK Partners, GC&H Investments and eight individual investors at $2.75 per share for an aggregate purchase price of $12,000,002. Shares of Series B preferred stock are convertible into shares of common stock at the rate of two shares of common stock for each share of Series B preferred stock owned. (8) On September 15, 1999, we issued an aggregate of 13,216 shares of common stock to six consultants at $0.80 per share for an aggregate purchase price of $10,573. (9) On October 8, 1999, we issued an aggregate of 11,609 shares of common stock to eight consultants at $1.00 per share for an aggregate purchase price of $11,609. (10) On October 15, 1999, we issued an aggregate of 19,000 shares of common stock to one employee as consideration with an aggregate fair market value of $19,000 under a technology transfer agreement. (11) On November 1, 1999, we issued an aggregate of 5,727 shares of common stock to two consultants at $1.25 per share for an aggregate purchase price of $7,159. (12) In November 1999, we issued an aggregate of 6,809,135 shares of Series C preferred stock to The McDonald Family Trust, The Pidwell Family Living Trust, Accel VI L.P., Accel Internet Fund II L.P., Accel Investors '98 L.P., Accel Keiretsu VI L.P., Advanced Technology Ventures V, L.P., ATV Entrepreneurs V, L.P., Asset Management Partners, Beams Technology Investments Ltd., ELK Partners, GC&H Investments, Internet Experience, L.P., MeriTech Capital Affiliates L.P., II-2 MeriTech Capital Partners L.P., RSV Ventures, L.P., Spinnaker Clipper Fund, L.P., Spinnaker Crossover Fund, L.P., Spinnaker Crossover Institutional Fund, L.P., TCV III (GP) TCV III, L.P., TCV III (Q), L.P., TCV III Strategic Partners, L.P., Comdisco, Inc. and fifteen individual investors at $7.45 per share for an aggregate purchase price of $50,728,056. Shares of Series C preferred stock are convertible into shares of common stock at the rate of one share of common stock for each share of Series C preferred stock owned. (13) On November 15, 1999, we issued an aggregate of 33,865 shares of common stock to four consultants at $1.50 per share for an aggregate purchase price of $50,798. (14) On November 30, 1999, we issued an aggregate of 847 shares of common stock to three consultants at $1.75 per share for an aggregate purchase price of $1,482. (15) On December 30, 1999, we issued two warrants to two print vendors to purchase an aggregate of 495,000 shares of common stock. A portion of the first warrant, for a total of 140,000 shares, became immediately exercisable upon issuance at an exercise price of $7.45. A portion of the second warrant, for a total of 75,000 shares, became immediately exercisable upon issuance at an exercise price of $11.00. The remaining portions of the warrants are exercisable when the print vendors meet stated volume targets for business conducted over our service at exercise prices ranging from $7.45 per share to the fair market value of our common stock on the date the volume targets are met. (16) On December 31, 1999, we issued an aggregate of 13,203 shares of common stock to seven consultants for an aggregate purchase price of $29,707. (17) On January 14, 2000, we issued one warrant to Bank of America Technology and Operations, Inc. to purchase an aggregate of 50,000 shares of common stock at an exercise price of $11.00 per share. (18) On January 25, 2000 we issued an aggregate of 1,418,182 shares of Series D preferred stock to R.R. Donnelley & Sons Company and two individual investors at $11.00 per share for a total of $15,600,002. Shares of Series D preferred stock are convertible into shares of common stock at the rate of one share of common stock for each share of Series D preferred stock owned. In addition, we issued two warrants to R.R. Donnelley & Sons Company to purchase an aggregate of 2,780,159 shares of common stock at an exercise price of $11.00 per share. A total of 961,309 shares of common stock are immediately exercisable under the warrants. The remaining shares under the warrants are exercisable when the holder meets stated volume targets for business conducted over our service. (19) On February 4, 2000, we issued one warrant to ColorGraphics, a print vendor, to purchase an aggregate of 100,000 shares of common stock. The warrant is first exercisable on the one year anniversary of the date of grant and only to the extent ColorGraphics meets stated volume targets for business conducted over our service. The exercise price for the warrant ranges from the initial public offering price to the fair market value of our common stock as of the end of the calendar quarter during which the stated volume targets are met. (20) On February 4, 2000, we issued an aggregate of 17,350 shares of common stock to two consultants for an aggregate purchase price of $138,775. (21) On February 14, 2000, we issued one warrant to J. Crew Group, Inc., a print buyer, to purchase an aggregate of 10,000 shares of common stock. The warrant is first exercisable on the one year anniversary of the date of grant and only to the extent J. Crew meets a target for business conducted over our service. The exercise price for the warrant is equal to the initial public offering price. (22) On March 10, 2000, we issued an aggregate of 2,536 shares of common stock to two consultants for an aggregate purchase price of $24,092. II-3 (23) On April 4, 2000, we issued an aggregate of 769,231 shares of Series E preferred stock to GE Capital Equity Investments, Inc. at $13.00 per share for a total of $10,000,003. Initially, shares of Series E preferred stock are convertible into shares of Class B common stock at the rate of one share of Class B common stock for each share of Series E preferred stock. In the event of an initial public offering or a sale of NOOSH, each share of Series E preferred stock will be convertible into that number of shares of Class B common stock equal to $13.00 divided by the lesser of the conversion price then in effect for the Series E preferred stock or 85% of the initial public offering price per share. Assuming an initial public offering price of $12.00, each share of Series E preferred stock will be convertible into approximately 1.27 shares of Class B common stock. In addition, we issued a warrant to GE Capital Equity Investments to purchase up to 958,400 shares of capital stock. A portion of the warrant, for a total of 432,000 shares of share of Series E preferred stock will be convertible into approximately 1.27 shares of Class B common stock. In addition, we issued a warrant to GE Capital Equity Investments to purchase up to 958,400 shares of capital stock. A portion of the warrant, for a total of 432,000 shares of capital stock, is immediately exercisable. The remaining portion of the warrant becomes exercisable in increments upon the holder meeting stated targets. Initially, the exercise price of the warrant is $13.00 per share. Upon the automatic conversion of our Series E preferred stock upon the closing of an initial public offering, the exercise price of the warrant is adjusted to the lesser of $13.00 per share or the conversion price of the Series E preferred stock in effect immediately prior to such conversion. Initially, the warrant is exercisable for Class B common stock. At the option of GE Capital Equity Investments, on the date 90 days after this offering, a portion of the warrant will become exercisable for common stock. In addition, on the earlier of April 4, 2001 or the date 180 days after this offering, the remainder of the warrant will become exercisable for common stock. With respect to the grant of stock options described in paragraph (1), an exemption from registration was unnecessary in that none of the transactions involved a "sale" of securities as this term is used in Section 2(3) of the Securities Act. The sale and issuance of securities and the exercise of options described in paragraphs (1), (6), (8), (9), (11), (13), (14), (16), (20) and (22) above were deemed to be exempt from registration under the Securities Act by virtue of Rule 701 promulgated thereunder in that they were offered and sold either pursuant to a written compensatory benefit plan or pursuant to a written contract relating to compensation, as provided in Rule 701. The sale and issuance of securities described in paragraphs (2), (3), (4), (5), (7), (10), (12), (15), (17), (18), (19), (21) and (23) above were deemed to be exempt from registration under the Securities Act by virtue of Rule 4(2) or Regulation D promulgated thereunder. Appropriate legends are affixed to the stock certificates issued in the aforementioned transactions. Similar legends were imposed in connection with any subsequent sales of any of these securities. All recipients either received adequate information about NOOSH or had access, through employment or other relationships, to such information. Item 16. Exhibits and Financial Statement Schedules. (a) Exhibits.
Exhibit Number Description of Document ------- ----------------------- 1.1** Form of Underwriting Agreement. 3.1** Restated Certificate of Incorporation of Registrant, as currently in effect. 3.2** Form of Amended and Restated Certificate of Incorporation of Registrant to be filed upon the closing of the offering made pursuant to this Registration Statement. 3.3** Bylaws of the Registrant as currently in effect. 4.1** Specimen Common Stock Certificate. 4.2** Amended and Restated Investor Rights Agreement dated April 4, 2000 between Registrant and holders of the Registrant's Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock.
II-4
Exhibit Number Description of Document ------- ----------------------- 5.1** Opinion of Cooley Godward LLP. 10.1** Form of Indemnity Agreement. 10.2** 1998 Equity Incentive Plan and related documents. 10.3** 2000 Equity Incentive Plan and related documents. 10.4** 2000 Employee Stock Purchase Plan. 10.5** 2000 Non-Employee Directors Stock Option Plan and related documents. 10.6** Lease Agreement, dated April 1, 1999, between Registrant and Syntex (U.S.A.) Inc. 10.7** Sublease Agreement, dated November 1, 1999, between the Registrant and Xerox Corporation. 10.8** Promissory Note, dated April 15, 1999, between Registrant and David Hannebrink. 10.8.1** Amendment No. 1 to Promissory Note, dated April 15, 1999, between Registrant and David Hannebrink. 10.9** Promissory Note, dated October 8, 1999, between Registrant and Hagi Schwartz. 10.10** Promissory Note, dated November 1, 1999, between Registrant and David Hannebrink. 10.11** Promissory Note, dated January 3, 2000, between Registrant and Kevin Akeroyd. 10.12** Promissory Note, dated January 3, 2000, between Registrant and Ray Martinelli. 10.13** Promissory Note, dated January 3, 2000, between Registrant and Timothy Moore. 10.14** Promissory Note, dated January 15, 2000, between Registrant and Steven Baloff. 10.15** Promissory Note, dated January 15, 2000, between Registrant and David Hannebrink. 10.16** Promissory Note, dated January 15, 2000 between Registrant and Robert Shaw. 10.17** Promissory Note, dated February 4, 2000 between Registrant and Hagi Schwartz. 10.18** Internet Services and Colocation Agreement, dated as of July 20, 1999, between the Registrant and Abovenet. 10.19**+ Co-Development and Marketing Agreement, dated as of January 25, 2000, between the Registrant and R.R. Donnelley & Sons Company. 10.20**+ Warrant for the Purchase of 225,000 shares of Common Stock issued to Consolidated Graphics, Inc. dated December 30, 1999. 10.21**+ Warrant for the Purchase of 270,000 shares of Common Stock issued to Wallace Computer Services, Inc. dated December 30, 1999. 10.22**+ Warrant for the Purchase of 50,000 shares of Common Stock issued to Bank of America Technology and Operations, Inc. dated January 14, 2000. 10.23** Warrant for the Purchase of 2,430,158 shares of Common Stock issued to R.R. Donnelley & Sons Company dated January 25, 2000. 10.24** Warrant for the Purchase of 350,000 shares of Common Stock issued to R.R. Donnelley & Sons Company dated January 25, 2000. 10.25** Warrant for the Purchase of 958,400 shares of Class B Common Stock issued to GE Capital Equity Investments, Inc. dated April 4, 2000. 10.26** Promissory Note, dated March 15, 2000 between Registrant and Edward E. Barr. 10.27** Office Lease dated March 31, 2000 by and between Registrant and PAC Court Associates, L.P., a California limited partnership. 10.28** Lease dated October 1999 by and between the Realty Associates Fund IV, L.P. and Registrant of the Hillsite Building, 75 Second Ave., Needham, Massachusetts, 02912. 10.29 Office Space Lease, dated February 2000, by and between Registrant and LaSalle National Bank. 10.30 Deed of Lease, by and between Registrant and MDM Development Company, L.L.C. 10.31 Offer Letter, dated October 14, 1998, between Registrant and Mathew Spolin 10.32 Offer Letter, dated April 10, 1999, between Registrant and Lawrence Slotnick 10.33 Offer Letter, dated July 27, 1999, between Registrant and Kevin Akeroyd 10.34 Offer Letter, dated January 6, 1999, between Registrant and David Hannebrink. 10.35 Offer Letter, dated October 7, 1999, between Registrant and Hagi Schwartz. 10.36 Offer Letter, dated January 3, 2000, between Registrant and Timothy Moore. 10.37 Offer Letter, dated January 4, 2000, between Registrant and Robert Shaw. 23.1 Consent of Independent Accountants.
II-5
Exhibit Number Description of Document ------- ----------------------- 23.2** Consent of Cooley Godward LLP (included in Exhibit 5.1). 24.1** Power of Attorney. 27.1** Financial Data Schedule.
- -------- ** Previously filed. + Confidential treatment has been requested for a portion of this exhibit. (b) Financial Statement Schedules. Schedules are omitted because they are not applicable, or because the information is included in the Financial Statements or the Notes thereto. Item 17. Undertakings. The undersigned registrant hereby undertakes: (1) That for purposes of determining any liability under the Securities Act, the information omitted from the form of this prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) That for purposes of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering thereof. (3) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions referenced in Item 15 of this Registration Statement or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission this indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against these liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by a director, officer, or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether the indemnification by it is against public policy as expressed in the Securities Act of 1933, and will be governed by the final adjudication of this issue. (4) To provide to the Underwriters at the closing specified in the Underwriting Agreement certificates in the denomination and registered in the names required by the Underwriters to permit prompt delivery to each purchaser. II-6 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has caused this Amendment No. 4 to Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the County of Santa Clara, State of California, on the 16th day of May, 2000. NOOSH, Inc. * By: _________________________________ Ofer Ben-Shachar President, Chief Executive Officer and Chairman Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 4 to Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
Signatures Title Date ---------- ----- ---- * President, Chief Executive May 16, 2000 ______________________________________ Officer and Chairman of Ofer Ben-Shachar the Board of Directors (principal executive officer) /s/ Hagi Schwartz Vice President and Chief May 16, 2000 ______________________________________ Financial Officer Hagi Schwartz (principal financial and accounting officer) * Director May 16, 2000 ______________________________________ Steven Baloff * Director May 16, 2000 ______________________________________ Edward Barr * Director May 16, 2000 ______________________________________ Arthur Patterson * Director May 16, 2000 ______________________________________ Kathy Levinson
/s/ Hagi Schwartz *By: ____________________________ Name: Hagi Schwartz Attorney-in-Fact II-7 EXHIBIT INDEX
Exhibit Number Description of Document ------- ----------------------- 1.1** Form of Underwriting Agreement. 3.1** Restated Certificate of Incorporation of Registrant, as currently in effect. 3.2** Form of Amended and Restated Certificate of Incorporation of Registrant to be filed upon the closing of the offering made pursuant to this Registration Statement. 3.3** Bylaws of the Registrant as currently in effect. 4.1** Specimen Common Stock Certificate. 4.2** Amended and Restated Investor Rights Agreement dated April 4, 2000 between Registrant and holders of the Registrant's Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock. 5.1** Opinion of Cooley Godward LLP. 10.1** Form of Indemnity Agreement. 10.2** 1998 Equity Incentive Plan and related documents. 10.3** 2000 Equity Incentive Plan and related documents. 10.4** 2000 Employee Stock Purchase Plan. 10.5** 2000 Non-Employee Directors Stock Option Plan and related documents. 10.6** Lease Agreement, dated April 1, 1999, between Registrant and Syntex (U.S.A.) Inc. 10.7** Sublease Agreement, dated November 1, 1999, between the Registrant and Xerox Corporation. 10.8** Promissory Note, dated April 15, 1999, between Registrant and David Hannebrink. 10.8.1** Amendment No. 1 to Promissory Note, dated April 15, 1999, between Registrant and David Hannebrink. 10.9** Promissory Note, dated October 8, 1999, between Registrant and Hagi Schwartz. 10.10** Promissory Note, dated November 1, 1999, between Registrant and David Hannebrink. 10.11** Promissory Note, dated January 3, 2000, between Registrant and Kevin Akeroyd. 10.12** Promissory Note, dated January 3, 2000, between Registrant and Ray Martinelli. 10.13** Promissory Note, dated January 3, 2000, between Registrant and Timothy Moore. 10.14** Promissory Note, dated January 15, 2000, between Registrant and Steven Baloff. 10.15** Promissory Note, dated January 15, 2000, between Registrant and David Hannebrink. 10.16** Promissory Note, dated January 15, 2000 between Registrant and Robert Shaw. 10.17** Promissory Note, dated February 4, 2000 between Registrant and Hagi Schwartz. 10.18** Internet Services and Colocation Agreement, dated as of July 20, 1999, between the Registrant and Abovenet. 10.19**+ Co-Development and Marketing Agreement, dated as of January 25, 2000, between the Registrant and R.R. Donnelley & Sons Company. 10.20**+ Warrant for the Purchase of 225,000 shares of Common Stock issued to Consolidated Graphics, Inc. dated December 30, 1999. 10.21**+ Warrant for the Purchase of 270,000 shares of Common Stock issued to Wallace Computer Services, Inc. dated December 30, 1999. 10.22**+ Warrant for the Purchase of 50,000 shares of Common Stock issued to Bank of America Technology and Operations, Inc. dated January 14, 2000. 10.23** Warrant for the Purchase of 2,430,158 shares of Common Stock issued to R.R. Donnelley & Sons Company dated January 25, 2000. 10.24** Warrant for the Purchase of 350,000 shares of Common Stock issued to R.R. Donnelley & Sons Company dated January 25, 2000. 10.25** Warrant for the Purchase of 958,400 shares of Class B Common Stock issued to GE Capital Equity Investments, Inc. dated April 4, 2000. 10.26** Promissory Note, dated March 15, 2000 between Registrant and Edward E. Barr. 10.27** Office Lease dated March 31, 2000 by and between Registrant and PAC Court Associates, L.P., a California limited partnership. 10.28** Lease dated October 1999 by and between the Realty Associates Fund IV, L.P. and Registrant of the Hillsite Building, 75 Second Ave., Needham, Massachusetts, 02912.
Exhibit Number Description of Document ------- ----------------------- 10.29 Office Space Lease, dated February 2000, by and between Registrant and LaSalle National Bank. 10.30 Deed of Lease, by and between Registrant and MDM Development Company, L.L.C. 10.31 Offer Letter, dated October 14, 1998, between Registrant and Mathew Spolin 10.32 Offer Letter, dated April 10, 1999, between Registrant and Lawrence Slotnick 10.33 Offer Letter, dated July 27, 1999, between Registrant and Kevin Akeroyd 10.34 Offer Letter, dated January 6, 1999, between Registrant and David Hannebrink. 10.35 Offer Letter, dated October 7, 1999, between Registrant and Hagi Schwartz. 10.36 Offer Letter, dated January 3, 2000, between Registrant and Timothy Moore. 10.37 Offer Letter, dated January 4, 2000, between Registrant and Robert Shaw. 23.1 Consent of Independent Accountants. 23.2** Consent of Cooley Godward LLP (included in Exhibit 5.1). 24.1** Power of Attorney. 27.1** Financial Data Schedule.
- -------- ** Previously filed. + Confidential treatment has been requested for a portion of this exhibit. EX-10.29 2 OFFICE SPACE LEASE DTD FEB 2000 OFFICE SPACE LEASE WITH NOOSH, INC. AT 303 WEST MADISON CHICAGO, ILLINOIS 60606 303 WEST MADISON CHICAGO, ILLINOIS 60606 SUMMARY OF BASIC LEASE PROVISIONS AND EXHIBITS ---------------------------------------------- The undersigned hereby agree to the following terms of this Summary of Basic Lease Provisions and Exhibits (the "Summary"). This Summary is hereby incorporated into and made a part of the attached Office Space Lease (this Summary and the Office Space Lease to be known collectively as the "Lease"). Each reference in the Office Space Lease to any term of this Summary shall have the meaning as set forth in this Summary for such term. Any capitalized terms used in this Summary and not otherwise defined herein shall have the meaning as set forth in the Office Space Lease. 1.1 Basic Lease Provisions 1.1.1 Landlord and Address: -------------------- LaSalle National Bank, not personally, but solely as Trustee under Trust Agreement dated May 1, 1989, and known as Trust No. 114400 c/o Lincoln Property Company 303 West Madison Street Office of the Building Suite 625 Chicago, Illinois 60606 1.1.2 Landlord's Management Agent and Address: --------------------------------------- Lincoln Property Company Commercial, Inc. 303 West Madison Street Office of the Building Suite 625 Chicago, Illinois 60606 Phone (312) 855-1254 Fax (312) 855-1483 or such other Management Agent as Landlord may designate from time to time. 1.1.3 Tenant and Current Address: -------------------------- Noosh, Inc. 3401 Hillview Avenue, Building B Palo Alto, California 94304 i 1.1.4 Intentionally Deleted --------------------- 1.1.5 Premises: Landlord and Tenant agree that the Premises contain -------- 4,298 rentable square feet of space located on the twenty-sixth (26th) floor of the Building and known as Suite No. 2650, as shown on the floor plan attached to the Office Space Lease as Exhibit 1. Tenant acknowledges that the "rentable area of the --------- Premises" under this Lease includes the usable area, without deduction for columns or projections, multiplied by a load or conversion factor, to reflect a share of certain areas, which may include lobbies, corridors, mechanical, utility, janitorial, boiler and service rooms and closets, restrooms, and other public, common and service areas. 1.1.6 Lease Term: Three (3) years. ---------- 1.1.7 Commencement Date: The earlier of (i) the date Tenant ----------------- commences business in the Premises or (ii) the date the Premises are Ready for Occupancy as defined in and determined pursuant to the Work Letter attached to this Office Space Lease as Exhibit 2. The anticipated Commencement Date is May 1, 2000. The actual Commencement Date shall be confirmed pursuant to Exhibit 5 attached to this Office Space Lease. 1.1.8 Expiration Date: The third (3rd) anniversary of the --------------- Commencement Date. 1.1.9 Base Rent: --------- Lease Year Annual Base Rent Monthly Base Rent ---------- ---------------- ----------------- 1 $70,917.00 $5,909.75 2 $73,045.00 $6,087.08 3 $75,236.00 $6,269.67 1.1.10 Tenant's Share: 1.48%. Tenant's Share is the ratio of the -------------- rentable square feet of the Premises (as set forth in Section 1.1.5 above) to the rentable square feet of the Building. Landlord and Tenant agree that the Building shall be deemed to contain 290,807 rentable square feet. 1.1.11 Permitted Uses: General office purposes, AND FOR NO OTHER -------------- PURPOSES. 1.1.12 Security Deposit: $100,000.00 ii 1.1.13 Leasing Broker and Address: -------------------------- Stauback Midwest, LLC 321 N. Clark Street, Suite 900 Chicago, Illinois 60610 1.1.14 Date of Lease: February __, 2000 ------------- 1.2 Exhibits and Rider. ------------------ The following exhibits attached to the Office Space Lease and any rider attached to the Office Space Lease are incorporated in the Office Space Lease by this reference and are to be construed as a part of the Office Space Lease. In the event of any conflict between the terms of any rider and the other provisions of the Office Space Lease or this Summary, the terms of the rider shall control. Exhibit 1. Floor Plan of Premises Exhibit 2. Work Letter Exhibit 3. Rules and Regulations Exhibit 4. Form of Letter of Credit Exhibit 5 Confirmation of Lease Term Dates The foregoing Terms of this Summary are hereby agreed to by Landlord and Tenant and the Office Space Lease is hereby incorporated by this reference. LANDLORD: TENANT: LASALLE NATIONAL BANK, not personally, but NOOSH, INC. solely as Trustee under Trust Agreement dated May 1, 1989, and known as Trust No. 114400 By:__________________(SEAL) By:_________________(SEAL) Name:__________________ Name:_________________ Title:_________________ Title:________________ iii TABLE OF CONTENTS Page 1. LEASE OF PREMISES............................................... 1 2. LEASE TERM...................................................... 2 3. BASE RENT....................................................... 2 4. ADDITIONAL RENT................................................. 3 5. SECURITY DEPOSIT................................................ 10 6. USE OF PREMISES................................................. 12 7. RULES AND REGULATIONS........................................... 16 8. SERVICES PROVIDED............................................... 17 9. ADDITIONS OR ALTERATIONS........................................ 21 10. CONDITION OF PREMISES........................................... 22 11. SURRENDER....................................................... 24 12. DAMAGE OR DESTRUCTION........................................... 25 13. EMINENT DOMAIN.................................................. 26 14. WAIVER AND INDEMNIFICATION...................................... 28 15. INSURANCE....................................................... 29 16. LANDLORD'S RIGHT OF ACCESS...................................... 31 17. RIGHTS RESERVED TO LANDLORD..................................... 33 18. ABANDONMENT..................................................... 34 19. TRANSFER OF LANDLORD'S INTEREST; LIABILITY OF LANDLORD.......... 34 20. TRANSFER OF TENANT'S INTEREST................................... 34 21. TENANT'S DEFAULT; LANDLORD'S RIGHTS AND REMEDIES................ 39 22. COUNTERCLAIMS................................................... 44 23. HOLDING OVER.................................................... 44 24. SUBORDINATION AND ATTORNMENT.................................... 45 25. ESTOPPEL CERTIFICATE............................................ 46 26. INTENTIONALLY OMITTED........................................... 46 27. NOTICES AND DEMANDS............................................. 46 28. CONSTRUCTION OF LEASE........................................... 47 iv 29. REAL ESTATE BROKERS............................................. 48 30. MISCELLANEOUS................................................... 48 31. LANDLORD EXCULPATION............................................ 53 v 303 WEST MADISON CHICAGO, ILLINOIS 60606 OFFICE SPACE LEASE This Office Space Lease, which includes the preceding Summary of Basic Lease Provisions and Exhibits (the "Summary") and exhibits attached hereto and incorporated herein by this reference (the Office Space Lease and Summary to be known sometimes collectively hereafter as the "Lease"), dated as of the date set forth in Section 1.1.14 of the Summary, is made by and between Landlord and Tenant. 1. LEASE OF PREMISES ----------------- 1.1 Premises and Building. Landlord hereby leases to Tenant, and Tenant --------------------- hereby leases from Landlord the premises set forth in Section 1.1.5 of the Summary ("Premises") which Premises are located in the building whose address is 303 West Madison, Chicago, Illinois (which building, together with the parking garage therein and all equipment, fixtures, and machinery which may now or hereafter exist therein or thereon are collectively referred to herein as the "Building"), for the Lease Term and upon the terms, covenants and conditions set forth in this Lease. This Lease shall be in full force and effect from the date it is signed by Landlord and Tenant. With respect to any or all exterior balconies, patios, terraces or similar areas which may be appurtenant to the Premises, such areas shall not be used by Tenant, its employees, invitees, guests, agents or contractors for any purpose whatsoever and Tenant shall indemnify, defend, protect and hold harmless Landlord, its beneficiaries and their respective employees, officers, directors, agents, contractors, successors and assigns from and against all claims, damages, losses, liabilities and causes of action whatsoever arising out of Tenant's breach of the foregoing prohibition. 1.2 Property. The term "Property" as used in this Lease, shall mean (a) -------- the Building, (b) the land upon which the Building is located and all other improvements now or hereafter located upon said land, and all appurtenances thereto, and (c) at Landlord's discretion, any additional real property, areas, buildings or other improvements added thereto. Landlord reserves the right to make alterations or additions to or to change the elements of the Property; provided that exercise of any such rights shall not unreasonably interfere with Tenant's use of the Premises. Tenant acknowledges that Landlord has made no representation or warranty regarding the condition of the Property except as specifically set forth in this Lease. 1 2. LEASE TERM ---------- The term of this Lease ("Lease Term") shall commence on the date set forth in Section 1.1.7 of the Summary (the "Commencement Date"), (subject, however, to the terms of Section 5 of the Work Letter attached hereto as Exhibit 2), and expire on the date set forth in Section 1.1.8 of the Summary (the "Expiration Date") unless sooner terminated as provided in this Lease. If Landlord shall be unable to deliver possession of the Premises to Tenant on or before the anticipated Commencement Date set forth in Section 1.1.7 of the Summary for any reason whatsoever (including holding over by an existing tenant or occupant of the Premises), Landlord shall not be subject to any liability for the failure to do so nor shall such failure affect the validity of this Lease or the obligations of Tenant hereunder. Following the Commencement Date, Landlord shall deliver to Tenant the Confirmation of Lease Term Dates attached hereto as Exhibit 5, which Confirmation of Lease Term Dates Tenant shall execute and - --------- return to Landlord within five (5) days after receipt thereof. In the event the Commencement Date shall not have occurred on or before June 1, 2000, Tenant shall have the right to terminate this Lease by giving written notice of termination ("Termination Notice") to Landlord on or before June 10, 2000. In the event Tenant exercises the termination right in the preceding sentence, this Lease shall terminate unless the Commencement Date shall have occurred on or before July 1, 2000 in which event the Termination Notice shall be deemed null and void. In the event this Lease shall terminate, Landlord shall return the Security Deposit or the Letter of Credit (as hereinafter defined) delivered by Tenant to Landlord and Monthly Base Rent for the first full calendar month of the Lease Term paid pursuant to Paragraph 3 below, whereupon neither party shall have any further rights, obligations or liabilities under this Lease, except for any obligations or liabilities that expressly survive termination. 3. BASE RENT --------- Tenant shall pay to Landlord in the manner and at the place set forth in Section 4.3 of this Lease, the monthly Base Rent ("Monthly Base Rent") specified in Section 1.1.9 of the Summary monthly, in advance, on the first day of each calendar month during the Lease Term, except that Monthly Base Rent for the first full calendar month of the Lease Term shall be paid concurrently with the execution of this Lease by Tenant. If the Lease Term commences on a day other than the first day of a calendar month or terminates on a day other than the last day of a calendar month, then Monthly Base Rent for such month will be prorated on a per diem basis based on the number of days in such month and the excess of the installment of Monthly Base Rent paid concurrently with the execution of this Lease by Tenant over such prorated amount for the first calendar month of the Lease Term shall be applied against Monthly Base Rent for the first full calendar month of the Lease Term. 2 4. ADDITIONAL RENT --------------- 4.1 Definitions. For purposes of this Lease, the following terms shall ----------- have the meanings ascribed to them in this Section 4.1: (a) "Direct Expenses" shall mean, collectively, "Operating Expenses" and "Taxes", as hereinafter defined. (b) "Expense Year" shall mean each calendar year or part thereof during the Lease Term. (c) "Lease Year" shall mean (i) with respect to the first Lease Year, the period starting on the Commencement Date and ending on the last day of the twelfth full calendar month thereafter (so that if the Commencement Date falls on the first day of a calendar month, the first Lease Year will have exactly 12 calendar months and otherwise the first Lease Year will have 12 full calendar months plus one (1) partial calendar month) and (ii) with respect to all subsequent Lease Years, a period of 12 calendar months commencing on the day following the last day of the prior Lease Year, except that if this Lease is terminated or expires on any day other than the last day of such twelve calendar month period, the last Lease Year shall end on the day upon which this Lease is terminated or expires. (d) "Operating Expenses" shall mean and include all amounts, expenses and costs of whatever nature that Landlord incurs because of or in connection with the ownership, operation, repair, management, replacement or maintenance of the Property or any portion thereof. Operating Expenses shall be determined on an accrual basis in accordance with sound management accounting principles consistently applied and shall include, but shall not be limited to, the following: (i) Wages, salaries, fees, related taxes, insurance costs, benefits (including amounts payable under medical, pension and welfare plans and any amounts payable under collective bargaining agreements) and reimbursement of expenses of and relating to all personnel engaged in operating, repairing, managing, replacing and maintaining the Property; provided that the wages, salaries, fees, related taxes, insurance costs, benefits and reimbursement of expenses for any part time personnel shall be equitably prorated based on the amount of time said personnel devote to the Property. (ii) All supplies and materials used in operating, repairing, and maintaining the Property, and all sales, use or occupation taxes incurred in connection therewith. 3 (iii) Legal and accounting fees and expenses relating to management and operation of the Property excluding court costs and legal fees incurred with regard to enforcing the obligations of tenants under other leases. (iv) Cost of all utilities for the Property, including, without limitation, water, power, fuel, heating, lighting, air conditioning and ventilating, and all taxes imposed upon utility charges. (v) Fees and other charges payable under or in respect of all maintenance, repair, janitorial, parking, security, scavenger, landscaping and other service agreements for or pertaining to the Property. (vi) Costs of all insurance relating to the Property, its occupancy or operations. (vii) Cost of repairs and maintenance of the Property, excluding only such costs which are paid by the proceeds of insurance, by Tenant or by other third parties (other than the payment by Tenant or other tenants of Operating Expense pass-throughs pursuant to this Lease or other tenants' leases). (viii) Amortization of the cost of capital investment items (or the rentals attributable to leasing such items) that are for the purpose of reducing Operating Expenses or that may be required by governmental authority or requirement, from time to time, plus interest on the unamortized balance thereof at the then current market rate. All such costs shall be amortized over the reasonable life of the capital investment items, with the reasonable life and amortization schedule being determined in accordance with sound management accounting principles. (ix) Cost of public safety protection. (x) Management, related overhead and administrative fees and reimbursed expenses of Landlord's Management Agent; provided that in no event shall the fee paid for management of the Building exceed the prevailing management fee rate for comparable buildings in the vicinity of the Building. (xi) Fees and charges under any declaration of covenants, easements or restrictions affecting the Property. The following shall not be included within Operating Expenses: 4 (i) Leasing commissions, attorneys' fees, costs, disbursements, and other expenses incurred in connection with negotiations or disputes with tenants, or in connection with leasing, renovating, or improving space for tenants or other occupants or prospective tenants or other occupants of the Building. (ii) The cost of any service sold to any tenant (including Tenant) or other occupant for which Landlord is entitled to be reimbursed as an additional charge or rental over and above the basic rent and escalations payable under the lease with that tenant. (iii) Any depreciation on the Building or the Property. (iv) Expenses in connection with services or other benefits of a type that are not generally provided to all office tenants (including Tenant) but which are provided to another tenant or occupant of the Building or Property. (v) Costs incurred due to Landlord's violation of any terms or conditions of this Lease or any other lease relating to the Building or Property. (vi) Overhead profit increments paid to Landlord's subsidiaries or affiliates for management or other services on or to the Building or for supplies or other materials to the extent that the cost of the services, supplies, or materials exceeds the cost that would have been paid had the services, supplies, or materials been provided by unaffiliated parties on a competitive basis. (vii) All interest, loan fees, and other carrying costs related to any mortgage or deed of trust and all rental and other amounts payable under any ground or underlying lease. (viii) Any compensation paid to clerks, attendants, or other persons in commercial concessions operated by Landlord. (ix) Advertising and promotional expenditures. (x) Costs of repairs and other work occasioned by fire, windstorm, or other casualty of an insurable nature in excess of the insurance deductible. (xi) Any costs, fines, or penalties incurred due to violations by Landlord (as opposed to violations by any tenant and/or the Tenant) of 5 any governmental rule or authority, this Lease or any other lease in the Property, or due to Landlord's negligence or willful misconduct. (xxii) Costs for sculptures, paintings, or other objects of art (nor insurance thereon or extraordinary security in connection therewith). (xxiii) Wages, salaries, or other compensation paid to any executive employees above the grade of building manager. (xiv) The cost of correcting any building code or other violations which existed prior to the Commencement Date. (xv) The cost of containing, removing or otherwise remediating any contamination of the Property (including the underlying land and ground water) where such contamination was not caused by Tenant. (xvi) The cost of capital investment items except as provided in subdivision (viii) of the items included in Operating Expenses. If at any time the Building is less than 95% occupied or Landlord is not supplying services to at least 95% of the rentable areas of the Building during an entire calendar year, then Landlord may adjust actual Operating Expenses to Landlord's estimate of that amount which would have been paid or incurred by Landlord as Operating Expenses had the Building been 95% occupied or serviced, and the Operating Expenses as so adjusted shall be deemed to be the actual Operating Expenses for such calendar year. If Landlord does not furnish during any Expense Year any particular work or service (the cost of which, if performed by Landlord, would constitute an Operating Expense) to a tenant which has been authorized by Landlord to perform such work or service in lieu of the performance thereof by Landlord, then Operating Expenses shall be deemed to be increased by an amount equal to the additional expense which would reasonably have been incurred during such Expense Year by Landlord if it had, at its cost, furnished such work or service to such tenant. (e) "Taxes" shall mean and include all federal, state and local government taxes, assessments and charges of any kind or nature, now or hereafter imposed, whether general, special, ordinary or extraordinary, and any increases resulting from the reassessments caused by any change in ownership of the Property, incurred by Landlord or assessed against the Property, in a calendar year with respect to the value, ownership, use, occupation, management, operation, maintenance, vehicle parking, repair or leasing of the Property. If any special assessment payable in installments is levied against all or any part of the Property, then, at Landlord's discretion, Taxes for the calendar year in which such assessment is levied and for 6 each calendar year thereafter shall include only the amount of any installments of such assessment plus interest thereon paid or payable during such calendar year (without regard to any right to pay, or payment of, such assessment in a single payment). Taxes shall include, without limitation, real estate and transit district taxes and assessments, sewer charges, sales and use taxes (unless included in Operating Expenses), ad valorem taxes, personal property taxes, and all taxes, assessments and charges in lieu of, substituted for or in addition to any or all of the foregoing taxes, assessments and charges. Taxes shall also include the amount of all fees, costs and expenses (including, without limitation, attorneys' fees and court costs) paid or incurred by Landlord during such calendar year in seeking or obtaining any refund or reduction of Taxes or for contesting or protesting any imposition of Taxes, whether or not successful and whether or not attributable to Taxes assessed, paid or incurred in such calendar year. Notwithstanding any provision of this Section 4.1(e) to the contrary, Taxes shall not include any federal, state or local government income, franchise, capital stock, transfer, inheritance or estate taxes, except to the extent such taxes are in lieu of or a substitute for any of the taxes, assessments and charges previously described in this Section 4.1(e). 4.2 Allocation of Direct Expenses. Direct Expenses are determined ----------------------------- annually for the Property as a whole. The portion of Direct Expenses allocated to the tenants of the Building shall consist of: (a) all Direct Expenses attributable solely to the Building and the land parcel(s) upon which the Building is located to the extent the same are separately identifiable and capable of separate assessment, as reasonably determined by Landlord; and (b) an equitable portion of the Direct Expenses attributable to the Property as a whole and not attributable solely to, and/or not separately identifiable for, the Building. 4.3 Payment of Rent. Tenant shall pay to Landlord's Management Agent, as --------------- custodian on behalf of Landlord, at the address specified in Section 1.1.2 of the Summary, or to such other person or entity or at such other place as Landlord may from time to time direct in writing, all amounts due Landlord from Tenant under this Lease, including, without limitation, Monthly Base Rent and the Estimated Direct Expenses and payments of Direct Expenses pursuant to Sections 4.5 and 4.6 below (such Estimated Direct Expenses and Direct Expense payments and all other amounts payable by Tenant, other than the Monthly Base Rent, shall hereinafter be referred to collectively as "Additional Rent"; the Monthly Base Rent and Additional Rent are hereinafter referred to collectively as the "Rent"). Except as specifically provided in this Lease, Rent shall be paid without abatement, deduction or setoff of any kind, it being the intention of the parties that, to the full extent permitted by law, Tenant's covenant to pay Rent shall be independent of all other covenants contained in this Lease. All of Tenant's theretofore accrued obligations hereunder to pay Rent shall survive the termination of this Lease. 4.4 Calculation and Payment of Tenant's Share of the Direct Expenses. ---------------------------------------------------------------- Tenant shall pay to Landlord, in the manner set forth in Sections 4.5 and 4.6 below, and as 7 Additional Rent, an amount equal to Tenant's Share of the Direct Expenses for each Expense Year any portion of which falls within the Lease Term. 4.5 Statement of Actual Direct Expenses and Payment by Tenant. Landlord --------------------------------------------------------- shall endeavor to give to Tenant on or before the first day of April following the end of each Expense Year, a statement (the "Statement") which shall state the Direct Expenses incurred or accrued for such preceding Expense Year, and which shall indicate the amount of Tenant's Share thereof and payment of Tenant's Estimated Direct Expenses. Upon receipt of the Statement for each Expense Year ending during the Lease Term, if the amount of Tenant's Share of Direct Expenses exceeds Tenant's payment of Tenant's Estimated Direct Expenses for such Expense Year, then Tenant shall pay, with its next installment of Monthly Base Rent due, the full amount of such excess (the "Excess") for such Expense Year. If Tenant's payment of Tenant's Estimated Direct Expenses exceeds the amount of Tenant's share of Direct Expenses for such Expense Year as shown on the Statement, then the amount of such excess shall be credited against Tenant's Estimated Direct Expenses next due under this Lease, or if the Lease Term has expired and no further amounts are due from Tenant under this Lease, Landlord shall refund to Tenant the amount of any unapplied excess not later than 30 days following delivery of the Statement. The failure of Landlord to timely furnish the Statement for any Expense Year shall not be deemed a default by Landlord nor shall it prejudice Landlord from enforcing its rights under this Section 4. Even though the Lease Term has expired and Tenant has vacated the Premises, when the final determination is made of Tenant's Share of the Direct Expenses for the Expense Year in which this Lease terminates, if an Excess is present, Tenant shall immediately pay to Landlord an amount as calculated pursuant to the provisions of Section 4.4 of this Lease. The provisions of this Section 4.5 shall survive the expiration or earlier termination of the Lease Term. 4.6 Statement of Estimated Expenses. In addition, Landlord shall endeavor ------------------------------- to give Tenant a yearly expense estimate statement (the "Estimate Statement") which shall set forth Landlord's reasonable estimate ("the Estimate") of what Tenant's Share of the total amount of the Direct Expenses allocated to tenants of the Building pursuant to the terms of Section 4.2 above for the then-current Expense Year shall be (the "Estimated Direct Expenses"). Such Estimate may be revised by Landlord whenever it obtains information relevant to making such Estimate more accurate. The failure of Landlord to timely furnish the Estimate Statement for any Expense Year shall not be deemed a default by Landlord nor shall it preclude Landlord from enforcing its rights to collect any Estimated Direct Expenses under this Section 4. Tenant shall pay to Landlord, at the time and place and in the manner that payments of Monthly Base Rent are due hereunder, one-twelfth of the Estimate of Tenant's Share of Direct Expenses. In addition, if pursuant to the Estimate Statement an estimated Excess is calculated for the then current Expense Year, Tenant shall pay, with its next installment of the Monthly Base Rent due, the amount of such estimated Excess for the then-current Expense Year. Until a new Estimate Statement is 8 furnished, Tenant shall pay monthly, with the Monthly Base Rent installments, an amount equal to 1/12th of the total Estimated Direct Expenses set forth in the previous Estimate Statement delivered by Landlord to Tenant. 4.7 Tenant's Right to Inspect Books and Records. On reasonable advance ------------------------------------------- notice, Landlord shall make available to Tenant's licensed, certified public accountant, at Tenant's cost, during the 45 days following the receipt by Tenant of the Statement of Direct Expenses with respect to the Expense Year applicable to such Statement, Landlord's books and records where the same are maintained with respect to the Direct Expenses for such Expense Year. Landlord shall have no obligation to allow its books and records to be reviewed by any person other than Tenant's licensed, certified public accountant. If Tenant wishes to contest any item of Direct Expenses within a particular Statement, Tenant shall do so in a written notice received by Landlord within 30 days following Tenant's receipt of such Statement, which notice shall specify in detail the item or items being contested and the specific grounds therefor. However, the giving of notice shall not relieve Tenant from the obligation to pay any amounts (including amounts contested by Tenant) in such Statement in accordance with Sections 4.5 or 4.6 above. If Tenant timely gives said notice to Landlord, any dispute with respect to any item or items in such Statement, including any calculations therein, shall be submitted to Landlord's firm of certified public accountants ("CPA"), whose decision (the "CPA Decision") shall be submitted to and binding on the parties. If the CPA Decision reveals that Landlord has over- charged Tenant, then within 30 days after the results of the CPA Decision are made available to Landlord, Landlord shall credit against future Additional Rent the amount of such over-charge. If the CPA Decision reveals that the Tenant was undercharged, then within 30 days after the results of such CPA Decision are made available to Tenant, Tenant shall reimburse to Landlord the amount of such undercharge. Tenant shall pay on demand all fees of the CPA with respect to any such dispute, unless the amount of the Tenant's Share of Direct Expenses, as provided in such Statement, exceeds the amount of Tenant's Share of Direct Expenses as finally determined by the CPA by more than 10%. In addition, if the CPA Decision indicates that the Statement exceeded the actual Direct Expenses which should have been charged to Tenant by more than 10%, the reasonable cost of Tenant's audit shall be paid by Landlord. Notwithstanding anything else in this Section 4.7 to the contrary, if Tenant fails to give such notice within said 45 day period or fails to pay all amounts (including amounts contested by Tenant) in such Statement, in accordance with Section 4.5 or this Section 4.7, whether or not contested, Tenant shall have no further right to contest any item or items in such Statement and Tenant shall be deemed to have accepted such Statement. 4.8 Taxes and Other Charges for Which Tenant Is Directly Responsible. ---------------------------------------------------------------- Subject to Section 30.9 of this Lease, Tenant shall reimburse Landlord upon demand for any and all taxes or assessments required to be paid by Landlord (except to the extent included in Taxes by Landlord), excluding state, local and federal personal or corporate income taxes measured by the net income of Landlord from all sources and estate and inheritance taxes, whether or not now customary or within the contemplation of the parties hereto, when: 9 (a) Said taxes are measured by or reasonably attributable to the cost or value of Tenant's equipment, furniture, fixtures and other personal property located in the Premises, or by the cost or value of any leasehold improvements made in or to the Premises by or for Tenant, to the extent the cost or value of such leasehold improvements exceeds the cost or value of a building standard build-out as determined by Landlord regardless of whether title to such improvements shall be vested in Tenant or Landlord; (b) Said taxes are assessed upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion of the Building or Property; (c) Said taxes are assessed upon this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises; or (d) Said assessments are levied or assessed upon the Property or any part thereof or upon Landlord and/or by any governmental authority or entity, and relate to the construction, operation, management, use, alteration or repair of mass transit improvements (collectively, "Mass Transit Assessments"). 5. SECURITY DEPOSIT ---------------- Concurrently with the execution and delivery of this Lease, Tenant shall provide Landlord with a security deposit in the amount set forth in Section 1.1.12 of the Summary as security for the full and punctual performance by Tenant of all of the terms and provisions of this Lease. At Tenant's option, the security deposit may be either cash or a letter of credit ("Letter of Credit"). For purposes of this Section 5, if Tenant shall have elected to deposit cash, all references herein to proceeds of the Letter of Credit shall be deemed to refer to the cash security deposit. In the event Tenant defaults in the performance of any of the terms of this Lease (including, without limitation, the payment of Monthly Base Rent and/or Additional Rent) and such default is not cured before the expiration of any applicable notice and cure period, Landlord may draw upon the Letter of Credit, and apply all or any part of the proceeds of the Letter of Credit to the extent required for the payment of any Monthly Base Rent or Additional Rent or for any sum for which Tenant is liable to Landlord under any of the terms of this Lease, including any payments, damages or deficiency which Landlord is then entitled to collect from Tenant under this Lease, whether accruing before or after summary proceedings or other re-entry by Landlord. In the case of every such use or application of the proceeds of the Letter of Credit, Tenant shall, on demand, either pay to the Landlord the sum so used or applied (or deliver a second letter of credit identical in form and substance to the original letter of credit and issued by an Acceptable Bank (as hereinafter defined) in such amount to Landlord) which sum shall be added to the security held hereunder so that the same shall be 10 replenished to its former amount. In the event of an assignment by Landlord of its interest in this Lease, Landlord shall transfer the Letter of Credit or the cash security deposit, as the case may be, to the assignee and Landlord shall so notify Tenant in writing of any such transfer. Upon such transfer of the Letter of Credit or the cash security deposit, as the case may be, Landlord shall ipso facto be released by Tenant from all liability for the return of such Letter of Credit or cash security deposit and in such case, Tenant agrees to look solely to the new Landlord for the return of such Letter of Credit or cash security deposit. The provisions of the preceding sentence shall apply to every transfer or assignment made of the Letter of Credit or the cash security deposit to a new Landlord. Tenant shall not assign or encumber or attempt to assign or encumber the Letter of Credit or the cash security deposited herein as security and neither Landlord nor its successors or assigns shall be bound by any such assignment, encumbrance or attempted assignment or encumbrance. In the event the Letter of Credit is to expire by its terms prior to the expiration date of this Lease (including, without limitation, a notice from the bank that issued the Letter of Credit that it is not automatically renewing the expiration date for an additional one (1) year period) and Landlord shall not have received at least thirty (30) days prior to the expiration date of the Letter of Credit a substitute Letter of Credit issued by an Acceptable Bank (as hereinafter defined) which is substantially identical to the original Letter of Credit except for a later expiration date at least sixty (60) days beyond the then current expiration date, Landlord may draw upon the entire proceeds of the Letter of Credit. In the event the Landlord draws upon the Letter of Credit as aforesaid, the proceeds of such drawing shall be held by the Landlord in accordance with the terms of this Section 5, as if such proceeds constituted the Letter of Credit. If Tenant elects to deposit a Letter of Credit as the security deposit, such Letter of Credit shall be a clean, irrevocable standby Letter of Credit in the form of Exhibit 4 attached hereto, shall be issued by a federally chartered --------- commercial bank which is reasonably acceptable to Landlord ("Acceptable Bank"), having an office in Chicago, Illinois, and shall have an expiration date which is at least one (1) year after the date of issuance of the Letter of Credit. Provided Tenant is not in default under this Lease, the Security Deposit or Letter of Credit, as the case may be, shall be reduced by Thirty-Three Thousand Three Hundred Thirty-Three and 33/100 ($33,333.33) Dollars on each anniversary of the Commencement Date. If Tenant has deposited a Letter of Credit with Landlord, then provided that Tenant is not in default under this Lease on the anniversary of the Commencement Date, Landlord shall return to Tenant the Letter of Credit then being held by Landlord upon receipt of a replacement Letter of Credit issued by an Acceptable Bank and identical to the Letter of Credit then being held by Landlord except that such replacement Letter of Credit shall be in the reduced amount provided for herein. If Landlord is holding a cash Security Deposit, then provided Tenant is not in default under this Lease on the anniversary of the Commencement Date, Landlord shall refund to Tenant the amount, if any, by which the Security Deposit then being held by Landlord exceeds the reduced amount provided for herein. 11 Neither the application of the proceeds of the Letter of Credit or of any cash security deposit, as the case may be, set forth above nor the payment by Tenant to restore such security deposit shall operate to cure such default or to estop Landlord from pursuing any remedy to which Landlord would otherwise be entitled. Within thirty (30) days following the expiration of the Lease Term or earlier termination of this Lease, and provided there exists no default by Tenant hereunder and no amounts are owing to Landlord by Tenant, the Security Deposit or any balance thereof or the Letter of Credit, as the case may be, shall be returned to Tenant (or, at Landlord's option, to Tenant's assignee). 6. USE OF PREMISES --------------- 6.1 Permitted Uses. Tenant shall use and occupy the Premises solely for -------------- the Permitted Uses set forth in Section 1.1.11 of the Summary and for no other use or purpose. 6.2 Prohibited Uses. Tenant shall not suffer or permit the Premises or --------------- any part thereof to be used in any manner, or anything to be done therein, or suffer or permit anything to be brought into or kept in the Premises which would in any way (i) violate any law or requirement of public authorities, (ii) cause structural injury to the Building or any part thereof, (iii) interfere with the normal operation of the heating, air conditioning, ventilating, plumbing or other mechanical or electrical systems of the Building or the elevators installed therein, (iv) constitute a public or private nuisance or waste, (v) alter the appearance of the exterior of the Building or any portion of the interior thereof other than the Premises, (vi) impair or disturb the use for normal office or retail purposes of any other area of the Building or Property by, or occasion physical discomfort to, any of the other tenants or occupants of the Building or Property or permit any vapors, fumes or odors to escape to, or permeate into any other portion of the Building or Property or into the ventilation system, (vii) permit excessive sound or offensive noise to be heard outside of the Premises, or (viii) violate any of Tenant's other obligations under this Lease. Tenant shall not discharge or permit to be discharged any materials into waste lines, vents or flues of the Building which might reasonably be anticipated to cause damage thereto. The water and wash closets and other plumbing fixtures in or serving the Premises shall not be used for any purpose other than those for which they shall have been designed or constructed and no sanitary napkins, paper towels, sweepings, rubbish or rags shall be deposited therein. Tenant is expressly prohibited from using cooking stoves, ovens (other than consumer-rated microwave ovens), space heaters and vending machines. 6.3 Removal of Equipment. Tenant, at any time may remove its movable -------------------- trade fixtures and equipment from the Premises. Tenant shall repair any damage to the Premises caused by such removal, failing which Landlord may remove the same and repair the Premises and Tenant shall pay the cost thereof to Landlord on demand. 12 6.4 Reimbursement of Landlord. Within ten days of written demand ------------------------- therefor, Tenant shall reimburse and compensate Landlord as Additional Rent for all reasonable expenditures made by, or damages or fines sustained or incurred by, Landlord due to non-performance or non-compliance with or breach or failure to observe any term, covenant or condition of this Lease upon Tenant's part to be kept, observed, performed or complied with. 6.5 Compliance with Laws. Prior to the commencement of the Lease Term, if -------------------- Tenant is then in possession, and at all times after commencement of the Lease Term, Tenant, at Tenant's sole cost and expense, shall promptly comply with all present and future laws, orders and regulations of all state, federal, municipal and local governments, departments, commissions and boards and any direction of any public officer pursuant to law, and all orders, rules and regulations of the American Insurance Association (formerly the National Board of Fire Underwriters), or any similar body which shall impose any obligation or duty upon Landlord or Tenant with respect to the Premises, whether or not arising out of Tenant's use or manner of use thereof (including Tenant's Permitted Uses), or, with respect to the Building and/or Property if arising out of Tenant's use or manner of use of the Premises, the Building and/or Property (including the use permitted under this Lease); provided, however, that nothing herein shall require Tenant to make structural repairs or alterations unless the same are required due to Tenant's alterations (or alterations made on behalf of Tenant and any alterations made at or prior to the Commencement Date other than the Tenant Improvements, whether done by Landlord's contractor or by Tenant's contractor) or Tenant has, by its specific manner of use of the Premises or method of operation therein, violated any such laws, ordinances, orders, rules, regulations or requirements with respect thereto or has otherwise given rise to requirements under any such laws, ordinances, orders, rules, regulations or requirements. If during the last six (6) months of the Lease Term Tenant would have to spend in excess of Twenty-Five Thousand and No/100 ($25,000.00) Dollars in capital improvements to comply with its obligations hereunder, Tenant shall be responsible for a portion of the cost of such capital improvements ("Capital Improvement Cost") equal to the Capital Improvement Cost multiplied times a fraction, the numerator of which is the number of months remaining in the Lease Term and the denominator of which is the useful life (in months) of the applicable capital improvement(s) under the Internal Revenue Code; provided that nothing herein shall be deemed to limit Tenant's obligation to make and pay the entire cost of any such capital improvement(s) which result from Tenant's manner of use of the Premises or method of operation therein or any alterations made by Tenant or made on behalf of Tenant other than the Tenant Improvements. Provided Tenant does not occupy the Premises prior to the Commencement Date, nothing herein shall obligate Tenant to comply with any laws requiring removal, abatement or remediation of hazardous or toxic materials and/or asbestos located in the Premises prior to the Commencement Date. Tenant may, after securing Landlord to Landlord's satisfaction against all damages, interest, penalties and expenses, including, but not limited to, reasonable attorneys' fees, by cash deposit or by surety bond in an amount and in a company satisfactory to Landlord, 13 contest and appeal any such laws, ordinances, orders, rules, regulations or requirements provided same is done with all reasonable promptness and provided such appeal shall not subject Landlord to prosecution for a criminal offense or constitute a default under any lease or mortgage under which Landlord may be obligated, or cause the Premises or any part thereof to be condemned or vacated, and provided further that Tenant's right to contest and appeal laws relating to such non-compliance shall have no adverse effect on the Building or Property including, without limitation, on the ability to obtain (a) a building permit for the Property, (b) a certificate of occupancy for the Property or any portions thereof, or (c) a building completion sign-off for any work performed in or on the Property. 6.6 Tenant's Covenants. Tenant shall comply with all applicable federal, ------------------ state and municipal laws, ordinances and regulations, and Building and Property rules. Nothing herein shall obligate Tenant to comply with any laws requiring removal, abatement or remediation of hazardous or toxic materials and/or asbestos located in the Premises prior to the Commencement Date. Tenant shall not directly or indirectly make any use of the Premises which may be prohibited by any of the foregoing or which may be dangerous to persons or property or which may increase the cost of insurance or require additional insurance coverage. Tenant agrees, at its sole expense, to comply with and conform to all of the rules, regulations and requirements of any fire insurance rating organization or similar organization and with all governmental authorities having jurisdiction thereof, present or future, relating in any way to the condition, use and occupancy of the Premises throughout the Lease Term, including, without limitation, any applicable Illinois Inspection and Rating Bureau, Fire Insurance Rating Organization and by the fire department having jurisdiction over the Property; provided, however, that nothing herein shall require Tenant to make structural repairs or alterations unless the same are required due to Tenant's alterations (or alterations made on behalf of Tenant and any alterations made at or prior to the Commencement Date other than the Tenant Improvements, whether done by Landlord's contractor or by Tenant's contractor) or Tenant has, by its specific manner of use of the Premises or method of operation therein, violated any such laws, ordinances, orders, rules, regulations or requirements with respect thereto or has otherwise given rise to requirements under any such laws, ordinances, orders, rules, regulations or requirements. If during the last six (6) months of the Lease Term Tenant would have to spend in excess of Twenty-Five Thousand and No/100 ($25,000.00) Dollars in capital improvements to comply with its obligations hereunder, Tenant shall be responsible for a portion of the cost of such capital improvements ("Capital Improvement Cost") equal to the Capital Improvement Cost multiplied times a fraction, the numerator of which is the number of months remaining in the Lease Term and the denominator of which is the useful life (in months) of the applicable capital improvement(s) under the Internal Revenue Code; provided that nothing herein shall be deemed to limit Tenant's obligation to make and pay the entire cost of any such capital improvement(s) which result from Tenant's manner of use of the Premises or method of operation therein or any alterations made by Tenant or made on behalf of Tenant other than the Tenant Improvements. Tenant shall comply with and participate in any emergency and fire evacuation and safety programs adopted by Landlord. Tenant shall not permit inflammables such as gasoline, kerosene, naphtha, 14 benzene, or explosives or other intrinsically dangerous articles, goods or merchandise to be brought into the Building. Tenant shall not use or allow another person or entity to use any part of the Premises for storage, use, treatment, manufacture or sale of any hazardous or toxic substance, material or waste which is or becomes regulated by any local governmental authority, the State of Illinois or the United States Government, except that nothing herein shall prohibit Tenant from storing and using ordinary and customary office supplies, provided such storage and use is in accordance with all applicable laws, rules and regulations. Tenant shall comply with the directions of any public officer authorized by law with respect to the Premises or the Building or the use or occupancy thereof. 6.7 Additional Restrictions. Tenant shall not use, suffer or permit the ----------------------- Premises or any part thereof to be used for the manufacture, sale, serving or distribution by gift or otherwise of any spirituous, fermented or intoxicating liquors or any drugs; provided, so long as Tenant is in full compliance with Section 15.1, Tenant may serve liquor without charge on special limited occasions related to Tenant's business conducted at the Premises, so long as Tenant has procured so called "host liability" insurance as part of the liability insurance required under Section 15.1. Tenant shall not bring into or store firearms of any kind in the Building. Tenant shall not use the Premises for the manufacture, distribution or sale of any merchandise or other materials. Tenant shall not install any equipment utilizing ammonia or other process necessitating venting. Tenant shall not permit any odors, acids, vapors, or other gases or materials to be discharged from the Premises into the common areas, waste lines, vents, flues or other tenant spaces in the Building or Property. Tenant shall not use, suffer or permit the use of the Premises or any part thereof for housing accommodations, for lodging or sleeping purposes or for any illegal purpose. 6.8 Common Areas. Tenant shall not, whether temporarily, accidentally or ------------ otherwise, allow anything to remain in, place or store anything in, or obstruct in any way, any portion of the Building or Property other than the Premises, including any sidewalk, plaza area, driveway, passageway, entrance, exit, stairway, lobby, corridor, hall, elevator, shipping platform, truck concourse or vault area in or about the Building or Property. All passageways, entrances, exits, elevators, stairways, corridors, halls and roofs of the Building and Property are not for the use of the general public, and Landlord shall in all cases retain the right to control and prevent access thereto by all persons whose presence, in the judgment of Landlord, may be prejudicial to the safety, character, reputation or other interests of the Building and/or Property, its tenants or Landlord; provided, however, that nothing herein contained shall be construed to prevent ingress and egress to the Premises by persons with whom Tenant deals within the normal course of Tenant's business. Tenant shall not enter nor permit its employees, agents, guests or invitees to enter into areas of the Building or Property designated for the exclusive use of Landlord, its employees, other tenants guests or invitees. Tenant shall not use, nor permit the use by its employees, agents, guests or invitees, of any common area in the Building or Property other than for access to and from the Premises. 15 6.9 Signs and Advertising. Tenant shall not, without the prior written --------------------- consent of Landlord which consent may be withheld by Landlord in Landlord's sole and absolute discretion, install any shades, draperies, blinds or other window covering, awning, sign, lettering, picture, notice, advertisement or object unacceptable to Landlord on or against glass partitions, doors or windows that would be visible outside the Premises or any sign, lettering, picture, notice or advertisement within the Premises that would be visible outside the Premises. Landlord shall have the right to prohibit any advertisement of or by Tenant in any public media, by direct solicitation or otherwise which advertisement, in Landlord's reasonable opinion, tends to impair the reputation of the Building or Property or its desirability as a first-class office building project. Upon written notice from Landlord, Tenant shall immediately refrain from and discontinue any such advertisement. 6.10 Orderly Condition. Tenant shall at all times keep the Premises neat ----------------- and orderly. Tenant and Tenant's employees, agents, contractors and licensees shall not at any time place, leave or discard any rubbish, paper, articles, or objects of any kind whatsoever outside the doors of the Premises or in the corridors, passageways or common areas of the Building or Property. 6.11 Quiet Enjoyment. So long as Tenant is not in default of any of its --------------- covenants and obligations under this Lease all of which covenants and obligations are independent of Landlord's covenants and obligations hereunder, Tenant shall during the Lease Term, peaceably and quietly have, hold and enjoy the Premises free from hindrance by Landlord or anyone claiming by, through or under Landlord, subject to the terms and conditions of this Lease. 7. RULES AND REGULATIONS --------------------- Tenant agrees to observe the reservations and rights reserved to Landlord in this Lease. Tenant shall comply, and shall cause its employees, agents, contractors and licensees to comply, and Tenant shall use its best efforts to cause Tenant's clients, customers and invitees to comply, with the rules and regulations attached hereto as Exhibit 3 and incorporated herein by this --------- reference, and such revised or additional rules and regulations reasonably adopted by Landlord during the Lease Term and applied generally to all office tenants of the Building (the "Rules and Regulations"). Tenant has reviewed the Rules and Regulations and understands that Landlord shall have the right, but not the obligation, to enforce the Rules and Regulations in order to preserve the value and integrity of the Property. Any violation by Tenant or any of its employees, agents, clients, customers, guests or invitees of any of the Rules and Regulations so adopted by Landlord shall be a default by Tenant under this Lease and may be restrained by court injunction; but whether or not so restrained, Tenant acknowledges and agrees that it shall be and remain liable for all damages, loss, costs and expense resulting from any violation by Tenant or such other persons of any of the Rules and Regulations. Nothing in this Lease contained shall be construed to impose upon Landlord any duty or obligation to enforce the Rules and Regulations or the terms, covenants and conditions of any other lease against 16 any other tenant or any other persons; Landlord shall not be liable to Tenant for violation of the same by any other tenant, its employees, agents, guests, invitees, licensees, customers, clients, family members, or by any other person; and no such violation or failure of Landlord to enforce same shall constitute, or be treated as contributing to, an eviction, actual or constructive, or affect Tenant's covenants and obligations hereunder, or allow Tenant to reduce, abate or offset the payment of any Rent or other sum due under this Lease. Landlord shall not enforce any such Rule or Regulation against Tenant in a discriminatory manner. Notwithstanding anything to the contrary contained in this Section, if any rule or regulation is in conflict with any provision of this Lease, the provisions of this Lease shall prevail. In addition, no such rule or regulation, or any subsequent amendment thereto adopted by Landlord, shall in any way materially adversely alter, reduce or affect any of Tenant's rights or materially adversely enlarge any of Tenant's obligations under this Lease. 8. SERVICES PROVIDED ----------------- 8.1 Standard Services. Landlord shall furnish: ----------------- (a) Cooled or heated air as and when necessary for normal comfort as reasonably determined by Landlord under normal business operations and in the absence of the use of equipment or quantity of inhabitants which materially affects the temperature which would otherwise be maintained in the Premises, Monday through Friday from 8:00 am. to 6:00 p.m. and Saturdays from 8:00 am. to 1:00 p.m., Holidays (as defined below) excepted. If the use of heat generating equipment in the Premises materially affects the temperatures otherwise maintained by the air conditioning system for normal business operations, and thereby requires, in the reasonable judgment of Landlord, the modification of the air conditioning or ventilation systems of the Building or the air conditioning or ventilating equipment in the Premises or the installation of supplementary air conditioning units in the Premises, Landlord reserves the right to perform such modification or installation, and the cost thereof shall be paid by Tenant to Landlord at the time of completion of such modification or installation. Any increased expense in maintaining or operating the system resulting, in Landlord's reasonable opinion, from such modification shall be paid by Tenant. In addition, Tenant shall reimburse Landlord for all direct and indirect costs of installation and maintenance of any supplementary air conditioning equipment or units installed in accordance with this Section 8.1(a). Tenant agrees to keep and cause to be kept closed all windows in the Premises and at all times to cooperate fully with Landlord in the operation of said system and to abide by all reasonable regulations and requirements which Landlord may prescribe to permit the proper functioning and protection of the heating, ventilation and air conditioning systems. For purposes of this Lease, "Holidays" means those federal or state holidays which Landlord, in its sole discretion, designates to Tenant as "Holidays" for purposes of this Lease, such designation being subject to change from time to time; provided, Landlord shall not designate any day as a Holiday 17 unless a substantial number of first-class Chicago office buildings recognize such day as a holiday. Tenant hereby acknowledges that the windows of the Premises are sealed, and that the temperature conditions in the Premises may cause the Premises to become uninhabitable during the times when Landlord is not required pursuant to this paragraph to furnish heat, ventilation or air conditioning, unless after hours heating, ventilating and/or cooling is provided to the Premises pursuant to Section 8.4. Such condition of the Premises shall not constitute nor be deemed to be a breach or a violation of this Lease or of any provision hereof, nor shall it be deemed an eviction nor shall Tenant claim or be entitled to claim any abatement or reduction of Rent nor make any claim for any damages or compensation by reason of such condition of the Premises. (b) Washroom facilities, not within the Premises, for use by Tenant in common with other tenants on the floor on multi-tenant floors. (c) Janitor service in and about the Premises, Saturdays, Sundays and Holidays excepted. Landlord or Landlord's janitorial contractor may operate cleaning equipment using electrical outlets in the Premises without reimbursement to Tenant for the cost of electrical current thereby consumed. (d) Automatic passenger elevator service in common with Landlord and other tenants, at all times, day and night, including Holidays. Landlord shall provide limited non-exclusive freight elevator service at such times as Landlord shall determine and upon payment of such uniform charges as Landlord may establish from time to time. (e) Window washing of the inside and outside of all peripheral Building windows at such times as Landlord may determine, but at least two times per year. 8.2 Interruption of Use. Interruptions of any service to be provided by ------------------- Landlord under this Section 8 or of any utility or other services to the Building or the Premises, in whole or in part caused by repairs, maintenance, replacements, breakdowns, improvements, changes of service, alterations, accidents, acts of God or an enemy, strikes, lockouts, labor controversies, insurrections, riots, picketing (whether legal or illegal), laws, orders or regulations of any federal, state, county or municipal authorities, any accidents or casualties whatsoever, inability of Landlord to obtain electricity, fuel, water or supplies, or by the act or default of Tenant or any person other than Landlord, or by any cause or causes beyond the reasonable control of Landlord, shall not be deemed an eviction or disturbance of Tenant's use and possession of the Premises or any part thereof, or render Landlord liable for damages (unless due to Landlord's negligence or willful misconduct) by abatement or reduction of Rent or otherwise or relieve Tenant from performance of Tenant's obligations under this Lease. In addition, Tenant agrees that compliance with any mandatory or voluntary energy conservation measures or other legal requirements instituted by any appropriate governmental authority shall not be considered a violation of 18 any terms of this Lease and shall not entitle Tenant to terminate this Lease or require abatement or reduction of Rent hereunder. Landlord agrees to use reasonable efforts to cause the restoration of services in the event of any interruption described in this paragraph. Notwithstanding the foregoing, if an interruption or cessation of utilities which renders the Premises untenantable results from Landlord's breach of this Lease or the negligence or willful misconduct of Landlord, or its employees, agents and contractors and the Premises are not used by Tenant for the conduct of Tenant's business as a result thereof for a period of five (5) consecutive business days, Base Rent and applicable Operating Expenses shall be abated for the period which commences five (5) business days after the date Tenant gives to Landlord notice of such interruption until such utilities are restored or Tenant resumes using the Premises, whichever is earlier. In the event of any dispute between the parties as to whether Tenant is entitled to an abatement of Base Rent and Operating Expenses, such dispute shall be resolved by the arbitration under the then prevailing commercial rules of the American Arbitration Association, which arbitration shall be conducted in Chicago, Illinois. Pending the final determination of the arbitrator(s), Tenant shall continue paying the installments of Base Rent and Operating Expenses as provided in this Lease. If the arbitrator(s) determine that Tenant was entitled to an abatement of Base Rent and/or Operating Expenses, Landlord shall promptly refund to Tenant the amount which the arbitrator(s) determined is owing to Tenant. 8.3 Tenant's Equipment/Overstandard Use/Electricity. ----------------------------------------------- (a) The Premises is separately metered for electricity and Tenant shall make arrangements with the utility company for provision of electrical service to the Premises. Tenant shall pay, when due, directly to the utility company all bills for electrical consumption in the Premises. Landlord shall not be liable for any interruption in electrical service or for the character or quality of electrical service provided to the Premises, unless due to its negligence or willful misconduct. Tenant shall not install or operate in the Premises any equipment or other machinery, other than a telephone system, facsimile machines, electric typewriters, word processing machines, adding machines, radios, televisions, tape recorders, Dictaphones, bookkeeping machines, clocks, standard size office copiers, mini-computers, computer servers customary for general office use, and other standard office machines requiring similarly low utility consumption, without (i) obtaining the prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed but may be conditioned upon the payment by Tenant of Additional Rent for additional consumption of utilities, additional wiring or other expenses resulting therefrom, (ii) securing all necessary permits from governmental authorities and utility companies and furnishing copies thereof to Landlord, and (iii) complying with any other requirements reasonably imposed by Landlord. Tenant shall not install any equipment or machinery which may necessitate any changes, replacements or additions to or material changes in the use of the water, heating, plumbing, air conditioning or electrical systems of the 19 Building without obtaining the prior written consent of Landlord. Further, Tenant shall not place a load upon the floor of the Premises which exceeds the floor load per square foot which such floor was designed to carry. (b) If at any time during the Lease Term, Tenant's connected electrical load from its use of equipment and fixtures (including incandescent lighting and power), as reasonably estimated by Landlord, exceeds the reasonable capacity available at the Premises (taking into account the electrical usage of Landlord and other tenants and occupants of the Building), then following notice to Tenant and a reasonable period in which Tenant may correct such situation, Landlord shall have the right to install additional transformers, distribution panels, wiring and other applicable equipment at the expense of Tenant. Landlord agrees to install such equipment at any time, at Tenant's expense, upon a written request from Tenant that such equipment be installed. None of the equipment so installed shall be deemed to be Tenant's property. In all events, the Premises shall be separately metered for all electrical usage at the Premises, including lighting, and Tenant shall pay all charges therefor prior to the date the same become delinquent. (c) If business machines and equipment belonging to Tenant cause noise or vibration that may be transmitted to any part of the Building to such degree as to be objectionable to Landlord or to any tenant of the Building, Tenant shall install and maintain, at Tenant's expense, devices that eliminate the noise and vibration. 8.4 Additional Services. Landlord shall in no event be obligated to ------------------- furnish any services or utilities, other than those specified in Section 8.1 above; provided, so long as Tenant is not in default of any of its obligations under this Lease, Landlord shall furnish after hours heating, ventilation and air conditioning to the Premises upon such advance notice to Landlord by Tenant as Landlord shall require of tenants generally. If Landlord furnishes services or utilities requested by Tenant in addition to those specified in Section 8.1 (including heating, ventilating and air conditioning at times other than those specified in paragraph (a) of Section 8.1), Tenant shall pay to Landlord Landlord's then prevailing rates for such services and utilities within 30 days after receipt of Landlord's invoices therefor. If Tenant shall fail to make any such payment, Landlord may, upon five days' advance notice to Tenant, and in addition to Landlord's other remedies under this Lease, discontinue any or all of the additional services and utilities, including the furnishing of after- hours heating, ventilating and air conditioning and such discontinuance shall not be deemed to constitute an eviction or disturbance of Tenant's use and possession of the Premises nor shall same relieve Tenant from paying Rent or performing any of its obligations under this Lease. 8.5 Building Directory. Landlord shall list Tenant on the Building ------------------ directory. Any additional names requested by Tenant to be displayed in the Building directory must be approved by Landlord and, if approved, will be provided at the sole expense of Tenant. 20 9. ADDITIONS OR ALTERATIONS ------------------------ 9.1 Landlord's Consent to Alterations. Tenant shall not, without --------------------------------- Landlord's prior written consent, permit any alteration, improvement, addition or installation in or to the Premises (all of which is collectively referred to as "Work"), including installation of telephone, computer or internal sound or paging systems or other similar systems, or the performance of any decorating, painting and other similar work in the Premises. The construction of the initial Tenant Improvements (as defined in Exhibit 2) to the Premises shall be governed --------- by the terms of the Work Letter attached to this Lease as Exhibit 2, and not the --------- terms of this Section 9. Notwithstanding the foregoing, Tenant may, without --------- obtaining Landlord's prior consent but with prior notice to Landlord, decorate the interior of the Premises at Tenant's sole discretion; provided such decorations do not involve structural changes or improvements to the Premises or the Building, do not involve or affect any of the Building Systems, do not exceed $10,000.00 in cost in any one instance, cannot be seen from the exterior of the Building or from any common areas of the Building and are otherwise performed in compliance with the provisions of this Article 9. 9.2 Manner of Construction. In the event Landlord consents to any Work, ---------------------- such Work shall be performed by contractors, subcontractors, and mechanics that Landlord has consented to in advance, which consent shall not be unreasonably withheld; conditioned or delayed, provided, Landlord reserves the right to cause any portion of such Work which affects the Building's structure or any Building system (such as the heating, ventilating and air conditioning systems, the plumbing system, life safety and the electrical system) to be performed by contractors, subcontractors and mechanics of Landlord's choosing, in which event Tenant shall pay the reasonable cost of preparation of the plans and permits and fees of said contractors, subcontractors and mechanics. Furthermore, Landlord reserves the right to require Tenant to retain only union contractors. Before commencement of any Work or delivery of any materials into the Premises or the Building, Tenant shall furnish to Landlord, for its prior written approval, architectural plans and specifications certified by a licensed architect or engineer reasonably acceptable to Landlord, and such other documentation as Landlord shall reasonably request. Tenant agrees to contract directly with such approved contractors, subcontractors and mechanics. Tenant agrees to indemnify, defend, protect and hold Landlord, its agents, partners, officers, servants and employees forever harmless from and against all claims and liabilities of every kind, nature and description which may arise out of or in any way be connected with any such Work. Tenant shall pay the reasonable costs incurred by Landlord in reviewing plans and materials submitted to Landlord for approval. In addition, promptly after being billed therefor by Landlord, Tenant shall pay to Landlord a supervisory fee equal to 5% of the cost of all Work. Landlord's review of the plans and materials submitted to Landlord as set forth in this Section 9.2, shall be for its sole purpose and shall not imply Landlord's review of the same, or obligate Landlord to review the same, for quality, design, Code compliance or other like matters. Accordingly, notwithstanding that any plans and materials submitted to Landlord are reviewed by Landlord or its space planner, architect, engineers and consultants, and notwithstanding any advice or assistance which may be rendered to 21 Tenant by Landlord or Landlord's space planner, architect, engineers, and consultants, Landlord shall have no liability whatsoever in connection therewith and shall not be responsible for any omissions or errors contained therein, and Tenant's waiver and indemnity set forth in Section 14 of this Lease shall specifically apply thereto. Tenant shall pay the cost of all such Work and the cost of repairing, decorating and altering the Premises and the Building occasioned by any such Work. In the event the cost of the Work exceeds Twenty- Five Thousand and No/100 ($25,000.00) Dollars, Landlord shall have the right, as a condition to approval, to require Tenant to provide reasonable security to insure the payment of all costs of the Work. All alterations, improvements, additions and installations to or on the Premises (including the initial Tenant Improvements constructed pursuant to the Work Letter), if any, shall become part of the Premises at the time of installation. 9.3 Insurance; As-Built Plans. Prior to the commencement of any Work or ------------------------- the delivery of any materials to the Building, Tenant shall submit to Landlord for Landlord's approval, the names and addresses of all contractors (other than those chosen by Landlord), contracts, necessary permits and licenses, certificates of insurance (including, without limitation, builder's all-risk, worker's compensation, commercial general liability and architect's professional errors and omissions insurance) naming Landlord and Landlord's agents as additional insureds and instruments of indemnification against any and all claims, costs, expenses, damages and liabilities which may arise in connection with the Work, all in such form and amount as shall be satisfactory to Landlord. In addition, Landlord may, in its discretion, require Tenant to obtain a lien and completion bond or other alternate form of security satisfactory to Landlord in an amount sufficient to ensure the lien free completion of such Alterations and naming Landlord as a co-obligee. All Work shall be done only at such time and in such manner as Landlord may from time to time reasonably designate. Upon completion of any Work, Tenant shall furnish Landlord with two sets of as-built plans of the Work and with contractors' and subcontractors' affidavits, full and final waivers of lien, and receipted paid bills covering all labor, services and materials expended and used in connection with such Work. All Work shall comply with all insurance requirements, all laws, ordinances, rules and regulations of all governmental authorities, and all collective bargaining agreements applicable to the Building, and shall be done in a good and workmanlike manner and with the use of new high-quality grades of materials. 10. CONDITION OF PREMISES --------------------- 10.1 Representations of Landlord. No agreements or representations, --------------------------- except such as are expressly contained herein and in the Work Letter attached hereto, if any, have been made to Tenant respecting the condition of the Premises or Property. Except as provided in the Work Letter, if any, Landlord shall not be obligated to provide or pay for any improvement work for the Premises. Subject to Landlord's obligation to complete the Tenant Improvements in accordance with the provisions of Exhibit 2 hereto, Tenant conclusively --------- waives all claims relating to the condition of the Premises and accepts the 22 Premises as being free from defects and in good, clean and sanitary order, condition and repair, and agrees to keep the Premises in such condition. 10.2 Tenant's Repair Obligations. Except as provided in Section 10.3, --------------------------- Tenant shall, during the Lease Term, at its own expense, keep the Premises, including all improvements, fixtures and equipment therein, clean and safe and in as good repair and condition as when all of the work described in the Work Letter, if any, was completed (or as to subsequent work, as when such Work was completed), ordinary wear and tear excepted. Tenant shall be responsible for all damage or injury to the Premises or any other part of the Building or Property and the systems and equipment thereof, whether requiring structural or nonstructural repairs, caused by or resulting from carelessness, omission, neglect or improper conduct of Tenant, Tenant's agents, employees, invitees or licensees, or which arise out of any work, labor, service or equipment done for or supplied to Tenant (except for the Tenant Improvements and except for any work, labor, service or equipment performed or provided by Landlord) or arising out of the installation, use or operation of the property or equipment of Tenant. Tenant shall also be responsible for all damage to the Property, the Building and the Premises caused by the moving of Tenant's fixtures, furniture and equipment. Tenant shall promptly make, at Tenant's expense, all repairs in and to the Premises for which Tenant is responsible, under the supervision of Landlord and using only such contractors and subcontractors as Landlord has approved, which approval shall not be unreasonably withheld. Any other repairs in or to the Property or the Building or the facilities and systems thereof for which Tenant is responsible shall be performed by contractors retained by Landlord at Tenant's expense. In connection with all such repairs to the Premises or other parts of the Building or Property, Tenant shall reimburse Landlord within ten days of receipt of a bill therefor for Landlord's costs incurred in connection with such work, together with a fee for supervising such work (whether or not performed by Landlord) equal to 5% of the cost of such work. Notwithstanding anything to the contrary in this Lease, Lessee's obligation to repair or maintain shall not include the making of any structural repairs or improvements unless, and to the extent, required due to the negligence or willful acts of Tenant or its employees, agents or invitees. Notwithstanding anything to the contrary in this Lease, Tenant's obligation to repair or maintain shall not include the making of any capital repairs or improvements unless, and to the extent, required due to Tenant's negligence or willful misconduct. 10.3 Landlord's Repair Obligations. Except as provided in Sections 12 and ----------------------------- 13, Landlord shall, subject to Section 14 and the second and third sentences of Section 10.2, be obligated only to maintain and make necessary repairs to the structural elements of the Building, the roof of the Building, the elevators within the Building, the public corridors, public washrooms and lobby of the Building, the exterior windows of the Building, and, subject to the provisions of Section 8, the electrical, plumbing, heating, ventilation and air conditioning systems of the Building. Tenant agrees to give prompt notice of any defective condition in the Premises for which Landlord may be responsible hereunder. Inconvenience, annoyance or injury to business arising from Landlord or others making repairs, alterations, additions or improvements in or to any portion of the Property, the 23 Building or the Premises or in and to the fixtures, appurtenances or equipment thereof, shall not be deemed an eviction or disturbance of Tenant's use and possession of the Premises or any part thereof, or render Landlord liable for damages by abatement or reduction of Rent or otherwise or relieve Tenant from performance of Tenant's obligations under this Lease. Landlord will use reasonable efforts to schedule work in the Premises so as to minimize any adverse effect thereof on Tenant's business. If Tenant requests that such work be done after normal business hours, and if Landlord consents thereto (such consent not to be unreasonably withheld), Landlord will cause such work to be done after normal business hours and Tenant will pay the increased cost thereof within ten days of Tenant's receipt of a bill therefor. Tenant hereby waives and releases its right to make repairs at Landlord's expense under any law, statute, or ordinance now or hereafter in effect. 11. SURRENDER --------- 11.1 Surrender of Premises. At the termination of this Lease, by lapse of --------------------- time or otherwise, Tenant shall surrender possession of the Premises to Landlord and deliver all keys to the Premises and all locks therein to Landlord and make known to the Landlord the combination of all combination locks in the Premises, and shall, subject to Sections 12 and 13, return the Premises and all equipment and fixtures of the Landlord therein to Landlord in as good condition as when Tenant originally took possession (or as to subsequent Work, as when such Work was completed), ordinary wear and tear excepted, failing which Landlord may restore the Premises and such equipment and fixtures to such condition and the Tenant shall pay the cost thereof to Landlord on demand. 11.2 Removal of Property. Upon termination of this Lease or of Tenant's ------------------- right to possession of the Premises, by lapse of time or otherwise, all installations, additions, partitions, hardware, light fixtures, floor coverings, non-trade fixtures and improvements, temporary or permanent, except movable furniture and movable equipment belonging to Tenant, in or upon the Premises, whether placed there by Tenant or Landlord, shall be Landlord's property and shall remain upon the Premises, all without compensation, allowance or credit to Tenant; provided, however, that if prior to any such termination Landlord so directs by notice, Tenant, at Tenant's sole expense, shall, prior to such termination or promptly thereafter, remove such of the installations, additions, partitions, hardware, cabling and data lines, light fixtures, floor coverings, non-trade fixtures and improvements placed in the Premises by or on behalf of Tenant as are designated in such notice and repair any damage to the Premises caused by such removal, failing which Landlord may remove the same and repair the Premises, and Tenant shall pay the cost thereof to Landlord on demand. Notwithstanding anything to the contrary in this Lease, Tenant shall not be required to remove any alterations, additions, improvements or utility installations for which Tenant has obtained Landlord's consent, unless Landlord has indicated at the time of granting such consent that removal will be required at the end of the Lease term. 24 11.3 Survival. All obligations of Tenant under this Section 11 shall -------- survive the termination of this Lease, by lapse of time or otherwise. 12. DAMAGE OR DESTRUCTION --------------------- 12.1 Repair of Damage to Premises by Landlord. Tenant shall promptly ---------------------------------------- notify Landlord of any damage to the Premises resulting from fire or any other casualty. If the Premises or any common areas of the Building or Property serving or providing access to the Premises shall be damaged by fire or other casualty, Landlord shall promptly and diligently, subject to reasonable delays for insurance adjustment or other matters beyond Landlord's reasonable control, and subject to all other terms of this Section 12, restore the Premises and such common areas. Such restoration shall be to substantially the same condition of the Premises and such common areas prior to the casualty, except for modifications required by zoning and building codes and other laws or by the holder of any mortgage on the Building and/or the Property, or the lessor of any ground or underlying lease with respect to the Building and/or the Property, or any other modifications to such common areas deemed desirable by Landlord, provided access to the Premises and any common restrooms serving the Premises shall not be materially impaired. Notwithstanding any other provision of this Lease, upon the occurrence of any damage to the Premises, Tenant shall assign to Landlord (or to any party designated by Landlord) all insurance proceeds payable to Tenant under Tenant's casualty insurance required under Section 15 of this Lease, to the extent applicable to Landlord's restoration and Landlord shall repair any injury or damage to the improvements at or in the Premises, whether or not installed by Tenant or previously existing, including the Tenant Improvements (as modified by any subsequent Work) installed in the Premises and shall return such improvements to their original condition subject to 12.2 below. Landlord shall not be liable for any inconvenience or annoyance to Tenant or its visitors, or injury to Tenant's business resulting in any way from such damage or the repair thereof; provided however, that if such fire or other casualty shall have damaged the Premises or common areas necessary to Tenant's occupancy, and if such damage is not the result of the negligence or willful misconduct of Tenant or Tenant's employees, contractors, licensees, or invitees, Landlord shall allow Tenant a proportionate abatement of the Monthly Base Rent and Tenant's Share of Direct Expenses to the extent the Premises are unfit for occupancy for the purposes permitted under this Lease, and not occupied by Tenant as a result thereof. 12.2 Landlord's Option to Repair. Notwithstanding the terms of Section --------------------------- 12.1 of this Lease, Landlord may elect not to rebuild and/or restore the Premises, the Building and/or the common areas and instead terminate this Lease by notifying Tenant in writing of such termination within 90 days after the date of damage, but Landlord may so elect only if the Building and/or the common areas shall be damaged by fire or other casualty or cause, whether or not the Premises are affected, and one or more of the following conditions is present: (i) repairs cannot reasonably be completed within 120 days of the date of damage (when such repairs are made without the payment of overtime or other premiums); (ii) the holder of any mortgage on the Property and/or Building or the lessor of 25 any ground or underlying lease with respect to the Property and/or Building shall require that the insurance proceeds or any portion thereof be used to retire the mortgage debt, or shall terminate the ground or underlying lease, as the case may be; or (iii) the damage is not fully covered, except for deductible amounts, by Landlord's insurance policies. 12.3 Waiver of Statutory Provisions. The provisions of this Lease, ------------------------------ including this Section 12, constitute an express agreement between Landlord and Tenant with respect to any and all damage to, or destruction of, all or any part of the Premises, the Building or the Property and any statute or regulation of the State of Illinois, with respect to any rights or obligations concerning damage or destruction in the absence of an express agreement between the parties, and any other statute or regulation, now or hereafter in effect, shall have no application to this Lease or any damage or destruction to all or any part of the Premises, the Building or the Property. 12.4 Damage Near End of Term. In the event that the Premises, the ----------------------- Building and/or any common areas of the Building or Property servicing or providing access to the Premises or Building is destroyed or damaged to any substantial extent during the last 6 months of the Lease Term, then notwithstanding any other provision contained in this Section 12, both Landlord and Tenant shall have the option to terminate this Lease by giving written notice to Tenant of the exercise of such option within 30 days after such damage or destruction, in which event this Lease shall cease and terminate as of the date of such notice, Tenant shall pay the Monthly Base Rent and Tenant's Share of Direct Expenses properly apportioned up to such date of damage, and both parties hereto shall thereafter be freed and discharged of all further obligations hereunder, except as provided for in provisions of this Lease which by their terms survive the expiration or earlier termination of the Lease Term. 12.5 Tenant's Right to Terminate. Notwithstanding anything to the --------------------------- contrary contained herein, if Tenant's use of the Premises is substantially impaired due to any fire or other casualty for a period of more than one hundred fifty (150) consecutive days after the date of such fire or other casualty, Tenant shall have the right to terminate this Lease by giving written notice of termination to Landlord at any time thereafter until Tenant's use of the Premises is substantially restored; provided that any such termination shall not be effective if the damage to the Premises shall have been substantially repaired within thirty (30) days following Landlord's receipt of the aforementioned written termination notice. 13. EMINENT DOMAIN -------------- 13.1 Permanent Taking of Premises/Termination. In the event that the ---------------------------------------- whole or a substantial part of the Premises shall be condemned or taken in any manner for any public or quasi-public use (or sold under threat of such taking), and as a result thereof, the remainder of the Premises cannot be used for the same purpose as prior to such taking, the Lease Term shall terminate as of the date possession is taken; provided, however, if Landlord elects to make comparable space in the Building available to Tenant according 26 to the terms and provisions of Section 26 of this Lease, Tenant shall accept such space and this Lease shall not terminate but shall then apply to such space. 13.2 Partial Taking of Premises. If less than a substantial part of the -------------------------- Premises shall be so condemned or taken (or sold under threat thereof) and after such taking the Premises can be used for the same purposes as prior thereto as reasonably determined by Tenant, the Lease Term shall cease only as to the part so taken as of the date possession shall be taken by such authority, and Tenant shall pay full Rent up to that date (with appropriate refund by Landlord of such Rent attributable to the part so taken as may have been paid in advance for any period subsequent to the date possession is taken) and thereafter Monthly Base Rent and Tenant's Share shall be equitably adjusted to reflect the reduction in the Premises by reason of such taking. Landlord shall, at its expense, make all necessary repairs or alterations to the Building so as to constitute the remaining Premises a complete architectural unit, provided that Landlord shall not be obligated to undertake any such repairs or alterations if the cost thereof exceeds the award resulting from such taking. If Landlord fails to fund such excess cost in order to complete such repairs or alterations, Tenant shall have the right to terminate this Lease by giving Landlord notice thereof; provided, if Landlord notifies Tenant within ten days after receiving Tenant's notice that Landlord shall fund such excess cost and promptly complete such repairs or alterations, then this Lease shall continue as if Tenant had not given Landlord such notice of termination. 13.3 Taking Building. If part of the Building or common areas of the --------------- Building or Property servicing or providing access to the Building shall be so condemned or taken (or sold under threat thereof), or if any adjacent property or street shall be condemned or improved by a public or quasi-public authority in such a manner as to alter the use of any part of the Premises or the Building and, in the opinion of Landlord, the Building or any part thereof should be altered, demolished or restored in such a way as to materially alter the Premises or access to the Premises or Building, Landlord may terminate this Lease by notifying Tenant of such termination within 60 days following such taking of possession or improvement by such public or quasi-public authority, and this Lease shall expire on the date specified in the notice of termination, which shall be not less than 60 days after the giving of such notice, as fully and completely as if such date were the date hereinbefore set forth as the expiration of the Lease Term, and the Monthly Base Rent and Tenant's Share of Direct Expenses shall be apportioned as of such date. 13.4 Condemnation Award. Landlord shall be entitled to receive the entire ------------------ award, including the damages for the property taken and damages to the remainder, with respect to any condemnation proceedings affecting the Building and/or Property. Tenant agrees not to make any claim against Landlord or the condemning authority for any portion of such award or compensation, whether attributable to the value of any unexpired portion of the Lease Term, the loss of profits' goodwill, leasehold improvements or otherwise, Tenant irrevocably assigning any and all such claims to Landlord. Nothing herein contained shall be deemed or construed to prevent Tenant from prosecuting a separate claim against the 27 condemning authority for the value of any fixtures or improvements installed in or made to the premises by Tenant, at its cost, or for its costs of moving or loss of business by reason of such condemnation; provided that any such claim does not reduce the amount of Landlord's award. 14. WAIVER AND INDEMNIFICATION -------------------------- 14.1 Release and Waiver. To the extent not expressly prohibited by law, ------------------ Tenant releases Landlord, its beneficiaries, all Mortgagees (as defined in Section 24), and their respective agents, partners, shareholders, members, directors, managers, officers, servants and employees (collectively, "Landlord and its Affiliates"), from and waives all claims for damages to person or property sustained by Tenant or by any occupant of the Premises or the Building, or by any other person, resulting directly or indirectly from fire or other casualty, any other cause or any existing or future condition, defect, manner or thing in the Premises, the Building, the Property or any part thereof, or from any equipment or appurtenances therein, or from any accident in or about the Building or Property, or from any act or neglect of any tenant or other occupant of the Building or Property or of any other person. This section shall apply especially, but not exclusively, to damage caused by water, earth movement, snow, frost, steam, excessive heat or cold, sewage, gas, odors or noise, or the bursting or leaking of pipes or plumbing fixtures, falling plaster, broken glass, sprinkling or air conditioning devices or equipment, or flooding of basements, and shall apply without distinction as to the person whose act or neglect was responsible for the damage and whether the damage was due to any of the acts specifically enumerated above, or from any other thing or circumstance, whether of a like nature or of a wholly different nature. All personal property belonging to Tenant or any occupant of the Premises that is in the Premises or the Building or on the Property shall be there at the risk of Tenant or other person only and Landlord and its Affiliates shall not be liable for damage thereto or theft or misappropriation thereof. 14.2 Indemnification. To the extent not expressly prohibited by law, --------------- Tenant agrees to protect, hold harmless and indemnify Landlord and its Affiliates from and against any and all claims, losses, expenses and liabilities, including without limitation reasonable attorneys' fees, for injuries to all persons and damage to or misappropriation or loss of property occurring in the Premises due to theft or other crimes occurring in the Premises and for injuries to all persons and damage to or loss of property arising from Tenant's use or occupancy of the Premises or the conduct of its business or from activity, work, or thing done, permitted or suffered by Tenant in or about the Premises, or from any breach or default on the part of Tenant in the performance of any covenant or agreement on the part of Tenant to be performed pursuant to the terms of this Lease or due to any other act or omission of Tenant, its agents, employees, contractors, licensees, clients, customers or invitees. In the event any action or proceeding is brought against Landlord and its Affiliates (or any or all of them) by reason of any such indemnified claims, losses, expenses and liabilities, then, upon notice from Landlord, Tenant covenants to defend such action or proceeding by counsel reasonably satisfactory to such indemnitee. 28 14.3 Tenant's Liability for Damage. If any damage to the Premises, the ----------------------------- Building or the Property, or any equipment or appurtenance therein, whether belonging to Landlord or to other tenants of the Building or Property, results from any act or neglect of Tenant, its agents, employees, guests or invitees, Tenant shall be liable therefor and Landlord may, at Landlord's option, repair such damage, and Tenant shall, upon demand by Landlord, reimburse Landlord for the total cost of such repairs in excess of amounts, if any, paid to Landlord under insurance covering such repairs. If Landlord elects not to repair such damage, Tenant shall promptly repair such damages at its own cost and in accordance with the provisions of Section 9 as if such repair constituted Work under Section 9. If Tenant occupies space in which there is exterior glass, then Tenant shall be responsible for the damage, breakage or repair of such glass caused by Tenant or Tenant's employees, agents, contractors, licensees, clients, customers or invitees, except to the extent that such loss or damage is recoverable under Landlord's insurance, if any. 14.4 Landlord's Liability. Notwithstanding any provision of this Lease to -------------------- the contrary other than Section 15, Tenant shall not be deemed to exempt Landlord from liability for damage or injury to persons or damage to property to the extent such damage (i) is actually caused by or results from the negligence or willful misconduct of Landlord, its agents, servants or employees in the operation or maintenance of the Building or a breach by Landlord of its obligations hereunder, and (ii) is not otherwise covered by insurance maintained by Tenant under this Lease (or would have been so covered had Tenant maintained insurance as required under this Lease). 14.5 Survival. The provisions of this Section 14 shall survive the -------- expiration or sooner termination of this Lease. 15. INSURANCE --------- 15.1 Tenant's Insurance. Tenant shall maintain the following coverages in ------------------ the following amounts. 15.1.1 Commercial General Liability Insurance covering the insured against claims of bodily injury, personal injury and property damage arising out of Tenant's operations, assumed liabilities or use of the Premises, including a Broad Form Commercial Liability endorsement covering the insuring provisions of this Lease and the performance by Tenant of the indemnity agreements set forth in Section 14 of this Lease, written on the basis of occurrence, for limits of liability not less than: 29 Bodily Injury and Property Damage Liability $3,000,000 each occurrence $3,000,000 annual aggregate Personal Injury Liability $3,000,000 each occurrence $3,000,000 annual aggregate 0% Insured's Participation Worker's Compensation and ($500,000 (or such higher amount Employer's Liability as may be required from time to time Insurance by any Employee Benefit Acts or other Statutes applicable in the state in which the Premises are located, and in any event sufficient to protect Tenant from liability 15.1.2 Physical Damage Insurance covering all office furniture, trade fixtures, office equipment, merchandise and all other items of Tenant's property on the Premises. Such insurance shall be written on an "all-risk" of physical loss or damage basis, for the full replacement cost value new without deduction for depreciation of the covered items and in amount that meet any co-insurance clauses of the policies of insurance and shall include a vandalism and malicious mischief endorsement and sprinkler leakage coverage. 15.1.3 Business interruption, loss of income and extra expense insurance in amounts sufficient to pay for Tenant's expenses and lost income attributable to perils commonly insured against by prudent tenants or attributable to prevention of access to the Premises as a result of such perils. 15.1.4 Form of Policies. The minimum limits of policies of insurance ---------------- required of Tenant under this Lease shall in no event limit the liability of Tenant under this Lease. Such insurance shall (i) name Landlord, Landlord's beneficiaries, Landlord's Management Agent, the Mortgagees, any ground or underlying lessors of the Building, and any other party Landlord so specifies, as additional insureds, (ii) specifically cover the liability assumed by Tenant under this Lease, including, but not limited to, Tenant's obligations under Section 14 of this Lease, (iii) be issued by an insurance company having a rating of not less than A-X in Best's Insurance Guide or which is otherwise acceptable to Landlord and licensed to do business in the State of Illinois (iv) be primary insurance as to all claims thereunder and provide that any insurance carried by Landlord is excess and is non-contributing with any insurance requirement of Tenant; (v) provide that said insurance shall not be canceled or coverage changed unless 30 days' prior written notice shall have been given to Landlord, Landlord's Management Agent, and any Mortgagee or ground or underlying lessor of the Building; and (vi) contain a cross-liability endorsement or severability of interest clause acceptable to Landlord. Tenant shall deliver said policy 30 or policies or certificates thereof to Landlord on or before the Commencement Date and at least 30 days before the expiration dates thereof. In the event Tenant shall fail to procure such insurance, or to deliver such policies or certificates, Landlord may, at its option, procure such policies for the account of Tenant, and the cost thereof shall be paid to Landlord as Additional Rent within five days after delivery to Tenant of bills therefor. 15.2 Subrogation. Landlord and Tenant agree to have their respective ----------- insurance companies issuing property damage insurance waive any rights of subrogation that such companies may have against Landlord or Tenant, as the case may be provided, however, the foregoing waiver shall not be operative in any case where the effect thereof is to invalidate any insurance coverage of the waiving party and provided further that Landlord and Tenant each agree to give written notice of the terms of this mutual waiver to each insurance company which has issued, or in the future may issue, property damage insurance to it, and to have said insurance policies properly endorsed, if necessary, to prevent the invalidation of said insurance coverage by reason of said waiver. Landlord and Tenant hereby waive any right that either may have against the other on account of any loss or damage to their respective property to the extent such loss or damage is insurable under policies of insurance for fire and all-risk coverage, theft, general liability, or other similar insurance. 15.3 Additional Insurance Obligations. Tenant shall carry and maintain -------------------------------- during the entire Lease Term, at Tenant's sole cost and expense, the insurance required to be carried by Tenant pursuant to this Section 15. In addition to Tenant's obligation in Section 6, Tenant shall, at Tenant's expense, comply as to the Premises with all insurance company requirements pertaining to the use of the Premises. If Tenant's conduct or use of the Premises causes any increase in the premiums for insurance policies maintained by Landlord, then Tenant shall reimburse Landlord for any such increase. 16. LANDLORD'S RIGHT OF ACCESS -------------------------- 16.1 Landlord's Entry. Landlord and its representatives shall have the ---------------- right to enter the Premises at all reasonable times to inspect the same, to perform janitorial and cleaning services, to make repairs, alterations, additions or improvements, to maintain the Premises or the Building, specifically including, but without limiting the generality of the foregoing, to make repairs, additions or alterations within the Premises to mechanical, electrical and other facilities serving other premises in the Building, to make repairs, additions or alterations to the Building and/or Property which may change, eliminate or remove common areas, parking areas, if any, or the method of ingress to or egress from the Building and such areas, to convert common areas into leaseable areas, or otherwise alter, repair or reconstruct the common areas or change the use thereof, and to perform any acts related to the safety, protection, preservation, reletting, sale or improvement of the Premises, the Building and/or the Property and to post such reasonable notices as Landlord may desire to protect its rights. Landlord and its representatives shall have the right to enter the Premises at all reasonable times to exhibit the Premises to prospective 31 purchasers, mortgagees or lessors of the Building and/or Property, and, during the 180 days prior to the expiration of the Lease Term, to exhibit the Premises to prospective tenants. In the event the Premises are vacant, Landlord may place upon the doors or in the windows of the Premises any usual or ordinary "To Let," "To Lease," or "For Rent" signs. Tenant shall permit Landlord to erect, use, maintain and repair pipes, cables, conduit, plumbing, columns, shafts, vents and wires, in, to and through the Premises, to the extent Landlord may now or hereafter deem necessary or appropriate for the proper operation, maintenance and repair of the Property and any portion of the Premises. Landlord and its representatives, for any of the foregoing purposes, may enter on and about the Premises and the Building with such material as Landlord may deem necessary, may erect scaffolding and all other necessary structures on or about the Premises, the Building and the Property and may close or temporarily suspend operations of entrances, doors, corridors, elevators, driveways, parking areas, loading docks or other facilities. Tenant waives any claim for damages, including the loss of business resulting therefrom, and agrees to pay Landlord for overtime and other expenses incurred if such work is done other than during ordinary business hours at Tenant's request. Notwithstanding anything in this Lease to the contrary, except with respect to an emergency, Landlord shall endeavor to provide Tenant with at least 24 hours' prior actual notice (which need not be in writing) before entering the Premises. In the event of an emergency, the determination of which shall require Landlord to be reasonable, Landlord shall, based on the circumstances, endeavor to provide Tenant with notice (which need not be in writing) of any contemplated entry upon the Premises. In the event of any entry by Landlord onto the Premises, Landlord shall minimize, to the extent feasible, interference with the conduct of Tenant's business. 16.2 Additional Landlord's Rights. Landlord shall also have the right to ---------------------------- take all material into the Premises that may be required for the purposes set forth in the foregoing Section 16.1 without the same constituting a constructive eviction of Tenant, in whole or in part and Rent shall not abate (except as provided in Section 12) while said repairs, alterations, improvements or additions are being made, by reason of loss or interruption of business of Tenant, or otherwise. Landlord shall, to the extent feasible, minimize disruption to Tenant's use of the Premises in connection with any such entry. If Tenant shall not be personally present to open and permit entry into the Premises, at any time, when for any reason entry therein shall be necessary or desirable, Landlord or Landlord's agents may enter the Premises by a master key, or may forcibly enter the same, without rendering Landlord or such agents liable therefor (if during such entry Landlord or Landlord's agents shall accord reasonable care to Tenant's property), and without in any manner affecting the obligations and covenants of Tenant under this Lease. Landlord shall also have the right at any time, without the same constituting a constructive eviction and without incurring any liability to Tenant therefor, to change the arrangement or location of entrances or passageways, doors and doorways, corridors, elevators, stairs, toilets or other public parts of the Building or Property, and to close entrances, doors, corridors, elevators, plaza or other facilities so long as the Premises are reasonably accessible and usable. Landlord shall not be liable to Tenant for any expense, injury, loss or damage resulting 32 from work done in or upon, or the use of, any adjacent or nearby building, land, street, alley or underground vault or passageway. 16.3 Scheduling. Landlord will use reasonable efforts to schedule the ---------- work referred to in Sections 16.1 and 16.2 to be done in the Premises so as to minimize any adverse effect thereof on Tenant's business, and if Tenant reasonably requests and Landlord consents thereto (which consent shall not be unreasonably withheld, conditioned or delayed), Landlord will cause such work to be done after normal business hours and Tenant shall pay the increased cost thereof within ten days after Tenant's receipt of a bill therefor. 17. RIGHTS RESERVED TO LANDLORD --------------------------- Landlord shall have the following rights exercisable without notice and without liability to Tenant for damage or injury to property, person or business (all claims for damage being hereby waived and released by Tenant) and without effecting an eviction or disturbance of Tenants use or possession or giving rise to any claim for set-offs or abatement of Rent: (a) To change the name or street address of the Building or Property, or the suite number of the Premises; (b) To install and maintain signs on the exterior and interior of the Building and/or Property (provided Tenant's view is not obstructed); (c) To designate all sources furnishing sign painting and lettering, towels, coffee cart service, vending machines, or toilet supplies used or consumed in the common areas or facilities of the Building and/or Property; (d) To have pass keys to the Premises; (e) To grant to anyone the exclusive right to conduct any business or render any service in the Building or Property, provided such exclusive right shall not operate to exclude Tenant from the use expressly permitted by this Lease; (f) To have access to all mail chutes or boxes according to the rules of the United States Postal Service; (g) To require all persons entering or leaving the Building during such hours as Landlord may from time to time reasonably determine to identify themselves to a watchman by registration or otherwise, and to establish their right to enter or leave and to exclude or expel any peddler, solicitor or beggar at any time from the Premises, the Building and/or the Property; and 33 (h) To close the Building between the hours of 6:00 p.m. and 7:00 am. the following day on weekdays, 1:00 p.m. on Saturdays, and all day on Sundays and Holidays, or at such other reasonable times as Landlord may determine, subject, however, to Tenant's right to admittance to the Premises at all times (including Holidays, but excluding emergencies) under such regulations as shall be prescribed from time to time by Landlord in its reasonable discretion. 18. ABANDONMENT ----------- Tenant shall not abandon the Premises at any time during the Lease Term. Any reentry by Landlord following abandonment by Tenant shall not, unless Landlord so elects in a written notice to Tenant, constitute or be deemed to constitute acceptance by Landlord of a surrender of this Lease, but rather, upon such abandonment, Tenant's right to possession of the Premises shall cease but Tenant shall remain liable for all of its obligations under this Lease. Without limitation of the foregoing, upon any such abandonment, Landlord shall have the remedies provided for in Section 21. If Tenant shall abandon or surrender the Premises or be dispossessed by process of law or otherwise during the Lease Term or at the termination of the Lease Term, any personal property left on the Premises shall be deemed to be abandoned at the option of Landlord, and title thereto shall pass to Landlord under this Lease, which shall constitute a bill of sale. For purposes of this Lease, and at the option of Landlord, the Premises shall be deemed vacated or abandoned if Tenant, or an agent or employee of Tenant, shall not have conducted Tenant's ordinary business upon the Premises during any period of 60 consecutive days. 19. TRANSFER OF LANDLORD'S INTEREST; LIABILITY OF LANDLORD ------------------------------------------------------ Landlord hereby reserves the right to sell, assign or transfer this Lease. In such event this Lease shall remain in full force and effect, subject to the performance by Tenant of all the terms, covenants and conditions on its part to be performed, and provided either Landlord continues as, or such assignee or transferee becomes, the Landlord hereunder. In the event that such assignee or transferee agrees to perform all the terms, covenants and conditions of Landlord pursuant to this Lease which are to be performed by Landlord from and after the effective date of such sale, assignment or transfer of this Lease (as the case may be), then, upon any such sale, assignment or transfer, other than merely as security, Tenant agrees to look solely to the responsibility of assignee or transferee with respect to all matters in connection with this Lease and the transferor Landlord shall be released from any further obligations hereunder that arise subsequent to the date of such sale, assignment or transfer. 20. TRANSFER OF TENANT'S INTEREST ----------------------------- 20.1 Transfers. Tenant shall not sell, assign, encumber, mortgage or --------- transfer this Lease or any interest therein, sublet or permit the occupancy or use by others of the 34 Premises or any part thereof, or allow any transfer hereof or any lien upon Tenant's interest by operation of law or otherwise (collectively, a "Transfer"), without the prior written consent of Landlord, which, except as otherwise provided in this Section 20.1, Landlord may withhold in the exercise of its absolute discretion, provided that if Landlord, upon receiving Tenant's Notice (defined below) of a proposed subletting or assignment, does not elect to Recapture (as defined below), Landlord shall not unreasonably withhold, condition or delay its consent to such subletting or assignment. Any Transfer which is not in compliance with the provisions of this Section 20 shall, at the option of Landlord, be void and of no force or effect. Tenant shall, by written notice, in the form specified in the following sentence ("Tenant's Notice"), advise Landlord of Tenant's intention on a stated date (which shall not be less than 60 days after the date of Tenant's Notice) to sublet any part or all of the Premises for the balance or any part of the Lease Term or to assign its interest in this Lease, and, in such event, Landlord shall have the right, to be exercised by giving written notice to Tenant within 30 days after receipt of Tenant's Notice, to recapture ("Recapture") the space described in Tenant's Notice and such notice of Recapture shall, if given, cancel and terminate this Lease with respect to the space therein described as of the date stated in Tenant's Notice. Tenant's Notice shall state the name and address of the proposed subtenant or assignee; the nature of proposed subtenant or assignee's business; and a description of that portion of the Premises to be occupied, including the number of square feet of net rentable area within that portion and a true and complete copy of the proposed sublease or assignment and all related documentation, and current credit reports and financial statements of the proposed subtenant or assignee, shall be delivered to Landlord with Tenant's Notice. If Tenant's Notice shall cover all of the space hereby demised, and Landlord shall elect to give the aforesaid notice of Recapture with respect thereto, then the Lease Term shall expire and end on the date stated in Tenant's Notice as fully and completely as if that date had been herein definitely fixed for the expiration of the Lease Term. If, however, this Lease is terminated pursuant to the foregoing with respect to less than the entire Premises, the Monthly Base Rent and Tenant's Share then in effect shall be adjusted on the basis of the number of rentable square feet retained by Tenant in proportion to the original rentable square feet of the Premises, and this Lease as so amended shall continue thereafter in full force and effect. In such event, Landlord shall pay the cost of erecting demising walls and public corridors and making other required modifications to physically separate the portion of the Premises remaining subject to this Lease from the rest of the Premises. Without limiting Landlord's right to reasonably withhold its consent to a proposed subletting or assignment, the withholding of such consent will be deemed reasonable if: (a) in the reasonable judgment of Landlord, the subtenant or assignee (i) is of a character or engaged in a business or proposes to use the Premises in a manner which is not in keeping with the standards of Landlord for the Building, or (ii) has an unfavorable reputation or credit standing; 35 (b) either the area of the Premises to be sublet or the remaining area of the Premises is not regular in shape with appropriate means of ingress and egress suitable for normal renting purposes; (c) a direct result of such subletting would be that more than six tenants would be occupying the floor(s) of the Building on which the Premises is located; (d) the transferee is either a government agency or instrumentality thereof; (e) the proposed Transfer would cause Landlord to be in violation of another lease or agreement to which the Landlord is a party or would give an occupant of the Property a right to cancel its lease; (f) the terms of the proposed Transfer will allow the transferee to exercise a right of renewal, right of expansion, right of first offer, or other similar right held by Tenant (or will allow the transferee to occupy space leased by Tenant pursuant to such right); (g) Tenant is in default under this Lease; (h) such proposed assignment or subletting is to an existing tenant of the Property (or any affiliate of an existing tenant) or to any person or party with whom Landlord is in the process of negotiating a lease of space in the Property; (i) the transferee intends to use the portion of the Premises which is subject to the Transfer for purposes not permitted under this Lease; (j) such proposed assignment of subletting would result in a violation of any applicable law, ordinance or government regulation; (k) such proposed assignee or subtenant is a high traffic tenant or is engaged in any type of sales where the public is invited to enter and use the Premises; (l) the proposed assignee or subtenant is a trade or labor union office; (m) the proposed assignee or subtenant will be using any portion of the Premises as an educational or training facility or is in the primary business of providing education or training; or (n) the proposed assignee or subtenant is an employment office. 36 Each time Tenant requests Landlord's consent for any assignment of this Lease or any sublease of all or any portion of the Premises, Tenant shall pay to Landlord the actual reasonable costs, charges and expenses (including reasonable attorneys' fees) incurred by Landlord in connection with such request and Landlord's review of the proposed assignment or sublease as provided in Section 21.6 of this Lease, whether or not such consent is given; such payment shall be made by Tenant to Landlord within ten days after demand by Landlord. Notwithstanding anything herein to the contrary, Tenant shall have the right, without obtaining Landlord's consent, to assign this Lease or sublease the Premises to a Related Entity (as hereinafter defined), subject to compliance with the terms hereof. Within fifteen (15) days following the assignment of this Lease to a Related Entity, and as a condition to the effectiveness thereof, Tenant shall deliver to Landlord a fully executed Assignment and Assumption Agreement pursuant to which the Tenant assigns to the Related Entity all of the transferring Tenant's right, title and interest in this Lease and the Related Entity assumes all of the Tenant's obligations and liabilities under this Lease. The form and substance of the Assignment and Assumption Agreement shall be reasonably acceptable to Landlord. No assignment of this Lease to a Related Entity shall serve to release the assigning Tenant from any of its obligations or liabilities under this Lease. Within fifteen (15) days following the sublease of the Premises to a Related Entity and as a condition to the effectiveness thereof, Tenant shall deliver to Landlord a fully executed sublease agreement which shall be reasonably acceptable to Landlord in form and substance. No sublease shall serve to release Tenant from any of its obligations or liabilities under this Lease. The term "Related Entity" shall mean a corporation, partnership, limited liability company or other entity that controls, is controlled by or is under common control with Tenant. The term "control" shall mean with respect to (a) a corporation, the ownership of more than fifty (50%) percent of the issued and outstanding voting stock together with the right to manage the affairs of the corporation and (b) with respect to a partnership, limited liability company or other entity, the ownership of more than fifty (50%) percent of the legal and equitable interests, together with the right to manage the affairs of the partnership, limited liability company or other entity. 20.2 Excess Rent; Effect of Transfer. If Tenant shall sublet or assign ------------------------------- the Premises or any part thereof or assign any interest in this Lease at a rental rate (or additional consideration) in excess of the then current Monthly Base Rent and amount of Direct Expense payments per rentable square foot, fifty (50%) percent of all such excess proceeds ("Excess Proceeds") shall be and become the property of Landlord and shall be paid to Landlord as it is received by Tenant after first offsetting Tenant's reasonable out-of-pocket costs and expenses of such assignment or subletting. Tenant shall furnish Landlord with a statement executed by Tenant's chief financial officer, setting forth in detail the computation of all such proceeds and Landlord or its representatives shall have access to the books, records and papers of Tenant in relation thereto and shall have the right to make copies thereof. Any non-monetary consideration shall be paid to Landlord in such form as is satisfactory to Landlord. If Tenant shall assign or sublet the Premises or any 37 part thereof, (i) Tenant shall be responsible for all actions and neglect of the assignee or subtenant and its officers, partners, employees, contractors, agents, licensees, clients, customers and invitees as if such actions and neglect had been committed or omitted by Tenant, (ii) with respect to all obligations and responsibilities of Tenant under this Lease, all references to Tenant shall be deemed to include any assignee or subtenant, and all references to Tenant's officers, partners, employees, contractors, agents, licensees, clients, customers or invitees shall be deemed to include, respectively, each assignee's or subtenant's officers, partners, employees, contractors, agents, licensees, clients, customers and invitees, and (iii) each waiver made by Tenant under this Lease shall be deemed to have also been made by each such assignee or subtenant. Nothing in this Section 20.2 shall be construed to relieve Tenant from the obligation to obtain Landlord's prior written consent to any proposed sublease or assignment. 20.3 Continuing Liability. The consent by Landlord to any Transfer shall -------------------- not be construed as a waiver or release of Tenant from liability for the performance of all covenants and obligations to be performed by Tenant under this Lease, and Tenant shall remain liable therefor, nor shall the collection or acceptance of Rent from any assignee, subtenant, transferee or occupant constitute a waiver or release of Tenant from any of its obligations or liabilities under this Lease. Any consent given by Landlord to a Transfer pursuant to this Section 20 shall not be construed as relieving Tenant from the obligation of obtaining Landlord's prior written consent to any subsequent Transfer. 20.4 Additional Transfers. -------------------- (a) If Tenant is a partnership or limited liability company, a withdrawal or change, whether voluntary, involuntary or by operation of law or in one or more transactions, of partners or members owning directly or indirectly a controlling interest in Tenant, or the dissolution of the partnership or limited liability company, without immediate reconstitution thereof, or the change or conversion of Tenant to a limited liability company or limited liability partnership, shall be deemed an assignment of this Lease and subject to the provisions of this Section 20. If Tenant is a corporation, any dissolution, merger, consolidation or other reorganization of Tenant, or the sale, transfer or redemption of a direct or indirect controlling interest in the capital stock of Tenant, in one or more transactions, shall be deemed a voluntary assignment of this Lease and subject to the provisions of this Section 20. However, the preceding sentence shall not apply to corporations the stock of which is traded through a national or regional exchange or over-the-counter. Neither this Lease nor any interest therein nor any estate created thereby shall pass by operation of law or otherwise to any trustee, custodian or receiver in bankruptcy of Tenant or any assignee for the assignment of the benefit of creditors of Tenant. (b) The provisions of this Section 20.4 shall not apply to transactions with a corporation into or with which Tenant is merged or consolidated or to which substantially all of Tenant's assets are transferred provided that in any of such 38 events (i) the successor to Tenant has a net worth computed in accordance with generally accepted accounting principles at least equal to the greater of (1) the net worth of Tenant immediately prior to such merger, consolidation or transfer, or (2) the net worth of Tenant herein named on the date of this lease, and proof satisfactory to Landlord of such net worth shall have been delivered to Landlord at least fifteen (15) days prior to the effective date of such transaction, (ii) such merger, consolidation or transfer is for a good business purpose and not principally for the purpose of transferring the leasehold created hereby, and (iii) the liabilities of Tenant under this Lease are assumed by the successor to Tenant, whether by operation of law or by the effective provisions contained in the instruments of merger, consolidation, transfer or assignment. 21. TENANT'S DEFAULT; LANDLORD'S RIGHTS AND REMEDIES ------------------------------------------------ 21.1 Events of Default. The occurrence of any one or more of the ----------------- following matters constitutes a default ("Default") by Tenant under this Lease: (a) Failure by Tenant to pay within five business days following written notice of delinquency, any Rent or any other amounts due and payable by Tenant under this Lease or under any other agreement between Landlord and Tenant; (b) Failure by Tenant to observe or perform any of the covenants in this Lease in respect to assignment, subletting or other Transfers; (c) Abandonment of the Premises as prohibited in Section 18; (d) Failure by Tenant to cure immediately after notice thereof from Landlord any hazardous condition that Tenant has created in violation of law or of this Lease; (e) Failure by Tenant to observe or perform any other covenant, agreement, condition or provision of this Lease, if such failure shall continue for ten days after written notice thereof to Tenant by Landlord provided, said ten day period shall be extended, if Tenant commences to cure said failure within said ten day period, said failure is not capable of being cured within said ten day period, and Tenant diligently and continuously prosecutes the cure thereof to completion; (f) The levy upon or the attachment by legal process of the leasehold interest of Tenant, or the filing or creation of a lien in respect of such leasehold interest; (g) Tenant becomes insolvent or bankrupt or admits in writing its inability to pay its debts as they mature, makes an assignment for the benefit of creditors, 39 or applies for or consents to the appointment of a trustee or receiver for itself or for all or a part of its property; (h) Proceedings for the appointment of a trustee, custodian or receiver of Tenant or for all or a part of Tenant's property are filed against Tenant or such guarantor and are not dismissed within sixty (60) days; (i) Proceedings in bankruptcy, or other proceedings for relief under any law for the relief of debtors, are instituted by or against Tenant, and, if instituted against Tenant, are allowed against or are consented to by Tenant or are not dismissed within sixty (60) days thereof; (j) The rejection of this Lease under Section 235 of Title 11 of the United States Code; (k) Tenant shall repeatedly default in the timely payment of Rent or any other charges required to be paid, or shall repeatedly default in keeping, observing or performing any other covenant, agreement, condition or provision of this Lease, whether or not Tenant shall timely cure any such payment or other default. For the purposes of this subsection, the occurrence of similar defaults three times during any 12 month period shall constitute a repeated default; (l) Tenant dissolves or winds up its business; (m) any representation or warranty made by Tenant is incorrect or misleading in any material respect; Any notice periods provided for under this Section 21.1 shall run concurrently with any statutory notice periods and any notice given hereunder may be given simultaneously with or incorporated into any such statutory notice. 21.2 Remedies Upon Default. Upon the occurrence of a Default by Tenant, --------------------- Landlord shall have, in addition to any other remedies available to Landlord at law or in equity, the option to pursue any one or more of the following remedies, each and all of which shall be cumulative and nonexclusive, without any notice or demand whatsoever. (a) Landlord may terminate this Lease, in which event Tenant shall immediately surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying the Premises or any part thereof, without being liable for prosecution or any claim or damages therefor, and Landlord may recover from Tenant the following: 40 (i) The worth at the time of award of any unpaid rent which has been earned at the time of such termination; plus (ii) The worth at the time of award of the amount by which the unpaid rent for the balance of the Lease Term after the termination exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus (iii) Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease, specifically including but not limited to, brokerage commissions and advertising expenses incurred, expenses of remodeling the Premises or any portion thereof for a new tenant, whether for the same or a different use, and any special concessions made to obtain a new tenant; and (iv) At Landlord's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable law. The term "rent" as used in this Section 21.2 shall be deemed to be and to mean all sums of every nature required to be paid by Tenant pursuant to the terms of this Lease, whether to Landlord or to others. As used in Section 21.2.(a)(i) above, the "worth at the time of award" shall be computed by allowing interest at the Interest Rate set forth in Section 30.5 of this Lease. As used in Section 21.2(a)(ii) above, the "worth at the time of award" shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of Chicago at the time of award plus 1%. (b) Landlord may terminate the right of Tenant to possession of the Premises without terminating this Lease by giving notice to Tenant that Tenant's right of possession shall end on the date stated in such notice, whereupon the right of Tenant to possession of the Premises or any part thereof shall cease on the date stated in such notice but Tenant's obligations under this Lease shall continue in full force and effect. (c) Landlord may enforce the provisions of this Lease and may enforce and protect the rights of Landlord hereunder by a suit or suits in equity or at law for the specific performance of any covenant or agreement contained herein, or for the enforcement of any other appropriate legal or equitable remedy, including injunctive relief and recovery of all moneys due or to become due from Tenant under any of the provisions of this Lease. 41 (d) If Landlord exercises either of the remedies provided for in Sections 21.2(a) or 21.2(b), Tenant shall surrender possession and vacate the Premises immediately and deliver possession thereof to Landlord, and Landlord may then, or at any time thereafter, re-enter and take complete and peaceful possession of the Premises, full and complete license so to do being granted to Landlord, and Landlord may remove all occupants and property therefrom, using such force as may be necessary, without being deemed in any manner guilty of trespass, eviction or forcible entry and detainer and without relinquishing Landlord's right to Rent or any other right given to Landlord hereunder or by operation of law. (e) If Landlord terminates the right of Tenant to possession of the Premises without terminating this Lease, such termination of possession shall not release Tenant, in whole or in part, from Tenant's obligation to pay the Rent due hereunder for the full stated Lease Term. At Landlord's option, the amounts described in clauses (i) through (v) of Section 21.2(a) shall at once mature and be immediately due and payable by Tenant to Landlord, together with any other amounts then due hereunder, and Landlord shall have the right to immediate recovery of all such amounts. Alternatively, at Landlord's option, Landlord shall have the right, from time to time, to recover from Tenant, and Tenant shall remain liable for, all Monthly Base Rent and Tenant's Share of Direct Expenses and any other sums then due under this Lease and thereafter accruing as they become due under this Lease during the period from the date of such notice of termination of possession to the end of the Lease Term. Landlord may file suit from time to time to recover any such sums and no suit or recovery by Landlord of any such sums or portion thereof shall be a defense to any subsequent suit brought for any other sums due under this Lease. (f) In the event Landlord terminates the right of Tenant to possession of the Premises without terminating this Lease as aforesaid, Landlord shall use reasonable efforts to relet the Premises or any part thereof for the account of Tenant for such rent, for such time (which may be for a term extending beyond the Lease Term) and upon such terms as Landlord in Landlord's sole discretion shall determine; provided, if other vacant space then exists in the Building, Landlord may endeavor to lease such other space to prospective tenants rather than the Premises. Landlord shall not be required to accept any tenant offered by Tenant or to observe any instructions given by Tenant relative to such reletting. Also, in any such event, Landlord may make repairs, alterations and reasonably necessary additions in or to the Premises and redecorate the same to the extent reasonably deemed by Landlord necessary or desirable, and, in connection therewith, change the locks to the Premises, and Tenant shall upon demand pay the cost thereof together with Landlord's expenses of reletting. Landlord may collect the rents from any such reletting and apply the same first to the payment of the expenses of re-entry, redecoration, repair and alterations and the expense of reletting (including without limitation brokers' commissions and attorneys' fees) and second to the 42 payment of Rent herein provided to be paid by Tenant. Any excess or residue shall operate only as an offsetting credit against the amount of Rent as the same theretofore became or thereafter becomes due and payable hereunder, but the use of such offsetting credit to reduce the amount of Rent due Landlord, if any, shall not be deemed to give Tenant any right, title or interest in or to such excess or residue and any such excess or residue shall belong solely to Landlord. No such re-entry or repossession, repairs, alterations and additions, or reletting shall be construed as an eviction or ouster of Tenant, an election on Landlord's part to terminate this Lease or an acceptance of a surrender of this Lease, unless a written notice of such intention be given to Tenant, or shall operate to release Tenant in whole or in part from any of Tenant's obligations hereunder. Landlord may, at any time and from time to time, sue and recover judgment for any deficiencies remaining after the application of the proceeds of any such reletting. 21.3 Efforts to Relet. For the purposes of this Section 21, Tenant's ---------------- right to possession shall not be deemed to have been terminated by efforts of Landlord to relet the Premises, by its acts of maintenance or preservation with respect to the Premises, or by appointment of a receiver to protect Landlord's interests hereunder. The foregoing enumeration is not exhaustive, but merely illustrative of acts which may be performed by Landlord without terminating Tenant's right to possession. 21.4 Sublessees of Tenant. Whether or not Landlord elects to terminate -------------------- this Lease on account of any Default by Tenant, as set forth in this Section 21, Landlord shall have the right to terminate any and all subleases, licenses, concessions or other consensual arrangements for possession entered into by Tenant and affecting the Premises or may, in Landlord's sole discretion, succeed to Tenant's interest in such subleases, licenses, concessions or arrangements. In the event of Landlord's election to succeed to Tenant's interest in any such subleases, licenses, concessions or arrangements, Tenant shall, as of the date of notice by Landlord of such election, have no further right to or interest in the rent or other consideration receivable thereunder, provided that the net proceeds therefrom are applied to Tenant's obligations hereunder. 21.5 Removal of Property. All property removed from the Premises by ------------------- Landlord pursuant to any provisions of this Lease or of law shall be handled, removed or stored by Landlord at the cost, expense and risk of Tenant, and Landlord shall in no event be responsible for the value, preservation or safekeeping thereof. Tenant shall pay Landlord upon demand for all expenses incurred by Landlord in such removal and storage. 21.6 Tenant's Payment of Landlord's Costs. Tenant shall pay all costs, ------------------------------------ charges and expenses, including court costs and reasonable attorneys' fees incurred by Landlord in enforcing Tenant's obligations under this Lease, in the exercise by Landlord of any of its remedies in the event of a Default, in any litigation, negotiation or transactions in which Tenant causes Landlord, without Landlord's fault, to become involved or concerned, or in consideration of any request for approval of or consent to any action by Tenant which is 43 prohibited by this Lease or which may be done only with Landlord's approval or consent (including, without limitation, any proposed Transfer pursuant to Article 20), whether or not such approval or consent is given. 21.7 Remedies Cumulative. All of Landlord's rights and remedies under ------------------- this Lease shall be cumulative with and in addition to any and all rights and remedies which Landlord may have at law or in equity. Any specific remedy provided for in any provision of this Lease shall not preclude the concurrent or consecutive exercise of a remedy provided for in any other provision hereof. 21.8 Additional Restrictions. With respect to provisions of 735 ILCS 5/9- ----------------------- 213.1 (or any successor provision thereto) which requires that a landlord take reasonable measures to mitigate the damages recoverable against a defaulting tenant, Tenant agrees that Landlord shall have no obligation to relet the Leased Premises (i) before Landlord leases other vacant space in the Building, or (ii) to any potential tenant who Landlord could reasonably reject as a transferee, pursuant to Section 20.1 above. 22. COUNTERCLAIMS ------------- Tenant hereby waives any right to plead any counterclaim, offset or affirmative defense in any action or proceedings brought by Landlord against Tenant pursuant to the unlawful detainer laws of the State of Illinois or otherwise, for the recovery of possession based upon the non-payment of Rent or any other Default. This shall not, however, be construed as a waiver of Tenant's right to assert any claim in a separate action brought by Tenant against Landlord. Tenant agrees to pay all Rent without offset or reduction of any kind whatsoever. Tenant waives trial by jury in any action brought by Landlord under or in respect of this Lease. So long as Tenant is in default under this Lease or any event or omission has occurred which, but for the giving of notice or the passage of time, or both, would result in a default by Tenant under the terms of this Lease, Landlord shall not be in default under the terms of this Lease it fails to perform its obligations hereunder. 23. HOLDING OVER ------------ If Tenant retains possession of the Premises or any part thereof after the expiration or termination of the Lease Term or Tenant's right to possession of the Premises, Tenant shall pay rent during such holding over at 150% of the rate in effect immediately preceding such holding over computed on a monthly basis for each month or partial month that Tenant remains in possession. Tenant shall also pay, indemnify and defend Landlord from and against all claims and damages, consequential as well as direct, sustained by reason of Tenant's holding over. The provisions of this Section do not waive Landlord's right of re-entry or right to regain possession by actions at law or in equity or any other rights hereunder, and any receipt of payment by Landlord shall not be deemed a consent by Landlord to Tenant's remaining in possession or be construed as creating or renewing any lease or right of tenancy between Landlord and Tenant. 44 24. SUBORDINATION AND ATTORNMENT ---------------------------- Landlord and Tenant agree that this Lease be and hereby is made subject and subordinate at all times to all ground and underlying leases and to all mortgages in any amounts, and all advances thereon which may now or hereafter affect the Building and to all renewals, modifications, consolidations, participations, replacements and extensions thereof. The term "mortgage" as used herein shall be deemed to include a mortgage, bond, trust indenture, deed of trust, deed to secure debt or other similar security instrument. The aforesaid provisions shall be self-operative and no further instrument of subordination shall be required to effectuate any such subordination. In the event Landlord or the existing or future lessor under any such ground or underlying lease or the existing or future holder of any such mortgage (each existing or future holder of any such mortgage, shall sometimes be referred to in this Lease individually, as the "Mortgagee" and collectively as the "Mortgagee") desires confirmation of such subordination, Tenant shall execute promptly and without charge therefor any certificate that may be requested. Such certificate shall also contain, at the election of the Mortgagee or lessor, an agreement whereby Tenant will attorn to said Mortgagee or lessor as Landlord in the event of a foreclosure of such mortgage or termination of such ground or underlying lease, or attorn to any party taking title through such mortgage or lease in such event. Notwithstanding the provisions hereof, should any lessor or Mortgagee require that this Lease be prior rather than subordinate to its mortgage or lease, or require that Tenant attorn to such Mortgagee or lessor as Landlord in the event of a foreclosure of such mortgage or termination of such ground or underlying lease, or to any party taking title through such mortgage or lease in such event, then this Lease shall become prior and superior to such mortgage or lease, as the case may be, or Tenant shall so attorn, upon written notice to that effect to Tenant from such lessor or Mortgagee. The aforesaid superiority of this Lease to any mortgage or lease, and the attornment by Tenant to such lessor or Mortgagee, shall be self-operative upon the giving of such notice and no further documentation other than such written notice shall be required to effectuate such superiority or attornment. In the event Landlord or such lessor or Mortgagee desires confirmation of such superiority or attornment, Tenant shall, promptly upon request therefor by Landlord or such lessor or Mortgagee, and without charge therefor, execute a document acknowledging such priority or attornment obligation to the lessor or Mortgagee (or any party acquiring title through such mortgage) as Landlord in the event of foreclosure of such mortgage or deed in lieu thereof or termination of lease. Tenant hereby constitutes and appoints Landlord as Tenant's attorney-in-fact to execute any such certificates or documents for and on behalf of Tenant if Tenant shall fail to do so within ten days after demand. The foregoing appointment of Landlord as Tenant's attorney-in-fact is coupled with an interest and is irrevocable. If any mortgage is foreclosed, or Landlord's interest under this Lease is conveyed or transferred in lieu of foreclosure, or if any ground lease is terminated (i) no person or entity which as the result of any of the foregoing has succeeded to the interest of Landlord under this Lease (a "Successor") shall be bound to recognize any prepayment by more 45 than 30 days of Base Rent or Additional Rent; and (ii) no Successor shall have any liability for any security deposit paid to Landlord by Tenant hereunder, unless such security deposit has actually been received by such Successor. Further, Tenant agrees that in the event of any act or omission by Landlord hereunder which could give Tenant the right to terminate this Lease or to claim a partial or total eviction, Tenant shall not exercise any such right until it has notified in writing the Successor (provided Tenant has theretofore received written notice of such Successor) and such Successor shall have failed to commence the curing of such act or omission within 30 days after such notice and to diligently pursue the cure thereof until completed. 25. ESTOPPEL CERTIFICATE -------------------- Tenant agrees that from time to time, upon not less than seven (7) business days' prior written request by Landlord or any Mortgagee or ground or underlying lessor of the Building, Tenant will, and Tenant will cause any subtenant, licensee, concessionaire or other occupant of the Premises to, promptly complete, execute and deliver to Landlord, such Mortgagee or lessor or any party or parties designated by Landlord, as applicable, a statement in writing certifying: (i) that this Lease is unmodified and in full force and effect (or if there have been modifications that the same are in full force and effect as modified and identifying the modifications); (ii) the dates to which the Rent and other charges have been paid; (iii) that the Premises have been unconditionally accepted by the Tenant (or if not, stating with particularity the reasons why the Premises have not been unconditionally accepted); (iv) the amount of any Security Deposit held hereunder; (v) that, so far as the party making the certificate knows, Landlord is not in default under any provisions of this Lease, if such is the case, and if not, identifying all defaults with particularity; and (vi) any other matter reasonably requested by Landlord. Any purchaser, Mortgagee or ground or underlying lessor of the Building shall be entitled to rely on said statement. Failure to give such a statement within seven days after said written request shall be conclusive evidence, upon which Landlord and any such purchaser, Mortgagee or lessor shall be entitled to rely, that this Lease is in full force and effect and Landlord is not in default and Tenant shall be estopped from asserting against Landlord or any such purchaser, Mortgagee or lessor any defaults of Landlord existing at that time but Tenant shall not thereby be relieved of the affirmative obligation to give such statement. 26. INTENTIONALLY OMITTED --------------------- 27. NOTICES AND DEMANDS ------------------- 27.1 Notices. All notices, demands, approvals, consents, requests for ------- approval or consent or other communications in this Lease provided to be given, made or sent by either party hereto to the other ("Notice") shall be in writing and shall be deemed to have been fully given, made or sent when made by personal service, when received if sent by facsimile transmission, one business day after deposit with a national overnight courier 46 service or two business days after deposit in the United States mail certified or registered and postage prepaid and properly addressed as follows: To Landlord: Landlord's Management Agent at the address set forth in Section 1.1.2 of the Summary. To Tenant: (i) To the address set forth in Section 1.1.3 of the Summary. The address to which any Notice should be given, made or sent to either party may be changed by written notice given by such party as above provided. 27.2 Notice by Landlord's Management Agent or Attorneys. Any notice, -------------------------------------------------- demand, request or consent to be made by or required of Landlord, may be made and given by Landlord's Management Agent or its attorneys with the same force and effect as if made and given by Landlord. 28. CONSTRUCTION OF LEASE --------------------- 28.1 Construction of Lease. The language in all parts of this Lease shall --------------------- in all cases be construed as a whole according to its fair meaning and neither strictly for nor against either Landlord or Tenant. Section and subsection headings in this Lease are for convenience only and are not to be construed as part of this Lease or in any way defining, limiting, amplifying, construing, or describing the provisions hereof. Time is of the essence of this Lease and every term, covenant and condition hereof. The words "Landlord" and "Tenant," as herein used, shall include the plural as well as the singular. The neuter gender includes the masculine and feminine. In the event there is more than one person or entity which executes this Lease as Tenant, the obligations to be performed and liability of all such persons and entities shall be joint and several. Landlord and Tenant agree that in the event any term, covenant or condition herein contained (other than with respect to the payment of Rent) is held to be invalid or void by any court of competent jurisdiction, the invalidity of any such term, covenant or condition shall in no way affect any other term, covenant or condition herein contained. 28.2 Entire Agreement; Modification. This Lease contains and embodies the ------------------------------ entire agreement of the parties hereto, and no representation, inducement or agreement, oral or otherwise, not contained in this Lease shall be of any force or effect. This Lease may not be modified in whole or in part in any manner other than by an instrument in writing duly signed by both parties hereto. 28.3 Approvals. Whenever in this Lease any consent or approval with --------- respect to any matter is required to be obtained from either Landlord or Tenant and such provision requires that such consent or approval should not be unreasonably withheld, delayed, and/or conditioned, it is the intent of Landlord and Tenant that, in the giving or withholding of any such consent or approval, the determination by the party from whom such consent 47 or approval is required shall be governed by standards of "commercial reasonableness" with due regard to any other factors, standards, or limitation otherwise expressed herein with respect to the subject matter or the giving or withholding of any such consent or approval. In the event of any dispute as to whether a consent or approval was unreasonably withheld, delayed and/or conditioned, the sole remedy of the party requesting the consent or approval shall be to commence an action for a declaratory judgment; it being understood and agreed that any claim for monetary damages for unreasonably withholding and/or conditioning any consent or approval is hereby unconditionally and irrevocably waived. 29. REAL ESTATE BROKERS ------------------- Tenant represents and warrants unto Landlord that Tenant has directly dealt with and only with Landlord's Management Agent and the Leasing Broker, if any, identified in Section 1.1.13 of the Summary as broker in connection with this Lease, and agrees to indemnify and hold harmless Landlord from and against any and all claims or demands, damages, liabilities and expenses of any type or nature whatsoever arising by reason of the incorrectness or breach of the aforesaid representation or warranty. Landlord shall pay Landlord's Management Agent and the Leasing Broker for commissions arising out of the execution and delivery of this Lease pursuant to separate agreement. 30. MISCELLANEOUS ------------- 30.1 Binding Effect. Subject to the provisions of Sections 19 and 20 -------------- hereof, all terms, covenants and conditions of this Lease shall be binding upon and inure to the benefit of and shall apply to the respective heirs, executors, administrators, successors, assigns and legal representatives of Landlord and Tenant. 30.2 Execution and Delivery. The execution of this Lease by Tenant and ---------------------- delivery of the same to Landlord or Landlord's Management Agent does not constitute a reservation of or option to lease the Premises or an agreement by Landlord to enter into a lease, and this Lease shall become effective only if and when Landlord executes and delivers a counterpart hereof to Tenant; provided, however, the execution and delivery by Tenant of this Lease to Landlord or Landlord's Management Agent shall constitute an irrevocable offer by Tenant to lease the Premises on the terms and conditions herein contained, which offer may not be withdrawn or revoked for 10 days after such execution and delivery. If Tenant is a corporation, it shall deliver to Landlord following a request therefor, certified resolutions of Tenant's directors authorizing execution and delivery of this Lease and the performance by Tenant of its obligations hereunder and such other evidence of authority for execution and performance as Landlord shall reasonably require. If Tenant is a partnership or limited liability company, it shall deliver to Landlord concurrently with the delivery to Landlord of an executed Lease, a certified copy of its partnership agreement or operating agreement, as the case may be, and such other evidence of authority for 48 execution and performance as Landlord shall reasonably require. Tenant shall not record this Lease or any memorandum or other evidence hereof. 30.3 Default Under Other Lease. If the term of any lease (other than this ------------------------- Lease) made by Tenant for any demised premises in the Building shall be terminated or terminable after the making of this Lease, because of any default by Tenant under such other lease, such fact shall empower Landlord, at Landlord's sole option, to declare this Lease to be in default by Tenant by written notice to Tenant. 30.4 Applicable Law. This Lease shall be governed by and construed in -------------- accordance with the laws of the State of Illinois. 30.5 Late Charges. At the option of Landlord, Landlord may impose a late ------------ payment fee equal to 5% of the amount due if any payment of Rent is paid more than five days after its due date. In addition, any amount due hereunder shall, if not paid when due, bear interest after the due date thereof, at the annual rate (the "Interest Rate") equal to the greater of (a) 4% above the prime rate as announced by LaSalle National Bank, from time to time, or if the use of the prime rate is discontinued by LaSalle National Bank, such other rate as may thereafter be announced from time to time by LaSalle National Bank, or any other major bank selected by Landlord as a measure of the cost to its borrowers of short-term commercial loans, until said past due amount shall be paid by Tenant to Landlord or, (b) 18%, but in no event with respect to (a) and (b) greater than the maximum rate permitted by law. All amounts due under this Section 30.5 shall be deemed Additional Rent under this Lease. 30.6 Nonwaiver of Defaults. No waiver of any provision of this Lease --------------------- shall be implied by any failure of Landlord to enforce any remedy on account of the violation of such provision, even if such violation be continued or repeated subsequently, and no express waiver shall affect any provision other than the one specified in such waiver and in that event only for the time and in the manner specifically stated. No receipt of monies by Landlord from Tenant after the termination of this Lease will in any way alter the length of the Lease Term or Tenant's right of possession hereunder or, after the giving of any notice, shall reinstate, continue or extend the Lease Term or affect any notice given Tenant prior to the receipt of such monies, it being agreed that after the service of notice or the commencement of a suit or after final judgment for possession of the Premises, Landlord may receive and collect any Rent due, and the payment of Rent shall not waive or affect said notice, suit or judgment, nor shall any such payment be deemed to be other than on account of the amount due, nor shall the acceptance of Rent be deemed a waiver of any breach by Tenant of any term, covenant or condition of this Lease. No endorsement or statement on any check or any letter accompanying any check or payment of Rent shall be deemed an accord and satisfaction. Landlord may accept any such check or payment without prejudice to Landlord's right to recover the balance due of any installment or payment of Rent or pursue any other remedies available to Landlord with respect to any 49 existing Defaults. None of the terms, covenants or conditions of this Lease can be waived by either Landlord or Tenant except by appropriate written instrument. 30.7 Force Majeure. Either Tenant or Landlord shall not be deemed in ------------- default with respect to the failure to perform any of the terms, covenants and conditions of this Lease on its part to be performed, if such failure is due in whole or in part to any strike, lockout, labor dispute (whether legal or illegal), civil disorder, inability to procure materials, failure of power, restrictive governmental laws and regulations, riots, insurrections, war, fuel shortages, accidents, casualties, Acts of God, acts caused directly or indirectly by the other party (or its agents, employees, contractors, guests or invitees), acts of other tenants or occupants of the Property or any other cause beyond the reasonable control of the party obligated to perform. Notwithstanding anything herein to the contrary, Tenant shall not be entitled to any extension of time due to the unavailability of funds for any reason. In such event, the time for performance shall be extended by an amount of time equal to the period of the delay so caused. 30.8 Landlord's Right to Perform Tenant's Duties. If Tenant fails timely ------------------------------------------- to perform any of its duties under this Lease, Landlord shall have the right (but not the obligation), after the expiration of any grace period specifically provided by this Lease (unless expressly provided to the contrary elsewhere in this Lease), to perform such duty on behalf and at the expense of Tenant without further notice to Tenant, and all sums expended or expenses incurred by Landlord in performing such duty shall be deemed to be Rent under this Lease and shall be due and payable to Landlord upon demand by Landlord. 30.9 Lease Tax. If any governmental entity or authority has imposed or --------- hereafter imposes a tax or assessment upon or against any of the rentals or other charges payable by Tenant to Landlord hereunder (whether such tax takes the form of a lease tax, sales tax or other tax), Tenant shall be responsible for the timely payment thereof. Unless Landlord and Tenant otherwise agree in writing with respect to the payment thereof, Tenant shall pay the applicable tax to Landlord together with each payment by Tenant to Landlord of Rent due under this Lease. 30.10 Liens. Without limitation of the provisions of Sections 9.1 and 9.2 ----- of this Lease, Tenant agrees not to suffer or permit any lien of any mechanic or materialman to be placed or filed against the Premises, the Building or the Property. In case any such lien shall be filed, Tenant shall satisfy and release such lien of record within five days after receipt of notice thereof from Landlord or, if earlier, within five days after Tenant has actual knowledge or notice of such lien filing. If Tenant shall fail to have such lien immediately satisfied and released of record, Landlord may, on behalf of Tenant, without being responsible for making any investigation as to the validity of such lien and without limiting or affecting any other remedies Landlord may have, pay the same and Tenant shall pay Landlord on demand the amount so paid by Landlord. Notwithstanding the foregoing, Tenant shall have the right to contest any such lien claim diligently and in good faith, and during such contest shall not be obligated to pay such lien claim, provided that Tenant is 50 not in breach of any of its obligations under this Lease and Tenant, at its sole cost and expense, provides to Landlord, through Landlord's title insurer, a title insurance endorsement in form and substance acceptable to Landlord affirmatively insuring against any loss relating to such claim for the benefit of Landlord and each of the Mortgagees and ground or underlying lessors of the Building or, at its option, Tenant shall provide Landlord with a bond from a company satisfactory to Landlord in form, substance and amount satisfactory to Landlord, insuring against loss arising from the existence or attempted enforcement of such lien. Notwithstanding any such contest or title insurance, Tenant shall pay any such claim in full within five days following the entry of an unstayed judgment or order of sale. 30.11 Modification of Lease. Should any current or prospective Mortgagee --------------------- or ground lessor for the Building require a modification or modifications of this Lease, which modification or modifications will not cause an increased cost or expense to Tenant or in any other way materially and adversely change the rights and obligations of Tenant hereunder, then and in such event, Tenant agrees that this Lease may be so modified and agrees to execute whatever documents are required therefor and deliver the same to Landlord within ten days following the request therefor. Should Landlord or any such current or prospective Mortgagee or ground lessor require execution of a short form of Lease for recording, containing, among other customary provisions, the names of the parties, a description of the Premises and the Lease Term, Tenant agrees to execute such short form of Lease and to deliver the same to Landlord within ten days following the request therefor. 30.12 Relationship of Parties. Nothing contained in this Lease shall be ----------------------- deemed or construed by the parties hereto or by any third party to create the relationship of principal and agent, partnership, joint venturer or any association between Landlord and Tenant, it being expressly understood and agreed that neither the method of computation of Rent nor any act of the parties hereto shall be deemed to create any relationship between Landlord and Tenant other than the relationship of landlord and tenant. 30.13 Application of Payments. Landlord shall have the right to apply ----------------------- payments received from Tenant pursuant to this Lease, regardless of Tenant's designation of such payments, to satisfy any obligations of Tenant hereunder, in such order and amounts as Landlord, in its sole discretion, may elect. 30.14 Right to Lease. Landlord reserves the absolute right to effect such -------------- other tenancies in the Building and Property as Landlord in the exercise of its sole business judgment shall determine to best promote the interests of the Building and Property. Tenant does not rely on the fact, nor does Landlord represent, that any specific tenant or type or number of tenants shall, during the Lease Term, occupy any space in the Building or Property. 51 30.15 Waiver of Jury Trial; Attorneys' Fees. If either party commences ------------------------------------- litigation against the other for the specific performance of this Lease, for damages for the breach hereof or otherwise for enforcement of any remedy hereunder, the parties hereto agree to and hereby do waive any right to a trial by jury and, in the event of any such commencement of litigation, the prevailing party shall be entitled to recover from the other party such costs and reasonable attorneys' fees as may have been incurred, including any and all costs incurred in enforcing, perfecting and executing such judgment. 30.16 Independent Covenants. This Lease shall be construed as though the --------------------- covenants herein between Landlord and Tenant are independent and not dependent and Tenant hereby expressly waives the benefit of any statute to the contrary and agrees that if Landlord fails to perform its obligations set forth herein, Tenant shall not be entitled to make any repairs or perform any acts hereunder at Landlord's expense or to any setoff of the Rent or other amounts owing hereunder against Landlord; provided, however, that the foregoing shall in no way impair the right of Tenant to commence a separate action against Landlord for any violation by Landlord of the provisions hereof so long as notice is first given to Landlord and any Mortgagee or ground lessor, of whose address Tenant has theretofore been notified, and a reasonable opportunity is granted to Landlord and such Mortgagee or ground lessor to correct such violations. 30.17 Transportation Management. Tenant shall fully comply with all ------------------------- present or future programs intended to manage parking, transportation or traffic in and around the Building and Property, to the extent that any such failure to comply by Tenant could result in Landlord or the Building being in violation of any law, rule, order, regulation or ordinance of any kind, or in any penalty, fine or assessment being levied against the Building, Landlord or any other tenant. In connection therewith, Tenant shall take responsible action for the transportation planning and management of all employees located at the Premises by working directly with Landlord, any governmental transportation management organization or any other transportation-related committees or entities. Such programs may include, without limitation: (a) restrictions on the number of peak-hour vehicle trips generated by Tenant; (b) increased vehicle occupancy, (c) implementation of an in-house ridesharing program and an employee transportation coordinator, (d) working with employees and any Building or area- wide ridesharing program manager, (e) instituting employer-sponsored incentives (financial or in-kind) to encourage employees to rideshare; and (f) utilizing flexible work shifts for employees. 30.18 No Air Rights. No rights to any view or to light or air over any ------------- property, whether belonging to Landlord or any other person, are granted to Tenant under this Lease. 30.19 Partial Invalidity. If any term, provision or condition contained ------------------ in this Lease shall, to any extent, be invalid or unenforceable, the remainder of this Lease (or the application of such term, provision or condition to persons or circumstances other than those in respect of which it is invalid or unenforceable) shall not be affected thereby, and 52 each and every other term, provision and condition of this Lease shall be valid and enforceable to the fullest extent permitted by law; provided, however, that if any provision of this Lease relating to payment of Base Rent or Additional Rent is invalid or unenforceable, Landlord shall have the right to terminate this Lease. 30.20 Authorized Signatory. If Tenant is a corporation or partnership, -------------------- Tenant represents and warrants that the person executing this Lease is a duly authorized signatory for and on behalf of the Tenant. 30.21 Financial Information. Tenant represents and warrants that all --------------------- financial information heretofore and hereafter delivered to Landlord is true and correct and that no material misstatements or omissions exist therein. 31. LANDLORD EXCULPATION -------------------- It is expressly understood and agreed that notwithstanding anything in this Lease to the contrary, and notwithstanding any applicable law to the contrary, the liability of Landlord hereunder and any recourse by Tenant against Landlord shall be limited solely and exclusively to the interest of Landlord in and to the Property. Neither Landlord, nor any of its beneficiaries or their respective constituent partners, shall have any personal liability hereunder, and Tenant hereby expressly waives and releases such personal liability on behalf of itself and all persons claiming by, through or under Tenant. In addition to the foregoing, and not by way of limitation of the generality of the exculpation set forth in the preceding paragraph, this Lease is executed by LaSalle National Bank, not personally, but solely as aforesaid in the exercise of the power and authority conferred upon and vested in it as Trustee, and under the express direction of the beneficiaries of the said Trust. It is expressly understood and agreed that nothing herein shall be construed as creating any liability whatsoever against said Trustee personally, and in particular, without limiting the generality of the foregoing, there shall be no personal liability to pay any indebtedness accruing hereunder or to perform any covenant, either express or implied, herein contained, or to keep, preserve or sequester any property of said Trust, and that all personal liability of said Trustee of every sort, if any, is hereby expressly waived by said Tenant, and by every person now or hereafter claiming any right or security hereunder; and that so far as the said Trustee is concerned the owner of any, indebtedness or liability accruing hereunder, shall look solely to the assets of said Trust and the proceeds thereof for the payment thereof. It is further understood and agreed that the said Trustee merely holds naked title to the Property herein described and has no control over, and under this Lease assumes no responsibility for: 53 (a) Management or control of the Property; (b) Upkeep, inspection, maintenance or repair of the Property; (c) Collection of rents or the rental of space in the Property; or (d) The conduct of any business which is carried on upon the Property. It is further understood that the foregoing exoneration clause shall apply to any institutional land trustee which shall at any time be the Landlord hereunder. Moreover, in the event this Lease is assigned to a Landlord which is not an institutional land trustee, then said Landlord shall not be personally liable to Tenant or any party claiming by, through or under Tenant for any liabilities or obligations arising under or in respect of this Lease or the Building, but rather Tenant and all such other parties shall look solely to the Building for the enforcement thereof. END OF TERMS OF LEASE 54 EXHIBIT 1 --------- PLAN OF PREMISES ---------------- 1 [Landlord Performs Work] Tenant Allowance EXHIBIT 2 --------- WORK LETTER ----------- This Work Letter shall set forth the terms and conditions relating to the construction of the tenant improvements ("Tenant Improvements") in the Premises. This Work Letter is essentially organized chronologically and addresses the issues of the construction of the Premises, in sequence, as such issues will arise during the actual construction of the Premises. All references in this Work Letter to Sections of "this Lease" or "the Lease" shall mean the relevant portion of the Office Space Lease to which this Work Letter is attached as Exhibit 2 and of which this Work Letter forms a part, and all references in this Work Letter to Sections of "this Work Letter" shall mean the relevant portion of Sections 1 through 6 of this Work Letter. SECTION 1 --------- LANDLORD'S INITIAL CONSTRUCTION IN THE PREMISES ----------------------------------------------- Tenant has inspected the Premises prior to execution of this Lease and agrees to accept the Premises, including the base, shell and core thereof, in AS IS condition, subject only to the provisions of this Work Letter. The Tenant Improvements to be initially installed in the Premises shall be designed and constructed pursuant to this Work Letter. Any costs of initial design and construction of any improvement to the Premises shall be a "Tenant Improvement Allowance Item", as that term is defined in Section 2.2 of this Work Letter. SECTION 2 --------- TENANT IMPROVEMENTS ------------------- 2.1 Tenant Improvement Allowance. Tenant shall be entitled to a one-time ---------------------------- tenant improvement allowance (the "Tenant Improvement Allowance") in the amount of Fifteen and No/100 ($15.00) Dollars per square foot of the Premises (i.e. Sixty-Four Thousand Four Hundred Seventy and No/100 ($64,470.00) Dollars ) for the costs relating to the initial design and construction of the Tenant Improvements. In addition to the Tenant Improvement Allowance, Landlord will reimburse Tenant up to Three Hundred Forty-Five and No/100 ($345.00) Dollars towards the cost of preparing a space plan for the Premises and up to One Hundred Seventy-Two and No/100 ($172.00) Dollars towards the cost of one (1) revision to such space plan, which sums shall be paid to Tenant within ten (10) days of written request accompanied by a copy of the bill or invoice of the firm that prepared the space plan. 2.2 Disbursement of the Tenant Improvement Allowance. Except as otherwise ------------------------------------------------ set forth in this Work Letter, the Tenant Improvement Allowance shall be disbursed by Landlord (each of which disbursements shall be made pursuant to Landlord's disbursement process) for costs related to the construction of the Tenant Improvements and for the following items and costs (collectively, the "Tenant Improvement Allowance Items"): (i) payment of the fees of the "Architect" and the "Engineers," as those terms are defined in Section 3.1 of this Work Letter, and payment of the fees incurred by, and the cost of documents and materials supplied by, Landlord and Landlord's EXHIBIT 2 - Page 1 consultants in connection with the preparation and review of the "Construction Drawings," as that term is defined in Section 3.1 of this Work Letter; (ii) the cost of any changes in the base, shell and core of the Premises required by the Construction Drawings; (iii) the cost of any changes to the Construction Drawings or Tenant Improvements required by applicable building codes or other laws or regulations, including without limitation, The Americans With Disabilities Act (collectively, the "Code"); (iv) the "Landlord Supervision Fee", as that term is defined in Section 4.3.2 of this Work Letter; and (v) a portion of the costs, if any, of the tenant demising walls and public corridor walls and materials on the floor of the Building on which the Premises is located as designated by Landlord. Notwithstanding anything in this Exhibit to the contrary, any costs that are due to the following shall not be included in the cost of Tenant Work and shall be the sole responsibility of Landlord: (i) any costs incurred due to the remediation of Hazardous Materials, where such were not caused by Tenant, and (ii) any costs incurred to correct any non- compliance with codes, laws, or statutes where such non-compliance existed prior to the commencement of the Tenant Improvements. 2.3 Standard Tenant Improvement Package. Landlord has established ----------------------------------- specifications (the "Specifications") for the Building standard components to be used in the construction of the Tenant Improvements in the Premises (collectively, the "Standard Improvement Package"), which Specifications shall be supplied to Tenant by Landlord. The quality of Tenant Improvements shall be equal to or of greater quality than the quality of the Specifications, provided that Landlord may, at Landlord's option, require the Tenant Improvements to comply with certain Specifications. Landlord may make reasonable changes to the Specifications for the Standard Improvement Package from time to time. SECTION 3 --------- CONSTRUCTION DRAWINGS --------------------- 3.1 Selection of Architect/Construction Drawings/Waiver. Landlord shall --------------------------------------------------- retain an architect/space planner (the "Architect") to prepare the "Construction Drawings," as that term is defined in this Section 3.1. Landlord shall retain engineering consultants (the "Engineers") to prepare all plans and engineering working drawings relating to the structural, mechanical, electrical, plumbing, HVAC, lifesafety, and sprinkler work of the Tenant Improvements. The plans and drawings to be prepared by Architect and the Engineers hereunder shall be known collectively as the "Construction Drawings." All Construction Drawings shall comply with the drawing format and specifications as determined by Landlord, and shall be subject to Landlord's approval. Tenant and Architect shall verify, in the field, the dimensions and conditions as shown on the relevant portions of the base building plans, and Tenant and Architect shall be solely responsible for the same, and Landlord shall have no responsibility in connection therewith. Landlord's review of the Construction Drawings as set forth in this Section 3, and Landlord's supervision of the construction of the Tenant Improvements shall be for its sole purpose and shall not imply Landlord's review of the same, or obligate Landlord to review the same, for quality, design, Code compliance or other like matters. Accordingly, notwithstanding that any Construction Drawings are reviewed or the construction of Tenant Improvements is supervised by Landlord or its space planner, architect, engineers and consultants, and notwithstanding any advice or assistance which may be rendered to Tenant by Landlord or Landlord's space planner, architect, engineers, and consultants, Landlord shall have no liability whatsoever in connection therewith and shall not be responsible for any omissions or errors contained in the Construction Drawings or for any defects in the construction of the Tenant Improvements; provided, Landlord will correct latent defects in physical construction (but not design) EXHIBIT 2 - Page 2 of the Tenant Improvements which defects are discovered by Tenant and reported to Landlord within one year of the Commencement Date. 3.2 Final Space Plans. On or before the date set forth in Schedule A, ----------------- ---------- attached hereto, Tenant and the Architect shall prepare the final space plan for Tenant Improvements in the Premises (collectively, the "Final Space Plan"), which Final Space Plan shall include a layout and designation of all offices, rooms and other partitioning, their intended use, and equipment to be contained therein and shall deliver the Final Space Plan to Landlord for Landlord's approval. 3.3 Final Construction Drawings. Tenant shall cooperate with the --------------------------- Architect and the Engineers so that on or before the date set forth in Schedule -------- A, the Architect and the Engineers shall complete the architectural and - - engineering drawings for the Premises, and the final architectural working drawings in a form which is complete to allow subcontractors to bid on the work and to obtain all applicable permits (collectively, the "Final Construction Drawings") and shall submit the same to Landlord for Landlord's approval. 3.4 Permits. The Final Construction Drawings shall be approved by ------- Landlord (the "Approved Construction Drawings") prior to the commencement of the construction of the Tenant Improvements. "Contractor," as that term is defined in Section 4.1, below, shall promptly submit the Approved Construction Drawings to the appropriate municipal authorities for all applicable building permits necessary to allow Contractor to commence and fully complete the construction of the Tenant Improvements (the "Permits"), and, in connection therewith, Tenant shall cooperate with Landlord. No changes, modifications or alterations in the Approved Construction Drawings may be made without the prior written consent of Landlord, provided that Landlord may withhold its consent, in its sole discretion, to any change in the Approved Construction Drawings if such change would directly or indirectly delay the completion of the Premises or increase the cost of the Tenant Improvements. 3.5 Time Deadlines. Tenant shall use its best, good faith, efforts and -------------- all due diligence to cooperate with the Architect, the Engineers, and Landlord to complete all phases of the Construction Drawings and the permitting process and to receive the permits, and with Contractor for approval of the "Cost Proposal," as that term is defined in Section 4.2 of this Work Letter, as soon as possible after the execution of the Lease, and, in that regard, shall meet with Landlord on a scheduled basis to be determined by Landlord, to discuss Tenant's progress in connection with the same. The applicable dates for approval of items, plans and drawings as described in this Section 3, Section 4 below, and in this Work Letter are set forth and further elaborated upon in Schedule A (the "Time Deadlines"), attached hereto. Tenant agrees to comply with the Time Deadlines. SECTION 4 --------- CONSTRUCTION OF THE TENANT IMPROVEMENTS --------------------------------------- 4.1 Contractor. A contractor designated by Landlord ("Contractor") shall ---------- construct the Tenant Improvements; provided that Landlord shall bid the Tenant Improvements to at least three (3) reputable contractors. Landlord shall select the contractor with the most competitive bid taking into account both price and scheduling. The Tenant Improvements shall be performed pursuant to a "fixed price" or a "cost plus fee, subject to a guaranteed maximum price" construction contract. EXHIBIT 2 - Page 3 4.2 Cost Proposal. After the Approved Construction Drawings are signed by ------------- Landlord and Tenant, Landlord shall provide Tenant with a cost proposal in accordance with the Approved Construction Drawings, which cost proposal shall include, as nearly as possible, the cost of all Tenant Improvement Allowance Items to be incurred solely by Tenant in connection with the construction of the Tenant Improvements (i.e. any additional work which Landlord may agree to perform), (the "Cost Proposal"). Tenant shall approve and deliver the Cost Proposal to Landlord within five business days of the receipt of the same, and upon receipt of the same by Landlord, Landlord shall be released by Tenant to purchase the items set forth in the Cost Proposal and to commence the construction relating to such items. The date by which Tenant must approve and deliver the Cost Proposal to Landlord shall be known hereafter as the "Cost Proposal Delivery Date". 4.3 Construction of Tenant Improvements by Contractor. ------------------------------------------------- 4.3.1 Payment for Tenant Improvements. Landlord shall pay all costs ------------------------------- and expenses (collectively, the "TI Costs") associated with the completion of the Tenant Improvements hereunder, including without limitation the costs and expenses comprising the Tenant Improvement Allowances Items, up to a maximum aggregate amount equal to the Tenant Improvement Allowance. Tenant shall pay to Landlord the TI Costs in excess of the Tenant Improvement Allowance within five (5) days of written request by Landlord. Tenant shall not be entitled to any credit, abatement or allowance from Landlord for any portion of the Tenant Improvement Allowance not used by Tenant. 4.3.2 Landlord's Retention of Contractor. Landlord shall ---------------------------------- independently retain Contractor to construct the Tenant Improvements in accordance with the Approved Construction Drawings and the Cost Proposal. Added to the TI Costs shall be a construction supervision and management fee (the "Landlord Supervision Fee") to Landlord in an amount equal to the product of "3"% of all other TI Costs. 4.3.3 Contractor's Warranties and Guaranties. Landlord hereby -------------------------------------- assigns to Tenant all warranties and guaranties by Contractor relating to the Tenant Improvements to the extent that Tenant is in any way responsible for the repair or maintenance thereof under the Lease (if such is the case). Tenant hereby waives all claims against Landlord relating to, or arising out of the construction of, the Tenant Improvements. SECTION 5 --------- COMPLETION OF THE TENANT IMPROVEMENTS; -------------------------------------- COMMENCEMENT DATE ----------------- 5.1 Ready for Occupancy. The Premises shall be deemed "Ready for ------------------- Occupancy" upon the Substantial Completion of the Premises. For purposes of the Lease, "Substantial Completion" of the Premises shall occur upon the date that the Contractor or the Architect certifies to Landlord and Tenant that the completion of construction of the Tenant Improvements in the Premises pursuant to the Approved Construction Drawings has occurred, with the exception of any items described in Section 5.2.6, punch list items and any tenant fixtures, work-stations, built-in furniture, or equipment to be installed by or on behalf of Tenant. EXHIBIT 2 - Page 4 5.2 Delay of the Substantial Completion of the Premises. If there shall --------------------------------------------------- be a delay or delays in the Substantial Completion of the Premises or in the occurrence of any of the other conditions precedent to the Commencement Date, as set forth in Section 1.1.7 of the Summary attached to the Lease, as a direct, indirect, partial, or total result of the following (collectively, "Tenant Delays"): 5.2.1 Tenant's failure to comply with the Time Deadlines; 5.2.2 Tenant's failure to timely approve any matter requiring Tenant's approval; 5.2.3 A breach by Tenant of the terms of this Work Letter or the Lease; 5.2.4 Changes by Tenant in any of the Construction Drawings after disapproval of the same by Landlord or if Tenant's architect is used, because the same do not comply with Code or other applicable laws; 5.2.5 Tenant's request for changes in the Approved Construction Drawings; 5.2.6 Tenant's requirement for materials, components, finishes or improvements which are not available in a commercially reasonable time given the anticipated Commencement Date, as set forth in the Lease, or which are different from, or not included in, the Standard Improvement Package; 5.2.7 The performance of any other work in the Premises by any other person, firm or corporation employed by or on behalf of Tenant or any failure to complete or delay in completion of such work; or 5.2.8 Any other acts or omissions of Tenant, or its agents or employees; then, notwithstanding anything to the contrary set forth in the Lease or this Work Letter and regardless of the actual date of the Substantial Completion of the Premises, the Substantial Completion of the Premises shall be deemed to have occurred on the date the Substantial Completion of the Premises would have occurred if no Tenant Delay or Delays, as set forth above, had occurred. SECTION 6 --------- MISCELLANEOUS ------------- 6.1 Tenant's Entry Into the Premises Prior to the Commencement Date. --------------------------------------------------------------- Provided that Tenant and its agents do not interfere with Contractor's work in the Building and the Premises, Tenant shall have a revocable license to access the Premises prior to the Commencement Date for the purpose of Tenant installing overstandard equipment or fixtures (including Tenant's data and telephone equipment) in the Premises. Prior to Tenant's entry into the Premises as permitted by the terms of this Section 6.1, Tenant shall submit (a) a schedule to Landlord and Contractor, for their approval, which schedule shall detail the timing and purpose of Tenant's entry; (b) copies of all plans and specifications pertaining to the work for which such access is being requested; (c) copies of all EXHIBIT 2 - Page 5 licenses and permits required in connection with the performance of the work for which such access is being requested; (d) certificates of insurance (in amounts and with insured parties satisfactory to Landlord) and instruments of indemnification against all claims, costs, expenses, damages and liabilities which may arise in connection with such work; and (e) assurances of the availability of funds sufficient to pay for all such work. All of the foregoing shall be subject to Landlord's approval, which shall not be unreasonably withheld. Any such entry into and occupation of the Premises prior to the Commencement Date by Tenant its agents, contractors, workmen, mechanics, suppliers and invitees shall be deemed to be under all of the terms, covenants, conditions and provisions of the Lease, excluding one, the covenant to pay Monthly Base Rent. Tenant shall hold Landlord and its beneficiaries harmless from and indemnify, protect and defend Landlord and its beneficiaries against any loss or damage to the Building or Premises and against injury to any persons caused by Tenant's actions pursuant to this Section 6.1. 6.2 Freight Elevators. Landlord shall, consistent with its obligations to ----------------- other tenants of the Building, make the freight elevator of the Building, if applicable, reasonably available to Tenant in connection with initial decorating, furnishing and moving into the Premises; provided, however, Tenant shall pay Landlord's standard charges therefor. 6.3 Tenant's Representative. Tenant has designated ________________ as ----------------------- its sole representative with respect to the matters set forth in this Work Letter, who, until further notice to Landlord, shall have full authority and responsibility to act on behalf of the Tenant as required in this Work Letter. 6.4 Landlord's Representative. Landlord has designated Grace Seputis (the ------------------------- Property Manager) as its sole representative with respect to the matters set forth in this Work Letter, who, until further notice to Tenant, shall have full authority and responsibility to act on behalf of the Landlord as required in this Work Letter. 6.5 Tenant's Agents. All contractors, subcontractors, laborers, --------------- materialmen, and suppliers retained directly by Tenant shall conduct their activities in and around the Premises, Building and Property in a harmonious relationship with all other contractors, subcontractors, laborers, materialmen and suppliers at the Premises, Building and Property. 6.6 Time of the Essence in This Work Letter. Unless otherwise indicated, --------------------------------------- all references herein to a "number of days" shall mean and refer to calendar days. In all instances where Tenant is required to approve or deliver an item, if no written notice of approval is given or the item is not delivered within the stated time period, at Landlord's sole option, at the end of such period the item shall automatically be deemed approved or delivered by Tenant and the next succeeding, time period shall commence. 6.7 Tenant's Lease Default. Notwithstanding any provision to the contrary ---------------------- contained in the Lease, if a Default by Tenant as described in Section 21.1 of the Lease, or a default by Tenant under this Work Letter, has occurred, then (i) in addition to all other rights and remedies granted to Landlord pursuant to this Lease, Landlord shall have the right to withhold payment of all or any portion of the Tenant Improvement Allowance and/or Landlord may cause Contractor to cease the construction of the Premises (in which case Tenant shall be responsible for any delay in the completion of the Tenant Improvements caused by such work stoppage as set forth in Section 5 of this Work Letter), and (ii) all other obligations of Landlord under the terms of this Work Letter shall be forgiven until such time as such default is cured pursuant to the terms of the Lease. EXHIBIT 2 - Page 6 EXHIBIT 2 - Page 7 SCHEDULE A ---------- TIME DEADLINES -------------- Dates Actions to be Performed ----- ----------------------- A. February 8, 2000 Final Space Plan to be completed ---------------- by Tenant and delivered to Landlord. B. February 22, 2000 Tenant to deliver Final ----------------- Construction Drawings to Landlord. C. Five business days after the receipt Tenant to approve Cost Proposal of the Cost Proposal by Tenant. and deliver Cost Proposal to Landlord. SCHEDULE A - Page -1- EXHIBIT 3 --------- RULES AND REGULATIONS --------------------- 1. No sign, placard, picture, advertisement, name or notice shall be inscribed, displayed or printed or affixed on or to any part of the outside or inside of the Building by Tenant without the written consent of Landlord first had and obtained and Landlord shall have the right to remove any such sign, placard, picture, advertisement, name or notice without notice to and at the expense of Tenant. All approved Tenant signs or lettering on or adjacent to doors shall be printed, painted, affixed or inscribed at the expense of Tenant by a person approved of by Landlord. Tenant shall not place anything or allow anything to be placed near the glass of any window, door, partition or wall which may appear unsightly from outside the Premises or not be in keeping with the window treatment of the Building. 2. Tenant shall not obtain for use upon the Premises ice, drinking water, towel and other similar services or accept barbering or bootblack services on the Premises, except from persons authorized by Landlord and at the reasonable hours and under reasonable regulations fixed by Landlord. 3. The bulletin board or directory of the Building will be provided for the display of the name and location of tenants only and Landlord reserves the right to exclude any other names therefrom. 4. The sidewalks, adjacent streets, arcades, landscaping areas, hallways, passages, exits, entrances, elevators, stairways and other common areas shall not be obstructed by Tenants or used by Tenant for any purpose including the display or sale of merchandise, other than for ingress to and egress from the Premises. The hallways, passages, exits, entrances, elevators, stairways, balconies and roof are not for the use of the general public and Landlord shall in all cases retain the right to control and prevent access thereto by all persons whose presence in the judgment of Landlord shall be prejudicial to the safety, character, reputation and interests of the Property and its tenants, provided that nothing herein contained shall be construed to prevent such access to persons with whom Tenant normally deals in the ordinary course of Tenant's business unless such persons are engaged in illegal activities. Neither Tenant nor any employees or invitees of Tenant shall go upon the roof of the Building. 5. Tenant shall not alter any lock nor install any new or additional locks or any bolts on any door of the Premises. EXHIBIT 3 - PAGE 1 6. The toilet rooms, urinals, wash bowls and the other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown therein and the expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne the tenant who, or whose employees or invitees shall have caused it. 7. Tenant shall not overload the floor of the Premises or in any way deface the Premises or any part thereof. 8. No furniture, freight or equipment of any kind shall be brought into the Building without the consent of Landlord and all moving of the same into or out of the Building shall be done at such time and in such manner as Landlord shall designate. Landlord shall have the right to prescribe the weight, size and position of all safes and other heavy equipment brought into the Building and also the times and manner of moving the same in and out of the Building. Safes or other heavy objects shall, if considered necessary by Landlord, stand on wood strips of such thickness as is necessary to properly distribute the weight. Landlord will not be responsible for loss of or damage to any such safe or property from any cause and all damage done to the Building or Property by moving or maintaining any such safe or other property shall be repaired at the expense of Tenant. 9. Tenant shall not employ any person or persons other than the janitor of Landlord for the purpose of cleaning the Premises unless otherwise agreed to by Landlord. Except with the written consent of Landlord, no person or persons other than those approved by Landlord shall be permitted to enter the Building for the purpose of cleaning the same. Tenant shall not cause any unnecessary labor by reason of Tenant's carelessness or indifference in the preservation of good order and cleanliness. Landlord shall in nowise be responsible to any Tenant for any loss of property on the Premises, however occurring, or for any damage done to the effects of any Tenant by the janitor or any other employee or any other person. Janitor service shall include ordinary dusting and cleaning by the janitor assigned to such work and shall not include cleaning of carpets or rugs, except normal vacuuming, or moving of furniture or other special services. 10. Tenant shall not use, keep or permit to be used or kept any foul or noxious gas or substance in the Premises, or permit or suffer the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Building or Property by reason of noise, odors and/or vibrations, or interfere in any way with other lessees or those having business therein, nor shall any animals (except seeing-eye dogs and other animals assisting physically challenged individuals), birds, bicycles or other vehicles, be brought in or kept in or about the Premises, Building or Property. 11. No cooking shall be done or permitted by any Tenant on the Premises, nor shall the Premises be used for the storage of merchandise, for washing clothes, for lodging, or for any improper, objectionable or immoral purposes. Notwithstanding the EXHIBIT 3 - Page 2 foregoing, a tenant may prepare coffee and similar beverages and warm typical luncheon items for the consumption of such tenant's employees and invitees. 12. Tenant shall not use or keep in or about the Premises, the Building or Property any kerosene, gasoline or inflammable or combustible fluid or material, toxic or hazardous substance, or use any method of heating or air conditioning other than that supplied by Landlord. The foregoing notwithstanding, Tenant may handle, store, use or dispose of products containing small quantities of Hazardous Materials, which products are of a type customarily found in offices and houses (such as aerosol cans containing insecticides, toner for copiers, paints, paint remover, and the like) on the Premises provided that Tenant shall handle, store, use and dispose of any such Hazardous Materials in a safe and lawful manner and shall not allow such Hazardous Materials to contaminate the Premises, the Building, the Property or the environment. 13. Landlord will direct electricians as to where and how telephone and equipment wires are to be introduced. No boring or cutting for wires will be allowed without the consent of Landlord. The location of telephones, call boxes and other office equipment affixed to the Premises shall be subject to the approval of Landlord. 14. Tenant, upon the termination of its tenancy, shall deliver to Landlord the keys of offices, rooms and toilet rooms which shall have been furnished Tenant or which Tenant shall have had made, and in the event of loss of any keys so furnished, shall pay Landlord therefor. 15. Tenant shall not lay linoleum, tile, carpet or other similar floor covering so that the same shall be affixed to the floor of the Premises in any manner except as approved by Landlord. The expense of repairing any damage resulting from a violation of this rule shall be borne by Tenant. 16. No furniture, packages, supplies, equipment or merchandise will be received in the Building or carried up or down in the elevators, except between such hours and in such elevators as shall be designated by Landlord. 17. On Saturdays, Sundays and Holidays (as defined in the Lease), and on other days between the hours of 6:00 p.m. and 8:00 am. the following day, access to the Building, or to the hallways, elevators or stairways in the Building, or to the Premises may be refused unless the person seeking access is known to the person or employee of the Building in charge and has a pass or is properly identified. The Landlord shall in no case be liable for damages for any error with regard to the admission to or exclusion from the Building or Property of any person. In case of invasion, mob, riot, demonstrations, public excitement, or other commotion, Landlord reserves the right to prevent access to the Building or Property during the continuance of the same by closing the doors or otherwise, for the safety of the tenants and protection of the Building and Property and the property therein. EXHIBIT 3 - Page 3 18. All corridor doors shall remain closed at all times. Tenant shall see that the doors of the Premises are closed and securely locked before leaving the Building and must observe strict care and caution that all water faucets or water apparatus are entirely shut off before Tenant or Tenant's employees leave the Building, and that all electricity shall likewise be carefully shut off, so as to prevent waste or damage, and for any default or carelessness Tenant shall be responsible for all injuries sustained by Landlord or other tenants or occupants of the Property. 19. Landlord reserves the right to exclude or expel from the Building or Property any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of the rules and regulations of the Property. 20. The requirements of Tenant will be attended to only upon application at the Office of the Building. Employees of Landlord shall not perform any work or do anything outside of their regular duties unless under special instructions from Landlord, and no employee will admit any person (Tenant or otherwise) to any office without specific instructions from Landlord. 21. No vending machine or machines of any description shall be installed, maintained or operated upon the Premises without the written consent of Landlord. 22. Landlord shall have the right, exercisable without notice and without liability to Tenant, to change the name and the street address of the Building and/or Property. 23. Tenant shall not disturb, solicit, or canvass any occupant of the Property and shall cooperate to prevent same. 24. Without the written consent of Landlord, Tenant shall not use the name of the Building or Property in connection with or in promoting or advertising the business of Tenant except that the name of the Building may be used as part of the Tenant's business address. 25. Tenant shall refrain from dumping, disposal, reduction, incineration or other burning of any trash, papers, refuse or garbage of any kind in or about the Premises, the Building or Property, and shall store all such trash in suitable containers as determined from time to time by Landlord located so as not to be visible or otherwise a nuisance to customers or invitees of the Property, and so as not to create or permit any health or fire hazard. Tenant shall pay, as Additional Rent, any charges for its trash removal not charged to Tenant under Sections 4 or 6 of this Lease. 26. Tenant shall not waste electricity, water or air conditioning. All controls shall be adjusted only by authorized Building personnel. EXHIBIT 3 - - Page 4 27. Tenant shall not utilize any equipment or apparatus in such manner as to create any magnetic fields or waves which adversely affect or interfere with the operation of any systems or equipment in the Building. 28. Landlord reserves the right to make such other and further reasonable rules and regulations as in its judgment may be for the safety, care and cleanliness of the Premises and for the preservation of good order therein. Tenant agrees to abide by all such rules and regulations hereinabove stated and any additional reasonable rules and regulations which are adopted. EXHIBIT 3 - Page 5 EXHIBIT 4 --------- [INSERT NAME OF BANK] --------------------- [Insert Date] USVIB Holding LLC c/o VIB Management, Inc. 712 Fifth Avenue, 19th Floor New York, New York 10019 Dear Sirs: We hereby issue in your favor our Irrevocable Letter of Credit No. __________ of account of Noosh, Inc. for the sum of U.S. $100,000.00 (One Hundred Thousand and No/100 Dollars) which is available against your sight draft(s) drawn on us accompanied by a statement reading as follows: Tenant is in default under Lease, dated __________ __, 2000, between LaSalle National Bank, as Landlord, and Noosh, Inc., as Tenant (as heretofore or hereinafter amended, the "Lease"), and Landlord is entitled to draw upon this Letter of Credit. It is a condition of this Letter of Credit that it will be automatically extended for periods of one (1) year from the present or any future expiration date. In the event we do not extend this Letter of Credit, we shall notify you in writing, by certified mail, return receipt requested, at least sixty (60) days' prior to the then present expiration date. In the event that we notify you that we elect not to extend this Letter of Credit, you may draw hereunder by means of your draft without presentation of the foregoing statement or any additional documentation. This Letter of Credit is transferable to any person or party to whom you assign your interest, as Landlord, under the Lease. Partial drawings are authorized under this Letter of Credit. We hereby agree that drafts drawn in accordance with the terms stipulated herein will be duly honored upon presentation and delivery of documents as specified if presented to [Insert Name of Bank] at our office at ___________________________________, Chicago, Illinois on or before _________________, or any automatically extended expiration date. EXHIBIT 4 - PAGE 1 In no event will this letter of credit be extended beyond [insert date that is thirty (30) days following the Expiration Date of the Lease]. Except so far as is otherwise stated, this Irrevocable Letter of Credit is subject to the Uniform Custom and Practice for Documentary Credits (1993 Revision) International Chamber of Commerce Publication Number 500. Very truly yours, ____________________________ Authorized Signature EXHIBIT 4 - Page 2 EXHIBIT 4 - Page 3 EXHIBIT 5 --------- CONFIRMATION OF LEASE TERM DATES -------------------------------- To: Noosh, Inc. 3401 Hillview Avenue Building B Palo Alto, California 94304 Re: Lease dated February ____, 2000 ("Lease") between LaSalle National Bank, not personally, but solely as Trustee under Trust Agreement dated May 1, 1989, and known as Trust No. 114400 ("Landlord") and Noosh, Inc. ("Tenant") concerning Suite 2650 on the twenty-sixth (26th) floor of the building located at 303 West Madison, Chicago, Illinois. Gentlemen: In accordance with the above referenced Lease, we wish to advise you and/or confirm as follows: 1. That the Premises are Ready for Occupancy, and that the Lease Term shall commence as of _______________, 2000 for a term of three (3) years ending on _______________, 2003. 2. That in accordance with the Lease, Rent commenced to accrue on _______________, 2000. 3. If the Commencement Date is other than the first day of the month, the first billing will contain a pro rata adjustment. Each billing thereafter, with the exception of the final billing, shall be for the full amount to the monthly installment as provided for in the Lease. 4. Rent is due and payable in advance on the first day of each and every month during the Lease Term. Your rent checks should be made payable to USVIB HOLDING LLC. 5. Landlord and Tenant agree that the exact number of rentable square feet within the Premises is 4,298 square feet. EXHIBIT 5 - PAGE 1 6. Tenant's Share, as adjusted based upon the exact number of rentable square feet within the Premises, is 1.48%. LANDLORD: TENANT: LINCOLN PROPERTY COMPANY NOOSH, INC. COMMERCIAL, INC., Management Agent for Landlord By:______________________________ By______________________________ Name__________________________ Name:_________________________ Title:________________________ Title:________________________ Date:___________________, 2000 Date:___________________, 2000 EXHIBIT 5 - Page 2 EX-10.30 3 DEED OF LEASE EXHIBIT 10.30 THE CORPORATE OFFICE CENTRE AT TYSONS II 1750 Tysons Boulevard McLean, Virginia 22102 DEED OF LEASE BY AND BETWEEN MDM DEVELOPMENT COMPANY, L.L.C. and NOOSH, INC. TABLE OF CONTENTS
1. Definition, Terms and Conditions................................................. 1 a. Special Definitions, Terms and Conditions.................................. 1 b. General Definitions, Terms, and Conditions................................. 2 2. Term............................................................................. 6 a. Term and Commencement Date................................................. 6 b. Delay in Possession........................................................ 6 c. Delays Caused by Tenant.................................................... 7 d. Tender of Possession....................................................... 7 e. Early Possession........................................................... 7 3. Rent and Additional Charges; Computation of Operating Expense Increases.......... 7 a. Payment of Rent and Additional Charges..................................... 7 b. Computation of8Operating Expenses.......................................... 8 c. Interest................................................................... 9 d. Accord and Satisfaction.................................................... 9 e. Late Payment Charge........................................................ 9 4. Services and Utilities........................................................... 10 a. Types...................................................................... 10 b. Access..................................................................... 11 c. Interruption in Services................................................... 11 5. Maintenance and Repairs.......................................................... 11 6. Use of Leased Premises........................................................... 12 a. General Offices............................................................ 12 b. Covenants.................................................................. 12 c. Compliance................................................................. 12 d. Rules and Regulations...................................................... 13 7. Insurance........................................................................ 13 a. Tenant..................................................................... 13 b. Landlord................................................................... 14 c. Waiver of Subrogation...................................................... 15 8. Damage by Fire or Other Casualty................................................. 15 9. Condemnation..................................................................... 16 10. Assignment and Subletting........................................................ 16 a. Landlord's Consent Required................................................ 16 b. Leveraged Buy-Out.......................................................... 17 c. Standard for Approval...................................................... 17 d. Additional Terms and Conditions............................................ 17 e. Additional Terms and Conditions Applicable to Subletting................... 18 f. Transfer Premium from Assignment or Subletting............................. 19 g. Landlord's Option to Recapture Space....................................... 19 h. Landlord's Expenses........................................................ 20 11. Default Provisions............................................................... 20 a. Events of Default.......................................................... 20 b. Remedies................................................................... 21 c. Damages.................................................................... 21 d. Basic Rent and Additional Charges.......................................... 22 12. Bankruptcy Termination Provision................................................. 22 13. Landlord May Perform Tenant's Obligations........................................ 22 14. Security Deposit................................................................. 22 15. Subordination; Attornment........................................................ 25 a. Subordination.............................................................. 25 b. Modifications.............................................................. 25 c. Attornment................................................................. 25
d. Nondisturbance............................................................. 25 16. Quiet Enjoyment.................................................................. 26 17. Landlord's Right of Access....................................................... 26 18. Limitation on Landlord's Liability............................................... 26 a. Limitation................................................................. 26 b. Force Majeure.............................................................. 27 19. Hazardous Material............................................................... 27 a. Definition and Consent..................................................... 27 b. Duty to Inform Landlord.................................................... 28 c. Inspection; Compliance..................................................... 28 20. Certificates..................................................................... 28 21. Surrender of Leased Premises..................................................... 29 22. Alterations and Additions........................................................ 29 23. Holding Over..................................................................... 30 24. Signs............................................................................ 31 25. Options.......................................................................... 31 a. Definition................................................................. 31 b. Options Personal........................................................... 31 c. Multiple Options........................................................... 31 d. Effect of Default on Options............................................... 31 e. Limitations on Options..................................................... 31 f. Notice of Exercise of Option............................................... 32 26. Leasing Commission............................................................... 32 27. General Provisions............................................................... 32 a. Binding Effect............................................................. 32 b. Laws....................................................................... 32 c. Attorneys' Fees............................................................ 32 d. Waiver..................................................................... 32 e. Security Interest.......................................................... 33 f. Notices.................................................................... 33 g. Entirety................................................................... 33 h. Waiver of Jury............................................................. 33 i. Waiver of Venue............................................................ 33 j. Confidentiality............................................................ 34 k. Tenant Entity.............................................................. 34 l. Time of Essence............................................................ 34 m. Words and Phrases.......................................................... 34 n. Limit on Landlord's Liability.............................................. 34 o. Administrative Costs....................................................... 34 p. Counterparts............................................................... 35 q. Exhibits and Addendum...................................................... 35
Addendum Exhibit A Exhibit A-1 Exhibit B Exhibit B-1 Exhibit C Exhibit D Exhibit E THE CORPORATE OFFICE CENTRE AT TYSONS II DEED OF LEASE This DEED OF LEASE (hereinafter, this "Lease") dated as of the ______ day of ____________, 1999, is by and between MDM DEVELOPMENT COMPANY, L.L.C., a Virginia limited liability company (hereinafter, "Landlord"), and NOOSH, INC., a _______________ corporation (hereinafter, "Tenant"). WITNESS, subject to the terms of this Lease, Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the Leased Premises (as defined below), for the Term (as defined below). 1. Definitions, Terms, and Conditions. -------------------------------------- (a) Special Definitions, Terms, and Conditions. Throughout this ------------------------------------------ Lease, the following words and phrases shall have the meanings indicated and obligate the parties as stated: (1) Advance Deposit. $7,677.08 [an amount equal to one (1) --------------- month's Basic Rent]. Such Advance Deposit shall be paid by Tenant to Landlord upon Tenant's execution hereof and held by Landlord as temporary security for the performance of Tenant's obligations hereunder. Such Advance Deposit shall be applied to Basic Rent for the first full month of the Term for which Basic Rent is actually payable. (2) Rent. ---- (A) Basic Rent Per Annum. During the Initial Term (as defined -------------------- below in Section 1(a)(3)), Tenant shall pay Basic Rent per annum in equal monthly installments in accordance with the following schedule:
Initial Term (in full calendar months) Basic Rent per annum per Rentable Square Foot - ------------------------------------- --------------------------------------------- Lease Commencement Date - End of First 12 Full Calendar Months $35.00 13-24 $36.05 25-36 $37.13 37-48 $38.24 49-60 $39.39
(B) Parking Rent. $72.00 per month, per permit for each of the ------------ nine (9) parking permits (the "Initial Permits") (3.86 permits per 1,000 square feet of the Leased Premises) during the first Lease Year. At the beginning of each Lease Year thereafter during the Term, the Parking Rent shall be an amount equal to the Parking Rent applicable during the immediately preceding Lease Year increased by 3%. Tenant shall be obligated to lease and pay for all of the Initial Permits for the entire Term of the Lease. In the event Tenant requests additional spaces in addition to the Initial Permits, such parking spaces shall be made available to Tenant, to the extent available, and on terms then being made available to the general public for off street parking in the parking garage. (3) Initial Term. The period commencing on the Lease Commencement ------------ Date and ending on the last day of the calendar month which completes sixty (60) full calendar months thereafter, unless sooner terminated in accordance with the provisions hereof. 1 (4) Lease Commencement Date. November 15, 1999, subject to ----------------------- adjustment in accordance with Section 2 below. (5) Leased Premises. The space located on the first (1st) floor --------------- of the Building designated as Suite 110 and as outlined on the floor plan attached hereto as Exhibit A (exclusive of any Building mechanical, electrical, --------- telephone or similar rooms, janitor closets, elevator, pipe and other vertical shafts, ducts and stairwells); the agreed upon rentable square footage of the Leased Premises, including core space, is 2,250 square feet. (6) Proportionate Share. The percentage that the rentable square ------------------- footage of the Leased Premises bears to the total rentable square footage of all office space in the Building, except as provided in Section 1(b)(9) hereof. (7) Operating Expense Increases. Tenant agrees to pay its --------------------------- Proportionate Share of Operating Expenses (as defined below) in excess of actual Operating Expenses for the calendar year 2000 (the "Base Year"), as more fully provided in Section 3. (8) Security Deposit. $100,000.00 , held subject to Section 14 ---------------- below. (9) Tenant's Notice Address. To the Leased Premises; except ----------------------- before the Lease Commencement Date to: Noosh, Inc. 3401 Hillview Avenue, Building B Palo Alto, California 94304 Attention: Mr. Todd R. Ford (10) Leasing Broker(s). Diamond Property Company and The Bank ----------------- Companies/ONCOR International. (b) General Definitions, Terms, and Conditions. As used in this ------------------------------------------ Lease, the following words and phrases shall have the meanings indicated and obligate the parties as stated: (1) Additional Charges. All amounts payable by Tenant to Landlord ------------------ under this Lease other than the Basic Rent. All Additional Charges shall be deemed to be additional rent and all remedies applicable to non-payment of Basic Rent shall be applicable thereto. Herein, Basic Rent and Additional Charges may be referred to in combination as "Rent." (2) Building. The office building to be built at 1750 Tysons -------- Boulevard, McLean, Virginia 22102 in accordance with the plans and specifications listed on Exhibit A-1 attached hereto (the "Base Building ----------- Plans"), including the underlying lot, the Common Areas (as defined below), along with portions of the adjacent parking structure allocated to the Building by Landlord, except that Landlord reserves and Tenant shall have no right in and to (i) the ownership and use of the exterior faces of all perimeter walls of the Building, (ii) the ownership and use of the roof of the Building, or (iii) the ownership and use of the air space above the Building. (3) Common Areas. All areas and facilities of the Building for ------------ the common use and/or benefit of tenants of the Building as allocated by Landlord, including the exterior of the Building and areas and facilities shared with buildings adjacent to the Building, and including, without limitation, the public lobbies, elevators, corridors, stairways, toilet rooms, parking areas, motor court plaza, loading and unloading areas, roadways and sidewalks. Except as provided herein, throughout the Term, Tenant, its agents, employees and business invitees shall have the non-exclusive right, in common with others, to use the Common Areas of the Building. Landlord shall have the right at any time, without Tenant's consent, to change the arrangement or location of entrances, 2 passageways, doors, doorways, corridors, stairs, toilet rooms or other Common Areas of the Building, or to change the name, number or designation by which the Building is known; provided, however, Landlord shall use commercially reasonable efforts to construct such changes with minimum interference to Tenant's use of the Leased Premises. Landlord may also designate other land and improvements outside the boundaries of the Building to be a part of the Common Areas, provided that such other land and improvements have a reasonable and functional relationship to the Building. Landlord reserves unto itself the full and complete ownership of all tangible personal property installed by Landlord in the Building. (4) Event of Default. Any of the events set forth in Section 11 ---------------- hereof, or any default at law, the same sometimes herein being referred to as a "default" by Tenant. (5) Base Building Construction. Landlord shall construct the Base -------------------------- Building as more particularly set forth in Exhibit B attached hereto and in the --------- Base Building Plans. (6) Landlord's Notice Address. ------------------------- MDM Development Company, L.L.C. c/o Lerner Corporation 11501 Huff Court North Bethesda, Maryland 20895-1094 Attention: Legal Department All rental payments shall be forwarded to: MDM Development Company, L.L.C. c/o Lerner Corporation 11501 Huff Court North Bethesda, Maryland 20895-1094 Attention: Accounts Receivable 1750 Tysons Boulevard (7) Lease Year. The period commencing on the Lease Commencement Date ---------- and ending on the last day of the calendar year in which said Lease Commencement Date occurs shall constitute the first "Lease Year" as such term is used herein. Each successive full calendar year during the Term thereafter shall constitute a "Lease Year" and any portion of the Term remaining after the last full calendar year shall constitute the last "Lease Year" for the purposes of this Lease. (8) Mortgage. Any mortgage or deed of trust which affects any -------- interest in the Building or Landlord, and the word "mortgagee" shall mean the --------- holder of any such mortgage or the beneficiary of any such deed of trust. (9) Operating Expenses. All costs, expenses and fees paid, incurred ------------------ or accrued each Lease Year by Landlord in connection with the ownership, management, operation, servicing and maintenance of the Building including, but not limited to, any costs incurred in keeping the Building in compliance with code; repairs, maintenance, additions, replacements and improvements to the Building (excluding capital improvements unless the same are intended by Landlord to reduce Operating Expenses), including all parking areas, loading and unloading areas, trash areas, roadways, sidewalks, stairways, landscaped areas, motor court plaza and fountains, striping, bumpers, irrigation systems, lighting facilities, building exteriors and roofs, fences and gates; building, janitorial and cleaning supplies; uniforms and dry cleaning services; window cleaning services, plumbing, mechanical, electrical systems, life safety systems and equipment, telecommunication equipment, elevators, escalators, tenant directories, fire detection systems, including sprinkler system maintenance and repair; the cost of trash disposal, janitorial services and security services and systems; service contracts for the maintenance and operation of elevators, boilers, HVAC, mechanical equipment and exercise equipment; employees' 3 wages, salaries and fringe benefits; payroll taxes; business and franchise taxes; Real Estate Taxes (as defined in subsection 12 below); any expenses incurred by Landlord in attempting to protest, reduce or minimize Real Estate Taxes; electricity, gas, oil and other fuels, solid waste and utility charges; sewer and water charges; premiums for fire and casualty, liability, workmen's compensation and other insurance, including any deductibles; telephone and facsimile services and other communications costs; common transportation services; any costs in connection with equipping, maintaining and operating the health club in the Building; any property owners association dues including the Tysons II Property Owners Association, Inc.; any parking management fee; the cost of all business licenses, including Business Professional and Occupational License Tax and Business Improvements Districts Tax, any gross receipt taxes based on rental income or other payments received by Landlord, commercial rental taxes or any similar taxes or fees; the cost of installing intra-building network cabling ("INC") and maintaining, repairing, securing and replacing existing INC; administrative costs and overhead expenses; miscellaneous management-related expenses; and management fees. For purposes of determining Tenant's Proportionate Share of Operating Expenses which are not fixed and which vary depending upon Building occupancy levels, such as janitorial services, electricity, and management fees based upon rental, the Proportionate Share of such expenses shall be adjusted utilizing as the numerator the rentable square footage of the Leased Premises and as the denominator the rentable square footage of office tenants in occupancy of the Building each Lease Year. For purposes of determining Tenant's Proportionate Share of Operating Expenses which in certain instances have been contracted for separately by other tenants of the Building, such as electricity and janitorial services, the Proportionate Share of such expenses shall be adjusted utilizing as the numerator the rentable square footage of the Leased Premises and as the denominator the rentable square footage of all remaining office tenants of the Building which do not contract separately for such services. If the cost incurred in making an improvement or replacing any equipment is not fully deductible as an expense in the year incurred in accordance with generally accepted accounting principles, the cost shall be amortized over the useful life of the improvement or equipment, as reasonably determined by Landlord, together with an interest factor on the unamortized cost of such item equal to the lesser of (i) twelve percent (12%) per annum, or (ii) the maximum rate of interest permitted by applicable law. Notwithstanding anything to the contrary contained in the definition of Operating Expenses set forth in this Section 1(b)(9) of the Lease, Operating Expenses shall not include the following: (i) Ground rent. (ii) Salaries, benefits, wages or fees for employees above the grade of property manager or for officers or partners of Landlord. (iii) Costs and expenses which would otherwise be included in Operating Expenses but which are in excess of the competitive rates for similar services of comparable quality, rendered by persons or entities of similar skill, competence and experience, provided however that a management fee of four percent (4%) of gross revenues shall be deemed not to exceed the competitive rate and shall be included in the Base Year Operating Expenses and each comparative year. Management fees for the Base Year and each comparative year shall be computed as if the vacant areas of the Building were fully rented at ninety-five percent (95%) of the average rents being charged in the Building during the applicable Lease Year. (iv) To the extent that employees are not employed exclusively at the Building, the costs and expenses with respect to such employees should be prorated. 4 (v) Federal, state, county or municipal taxes, death taxes, excess profit taxes, franchise or any taxes imposed or measured on or by the income or revenue of Landlord from the operation of the Building. (vi) Any expense for which Landlord is reimbursed from any tenant or other third party, or under the terms of any insurance policy, warranty or condemnation award. (vii) Leasing commissions, attorneys' fees, costs, disbursements and other expenses incurred in connection with solicitation of and negotiation of leases with tenants, other occupants or prospective tenants or other occupants of the Building. (viii) All "tenant allowances", "tenant concessions" and other costs or expenses incurred in completing, fixturing, furnishing, renovating or otherwise improving, decorating or redecorating space for tenants or other occupants of the Building, or vacant lease space in the Building including space planning fees. (ix) All items, utilities and services for which Tenant or any other tenant or occupant of the Building specifically reimburses Landlord or for which Tenant or any other tenant or occupant of the Building pays third parties. (x) All costs or expenses (including fines, penalties, interest and legal fees) incurred due to the violation by Landlord, its employees, agents or contractors, or any tenant (other than Tenant) or other occupant of the Building, of the terms and conditions of any lease or other occupancy agreement pertaining to the Building. (xi) Payment of principal, finance charges or interest on debt or amortization on any mortgage or other debt or any penalties assessed as a result of Landlord's late payments of such amounts. (xii) Any costs of Landlord's general overhead, including general and administrative expenses, which costs would not be chargeable to Operating Expenses of the Building, in accordance with generally accepted accounting principles, consistently applied. (xiii) Any costs or expenses for the acquisition of sculpture, paintings, or other works of fine art. (xiv) Any otherwise includible costs of correcting defects in the Building and/or any associated garage facilities and/or equipment or replacing defective equipment to the extent such costs are covered by warranties of manufacturers, suppliers or contractors. (xv) All expenses directly resulting from the gross negligence or willful misconduct of the Landlord, its agents or employees. (xvi) All costs and expenses associated with the operation of the business of the entity which constitutes Landlord as the same are distinguished from the costs 5 of operation of the Building, including accounting and legal matters, costs of defending any lawsuits with any Landlord's Mortgagee, costs of selling, syndicating, financing, mortgaging or hypothecating any of the Landlord's interest in the Building, or costs of any disputes between Landlord and its employees (if any) not engaged in Building operation. (xvii) Rent for space leased to Landlord which is not actually used by Landlord in connection with the management or operation of the Building. (xviii) Costs of correcting any violations under the Americans with Disabilities Act existing as of the Lease Commencement Date. (10) Person. A natural person, partnership, corporation or any other ------ form of business or legal association or entity. (11) Prime Rate. The prime rate of interest charged from time to time ---------- by NationsBank, N.A. or its successor to its most favored customers on commercial loans having a 90-day duration. (12) Real Estate Taxes. All taxes, assessments, water and sewer rents, ----------------- if any, and other charges, if any, general, special or otherwise, including all assessments for schools, public betterments and general or local improvements, levied or assessed upon or with respect to the ownership of and/or all other taxable interests in the Building imposed by any public or quasi-public authority having jurisdiction. Except for taxes, fees, charges and impositions described in the next succeeding sentence, Real Estate Taxes shall not include any income inheritance, estate, succession, transfer, gift, profit tax or capital levy. If at any time during the Term the methods of taxation shall be altered so that in addition to or in lieu of or as a substitute for the whole or any part of any Real Estate Taxes levied, assessed or imposed there shall be levied, assessed or imposed (i) a tax, license fee, excise or other charge on the rents received by Landlord, or (ii) any other type of tax or other imposition in lieu of, or as a substitute for, or in addition to, the whole or any portion of any Real Estate Taxes, then the same shall be included as Real Estate Taxes. A tax bill or true copy thereof, together with any explanatory or detailed statement of the area or property covered thereby, submitted by Landlord to Tenant shall be prima facie evidence of the amount of taxes assessed ----------- or levied, as well as of the items taxed. In the event any building or land adjacent to the Building in which Landlord has an interest is not separately assessed and taxed, Landlord shall have the right to allocate a proportionate share to each such building and Landlord's determination thereof shall be binding on the parties hereto. If any real property tax or assessment levied against the land, buildings or improvements covered hereby or the rents reserved therefrom, shall be evidenced by improvement or other bonds, or in other form, which may be paid in annual installments, only the amount paid or accrued in any Lease Year shall be included as Real Estates Taxes for such Lease Year. (13) Requirements. All laws, statutes, ordinances, codes, orders, ------------ rules, regulations, certificates of occupancy, conditional use or other permits, variances, easements, covenants and restrictions of record, requirements and safety recommendations of all federal, state and municipal governments, and the appropriate agencies, offices, departments, boards and commissions thereof, Landlord's insurer(s), the board of fire underwriters and/or the fire insurance rating organization or similar organization performing the same or similar functions, whether now or hereafter in force, applicable to the Building or any part thereof and/or the Leased Premises, and notices from Landlord's mortgagee, as to the manner of use or occupancy or the maintenance, repair or condition of the Leased Premises and/or the Building, and the requirements of the carriers of all fire insurance policies maintained by Landlord on or with regard to the Building. (14) Tenant Improvements. All tenant improvements to be constructed ------------------- by Landlord in accordance with Exhibit B attached hereto. --------- 6 (15) Term. The Initial Term and the extended term(s), if any, as to ---- which Tenant shall have effectively exercised any right to extend, but in any event the Term shall end on any date when this Lease is sooner terminated in accordance with the provisions hereof. 2. Term. ---- (a) Term and Commencement Date. The Term and Lease Commencement Date -------------------------- of this Lease are as specified in Sections 1(a)(3) and 1(a)(4). The Lease Commencement Date set forth in 1(a)(4) is an estimated Lease Commencement Date. Subject to the limitations contained in Section 2(c) below, the actual Lease Commencement Date shall be the date possession of the Leased Premises is tendered to Tenant in accordance with Section 2(d) below; provided, however, that if the Lease Commencement Date is other than the first day of the month, the Term of the Lease shall be computed from the first day of the calendar month following the Lease Commencement Date. When the actual Lease Commencement Date is established by Landlord, Tenant shall, within thirty (30) days after Landlord's request, complete and execute the letter attached hereto as Exhibit C --------- and deliver it to Landlord. Tenant's failure to execute the letter attached hereto as Exhibit C within said thirty (30) day period shall be a material ---------- default hereunder and shall constitute Tenant's acknowledgement of the truth of the facts contained in the letter delivered by Landlord to Tenant. (b) Delay in Possession. Notwithstanding the estimated Commencement ------------------- Date specified in Section 1(a)(4), if for any reason Landlord cannot deliver possession of the Leased Premises to Tenant on said date, Landlord shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease or the obligations of Tenant hereunder; provided, however, in such a case, Tenant shall not be obligated to pay rent or perform any other obligation of Tenant under this Lease, except as may be otherwise provided in this Lease, until possession of the Leased Premises is tendered to Tenant, as defined in Section 2(d). Notwithstanding the above, if Landlord fails to deliver possession of the Leased Premises to Tenant on or before June 30, 2000, Tenant shall have the right to terminate this Lease at any time thereafter (but prior to delivery of possession of the Leased Premises to Tenant) upon delivery of written notice to Landlord. (c) Delays Caused by Tenant. There shall be no abatement of rent to ------------------------ the extent of any delays caused by acts or omissions of Tenant, Tenant's agents, employees and contractors, or for Tenant delays as defined in Exhibit B attached --------- to this Lease (hereinafter "Tenant Delays"). Tenant shall pay to Landlord an amount equal to one thirtieth (1/30th) of the Basic Rent due for the first full calendar month of the Term for each day of Tenant Delay. For purposes of the foregoing calculation, the Basic Rent payable for the first full calendar month of the Term shall not be reduced by any abated rent, conditionally waived rent, free rent or similar rental concessions, if any. Landlord and Tenant agree that the foregoing payment constitutes a fair and reasonable estimate of the damages Landlord will incur as the result of a Tenant Delay. Within thirty (30) days after Landlord tenders possession of the Leased Premises to Tenant, Landlord shall notify Tenant of Landlord's reasonable estimate of the date Landlord could have delivered possession of the Leased Premises to Tenant but for the Tenant Delays. After delivery of said notice, Tenant shall immediately pay to Landlord the amount described above for the period of Tenant Delay. (d) Tender of Possession. Possession of the Leased Premises shall be deemed tendered to Tenant when Landlord's architect or agent has determined that (i) the improvements to be provided by Landlord pursuant to Exhibit B are --------- substantially completed and, if necessary have been approved by the appropriate governmental entity, (ii) the Building utilities are ready for use in the Leased Premises, (iii) Tenant has reasonable access to the Leased Premises, and (iv) three (3) days shall have expired following advance written notice to Tenant of the occurrence of the matters described in (i), (ii) and (iii) above of this Section 2(d). If improvements to the Leased Premises are constructed by 7 Landlord, the improvements shall be deemed "substantially" completed when the improvements have been completed except for minor items or defects which can be completed or remedied after Tenant occupies the Leased Premises without causing substantial interference with Tenant's use of the Leased Premises. (e) Early Possession. If Tenant occupies the Leased Premises prior to ---------------- the Lease Commencement Date for the purpose of conducting business therein, such occupancy shall be subject to all provisions of this Lease, such occupancy shall not change the termination date, and Tenant shall pay Basic Rent and all other charges provided for in this Lease during the period of such occupancy. Provided that Tenant does not interfere with or delay the completion by Landlord or its agents or contractors of the construction of any tenant improvements, Tenant shall have the right to enter the Leased Premises up to thirty (30) days prior to the anticipated Lease Commencement Date for the purpose of installing furniture, trade fixtures, equipment, and similar items. Tenant shall be liable for any damages or delays caused by Tenant's activities at the Leased Premises. Provided that Tenant has not begun operating its business from the Leased Premises, and subject to all of the terms and conditions of the Lease, the foregoing activity shall not constitute the delivery of possession of the Leased Premises to Tenant and the Term shall not commence as a result of said activities. Prior to entering the Leased Premises, Tenant shall obtain all insurance it is required to obtain by the Lease and shall provide certificates of said insurance to Landlord. Tenant shall coordinate such entry with Landlord's building manager, and such entry shall be made in compliance with all terms and conditions of this Lease and the Rules and Regulations set forth in Exhibit D attached hereto. - --------- 3. Rent and Additional Charges; Computation of Operating Expense Increases. ----------------------------------------------------------------------- (a) Payment of Basic Rent and Additional Charges. Tenant shall pay -------------------------------------------- the Basic Rent and Parking Rent in equal monthly installments in advance on the first day of each month during the Term commencing on the Lease Commencement Date; provided, however, if the Lease Commencement Date is not the first day of a month, Basic Rent for the period commencing on the Lease Commencement Date and ending on the last day of the month in which the Lease Commencement Date occurs shall be pro-rated for each day at the rate of one-thirtieth (1/30) of the full monthly installment of Basic Rent and paid on the Lease Commencement Date. If any due and owing Basic Rent is underpaid as a result of failure to make any required adjustment thereto or other cause, after such required adjustment thereto or other cause, Tenant shall pay such deficiency in its entirety along with the next monthly payment of Basic Rent. Tenant shall also pay its Proportionate Share of Operating Expense Increases as provided in Sections 1(a)(7) and 3(b) hereof. The Basic Rent and all Additional Charges shall be paid promptly when due, in lawful money of the United States, without notice or demand and without deduction, diminution, abatement, counterclaim or set-off of any amount or for any reason whatsoever, to Landlord at Landlord's Notice Address or at such other address or to such other person as Landlord may from time to time designate. If Tenant makes any payment to Landlord by check, the same shall be by check of Tenant only, and Landlord shall not be required to accept the check of any other person, and any check received by Landlord shall be deemed received subject to collection. If any check is mailed by Tenant, it should mailed to Landlord's Notice Address and Tenant shall post such check in sufficient time prior to the date when payment is due so that such check will be received by Landlord on or before the date when payment is due. Tenant shall assume the risk of lateness or failure of delivery of the mails. If, during the Term, Landlord receives two or more checks from Tenant which are returned by Tenant's bank for insufficient funds or are otherwise returned unpaid, Tenant agrees that all checks thereafter shall be either bank certified or bank cashier's checks. All bank service charges resulting from any bad checks shall be borne by Tenant. Notwithstanding the foregoing, upon 180 days prior written notice to Tenant, and to the extent the use of an ACH, as hereinafter defined, is commercially reasonable for Tenant, Landlord shall have the option of requiring Tenant to make all payments of Basic Rent by use of an Automatic Clearing House ("ACH") debit or credit, at the option of Tenant, provided Tenant is using an ACH debit or credit for any of its other vendors; provided, however, if Tenant is not using an ACH debit or credit for any of its other vendors, it shall not be a default hereunder in the event that 8 Tenant does not comply with the foregoing so long as Tenant continues to make all scheduled payments of Rent and Additional Charges as required under the Lease. The Rent reserved under this Lease shall be the total of all Basic Rent and Additional Charges, increased and adjusted as elsewhere herein provided, payable during the entire Term and, accordingly, the methods of payment provided for herein, namely, annual and monthly rental payments, are for convenience only and are made on account of the total Rent reserved hereunder, provided, however, that unless Tenant has committed an Event of Default, Landlord cannot demand payment of the Total Rent reserved hereunder in anything but monthly rental payments. (b) Computation of Operating Expenses. --------------------------------- (1) Following the expiration of each Lease Year, Landlord shall submit to Tenant a statement setting forth in reasonable detail the Operating Expenses for the preceding Lease Year and the amount, if any, due to Landlord from Tenant for such Lease Year on account of such Operating Expenses (the "Statement"). Such Statement shall constitute a final determination between the parties for the period represented thereby, subject only to proper adjustments subsequently made by Landlord. Prior to the rendition of any such Statement, Tenant shall continue to pay to Landlord, on the first day of each month, 1/12th of Landlord's most-recent estimate of the Operating Expenses to be due from Tenant for the current Lease Year. If any such Statement shows any Operating Expenses due from Tenant with respect to such preceding Lease Year, then Tenant shall make payment of any unpaid portion thereof within ten (10) days after receipt of such Statement. Tenant shall also pay to Landlord as additional rent, commencing as of the first day of the month immediately following the rendition of such Statement and on the first day of each month thereafter until a new statement is rendered, 1/12th of Landlord's new estimate of the Operating Expenses to be due from Tenant for the current Lease Year; and, Tenant shall also pay to Landlord, as additional rent, within ten (10) business days after receipt of such statement, an amount equal to the difference between (a) the product obtained by multiplying the estimated Operating Expenses for the current Lease Year by a fraction, the denominator of which shall be twelve (12) and the numerator of which shall be the number of months of the current Lease Year which shall have elapsed prior to the first day of the month immediately following the rendition of such Statement, and (b) the sum of all previous Operating Expense payments (if any) made by Tenant with respect to such prior months in the current Lease Year. Payments based on the estimated Operating Expenses for the current Lease Year shall be credited toward the actual Operating Expenses due from Tenant for the current Lease Year, subject to adjustment as and when the Statement for such current Lease Year is rendered by Landlord. (2) Operating Expenses for the Base Year are included in the Basic Rent payable by Tenant during the first twelve (12) months of the Initial Term. Tenant shall commence paying its Proportionate Share of Operating Expense Increases on the first anniversary of the Lease Commencement Date. Upon the date of expiration or termination of this Lease, whether the same be the date hereinabove set forth for the expiration of the Term, or any prior or subsequent date, a prorated share of said Operating Expenses for the Lease Year during which such expiration or termination occurs shall immediately become due and payable by Tenant to Landlord, if it was not theretofore already billed and paid. The said prorated share shall be based upon the length of time that the Term shall have been in existence during such Lease Year. Landlord shall, as soon as reasonably practicable, cause statements of the Operating Expenses for that Lease Year to be prepared and furnished to Tenant. Landlord and Tenant shall thereupon make appropriate adjustments of amounts then owing. Landlord's and Tenant's obligation to make the adjustments referred to in subparagraphs (1) and (2) of this Section 3(b) shall survive any expiration or termination of this Lease. Any delay or failure of Landlord in billing any Operating Expenses hereinabove provided shall not constitute a waiver of or in any way impair the continuing obligation of Tenant to pay such Operating Expenses. (i) The Operating Expenses for the Base Year shall be adjusted, if necessary, to a level of that of a 95% occupied and fully operational office building at cost levels prevailing in the geographic market in which the Building is located 9 for an entire Lease Year. This adjustment shall include (a) when Building systems are under warranty during the Base Year, an adjustment for the cost of service contracts and other expenses that would have been incurred in the absence of such warranties; (b) an adjustment for all other expenses that are not incurred if the Building is new and start-up discounts or similar savings have been achieved; and (c) adjustments for all other atypical costs that occur or do not occur during the Base Year other than those costs which would occur in the Base Year in the ordinary course of business. The purpose of these adjustments is to include in the Building Operating Expenses for the Base Year all reasonable cost components that occur or are likely to occur in later years. (ii) If a new category of expense is incurred after the Base Year, the first full year's expense for such item shall be added to the Building Operating Expenses for the Base Year commencing with the first full calendar year that such expense is incurred, so that Tenant shall only be required to pay subsequent increases in such expense. The expense incurred for such item during the first year shall be subject to the adjustments described in the immediately preceding paragraph . (c) Interest. If Tenant fails to pay any Basic Rent or Additional -------- Charges within five (5) business days after the same becomes due and payable, interest shall, at Landlord's option, accrue from the date due on the unpaid portion thereof at the rate of one and one-half percent (1-1/2%) per month or five (5) percentage points above the Prime Rate in effect on such due date, whichever is higher, but in no event at a rate higher than the maximum rate allowed by law. Such interest shall be deemed additional rent hereunder and shall be collectible as such. (d) Accord and Satisfaction. No payment by Tenant or receipt by ----------------------- Landlord of any lesser amount than the amount stipulated to be paid hereunder shall be deemed other than on account of the earliest stipulated Basic Rent or Additional Charges; nor shall any endorsement or statement on any check or letter be deemed an accord and satisfaction, and Landlord may accept any check or payment without prejudice to Landlord's right to recover the balance due or to pursue any other remedy available to Landlord. (e) Late Payment Charge. If Tenant fails to pay any Basic Rent or ------------------- Additional Charges within ten (10) days after the same become due and payable, Tenant shall also pay to Landlord a late payment service charge (to cover Landlord's administrative and overhead expenses of processing late payments) equal to the greater of Five Hundred ($500.00) or Five Percent (5%) of such unpaid sum. Such payment shall be deemed liquidated damages and not a penalty, but shall not excuse the timely payment of Rent. Acceptance of such late charge by Landlord shall in no event constitute a waiver of Tenant's default with respect to such overdue amount, nor prevent Landlord from exercising any of the other rights and remedies granted hereunder including the assessment of interest under Section 3(c). (f) Right to Audit. Within one hundred twenty (120) days after -------------- receipt of the Operating Expenses Statement, Tenant shall have the right, at its expense, to inspect Landlord's Operating Expenses records relating to the Lease Year covered by the Statement, including the Statement covering the Base Year, except that any inspection that discloses that Tenant's Proportionate Share of Operating Expenses has been overstated by more than ten percent (10%) shall be at Landlord's expense. The inspection must be completed within thirty (30) days of commencement. Before conducting any inspection, Tenant must pay the full amount of Operating Expenses billed and there must not be an Event of Default of any other Lease provisions. Tenant may review only those records of Landlord that are specifically related to Operating Expenses. The audit shall be conducted in Landlord's offices and at a time reasonably agreeable to the parties. Promptly after receipt thereof, Tenant will deliver to Landlord a copy of any report procured as a result of the inspection and all accompanying data. Tenant's Proportionate Share of Operating Expense Increases shall be appropriately adjusted based upon the results of such audit. Tenant will keep 10 confidential any information gained through and the result of any inspection. Tenant may not conduct an inspection more often than once each Lease Year. Tenant may audit records only with respect to the Lease Year in question; provided, however, that Tenant shall have a one time only right to audit the Base Year. 4. Services and Utilities. ---------------------- (a) Types. Throughout the Term, Landlord agrees that, without ----- additional charges except as set forth (i) in the pass-through provisions of the Lease, (ii) the Parking Rent provisions, and (iii) as otherwise set forth below, it will furnish to Tenant the following services: (1) Electricity during normal business hours for normal lighting purposes and the operation of ordinary office equipment, in accordance with Section 6(b) hereof; (2) Adequate supplies for toilet rooms; (3) Normal and usual cleaning and char services after business hours each day except on Saturdays, Sundays and legal holidays recognized by the United States Government; (4) Hot and cold running water in the bathrooms; (5) Air cooling/heating, when required, between the hours of 7:00 A.M. and 7:00 P.M. Mondays through Fridays and between 8:00 A.M. and 1:00 P.M. on Saturdays, except on legal holidays recognized by the United States Government. Landlord reserves the right to establish and collect a charge for air cooling/heating utilized by Tenant during hours and/or days other than those set forth above, but Landlord's failure to establish and/or collect such charge shall not be deemed a waiver of Landlord's right to include all costs for air cooling in the computation of Operating Expenses for purposes of Section 1(b)(9) hereof; (6) Automatically operated elevator service; (7) All electric bulbs, ballasts and fluorescent tubes in standard light fixtures in the Leased Premises and the Common Areas; (8) Facilities for parking as specified herein; (9) Two (2) keys and ten (10) access cards to the Leased Premises at no cost to Tenant, all additional keys at the cost of Tenant; (10) Lamping of all Building standard ceiling lighting fixtures in the Leased Premises; (11) An electronic card-key building access system which will provide Tenant with twenty-four (24) hours per day, seven (7) days per week access to the Building and parking garage, provided, however, that Tenant acknowledges and agrees that repairs, hazardous conditions and circumstances beyond Landlord's reasonable control may prevent access to the Leased Premises or parking garage from time to time; (12) A health club will be located in the concourse level of the Building, including locker and shower facilities and will be available for use by Tenant and its employees free of charge through the Term of the Lease; and (13) Initial Building directory signage strips, elevator lobby signage on each floor of the Leased Premises and suite entry signage as provided in Section 24 herein. Tenant shall receive Tenant's Proportionate Share of the Building directory signage strips as set forth in Section 24 herein. The design, size, location and materials of such 11 signage shall be in accordance with Landlord's standard Building signage package except to the extent such signage package conflicts with the provisions contained in Section 24. (b) Access. Landlord shall have reasonable access to and reserves the ------ right to inspect, erect, use, connect to, maintain and repair pipes, ducts, conduits, cables, plumbing, vents and wires, and other facilities in, to and through the Leased Premises as and to the extent that Landlord may now or hereafter deem to be necessary or appropriate for the proper operation and maintenance of the Building (including the servicing of other occupants of the Building) and the right at all times to transmit water, heat, air conditioning and electric current through such pipes, conduits, cables, plumbing, vents and wires and the right to interrupt the same in suspected emergencies without eviction of Tenant or abatement of Rent. (c) Interruption in Services. Tenant agrees that Landlord shall not ------------------------ be liable to Tenant for its failure to furnish gas, electricity, telephone service, water, HVAC or any other utility services or building services when such failure is occasioned, in whole or in part, by repairs, replacements, or improvements, by any strike, lockout or other labor trouble, by inability to secure electricity, gas, water, telephone service or other utility at the Building, by any accident, casualty or event arising from any cause whatsoever, including the negligence of Landlord, its employees, agents and contractors, by act, negligence or default of Tenant or any other person or entity, or by an other cause, including bomb scares, and such failures shall never be deemed to constitute an eviction or disturbance of Tenant's use and possession of the Leased Premises or relieve Tenant from the obligation of paying rent or performing any of its obligations under this Lease. Furthermore, Landlord shall not be liable under any circumstances for loss of property or for injury to, or interference with, Tenant's business, including, without limitation, loss of profits, however occurring, through or in connection with or incidental to a failure to furnish any such services or utilities. Landlord may comply with voluntary controls or guidelines promulgated by any governmental entity relating to the use or conservation of energy, water, gas, light or electricity or the reduction of automobile or other emissions without creating any liability of Landlord to Tenant under this Lease. Notwithstanding the foregoing, if any interruption of service shall continue for more than five (5) consecutive business days and shall render all or any portion of the Leased Premises unusable or inaccessible for the normal conduct of Tenant's business, and if Tenant does not in fact use or occupy such portion of the Leased Premises, then all Basic Rent and Additional Charges payable hereunder with respect to such portion of the Leased Premises which Tenant does not occupy shall be abated from and after such fifth (5th) business day until full use of such portion of the Leased Premises is restored to Tenant. 5. Maintenance and Repairs. ----------------------- Subject to the provisions of Section 8 below and subject to reimbursement by Tenant in accordance with the provisions of Sections 1(b)(9) and 3 herein, Landlord agrees to maintain the roof (structure and membrane), foundation, structural portions of the Building and central Building mechanical, electrical and plumbing systems, the Common Areas, and Building standard items in the Leased Premises but only those behind walls or at or above finished ceilings, in good order and repair throughout the Term. Tenant, and not Landlord, shall be responsible for (i) maintaining all other improvements to the Leased Premises including Building standard items which are not behind walls or at or above finished ceilings and any Special Items in the Leased Premises, and (ii) reimbursing Landlord for the full cost of any repairs to the Leased Premises or to any part of the Building caused by the unreasonable wear and tear by or negligence of Tenant or its agent or employees, such reimbursement to be collectible as Additional Charges hereunder immediately upon demand from Landlord. Any contractors performing repairs which are the responsibility of Tenant hereunder must receive the prior written approval of Landlord. 6. Use of Leased Premises. ---------------------- 12 (a) General Offices. Tenant shall use and occupy the Leased Premises --------------- solely for general office purposes, and shall not use or permit or suffer the use of the Leased Premises for any other purpose whatsoever. Notwithstanding the foregoing, Tenant shall be prohibited from using the Leased Premises for (i) the business of providing retail banking services, and (ii) the conduct of a mortgage banking business. Also, in any announcement of this Lease or other advertising of Tenant making reference to this Lease or the Leased Premises, Tenant shall also make reference to "The Corporate Office Centre at Tysons II". (b) Covenants. Throughout the Term, Tenant covenants and agrees to: --------- (i) keep the Leased Premises in a neat and clean condition; (ii) pay before delinquency any and all taxes, assessments and public charges levied, assessed or imposed upon Tenant's business, upon the leasehold estate created by this Lease or upon Tenant's fixtures, furnishings or equipment in the Leased Premises; (iii) not to use or permit or suffer the use of any portion of the Leased Premises for any unlawful purpose, for any purpose which would injure the reputation of the Building, or in any manner which might be hazardous or might jeopardize Landlord's insurance coverage or increase Landlord's insurance premium; (iv) not to allow any pets to be brought into the Leased Premises; (v) not to use the plumbing facilities for any purpose other than that for which they were constructed, or dispose of any foreign substances therein; (vi) not to place a load on any floor exceeding the floor load per square foot which such floor was designed to carry in accordance with the plans and specifications of the Building, and not install, operate or maintain in the Leased Premises any heavy item of equipment except in such manner as to achieve a proper distribution of weight; (vii) not to strip, overload, damage or deface the Leased Premises, the floors, or the hallways, stairways, elevators, parking facilities or other Common Areas of the Building, or the fixtures therein or used therewith, nor to permit any hole to be made in any of the same; (viii) not to move any furniture or equipment into or out of the Leased Premises except at such times and in such manner as Landlord may from time to time designate; (ix) not to use any floor adhesive in the installation of any carpeting; (x) not to install or operate in the Leased Premises any electrical, heating and cooling, or refrigeration equipment, computer equipment, electronic data processing equipment, punch card machines or other equipment using electric current in excess of standard voltage or amperage, or in excess of 5 watts per rentable square foot on a fully-connected load basis distributed through one breaker per 400 square feet of the Leased Premises, or requiring non-standard electrical wiring outlets, circuits or panels (other than ordinary office equipment such as electric typewriters, adding machines, television sets, radios, clocks and lamps), without first obtaining the written consent of Landlord, who may condition such consent upon Tenant's agreement to make direct payment to the local utility company or the payment by Tenant of an Additional Charge to Landlord, for Tenant's excessive consumption of electricity and for the cost of additional wiring or metering which may be required for the operation of such equipment and machinery; (xi) not to install any other equipment of any kind or nature which will or may overheat, exceed the capacity, or otherwise necessitate any repairs, changes, replacements or additions to, or in the use of, the water system, heating system, plumbing system, air conditioning system or electrical system of the Leased Premises or the Building, without first obtaining the written consent of Landlord; and (xii) at all times to comply with the Requirements. (c) Compliance. Tenant will not use or occupy the Leased Premises in ---------- violation of any Requirement. If any governmental authority, after the commencement of the Term, shall contend or declare that the Leased Premises are being used for a purpose which is in violation of any Requirement, then Tenant shall, immediately upon demand from Landlord, discontinue such use of the Leased Premises. If thereafter the governmental authority asserting such violation threatens, commences or continues criminal or civil proceedings against Landlord for Tenant's failure to discontinue such use, in addition to any and all rights, privileges and remedies given to Landlord under this Lease for default therein, Landlord shall have the right to terminate this Lease forthwith. Tenant shall indemnify and hold Landlord harmless of and from any and all liability for any such violation or violations. 13 (d) Rules and Regulations. Tenant and its agents and employees shall --------------------- comply with and observe all reasonable rules and regulations concerning the use, management, operation, safety and good order of the Leased Premises and the Building which may from time to time hereafter be promulgated by Landlord. Initial rules and regulations, which shall be effective until amended by Landlord, are attached hereto as Exhibit D. Tenant shall be deemed to have --------- received notice of any amendment to the rules and regulations when a copy of such amendment has been delivered to Tenant at the Leased Premises or has been mailed to Tenant in the manner prescribed for the giving of notices. Tenant shall comply with all fire protective rules and regulations promulgated by the Landlord for the safety of the Building and its occupants, including rules prescribing certain types of materials and prohibiting other types of materials in the Building. Landlord shall not be responsible to Tenant for any violation of the rules and regulations, or the covenants or agreements contained in any other lease, by any other tenant of the Building, or its agents or employees, and Landlord may waive any or all of the rules or regulations in respect of any one or more tenants for good cause so long as such rules and regulations are otherwise non-discriminatorily enforced. Landlord shall use commercially reasonable efforts to enforce such rules and regulations in a reasonable, uniform and non-discriminatory manner. 7. Insurance. --------- (a) Tenant (1) Types; Limits. Tenant, at Tenant's sole cost and expense, ------------- shall obtain and maintain in effect at all times during the Term, a policy of commercial general liability insurance with broad form property damage endorsement, naming Landlord, Tysons II Development Co. Limited Partnership, Tysons II Land Company, L.L.C., Lerner Enterprises Limited Partnership, Lerner Corporation, and (at Landlord's request) any mortgagee of the Building, any ground landlord and any other agent as additional named insured(s), protecting such parties against any liability for bodily injury, death or property damage occurring upon, in or about any part of the Building, the Leased Premises or any appurtenances thereto, with such policies to afford protection to the limit of not less than Two Million Dollars ($2,000,000) with respect to bodily injury or death to any one person, to the limit of not less than Two Million Dollars ($2,000,000) with respect to bodily injury or death to any number or persons in any one accident, and to the limit of not less than Two Million Dollars ($2,000,000) with respect to damage to the property of any one owner, and with a deductible no greater than One Thousand Dollars ($1,000.00) for any single occurrence. Tenant shall obtain and keep in force during the Term of this Lease "all risk" extended coverage property insurance with coverages acceptable to Landlord, in Landlord's sole discretion. Said insurance shall be written on a one hundred percent (100%) replacement cost basis on Tenant's personal property, all tenant improvements installed at the Leased Premises by Landlord or Tenant, Tenant's trade fixtures and other property. By way of example and not limitation, such policies shall provide protection against any peril included within the classification "fire and extended coverage," against vandalism and malicious mischief, theft, sprinkler leakage, sewer backup, and flood damage. Tenant shall, at all times during the Term hereof, maintain in effect workers' compensation insurance as required by applicable law and business interruption and extra expense insurance satisfactory to Landlord. (2) Policies. The insurance policy required to be obtained by -------- Tenant under this Lease (i) shall be issued by an insurance company of recognized responsibility licensed to do business in the jurisdiction in which the Building is located with a rating of at least "A" and a financial rating of at least "Class X" (or such other rating as may be reasonably required by any lender having a lien on the Building) as set forth in the most recent edition of "Best Insurance Reports", and (ii) shall be written as primary policy coverage and not contributing with or in excess of any coverage which Landlord may carry. Neither the issuance of any insurance policy required under this Lease, nor the minimum limits specified herein with respect to Tenant's insurance coverage, shall be deemed to limit or restrict in any way Tenant's liability arising under or out of this Lease. With respect to each insurance policy required to be obtained by Tenant under this 14 Section, on or before the Lease Commencement Date, and at least thirty (30) days before the expiration of any expiring policy or certificate previously furnished, Tenant shall deliver to Landlord a certificate of insurance therefor, together with evidence of payment of all applicable premiums. Each insurance policy required to be carried hereunder by or on behalf of Tenant shall provide (and any certificate evidencing the existence of each such insurance policy shall certify) that such insurance policy shall not be canceled unless Landlord shall have received thirty (30) days' prior written notice of such cancellation. (3) Prohibitions. Tenant shall not do, permit or suffer to be done ------------ any act, matter, thing or failure to act in respect of the Leased Premises and/or the Building that will invalidate or be in conflict with insurance policies covering the Building or any part thereof, and shall not do, or permit anything to be done, in or upon the Leased Premises and/or the Building, or bring or keep anything therein, which shall increase the rate of insurance on or related to the Building or on any property located therein. If, by reason of the failure of Tenant to comply with the provisions of this subsection, the insurance rate shall at any time be higher than it otherwise would be, then Tenant shall reimburse Landlord on demand, for that part of all premiums for any insurance coverage that shall have been charged because of such violation by Tenant and which Landlord shall have paid on account of an increase in the rate or rates in its own policies of insurance. (4) Hold Harmless; Indemnification. Tenant hereby agrees to indemnify ------------------------------ and hold harmless Landlord, Tysons II Development Co. Limited Partnership, Tysons II Land Company, L.L.C., Lerner Enterprises Limited Partnership, Lerner Corporation, Landlord's employees, agents, mortgagees and ground lessors from and against any and all claims, losses, actions, damages, liabilities and expenses (including attorneys' fees) that (i) arise from or are in connection with Tenant's possession, use, occupation, management, repair, maintenance or control of the Leased Premises or the Building, or any portion thereof, or (ii) arise from or are in connection with any act or omission of Tenant or Tenant's agents, employees or invitees, or (iii) result from any default, breach, violation or non-performance of this Lease or any provision herein by Tenant, or (iv) result from injury or death to persons or damage to property sustained in or about the Leased Premises. Tenant shall, at its own cost and expense, defend any and all actions, suits and proceedings which may be brought against the aforesaid parties with respect to the foregoing or in which the aforesaid parties may be impleaded. Tenant shall pay, satisfy and discharge any and all judgments, orders and decrees which may be recovered against the aforesaid parties in connection with the foregoing. The aforesaid parties shall not be liable or responsible for, and Tenant hereby releases the aforesaid parties from all liability or responsibility to Tenant or any person claiming by, through or under Tenant, by way of subrogation or otherwise, any injury, loss or damage to any property in or around the Leased Premises or to Tenant's business irrespective of the cause of such injury, loss or damage, and Tenant shall require its insurer(s) to include in all of Tenant's insurance policies which could give rise to a right of subrogation against the aforesaid parties a clause or endorsement whereby the insurer(s) shall waive any rights of subrogation against the aforesaid parties as well as other tenants or occupants of the Building. Tenant hereby makes such waiver on behalf of its insurer, which insurer, by insuring Tenant as contemplated under this Lease, shall be deemed to have acknowledged the provisions hereof. (5) Coverage. Landlord makes no representation to Tenant that the -------- limits or forms of coverage specified above or approved by Landlord are adequate to insure Tenant's property or Tenant's obligations under this Lease, and the limits of any insurance carried by Tenant shall not limit Tenant's obligations or liability under any indemnity provision included in this Lease or under any other provision of this Lease. (b) Landlord. Landlord shall obtain and keep in force a policy of -------- comprehensive general liability insurance with coverage against such risks and in such amounts as Landlord deems advisable insuring Landlord against liability arising out of the ownership, operation and management of the Building. Landlord shall also obtain and keep in force during the Term of this Lease a policy or policies of "all risk" insurance covering loss or damage to the Building in the amount of not less than eighty percent 15 (80%) of the full replacement cost thereof, as determined by Landlord from time to time. The terms and conditions of said policies and the perils and risks covered thereby shall be determined by Landlord, from time to time, in Landlord's sole discretion. In addition, at Landlord's option, Landlord shall obtain and keep in force, during the Term of this Lease, a policy of rental interruption insurance, with loss payable to Landlord, which insurance shall, at Landlord's option, also cover all Operating Expenses. Tenant will not be named as an additional insured in any insurance policies carried by Landlord and shall have no right to any proceeds therefrom. At Landlord's option, Landlord may obtain insurance coverages and/or bonds related to the operation of the parking areas. In addition, Landlord shall have the right to obtain such additional insurance as is customarily carried by owners or operators of other comparable office buildings in the geographical area of the Building. The policies purchased by the Landlord shall contain such deductibles as Landlord may determine. In addition to amounts payable by Tenant in accordance with Section 1(b)(9), Tenant shall pay any increase in the property insurance premiums for the Building over what was payable immediately prior to the increase to the extent the increase is specified by Landlord's insurance carrier as being caused by the nature of Tenant's occupancy of the Leased Premises, or any act or omission of Tenant, or Tenant shall cease the activity giving rise to such increase. (c) Waiver of Subrogation. Landlord waives any and all rights or --------------------- recovery against Tenant for or arising out of damage to, or destruction of, the Building to the extent that Landlord's insurance policies then in force insure against such damage or destruction and permit such waiver, and only to the extent of the insurance proceeds actually received by Landlord for such damage or destruction. Landlord's waiver shall not relieve Tenant from liability under Section 18 below except to the extent Landlord's insurance company actually satisfies Tenant's obligations under Section 18 in accordance with the requirements of Section 18. 8. Damage by Fire or Other Casualty. -------------------------------- Tenant shall give prompt notice to Landlord in case of any fire or other damage to the Leased Premises. If the Leased Premises or the Building are damaged by fire or other casualty not caused by the act or negligence of Tenant or its agents or employees, Landlord shall diligently and as soon as practicable after such damage occurs (taking into account the time necessary to effectuate a satisfactory settlement with Landlord's insurance company) repair such damage at its own expense, and until such repairs have been completed the Basic Rent and Additional Charges shall be abated in proportion to the part of the Leased Premises which is rendered untenantable (in no event shall damage to any parking areas be deemed to render the Leased Premises untenantable). However, if available insurance proceeds are insufficient or if the Leased Premises or the Building are damaged by fire or other casualty to such an extent that the damage, in Landlord's opinion, cannot be fully repaired within one hundred eighty (180) days from the date such damage occurs, Landlord shall have the right to, exercised by giving Tenant written notice within such one hundred eighty (180)-day period, terminate this Lease effective as of the date of such damage. Notwithstanding the foregoing, if Landlord shall elect or be obligated to rebuild or repair the Leased Premises or the Building, but in good faith determines that the Leased Premises or the Building cannot be rebuilt or repaired within two hundred ten (210) days after the date of the occurrence of the damage, without payment of overtime or other premiums, and the damage to the Building has rendered the Leased Premises wholly or partially unusable or inaccessible, Landlord shall notify Tenant thereof in writing at the time of Landlord's election to rebuild or repair and Tenant shall thereafter have a period of thirty (30) days within which Tenant may elect to terminate this Lease, upon written notice to Landlord. Failure of Tenant to exercise said election within said thirty (30) business day period shall constitute Tenant's agreement to accept delivery of the Leased Premises under this Lease whenever tendered by Landlord, provided Landlord thereafter pursues reconstruction or restoration diligently to completion, subject to delays beyond Landlord's reasonable control. Notwithstanding the foregoing, if the fire or other casualty shall be caused by the carelessness, negligence or improper conduct of Tenant or 16 its agents or employees, Tenant shall remain liable for the full amount of the Basic Rent and Additional Charges during the period of restoration or until termination of this Lease, and all required repairs shall be made at Tenant's expense. 17 9. Condemnation. ------------ If a majority of the Leased Premises, or all or substantially all of the Building (or the use or possession thereof), shall be taken in condemnation proceedings or by exercise of any right of eminent domain, or by a private purchase in lieu thereof, then this Lease shall terminate and expire on the date of such taking or purchase and Tenant shall, in all other respects, keep, observe and perform all the other terms, covenants and conditions of this Lease up to the date of such taking. The net proceeds of any award or other compensation payable in connection with such taking or purchase shall be paid to Landlord, and Tenant hereby assigns to Landlord all of its right, title and interest in and to such award or other compensation. Tenant shall have no claim against Landlord for the value (if any) of personal property in the Leased Premises or the unexpired Term. 10. Assignment and Subletting. ------------------------- (a) Landlord's Consent Required. Tenant shall not voluntarily or by --------------------------- operation of law assign, transfer, hypothecate, mortgage, sublet, or otherwise transfer or encumber all or any part of Tenant's interest in this Lease or in the Leased Premises (hereinafter collectively a "Transfer"), without Landlord's prior written consent, which shall not be unreasonably withheld, conditioned or delayed. Landlord shall respond to Tenant's written request for consent hereunder within thirty (30) days after Landlord's receipt of the written request from Tenant. Any attempted Transfer without such consent shall be void and shall constitute a material default and breach of this Lease. Tenant's written request for Landlord's consent shall include, and Landlord's thirty (30) day response period referred to above shall not commence, unless and until Landlord has received from Tenant, all of the following information: (i) financial statements for the proposed assignee for the past three (3) years prepared in accordance with generally accepted accounting principles, (ii) federal tax returns for the proposed assignee for the past three (3) years, (iii) a TRW credit report or similar report on the proposed assignee or subtenant, (iv) a detailed description of the business the assignee or subtenant intends to operate at the Leased Premises, (v) the proposed effective date of the assignment or sublease, (vi) a copy of the proposed sublease or assignment agreement which includes all of the terms and conditions of the proposed assignment or sublease, (vii) a detailed description of any ownership or commercial relationship between Tenant and the proposed assignee or subtenant, and (viii) a detailed description of any Alterations the proposed assignee or subtenant desires to make to the Leased Premises. If the obligations of the proposed assignee or subtenant will be guaranteed by any person or entity, Tenant's written request shall not be considered complete until the information described in (i), (ii) and (iii) of the previous sentence has been provided with respect to each proposed guarantor. "Transfer" shall also include the transfer (i) if Tenant is a corporation, and Tenant's stock is not publicly traded over a recognized securities exchange, of more than forty percent (40%) of the voting stock of such corporation during the Term of this Lease (whether or not in one or more transfers) or the dissolution, merger or liquidation of the corporation, or (ii) if Tenant is a partnership or other entity, of more than forty percent (40%) of the profit and loss participation in such partnership or entity during the Term of this Lease (whether or not in one or more transfers) or the dissolution, merger or liquidation of the partnership or entity. If Tenant is a limited or general partnership (or is comprised of two or more persons, individually or as co-partners), Tenant shall not be entitled to change or convert to (i) a limited liability company, (ii) a limited liability partnership or (iii) any other entity which possesses the characteristics of limited liability without the prior written consent of Landlord, which consent may be given or withheld in Landlord's sole discretion. Tenant's sole remedy in the event that Landlord shall wrongfully withhold consent to or disapprove any assignment or sublease shall be to obtain an order by a court of competent jurisdiction that Landlord grant such consent; in no event shall Landlord be liable for damages with respect to its granting or withholding consent to any proposed assignment or sublease. If Landlord shall exercise any option to recapture the Leased Premises, or shall deny a request for consent to a proposed assignment or sublease, Tenant shall indemnify, defend and hold Landlord harmless from and against any and all losses, liabilities, damages, costs and claims that 18 may be made against Landlord by the proposed assignee or subtenant, or by any brokers or other persons claiming a commission or similar compensation in connection with the proposed assignment or sublease. (b) Leveraged Buy-Out. The involvement by Tenant or its assets in any ----------------- transaction, or series of transactions (by way of merger, sale, acquisition, financing, refinancing, transfer, leveraged buy-out or otherwise) whether or not a formal assignment or hypothecation of this Lease or Tenant's assets occurs, which results or will result in a reduction of the "Net Worth" of Tenant as hereinafter defined, by an amount equal to or greater than twenty-five percent (25%) of such Net Worth of Tenant as it is represented to Landlord at the time of the execution by Landlord of this Lease, or as it exists immediately prior to said transaction or transactions constituting such reduction, at whichever time said Net Worth of Tenant was or is greater, shall be considered to be an assignment of this Lease by Tenant to which Landlord may reasonably withhold its consent. "Net Worth" of Tenant for purposes of this Section 10(b) shall be the net worth of Tenant (excluding any guarantors) established under generally accepted accounting principles consistently applied. (c) Standard For Approval. Landlord shall not unreasonably withhold --------------------- its consent to a Transfer provided that Tenant has complied with each and every requirement, term and condition of this Section 10. Tenant acknowledges and agrees that each requirement, term and condition in this Section 10 is a reasonable requirement, term or condition. It shall be deemed reasonable for Landlord to withhold its consent to a Transfer if any requirement, term or condition of this Section 10 is not complied with or: (i) the Transfer would cause Landlord to be in violation of its obligations under another lease or agreement to which Landlord is a party; (ii) in Landlord's reasonable judgment, a proposed assignee has a smaller net worth than Tenant had on the date this Lease was entered into with Tenant or is less able financially to pay the rents due under this Lease as and when they are due and payable; (iii) a proposed assignee's or subtenant's business will impose a burden on the Building's parking facilities, elevators, Common Areas or utilities that is greater than the burden imposed by Tenant, in Landlord's reasonable judgment; (iv) the terms of a proposed assignment or subletting will allow the proposed assignee or subtenant to exercise a right of renewal, right of expansion, right of first offer, right of first refusal or similar right held by Tenant; (v) a proposed assignee or subtenant refuses to enter into a written assignment agreement or sublease, reasonably satisfactory to Landlord, which provides that it will abide by and assume all of the terms and conditions of this Lease for the term of any assignment or sublease and containing such other terms and conditions as Landlord reasonably deems necessary; (vi) the use of the Leased Premises by the proposed assignee or subtenant will not be identical to the use permitted by this Lease; (vii) any guarantor of this Lease refuses to consent to the Transfer or to execute a written agreement reaffirming the guaranty; (viii) Tenant is in default as defined in Section 11 at the time of the request; (ix) if requested by Landlord, the assignee or subtenant refuses to sign a non-disturbance and attornment agreement in favor of Landlord's lender; (x) Landlord or any mortgagee has sued or been sued by the proposed assignee or subtenant or has otherwise been involved in a legal dispute with the proposed assignee or subtenant; (xi) the assignee or subtenant is involved in a business which is not in keeping with the then current standards of the Building; (xii) the proposed assignee or subtenant is an existing tenant of the Building or is a person or entity then negotiating with Landlord for the lease of space in the Building; (xiii) the assignment or sublease will result in there being more than one subtenant of the Leased Premises (e.g., the assignee or subtenant intends to use the Leased Premises as an executive suite); or (xiv) the assignee or subtenant is a governmental or quasi-governmental entity or an agency, department or instrumentality of a governmental or quasi-governmental agency. (d) Additional Terms and Conditions. The following terms and ------------------------------- conditions shall be applicable to any Transfer: 19 (1) Regardless of Landlord's consent, no Transfer shall release Tenant from Tenant's obligations hereunder or alter the primary liability of Tenant to pay the rent and other sums due Landlord hereunder and to perform all other obligations to be performed by Tenant hereunder or release any guarantor from its obligations under its guaranty. (2) Landlord may accept rent from any person other than Tenant pending approval or disapproval of an assignment or subletting. (3) Neither a delay in the approval or disapproval of a Transfer, nor the acceptance of rent, shall constitute a waiver or estoppel of Landlord's right to exercise its rights and remedies for the breach of any of the terms or conditions of this Section 10. (4) The consent by Landlord to any Transfer shall not constitute a consent to any subsequent Transfer by Tenant or to any subsequent or successive Transfer by an assignee or subtenant. (5) In the event of any default under this Lease, Landlord may proceed directly against Tenant, any guarantors or anyone else responsible for the performance of this Lease, including any subtenant or assignee, without first exhausting Landlord's remedies against any other person or entity responsible therefor to Landlord, or any security held by Landlord. (6) Landlord's written consent to any Transfer by Tenant shall not constitute an acknowledgment that no default then exists under this Lease nor shall such consent be deemed a waiver of any then existing default. (7) The discovery of the fact that any financial statement relied upon by Landlord in giving its consent to an assignment or subletting was materially false shall, at Landlord's election, render Landlord's consent null and void. (8) Landlord shall not be liable under this Lease or under any sublease to any subtenant. (9) No assignment or sublease may be modified or amended without Landlord's prior written consent. (10) The occurrence of a transaction described in Section 10(b) shall give Landlord the right (but not the obligation) to require that Tenant immediately provide Landlord with an additional Security Deposit equal to six (6) times the monthly Basic Rent payable under the Lease, and Landlord may make its receipt of such amount a condition to Landlord's consent to such transaction. (11) Any assignee of, or subtenant under, this Lease shall, by reason of accepting such assignment or entering into such sublease, be deemed, for the benefit of Landlord, to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Tenant during the term of said assignment or sublease, other than such obligations as are contrary or inconsistent with provisions of an assignment or sublease to which Landlord has specifically consented in writing. (e) Additional Terms and Conditions Applicable to Subletting. -------------------------------------------------------- The following terms and conditions shall apply to any subletting by Tenant of all or any part of the Leased Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein: 20 (1) Tenant hereby absolutely and unconditionally assigns and transfers to Landlord all of Tenant's interest in all rentals and income arising from any sublease entered into by Tenant, and Landlord may collect such rent and income and apply same toward Tenant's obligations under this Lease; provided, however, that until a default shall occur in the performance of Tenant's obligations under this Lease, Tenant may receive, collect and enjoy the rents accruing under such sublease. Landlord shall not, by reason of this or any other assignment of such rents to Landlord nor by reason of the collection of the rents from a subtenant, be deemed to have assumed or recognized any sublease or to be liable to the subtenant for any failure of Tenant to perform and comply with any of Tenant's obligations to such subtenant under such sublease, including, but not limited to, Tenant's obligation to return any Security Deposit. Tenant hereby irrevocably authorizes and directs any such subtenant, upon receipt of a written notice from Landlord stating that a default exists in the performance of Tenant's obligations under this Lease, to pay to Landlord the rents due as they become due under the sublease. Tenant agrees that such subtenant shall have the right to rely upon any such statement and request from Landlord, and that such subtenant shall pay such rents to Landlord without any obligation or right to inquire as to whether such default exists and notwithstanding any notice from or claim from Tenant to the contrary. (2) In the event Tenant shall default in the performance of its obligations under this Lease, Landlord at its option and without any obligation to do so, may require any subtenant to attorn to Landlord, in which event Landlord shall undertake the obligations of Tenant under such sublease from the time of the exercise of said option to the termination of such sublease; provided, however, Landlord shall not be liable for any prepaid rents or Security Deposit paid by such subtenant to Tenant or for any other prior defaults of Tenant under such sublease. (f) Transfer Premium from Assignment or Subletting. Landlord shall ---------------------------------------------- be entitled to receive from Tenant (as and when received by Tenant) as an item of additional rent fifty percent (50%) of all amounts received by Tenant from any subtenant or assignee in excess of the amounts payable by Tenant to Landlord hereunder (hereinafter the "Transfer Premium"). The Transfer Premium shall be reduced by the reasonable transaction costs actually paid by Tenant in order to assign the Lease or to sublet a portion of the Leased Premises, provided that Tenant provides Landlord with a breakdown of all transaction costs associated with such Transfer at the time Tenant obtains Landlord's consent and Landlord consents to such costs, which consent shall not be unreasonably withheld, conditioned or delayed. "Transfer Premium" shall mean all Basic Rent, Additional Charges or other consideration of any type whatsoever payable by the assignee or subtenant in excess of the Basic Rent and Additional Charges payable by Tenant under this Lease. If less than all of the Leased Premises is transferred, the Basic Rent and the Additional Charges shall be determined on a per rentable square foot basis. Transfer Premium shall also include, but not be limited to, key money and bonus money paid by the assignee or subtenant to Tenant in connection with such Transfer, and any payment in excess of fair market value for services rendered by Tenant to the assignee or subtenant or for assets, fixtures, inventory, equipment, or furniture transferred by Tenant to the assignee or subtenant in connection with such Transfer. For purposes of calculating the Transfer Premium, expenses will be amortized over the life of the sublease. (g) Landlord's Option to Recapture Space. Notwithstanding anything ------------------------------------ to the contrary contained in this Section 10, Landlord shall have the option, by giving written notice to Tenant within thirty (30) days after receipt of any request by Tenant to assign this Lease or to sublease space in the Leased Premises, to terminate this Lease with respect to said space as of the date thirty (30) days after Landlord's election. In the event of a recapture by Landlord, if this Lease shall be canceled with respect to less than the entire Leased Premises, the Basic Rent, Tenant's Proportionate Share of Operating Expense increases and the number of parking spaces Tenant may use shall be adjusted on the basis of the number of rentable square feet retained by 21 Tenant in proportion to the number of rentable square feet contained in the original Leased Premises, and this Lease as so amended shall continue thereafter in full force and effect, and upon request of either party, the parties shall execute written confirmation of same. If Landlord recaptures only a portion of the Leased Premises, it shall construct and erect at its sole cost such partitions as may be required to sever the space to be retained by Tenant from the space recaptured by Landlord. Landlord may, at its option, lease any recaptured portion of the Leased Premises to the proposed subtenant or assignee or to any other person or entity without liability to Tenant. Tenant shall not be entitled to any portion of the profit, if any, Landlord may realize on account of such termination and reletting. Tenant acknowledges that the purpose of this Section 10(g) is to enable Landlord to receive profit in the form of higher rent or other consideration to be received from an assignee or sublessee, to give Landlord the ability to meet additional space requirements of other tenants of the Building and to permit Landlord to control the leasing of space in the Building. Tenant acknowledges and agrees that the requirements of this Section 10(g) are commercially reasonable and are consistent with the intentions of Landlord and Tenant. (h) Landlord's Expenses. In the event Tenant shall assign this Lease ------------------- or sublet the Leased Premises or request the consent of Landlord to any Transfer, then Tenant shall pay Landlord's reasonable costs and expenses incurred in connection therewith, including, but not limited to, attorneys', architects', accountants', engineers' or other consultants' fees. (i) Permitted Transactions. Notwithstanding anything to the contrary ---------------------- contained in this Section 10, Tenant shall have the right, without Landlord's consent, upon thirty (30) days advance written notice to Landlord, to assign the Lease or sublet the whole or any part of the Leased Premises to any entity that controls, is controlled by or is under common control with Tenant or in connection with any consolidation or reorganization of Tenant or the merger of Tenant with any other entity or the sale of all or substantially all of Tenant's assets or of all or substantially all of the interests (partnership, stock, or otherwise) in Tenant (each of the transactions referenced above in this subparagraph (i) are hereinafter referred to as a "Permitted Transfer" and each surviving entity shall hereinafter be referred to as a "Permitted Transferee"); provided that such Permitted Transfer is subject to the following conditions: (i) Tenant, to the extent Tenant survives such transaction, shall remain fully liable under the terms and conditions of the Lease; (ii) Any such Permitted Transferee shall be subject to all of the terms, covenants, and conditions of the Lease except as otherwise specifically provided in this Lease; (iii) Any such Permitted Transferee expressly assumes the obligations of Tenant under the Lease; (iv) Such Permitted Transferee has a net worth at least equal to the net worth of Tenant as of the date of this Lease. 11. Default Provisions. ------------------ (a) Events of Default. Each of the following events shall be deemed ----------------- to be a default under this Lease, and is referred to in this Lease as an "Event of Default": (1) A default by Tenant in the due and punctual payment of any Basic Rent or Additional Charges which continues for more than five (5) days after written notice from Landlord 22 that such Basic Rent or Additional Charges are past due and payable; provided, however, it shall be an Event of Default hereunder without any obligation of Landlord to give any notice to Tenant if Landlord has previously given Tenant two (2) notices pursuant to this Section 11(a)(1) during the twelve (12) month period preceding such default; or (2) The neglect or failure of Tenant to perform or observe any of the terms, covenants or conditions contained in this Lease on Tenant's part to be performed or observed [other than those referred to above in subsection (1)] which is not remedied by Tenant within ten (10) days after Landlord shall have given to Tenant written notice specifying such neglect or failure [or a reasonable time after written notice if such failure is incapable of cure within ten (10) days, so long as Tenant pursues the cure with due diligence]; or (3) The assignment, transfer, mortgaging or encumbering of this Lease or the subletting of the Leased Premises in a manner not permitted by Section 10 hereof; or (4) The taking of this Lease or the Leased Premises, or any part thereof, upon execution or by other process of law directed against Tenant, or upon or subject to any attachment at the insistence of any creditor of or claimant against Tenant, which execution or attachment shall not be discharged or disposed of within thirty (30) days after the levy thereof, or the occurrence of any of the events listed in Section 12 hereof; or (5) The failure to initially occupy, or any vacating or abandonment of the Leased Premises by Tenant. (b) Remedies. Upon the occurrence of an Event of Default, Landlord -------- shall have the right, at its election, then or at any time thereafter while such Event of Default shall continue, either: (1) To give Tenant written notice that this Lease will terminate on a date to be specified in such notice, which date shall not be less than three (3) days after such notice, and on the date specified in such notice Tenant's right to possession of the Leased Premises shall cease and this Lease shall thereupon be terminated, but Tenant shall remain liable as provided below in subsection (c); or, (2) Without demand or notice, to re-enter and take possession of the Leased Premises, or any part thereof, and repossess the same as of Landlord's former estate and expel Tenant and those claiming through or under Tenant and remove its or their effects, either by summary proceedings or by action at law or in equity or by self-help (if necessary) or otherwise, without being deemed guilty of any manner of trespass and without prejudice to any remedies for arrears of rent or preceding breach of covenant. If Landlord elects to re-enter under this subsection (2), Landlord may terminate this Lease, or, from time to time, without terminating this Lease but terminating Tenant's right to occupy the Leased Premises, may relet the Leased Premises, or any part thereof, as agent for Tenant for such term or terms and at such rental or rentals and upon such other terms and conditions as Landlord may deem advisable, with the right to make alterations and repairs to the Leased Premises. No such re-entry or taking of possession of the Leased Premises by Landlord 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 under above subsection (1) or unless the termination thereof be decreed by a court of competent jurisdiction. Tenant waives any right to the service of any notice of Landlord's intention to re-enter provided for by any present or future law. Tenant also hereby grants Landlord a lien for any unpaid Rent on all property of Tenant now or hereafter placed in the Leased Premises. (c) Damages. If Landlord terminates this Lease or Tenant's right to ------- occupy the Leased Premises pursuant to above subsection (b), Tenant shall remain liable (in addition to accrued liabilities) to the extent legally permissible for (i) (A) all Basic Rent 23 and Additional Charges provided for in this Lease until the date this Lease would have expired had such termination not occurred, discounted to present value at the discount rate of the Federal Reserve Bank of Baltimore at the time of such termination plus one percent (1%), all accelerated to the date of any such termination, and (B) any and all expenses incurred by Landlord in re- entering the Leased Premises, repossessing the same, making good any default of Tenant, remodeling, altering or dividing the Leased Premises, combining the same with any adjacent space for any new tenants, putting the same in proper repair, establishing signage for, reletting the same (including any and all reasonable attorneys fees and disbursements and reasonable brokerage fees incurred in so doing), and any and all reasonable expenses which Landlord may incur in reletting the Leased Premises; less (ii) the net proceeds of any reletting. Tenant agrees to pay to Landlord the difference between items (i) and (ii) above, immediately upon any termination or subletting, in full or, at Landlord's option, with respect to each month during the Term, at the end of such month. Any suit brought by Landlord to enforce collection of such difference for any one month shall not prejudice Landlord's right to enforce the collection of any difference for any other month. In addition to the foregoing, Tenant shall pay to Landlord such sums as the court which has jurisdiction thereover may adjudge reasonable as attorneys fees with respect to any successful law suit or action instituted by Landlord to enforce the provisions of this Lease. Landlord shall have the right, at its sole option, to relet the whole or any part of the Leased Premises for the whole of the unexpired Term, or longer, or from time to time for shorter periods, for any rental then obtainable, giving such concessions of rent and making such special repairs, alterations, decorations and painting for any new tenant as Landlord, in its sole and absolute discretion, may deem advisable. Landlord shall be under no obligation to relet the Leased Premises. Tenant's liability as aforesaid shall survive the institution of summary proceedings and the issuance of any warrant thereunder. (d) Basic Rent and Additional Charges. If Tenant fails to pay Basic --------------------------------- Rent or any Additional Charges due hereunder on the date it is due, then at any time after Tenant's third failure to pay any such monetary obligation on the date it is due, and at Landlord's option, Landlord may require Tenant to pay six (6) months of Basic Rent and Additional Charges in advance. 12. Bankruptcy Termination Provision. -------------------------------- This Lease shall, at Landlord's option, terminate and expire, without the performance of any act or the giving of any notice by Landlord, upon the occurrence of any of the following events: (1) Tenant's inability to pay its debts generally as they become due, or (2) the commencement by Tenant of a voluntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or any other applicable federal or state bankruptcy, insolvency or other similar law, or (3) the entry of a decree or order for relief by a court having jurisdiction in the premises in respect of Tenant in an involuntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or any other applicable federal or state bankruptcy, insolvency or other similar law, and the continuance of any such decree or order unstayed and in effect for a period of sixty (60) consecutive days, or (4) Tenant's making an assignment of all or a substantial part of its property for the benefit of its creditors, or (5) Tenant's seeking or consenting to or acquiescing in the appointment of, or the taking of possession by, a receiver, trustee or custodian for all or a substantial part of its property, or (6) the entry of a court order without Tenant's consent, which order shall not be vacated, set aside or stayed within sixty (60) days from the date of entry, appointing a receiver, trustee or custodian for all or a substantial part of its property, (7) the sale of all or substantially all of Tenant's assets, or (8) any of the foregoing events by or as against any Guarantor. In the event of termination of the Lease as a result of any of the foregoing events, Landlord shall be entitled to damages as set forth in Section 11(c) hereof. The provisions of this Section 12 shall be construed with due recognition for the provisions of the federal bankruptcy laws, where applicable, but shall be interpreted in a manner which results in a termination of this Lease in each and every instance, and to the fullest extent and at the earliest moment, that such termination is permitted under the federal bankruptcy laws, it being of 24 prime importance to the Landlord to deal only with Tenants who have, and continue to have, a strong degree of financial strength and financial stability. 13. Landlord May Perform Tenant's Obligations. ----------------------------------------- If Tenant shall fail to keep or perform any of its obligations as provided in this Lease in respect to (a) maintenance of insurance, (b) repairs and maintenance of the Leased Premises, (c) compliance with the Requirements, or (d) the making of any other payment or performance of any other obligation, then Landlord may (but shall not be obligated to do so) upon the continuance of such failure on Tenant's part for ten (10 )days after written notice to Tenant (or after such additional period, if any, as Tenant may reasonably require to cure such failure if of a nature which cannot be cured within said ten (10) day period) and without waiving or releasing Tenant from any obligation, and as an additional but not exclusive remedy, make any such payment or perform any such obligation, and all sums so paid by Landlord and all necessary incidental costs and expenses, including attorneys fees, incurred by Landlord in making such payment or performing such obligation, together with interest thereon at the rate specified in Section 3(c) hereof from the date of payment, shall be deemed an Additional Charge and shall be paid to Landlord on demand, or at Landlord's option may be added to any installment of rent thereafter falling due, and if not so paid by Tenant, Landlord shall have the same rights and remedies as in the case of a default by Tenant in the payment of Rent. 14. Security Deposit. ---------------- (a) Tenant shall deposit with Landlord the Security Deposit, as security for the prompt, full and faithful performance by Tenant of each and every provision of this Lease and of all obligations of Tenant hereunder. The Security Deposit shall be in the form of cash or, at Tenant's option, an irrevocable letter of credit (the "Security Deposit L/C"). If the Security Deposit is in the form of a letter of credit, the Security Deposit L/C shall be delivered to Landlord at Tenant's sole cost and expense. The Security Deposit L/C shall be issued by and drawn on a bank reasonably acceptable to Landlord, in Landlord's sole but reasonable discretion, and shall name Landlord as Beneficiary. It shall be deemed reasonable for Landlord to require that such bank have branches which are local to the Washington metropolitan area where Landlord may present such Security Deposit L/C. The Security Deposit L/C shall be in a form acceptable to Landlord. If the maturity date of the Security Deposit L/C is prior to the end of the Term of the Lease, Tenant shall renew the Security Deposit L/C as often as is necessary with the same bank or financial institution (or a similar bank or financial institution reasonably acceptable to Landlord) and upon the same terms and conditions, not less than thirty (30) days prior to the purported expiration date of the Security Deposit L/C. In the event that Tenant fails to timely renew the Security Deposit L/C as aforesaid, Landlord shall be entitled to draw against the entire amount of the Security Deposit L/C. The Security Deposit L/C shall be assignable by Landlord and upon such assignment to any party assuming in writing the landlord interest and obligations under this Lease, this Landlord shall be relieved from all liability to Tenant therefor. If an Event of Default occurs, Landlord may use, apply or retain the whole or any part of the Security Deposit for the payment of (i) any Basic Rent or Additional Charges which Tenant shall not have paid or which may become due after the occurrence of such Event of Default, (ii) any sum expended by Landlord on Tenant's behalf in accordance with the provisions of this Lease or (iii) any other sum which Landlord may expend or be required to expend by reason of Tenant's default, including damages or deficiency in the reletting of the Leased Premises as provided in Section 11 hereof. The use, application or retention of the Security Deposit, or any portion thereof, by Landlord shall not prevent Landlord from exercising any other right or remedy provided by this Lease or by law and shall not operate as a limitation on any recovery to which Landlord may otherwise be entitled. The Security Deposit L/C shall be available for payment against the presentation of a sight draft by the Landlord together with a certificate from 25 Landlord that Tenant is in default of its obligations hereunder beyond expiration of any applicable notice and cure periods and that Landlord is entitled by the terms of this Lease, to draw upon the Security Deposit L/C and such Security Deposit L/C shall include a statement therein that the issuing bank shall honor such drawing within two (2) business days upon Landlords presentation in compliance with the terms of such Security Deposit L/C. If any portion of the Security Deposit is used, applied or retained by Landlord for the purposes set forth above, Tenant agrees, within ten (10) days after a written demand therefor is made by Landlord, to deposit cash or a new Security Deposit L/C meeting the criteria referenced in this Section 14, with Landlord in an amount sufficient to restore the Security Deposit to its original amount. If Tenant shall fully and faithfully comply with all of the provisions of this Lease, the Security Deposit, or any balance thereof, shall be returned to Tenant within ten (10) business days after the expiration of the Term, without interest. In the absence of evidence satisfactory to Landlord of any permitted assignment of the right to receive the Security Deposit, or the remaining balance thereof, Landlord may return the same to Tenant, regardless of one or more assignments of Tenant's interest in this Lease or the Security Deposit. In such event, upon the return of the Security Deposit (or balance thereof) to Tenant, Landlord shall be completely relieved of liability under this Section 14. In the event of a transfer of Landlord's interest in the Leased Premises, Landlord shall have the right to transfer the Security Deposit to the transferee thereof. In such event, upon the delivery by Landlord to Tenant of such transferee's written acknowledgment of its receipt of such Security Deposit and its agreement to comply with the provisions of this Lease, Landlord shall be deemed to have been released by Tenant from all liability or obligation for the return of such Security Deposit, and Tenant agrees to look solely to such transferee for the return of the Security Deposit and the transferee shall be bound by all provisions of this Lease relating to the return of the Security Deposit. The Security Deposit shall not be mortgaged, assigned or encumbered in any manner whatsoever by Tenant without the prior written consent of Landlord. To the extent that the Security Deposit L/C is either lost or the issuing bank will not honor the Security Deposit L/C, Tenant personally guarantees the proceeds of the Security Deposit L/C and will immediately remit to Landlord the amount of the Security Deposit in cash to be held in accordance with this Paragraph 14. (b) Notwithstanding anything to the contrary contained herein, Tenant hereby knowingly and willfully, and upon advice of counsel, waives any right it may have to enjoin, declare or otherwise prohibit the bank issuing such letter of credit from paying, or Landlord from drawing, upon such letter of credit. If Tenant attempts to obtain, or obtains, an injunction or other legal writ which prevents Landlord from drawing upon such letter of credit, Tenant shall, at Landlord's request, either (a) extend such letter of credit during the time period ending ten (10) days after expiration of the injunction or other legal writ; or (b) provide Landlord other reasonably satisfactory security. In the event Landlord prevails in any litigation concerning such letter of credit and Landlord's rights thereto, Tenant agrees to reimburse Landlord its attorneys' fees, court costs, and other expenses related to the litigation. (c) Notwithstanding anything to the contrary in this Section 14, and provided that Tenant is not in default beyond any applicable notice and cure periods under the Lease at the time of each reduction, then commencing on the first anniversary of the Lease Commencement Date and annually thereafter the amount of the Security Deposit L/C shall be reduced annually by Twenty Thousand and 00/100 Dollars ($20,000.00). (d) Furthermore, and notwithstanding anything to the contrary in this Section 14, in the event that Tenant provides evidence satisfactory to Landlord in its sole but reasonable discretion that Tenant has obtained (and maintained for a period of one (1) year) a net worth in excess of Twenty-Five 26 Million Dollars ($25,000,000.00), the required Security Deposit shall be reduced to an amount equal to one (1) month's Basic Rent at the then current escalated Basic Rent for the Premises. Such reduced Security Deposit may be in the form of cash or in the form of an irrevocable letter of credit and shall be subject to all of the provisions of this Section 14. 15. Subordination; Attornment. ------------------------- (a) Subordination. This Lease and Tenant's interest hereunder shall ------------- be subject and subordinate to each and every ground or underlying lease now existing or hereafter made of the Building and/or underlying land and to all renewals, modifications, replacements and extensions thereof, and to the lien of any mortgage now or hereafter placed upon the Building, and to all renewals, modifications, replacements, consolidations and extensions thereof and to any and all advances made thereunder and the interest thereon. Tenant agrees that within fifteen (15) days after written request therefor from Landlord, it will, from time to time, execute and deliver any instrument or other document required by any such landlord or mortgagee to subordinate this Lease and its interest in the Leased Premises to such lease or the lien of any such mortgage. Tenant will also upon request submit current financial statements and financial statements covering the five (5) immediately preceding years, and Tenant will upon request record this Lease or a short form thereof if required by Landlord's mortgagee or other lending institution but, otherwise, Tenant shall not record this Lease or a short form thereof. Tenant hereby irrevocably constitutes and appoints Landlord as Tenant's attorney-in-fact to execute, acknowledge and deliver any and all such instruments for and on behalf of Tenant. 27 (b) Modifications. In the event that any bank, insurance company, ------------- university, pension or welfare fund, savings and loan association, real estate investment trust, business trust, or other financial institution providing financing for the Building requires, as a condition of such financing, that modifications to this Lease be obtained, and provided that such modifications (i) are reasonable, (ii) do not materially adversely affect Tenant's use of the Leased Premises as herein permitted, (iii) do not increase the rentals and other sums required to be paid by Tenant hereunder and (iv) do not materially decrease Tenant's rights or increase Tenant's obligations hereunder, Landlord shall submit such required modifications to Tenant, and Tenant shall enter into and execute a written amendment hereto incorporating such required modifications within ten (10) business days after the same have been submitted to Tenant by Landlord. If Tenant shall fail to so enter into and execute such a written amendment, then Landlord shall thereafter have the right, at its sole option, to cancel and terminate this Lease by giving Tenant written notice of such termination, and Landlord shall thereupon be relieved from any and all further liability or obligation hereunder. (c) Attornment. In the event of (a) a transfer of Landlord's ---------- interest in the Leased Premises, (b) the termination of any ground or underlying lease of the Building and/or underlying land, or (c) the purchase of the Building or Landlord's interest therein at a foreclosure sale or by deed in lieu of foreclosure under any mortgage or pursuant to a power of sale contained in any mortgage, then in any of such events, Tenant shall, at Landlord's request, attorn to and recognize the transferee or purchaser of Landlord's interest or the landlord under the terminated ground or underlying lease, as the case may be, as landlord under this Lease for the balance then remaining of the Term, and thereafter this Lease shall continue as a direct lease between such person, as "Landlord", and Tenant, as "Tenant", but such landlord, transferee or purchaser, unless an express assumption is made in which case Landlord shall be released from liability, shall not be liable for any act or omission of Landlord prior to such lease termination or prior to such person's succession to title, nor be subject to any offset, defense or counterclaim accruing prior to such lease termination or prior to such person's succession to title, nor be bound by any payment of Basic Rent or Additional Charges prior to such lease termination or prior to such person's succession to title for more than one month in advance. Tenant agrees that, within five (5) days after written request therefor from Landlord, it will, from time to time, execute and deliver any instrument or other document required by any mortgagee, transferee, purchaser or other interested person to confirm such attornment and/or such obligation to attorn. (d) Nondisturbance. Notwithstanding anything contained in Section 15 -------------- of the Lease to the contrary: (a) If this Lease is subordinate to any existing fee or leasehold mortgages or ground or air space leases covering the underlying land, Building or Common Areas, Landlord, prior to the Lease Commencement Date, shall obtain, have executed and shall deliver to Tenant, a Subordination, Nondisturbance and Attornment Agreement by and between the Tenant and such prior party, in the form of Exhibit E attached to this Lease. --------- (b) Subject to the provision of subsection (i) below, this Lease shall be subordinate and subject to any future fee or leasehold Mortgages and ground leases covering the underlying land, Building or Common Areas. (i) If any Mortgage is foreclosed or ground lease or air space lease is terminated, then: (1) This Lease shall continue in full force and effect, and (2) Tenant's quiet enjoyment shall not be disturbed if Tenant is not in default of this Lease 28 beyond any applicable grace and notice period provided herein for the cure thereof, and (3) Tenant shall attorn to and recognize the mortgagee, purchaser at a foreclosure sale or ground or other lessor ("Successor Landlord") as Tenant's landlord for the remaining Lease Term; and (ii) This subsection shall be self-operative; however, Landlord shall use commercially reasonable efforts to cause a future lender to enter into an agreement confirming such subordination, attornment and non-disturbance if either party so requests. However, the obtaining of any such subordination, attornment and non-disturbance agreement(s) shall not be a condition of this Lease. Landlord shall not be required to incur any cost or expense in connection with obtaining such agreement(s) other than normal mail costs, and Landlord shall have no liability to Tenant arising out of the refusal of Landlord's mortgagee to execute any such agreement. 16. Quiet Enjoyment. --------------- Landlord covenants that Tenant, upon paying the Basic Rent and the Additional Charges provided for in this Lease, and upon performing and observing all of the terms, covenants, conditions and provisions of this Lease on Tenant's part to be kept, observed and performed, shall quietly hold, occupy and enjoy the Leased Premises during the Term without hindrance, ejection or molestation by Landlord or any party lawfully claiming through or under Landlord, subject to the terms of this Lease. 17. Landlord's Right of Access. -------------------------- Landlord may, during any reasonable time or times and upon reasonable notice (unless a suspected emergency), before and after the Lease Commencement Date, enter upon the Leased Premises, any portion thereof and any appurtenance thereto (with laborers and materials, if required) for the purpose of: (i) inspecting the same; (ii) making such repairs, replacements or alterations which it may be required to perform under the provisions of this Lease or which it may deem desirable for the Leased Premises or the Building, including but not limited to repairs and improvements to space above, below and/or on the same floor as the Leased Premises; and (iii) showing the Leased Premises to prospective purchasers or tenants. Landlord agrees to give reasonable notice prior to any such entry except that Landlord may enter without notice in the case of a suspected emergency. In making such an entry, Landlord agrees to use reasonable efforts to avoid interfering with the regular and usual conduct of the Tenant's business. If Tenant shall carpet over the floor of the Leased Premises, Landlord shall have the right to cut such carpeting in order to make or install any necessary electrical or telephone equipment or wiring to service other parts of the Building, without being held liable therefor, provided Landlord shall have the carpeting restored in a workmanlike manner. 18. Limitation on Landlord's Liability. ---------------------------------- (a) Limitation. Unless caused by Landlord's gross negligence or ---------- willful misconduct or the gross negligence or willful misconduct of Landlord's affiliates, agents or employees, Landlord, its affiliates and their agents and employees shall not be liable to Tenant, its employees, agents, business invitees, licensees, customers, guests or trespassers for any damage or loss to the property of Tenant or others located on the Leased Premises or for any accident or injury to persons in the Leased Premises or the Building resulting from: the necessity of repairing any portion of 29 the Building; the use or operation (by Tenant or any other person or persons whatsoever) of any elevators, or heating, cooling, electrical or plumbing equipment or apparatus; the termination of this Lease by reason of the destruction of the Building or the Leased Premises; any fire, robbery, theft and/or any other casualty; any leaking in any part or portion of the Leased Premises or the Building; any water, wind, rain or snow that may leak into, or flow from, any part of the Leased Premises or the Building; any acts or omissions of any occupant of any space adjacent to or adjoining all or any part of the Leased Premises; any water, gas, steam, fire, explosion, electricity or falling plaster; the bursting, stoppage or leakage of any pipes, sewer pipes, drains, conduits, ducts, appliances or plumbing works; the functioning or malfunctioning of the fire sprinkler system; the functioning or malfunctioning of any security system installed in the Building or any part thereof; or any other cause whatsoever. (b) Force Majeure. Landlord shall not be required to perform any of ------------- its obligations under Section 4(a) hereof or any other provision of this Lease, nor be liable for loss or damage for failure to do so, nor shall Tenant be released from any of its obligations under this Lease because of the Landlord's failure to perform, where such failure arises from or through acts of God, strikes, lockouts, labor difficulties, shortages of equipment, delays in issuance of governmental permits or approvals, explosions, sabotage, accidents, riots, civil commotions, acts of war, results of any warfare or warlike conditions in this or any foreign country, fire and casualty, Requirements or other causes beyond the reasonable control of Landlord. If Landlord is so delayed or prevented from performing any of its obligations during the Term, the period of such delay or such prevention shall be deemed added to the time herein provided for the performance of any such obligation. 19. Hazardous Material. For purposes of this Lease, the term "Hazardous ------------------ Material" means any hazardous substance, hazardous waste, infectious waste, or toxic substance, material, or waste which becomes regulated or is defined as such by any local, state or federal governmental authority. Landlord covenants that, to the best of its knowledge, there is no Hazardous Material located in, on or under the Building as of the date of this Lease in violation of any federal or state law. Except for small quantities of ordinary office supplies such as copier toners, liquid paper, glue, ink and common household cleaning materials, Tenant shall not cause or permit any Hazardous Material to be brought, kept or used in or about the Leased Premises or the Building by Tenant, its agents, employees, contractors, or invitees. Tenant hereby agrees to indemnify Landlord from and against any breach by Tenant of the obligations stated in the preceding sentence, and agrees to defend and hold Landlord harmless from and against any and all claims, judgments, damages, penalties, fines, costs, liabilities, or losses (including, without limitation, diminution in value of the Building, damages for the loss or restriction or use of rentable space or of any amenity of the Building, damages arising from any adverse impact on marketing of space in the Building, sums paid in settlement of claims, attorneys' fees, consultant fees and expert fees) which arise during or after the Term of this Lease as result of such breach. This indemnification of Landlord by Tenant includes, without limitation, costs incurred in connection with any investigation of site conditions and any cleanup, remedial removal, or restoration work required due to the presence of Hazardous Material which arise during or after the Term of this Lease. Landlord hereby agrees that Tenant shall not be liable for any Hazardous Material brought into the Building by Landlord or another tenant of the Building in violation of any federal or state law. Tenant shall promptly notify Landlord of any release of a Hazardous Material in the Leased Premises or at the Building of which Tenant becomes aware, whether caused by Tenant or any other person or entity. The provisions of this Section 19 shall survive the termination of the Lease. (a) Definition and Consent. The term "Hazardous Substance" as used ---------------------- in this Lease shall mean any product, substance, chemical, material or waste whose presence, nature, quantity and/or intensity of existence, use, manufacture, disposal, transportation, spill, release or affect, either by itself or in combination with other materials expected to be on the Leased Premises, is either: (a) potentially injurious to the public health, safety or welfare, the environment or the Leased Premises, (b) 30 regulated or monitored by any governmental entity, (c) a basis for liability of Landlord to any governmental entity or third party under any federal, state or local statute or common law theory or (d) defined as a hazardous material or substance by any federal, state or local law or regulation. Except for small quantities of ordinary office supplies such as copier toner, liquid paper, glue, ink and common household cleaning materials, Tenant shall not cause or permit any Hazardous Substance to be brought, kept, or used in or about the Leased Premises or the Building by Tenant, its agents, employees, contractors or invitees. (b) Duty to Inform Landlord. If Tenant knows, or has reasonable ----------------------- cause to believe, that a Hazardous Substance, or a condition involving or resulting from same, has come to be located in, on or under or about the Leased Premises or the Building, Tenant shall immediately give written notice of such fact to Landlord. Tenant shall also immediately give Landlord (without demand by Landlord) a copy of any statement, report, notice, registration, application, permit, license, given to or received from, any governmental authority or private party, or persons entering or occupying the Leased Premises, concerning the presence, spill, release, discharge of or exposure to, any Hazardous Substance or contamination in, on or about the Leased Premises or the Building. (c) Inspection; Compliance. Landlord and Landlord's employees, ---------------------- agents, contractors and lenders shall have the right to enter the Leased Premises at any time in the case of an emergency, and otherwise at reasonable times and upon reasonable notice, for the purpose of inspecting the condition of the Leased Premises and for verifying compliance by Tenant with this Section 19. Landlord shall have the right to employ experts and/or consultants in connection with its examination of the Leased Premises and with respect to the installation, operation, use, monitoring, maintenance, or removal of any Hazardous Substance on or from the Leased Premises. The costs and expenses of any such inspections shall be paid by the party requesting same, unless a contamination, caused or materially contributed to by Tenant, is found to exist or be imminent, or unless the inspection is requested or ordered by governmental authority as the result of any such existing or imminent violation or contamination. In any such case, Tenant shall upon request reimburse Landlord for the cost and expenses of such inspection. 20. Certificates. ------------ Tenant shall, without charge therefor, at any time and from time to time, within fifteen (15) business days after request therefor by Landlord, execute, acknowledge and deliver to Landlord a written estoppel certificate in the form attached hereto as Exhibit F certifying, among other things, to ---------- Landlord, any mortgagee, assignee of a mortgagee, or any purchaser of the Building, or any other person designated by Landlord, as of the date of such estoppel certificate, (i) that Tenant is in possession of the Leased Premises,(ii) that this Lease is unmodified and in full force and effect (or if there have been modifications, that the Lease is in full force and effect as modified and setting forth such modification); (iii) whether or not there are then existing any set-offs or defenses against the enforcement of any right or remedy of Landlord, or any duty or obligation of Tenant hereunder (and, if so, specifying the same in detail); (iv) the dates through which Basic Rent and Additional Charges have been paid; (v) that Tenant having made due investigation has no knowledge of any then uncured defaults on the part of Landlord under this Lease (or if Tenant has knowledge of any such uncured defaults, specifying the same in detail); (vi) that Tenant having made due investigation has no knowledge of any event having occurred that authorizes the termination of this Lease by Tenant (or if Tenant has such knowledge, specifying the same in detail); (vii) the amount of any Security Deposit held by Landlord; and (viii) other matters reasonably requested by Landlord. If Tenant shall fail to so execute and deliver such a written estoppel certificate within said fifteen (15) business day period, 31 then Landlord shall send Tenant a second written request for such estoppel certificate. If Tenant shall fail to so execute and deliver such written estoppel certificate within five (5) business days after this second request, then such failure of Tenant to deliver such estoppel certificate shall constitute a material default of Tenant hereunder. 21. Surrender of Leased Premises. ---------------------------- Tenant shall, on or before the last day of the Term, or upon earlier termination hereof or of Tenant's right to occupy the Leased Premises in accordance with the terms hereof, (i) peaceably and quietly leave, surrender and yield up to Landlord the Leased Premises, free of subtenancies, broom clean and, subject to the provisions of Section 13 hereof, in good order and condition except for reasonable wear and tear, and (ii) at its expense, remove from the Leased Premises all movable trade fixtures, furniture, equipment, and other personal property, provided that Tenant shall promptly repair any damage caused by such removal. Any of such property not so removed may, at Landlord's election and without limiting Landlord's right to compel removal thereof, be deemed abandoned and either may be retained by Landlord as its property or be disposed of, without accountability, in such manner as Landlord may see fit. All affixed installations, alterations, additions, betterments and improvements to the Leased Premises made by either Landlord or Tenant, whether at Landlord's or Tenant's expense, including, without limitation, all wiring, paneling, partitions, floor coverings, lighting fixtures, built-in cabinets, bookshelves affixed to walls, and the like shall become the property of Landlord when installed and shall remain with the Leased Premises at the expiration or sooner termination of the Term, except that Landlord shall have the right, by notice to Tenant, to require Tenant, at its expense, to remove any of such property installed by or at the sole expense of Tenant or other remaining property objectionable to Landlord and to repair any damage caused by such removal. In the event Tenant fails to perform such removal and repair, as aforesaid, Landlord may remove any property of Tenant from the Leased Premises and store the same elsewhere at the expense and risk of Tenant. The provisions of this Section shall survive any expiration or termination of this Lease. 22. Alterations and Additions. ------------------------- (a) Tenant shall not, without Landlord's prior written consent, which may be given or withheld in Landlord's sole discretion, make any alterations, improvements, additions, utility installations or repairs (hereinafter collectively referred to as "Alteration(s)") in, on or about the Leased Premises or the Building. Alterations shall include, but shall not be limited to, the installation or alteration of security or fire protection systems, communication systems, millwork, shelving, file retrieval or storage systems, carpeting or other floor covering, window and wall coverings, electrical distribution systems, lighting fixtures, telephone or computer system wiring, HVAC and plumbing. At the expiration of the Term, Landlord may require the removal of any Alterations installed by Tenant and the restoration of the Leased Premises and the Building to their prior condition, at Tenant's expense. If a work letter agreement is entered into by Landlord and Tenant, Tenant shall not be obligated to remove the tenant improvements constructed in accordance with the work letter agreement. If, as a result of any Alteration made by Tenant, Landlord is obligated to comply with the Americans With Disabilities Act or any other law or regulation and such compliance requires Landlord to make any improvement or Alteration to any portion of the Building, as a condition to Landlord's consent, Landlord shall have the right to require Tenant to pay to Landlord prior to the construction of any Alteration by Tenant, the entire cost of any improvement or Alteration Landlord is obligated to complete by such law or regulation. Should Landlord permit Tenant to make its own Alterations, Tenant shall use only such contractor as has been expressly approved by Landlord, and Landlord may require Tenant to provide to Landlord, at Tenant's sole cost and expense, a lien and completion bond in an amount equal to one and one-half times the estimated cost of such Alterations, to insure Landlord against any liability for mechanic's and materialmen's liens and to insure completion of the work. In addition, Tenant shall pay to Landlord a fee equal to ten percent (10%) of the cost of the Alterations to compensate Landlord for the overhead and other costs it incurs in reviewing the plans for 32 the Alterations and in monitoring the construction of the Alterations and five percent (5%) for profit. Should Tenant make any Alterations without the prior approval of Landlord, or use a contractor not expressly approved by Landlord, Landlord may, at any time during the Term of this Lease, require that Tenant remove all or part of the Alterations and return the Leased Premises to the condition it was in prior to the making of the Alterations. In the event Tenant makes any Alterations, Tenant agrees to obtain or cause its contractor to obtain, prior to the commencement of any work, "builders all risk" insurance in an amount approved by Landlord and workers compensation insurance. Notwithstanding anything to the contrary hereinabove, Landlord's consent shall not be required for any Alteration that is strictly of a cosmetic nature (i.e., painting, carpeting, wall papering) with at least seventy-two (72) hours prior written notice of the commencement of any such work and Tenant utilizes finishes, materials and fixtures of equal or better quality to those originally approved by Landlord and otherwise complies with the provisions of this Section 22 and the Rules and Regulations attached to this Lease as Exhibit D. The --------- foregoing notwithstanding, if such cosmetic, non-structural Alterations are visible from the Common Areas of the Building, Tenant shall obtain Landlord's prior written consent of such Alterations which consent shall not be unreasonably withheld, conditioned or delayed. Tenant shall not be required to pay to Landlord the fee as described hereinabove with respect to any "cosmetic" Alterations performed by Tenant in accordance with this subsection 22(a). To the extent the Landlord's consent is required pursuant to this Section 22, at the written request of Tenant, Landlord agrees to notify Tenant concurrently with Landlord's consent of any such Alterations whether Landlord will require Tenant to remove such Alterations at the end of the Lease Term if such Alterations are required to be removed in accordance with Section 21 hereof. (b) Any Alterations in or about the Leased Premises that Tenant shall desire to make shall be presented to Landlord in written form, with plans and specifications which are sufficiently detailed to obtain a building permit. If Landlord consents to an Alteration, the consent shall be deemed conditioned upon Tenant acquiring a building permit from the applicable governmental agencies, furnishing a copy thereof to Landlord prior to the commencement of the work, and compliance by Tenant with all conditions of said permit in a prompt and expeditious manner. Tenant shall provide Landlord with as-built plans and specifications for any Alterations made to the Leased Premises. (c) Tenant shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Tenant at or for use in the Leased Premises, which claims are or may be secured by any mechanic's or materialmen's lien against the Leased Premises or the Building, or any interest therein. If Tenant shall, in good faith, contest the validity of any such lien, Tenant shall furnish to Landlord a surety bond satisfactory to Landlord in an amount equal to not less than one and one half times the amount of such contested lien or claim indemnifying Landlord against liability arising out of such lien or claim. Such bond shall be sufficient in form and amount to free the Building from the effect of such lien. In addition, Landlord may require Tenant to pay Landlord's reasonable attorneys' fees and costs in participating in such action. (d) Tenant shall give Landlord not less than ten (10) days' advance written notice prior to the commencement of any work in the Leased Premises by Tenant, and Landlord shall have the right to post notices of non-responsibility in or on the Leased Premises or the Building. (e) All Alterations (whether or not such Alterations constitute trade fixtures of Tenant) which may be made to the Leased Premises by Tenant shall be paid for by Tenant, at Tenant's sole expense, and shall be made and done in a good and workmanlike manner and with new materials satisfactory to Landlord and such Alterations shall be the property of Landlord and remain upon and be surrendered with the Leased Premises at the expiration of the Term of the Lease. Provided Tenant is not in default, Tenant's personal property and equipment, other than that which is affixed to the Leased Premises so that it cannot be removed without material damage to the Leased Premises or the Building, shall 33 remain the property of Tenant and may be removed by Tenant subject to the provisions of Section 21. 23. Holding Over. ------------ If Tenant remains in possession of the Leased Premises or any part thereof after the expiration or earlier termination of the term hereof with Landlord's consent, such occupancy shall be a tenancy from month to month upon all the terms and conditions of this Lease pertaining to the obligations of Tenant, except that the Basic Rent payable shall be one hundred fifty percent (150%) of the Basic Rent payable immediately preceding the termination date of this Lease and all Options, if any, shall be deemed terminated and be of no further effect. If Tenant remains in possession of the Leased Premises or any part thereof after the expiration of the Term hereof without Landlord's consent, Tenant shall, at Landlord's option, be treated as a tenant at sufferance or a trespasser. Nothing contained herein shall be construed to constitute Landlord's consent to Tenant holding over at the expiration or earlier termination of the Term. Tenant hereby agrees to indemnify, hold harmless and defend Landlord from any cost, loss, claim or liability (including attorneys' fees) Landlord may incur as a result of Tenant's failure to surrender possession of the Leased Premises to Landlord upon the termination of this Lease. 24. Signs. ----- Tenant shall not inscribe, paint, affix, or otherwise display any sign, advertisement or notice on any part of the outside or inside of the Building. Landlord shall provide at no cost to Tenant a standard suite identification sign to be affixed by Landlord at the exterior entrance to the Leased Premises in the standard size, color and style selected by Landlord for the Building. Landlord shall also prepare and install at no cost to Tenant a reasonable quantity of standard name plates as designated by Tenant on written notice to Landlord for the lobby directory of the Building, but not more than one (1) plate per Two Thousand Five Hundred (2,500) square feet of the Leased Premises. If any other signs advertisements or notices are painted, affixed, or otherwise displayed without the prior approval of Landlord, Landlord shall have the right to remove the same, and Tenant shall be liable for any and all costs and expenses incurred by Landlord in such removal. 25. Options. ------- (a) Definition. As used in this Lease, the word "Option" has the ---------- following meaning: (1) the right or option to extend the Term of this Lease or to renew this Lease, and (2) the option or right of first refusal to lease the Leased Premises or the right of first offer to lease the Leased Premises or the right of first refusal to lease other space within the Building or the right of first offer to lease other space within the Building, and (3) the right or option to terminate this Lease prior to its expiration date or to reduce the size of the Leased Premises. Any Option granted to Tenant by Landlord must be evidenced by a written option agreement attached to this Lease as a rider or addendum or said option shall be of no force or effect. (b) Options Personal. Each Option granted to Tenant in this Lease, ---------------- if any, is personal to the original Tenant and may be exercised only by the original Tenant while occupying the entire Leased Premises and may not be exercised or be assigned, voluntarily or involuntarily, by or to any person or entity other than Tenant, including, without limitation, any permitted transferee as defined in Section 10. The Options, if any, herein granted to Tenant are not assignable separate and apart from this Lease, nor may any Option be separated from this Lease in any manner, either by reservation or otherwise. If at any time an Option is exercisable by Tenant, the Lease has been assigned, or a sublease exists as to any portion of the Leased Premises, the Option shall be deemed null and void and neither Tenant nor any assignee or subtenant shall have the right to exercise the Option. 34 (c) Multiple Options. In the event that Tenant has multiple Options ---------------- to extend or renew this Lease a later Option cannot be exercised unless the prior Option to extend or renew this Lease has been so exercised. (d) Effect of Default on Options. Tenant shall have no right to ---------------------------- exercise an Option (i) during the time commencing from the date Landlord gives to Tenant a notice of default pursuant to Section 11 and continuing until the noncompliance alleged in said notice of default is cured, or (ii) if Tenant is in default of any of the terms, covenants or conditions of this Lease. The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Tenant's inability to exercise an Option because of the provisions of this Section 25(d). (e) Limitations on Options. Notwithstanding anything to the contrary ---------------------- contained in any rider or addendum to this Lease, any options, rights of first refusal or rights of first offer granted hereunder shall be subject and secondary to Landlord's right to first offer and lease any such space to any tenant who is then occupying or leasing such space at the time the space becomes available for leasing and shall be subject and subordinated to any other options, rights of first refusal or rights of first offer previously given to any other person or entity. (f) Notice of Exercise of Option. Notwithstanding anything to the ---------------------------- contrary contained in Section 27(f), Tenant may only exercise an option by delivering its written notice of exercise to Landlord by certified mail, return receipt and date of delivery requested. It shall be Tenant's obligation to prove that such notice was so sent in a timely manner and was delivered to Landlord by the U.S. Postal Service. 26. Leasing Commission. ------------------ Tenant and Landlord each represent and warrant that, except for the Leasing Brokers (whose commission shall be paid by Landlord), neither has employed or had contact with any broker relative to this Lease. Tenant and Landlord shall indemnify and hold harmless each other from and against any other claim or claims for brokerage or other fees or commissions arising from or out of any breach of the foregoing representation and warranty. Landlord shall be responsible for payment of the brokers' fees to the persons listed in Section 1(a)(10) of this Lease, pursuant to a separate agreement. 27. General Provisions. ------------------ (a) Binding Effect. The covenants, conditions, agreements, terms and -------------- provisions of this Lease shall be binding upon and shall inure to the benefit of the parties hereof and, subject to the provisions of Section 10 hereof, each of their respective personal representatives, successors and assigns. (b) Laws. It is the intention of the parties hereto that this Lease ---- (and the terms and provisions hereof) shall be construed and enforced in accordance with the laws of the jurisdiction in which the Building is located. (c) Attorneys' Fees. If Landlord or Tenant brings an action to --------------- enforce the terms hereof or declare rights hereunder, the prevailing party in any such action, or appeal thereon, shall be entitled to its reasonable attorneys' fees and court costs to be paid by the losing party as fixed by the court in the same or separate suit, and whether or not such action is pursued to decision or judgment. The attorneys' fee award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys' fees and court costs reasonably incurred in good faith. Landlord shall be entitled to reasonable attorneys' fees and all other costs and expenses incurred in the preparation 35 and service of notices of default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such default. Landlord and Tenant agree that attorneys' fees incurred with respect to defaults and bankruptcy are actual pecuniary losses within the meaning of Section 365(b)(1)(B) of the Bankruptcy Code or any successor statute. (d) Waiver. No failure by Landlord to insist upon the strict ------ performance of any term, covenant, agreement, provision, condition or limitation of this Lease or to exercise any right or remedy consequent upon a breach thereof, and no acceptance by the Landlord of full or partial rent during the continuance of any such breach, shall constitute a waiver of any such breach or of any such term, covenant, agreement, provision, condition or limitation. No term, covenant, agreement, provision, condition or limitation of this Lease to be kept, observed or performed by Landlord or by Tenant, and no breach thereof, shall be waived, altered or modified except by a written instrument executed by Landlord or by Tenant, as the case may be. No waiver of any breach shall affect or alter this Lease, but each and every term, covenant, agreement, provision, condition and limitation of this Lease shall continue in full force and effect with respect to any other existing or subsequent breach thereof. No failure by Landlord to insist upon the strict performance of any term, covenant, agreement, provision, condition or limitation of a lease with any other tenant or to exercise any right or remedy consequent thereof shall constitute a waiver of any similar term, covenant, agreement, provision, condition or limitation contained in this Lease unless the same be incorporated in a written instrument signed by Landlord and making specific reference to this Lease and to the Tenant's obligations hereunder. (e) Security Interest. [INTENTIONALLY OMITTED] ----------------- (f) Notices. No notice, request, consent, approval, waiver or other ------- communication which may be or is required or permitted to be given under this Lease shall be effective unless the same is in writing and is delivered in person or sent by registered or certified mail, return receipt requested, first- class postage prepaid, (1) if to Landlord, at Landlord's Notice Address, or (2) if to Tenant, at Tenant's Notice Address, or at any new address that may be given by one party to the other by notice pursuant to this subsection. Such notices, if sent by registered or certified mail, shall be deemed to have been given at the time of mailing. 36 (g) Entirety. It is understood and agreed by and between the parties -------- hereto that this Lease contains the final and entire agreement between said parties relative to the subject matter hereof, and that they shall not be bound by any terms, statements, conditions or representations relative to the subject matter hereof, oral or written, express or implied, not herein contained. It is understood and agreed, however, that, subject to the terms of Section 15(b) hereof, the terms hereof shall be modified, if so required, for the purpose of complying with or fulfilling the requirements of any mortgagee secured by a mortgage that may now be or hereafter become a lien on the Building, provided, however, that such modification shall not be in substantial derogation or diminution of any of the rights of the parties hereunder, nor increase any of the obligations or liabilities of the parties hereunder. (h) Waiver of Jury. Landlord and Tenant each hereby waives all right -------------- to trial by jury in any claim, action, proceeding or counterclaim by either Landlord or Tenant relating to this Lease and/or Tenant's use or occupancy of the Leased Premises. (i) Waiver of Venue. Tenant hereby waives any objection to the venue --------------- of any action filed by Landlord against Tenant in any state or federal court of the jurisdiction in which the Building is located, and Tenant further waives any right, claim or power, under the doctrine of forum non conveniens or otherwise, ----- --- ---------- to transfer any such action filed by Landlord to any other court. (j) Confidentiality. Tenant acknowledges and agrees that the terms of this Lease are confidential and constitute propriety information of Landlord. Disclosure of the terms hereof could adversely affect the ability of Landlord to negotiate other leases with respect to the Building and may impair Landlord's relationship with other tenants of the Building. Tenant agrees that it and its partners, officers, directors, employees, brokers, and attorneys, and others as required by legal process or requirements (including any filing requirements of the Securities and Exchange Commission), if any, shall not disclose the terms and conditions of this Lease to any other person or entity without the prior written consent of Landlord which may be given or withheld by Landlord, in Landlord's sole discretion. It is understood and agreed that damages alone would be an inadequate remedy for the breach of this provision by Tenant, and Landlord shall also have the right to seek specific performance of this provision and to seek injunctive relief to prevent its breach or continued breach. (k) Tenant Entity. If Tenant is a corporation, it shall, following a ------------- request therefore , furnish to Landlord certified copies of the resolutions of its Board of Directors (or of the executive committee of its Board of Directors) authorizing Tenant to enter into this Lease; and it shall, if applicable, furnish to Landlord certified copies of the resolutions of the Board of Directors (or of the executive committee of such Board of Directors) of any corporate guarantor, authorizing such corporation to guarantee the obligations of Tenant under this Lease; and it shall furnish to Landlord evidence (reasonably satisfactory to Landlord and its counsel) that Tenant is a duly organized corporation under the laws of the state of its incorporation, is qualified to do business in the jurisdiction in which the Building is located, is in good standing under the laws of the state of its incorporation and has the power and authority to enter into this Lease, and that all corporate action requisite to authorize Tenant to enter into this Lease has been duly taken. If Tenant is a partnership, the person executing this Lease on behalf of such partnership hereby represents and warrants on behalf of such person and the partners of Tenant that such person is authorized by Tenant to enter into this Lease. (l) Time of Essence. Time is of the essence in the performance of all --------------- of Tenant's obligations under this Lease. (m) Words and Phrases. Wherever appropriate herein, the singular ----------------- includes the plural and the plural includes the singular and neuter gender references shall refer to the gender of the particular party. 37 (n) Limit on Landlord's Liability. Notwithstanding any provision to ----------------------------- the contrary, Tenant shall look solely to the estate and property of Landlord in and to the Building (or the proceeds received by Landlord on a sale of such estate and property but not the proceeds of any financing or refinancing thereof) in the event of any claim against Landlord arising out of or in connection with this Lease, the relationship of Landlord and Tenant, or Tenant's use of the Leased Premises, and Tenant agrees that the liability of Landlord and the other parties referenced in Section 7(a)(4) hereof arising out of or in connection with this Lease, the relationship of Landlord and Tenant, or Tenant's use of the Leased Premises, shall be limited to such estate and property of Landlord (or sale proceeds). No other properties or assets of Landlord shall be subject to levy, execution or other enforcement procedures for the satisfaction of any judgment (or other judicial process) or for the satisfaction of any other remedy of Tenant arising out of or in connection with this Lease, the relationship of Landlord and Tenant or Tenant's use of the Leased Premises, and if Tenant shall acquire a lien on or interest in any other properties or assets by judgment or otherwise, Tenant shall promptly release such lien on or interest in such other properties and assets by executing, acknowledging and delivering to Landlord an instrument to that effect prepared by Tenant's attorneys. No partnership relation shall be deemed created hereunder between Landlord and Tenant. The foregoing provisions of this subsection shall run to the benefit of Landlord, its successors, assigns, mortgagees and ground lessors. (o) Administrative Costs. In addition, if Tenant requests Landlord -------------------- to review and/or execute any documents in connection with this Lease, including but not limited to assignment and Transfer documents, Tenant shall pay to Landlord as an administrative fee for the review and/or execution thereof all reasonable, out-of-pocket costs and expenses, including reasonable attorney's fees (which shall include the cost of time expended by in-house counsel) incurred by Landlord and/or Landlord's agent. Such administrative costs shall not exceed One Thousand Five Hundred and 00/100 Dollars ($1,500.00) per request. (p) Counterparts. This Lease maybe executed in several counterparts, ------------ but all such counterparts shall constitute one and the same instrument. (q) Exhibits and Addendum. Exhibits A (Floor Plan of Leased --------------------- Premises), A-1, (Base Building Plans), B (Workletter), B-1 (Plans), C (Verification Letter), D (Rules and Regulations), E (Subordination, Non- Disturbance and Attornment Agreement), F (Estoppel Certificate) and Addendum, if any, attached hereto, are hereby incorporated herein. [SIGNATURES ON FOLLOWING PAGE] 38 IN WITNESS WHEREOF, Tenant has caused this Lease, including the attached Addendum, if any, to be signed and attested in its corporate name by its proper corporate officers and its corporate seal to be affixed as of the day and year first above written or in its partnership name, as the case may be. LANDLORD: MDM DEVELOPMENT COMPANY, L.L.C. WITNESS: _________________________ By: ____________________________________ Mark D. Lerner Manager TENANT: NOOSH, INC. ATTEST: _________________________ By: ____________________________________ Secretary [corporate seal] Name:____________________________________ Title:___________________________________ 39 EXHIBIT A LEASED PREMISES ---------------- A-1 EXHIBIT A-1 BASE BUILDING PLANS -------------------- Drawings prepared by the Weihe Design Group issued for permit 5/1/97, for contract 8/1/97, as amended on 10/22/97, as further amended on 1/20/98, and as further amended 3/4/98. A-1-1 EXHIBIT B ========= WORKLETTER ========== 1. Construction of Base Building. Landlord, at its expense, shall ----------------------------- construct and provide a completely finished building (the "Base Building"), excluding interior finishing of tenant space and including public toilets, telephone closets, mechanical equipment rooms complete with air handling equipment and duct work, and electrical closets with high and low voltage panelboards and transformers. Landlord shall construct, supply and install a finished two-story atrium lobby on the first and second floors, finished elevators and public stairwells on each floor, vanity or vestibule rooms, wetstacks, drinking fountains, a sprinkler system riser and sprinkler head drops, landscaping for the Base Building and all other common areas of the Base Building, substantially in accordance with the Base Building Plans. The core walls shall be taped, spackled and ready for painting. Drywall shall be screwed in place for perimeter walls. The interior columns will be exposed concrete. Landlord shall also provide venetian blinds for all perimeter windows. The Base Building will be constructed in compliance with all applicable codes, and all materials and equipment to be incorporated into the Base Building shall be of first-class quality and in full operational condition. Landlord shall perform any additional work, if and to the extent reasonably required, to correct or satisfy errors or omissions in the Plans caused by field conditions or inaccuracies in the information provided by the Landlord with regard to the Base Building. 2. Completion of Leased Premises. ------------------------------ (a) Tenant Improvements. Landlord, at its sole cost and expense, except as otherwise provided in this Workletter, shall furnish and install, in or for the benefit of the Premises, the Tenant Improvements (as identified in the Plans) in accordance with the Plans (the "Plans") attached hereto as Exhibit ------- B-1 which Plans have been approved by Landlord and Tenant. All architectural - --- and engineering work for such Tenant Improvements and any required occupancy permits for the Leased Premises shall also be provided at Landlord's sole cost and expense. Any improvements other than the Tenant Improvements shall be subject to Landlord's prior written approval, shall be at Tenant's sole expense and, except as otherwise permitted in this Exhibit B, shall be constructed by --------- Landlord. B-1 (b) Construction. ------------ (1) Within a reasonable period of time , Landlord shall instruct its contractor to secure a building permit and commence construction of the Tenant Improvements in accordance with the Plans. (2) Change Orders. Tenant may at any point prior to the Lease ------------- Commencement Date request changes in the final approved Plans. Promptly following receipt of Tenant's requested changes, Landlord shall notify Tenant of: (i) the cost, if any, of performing such changes and (ii) the Lease Commencement Date Delay ("LCDD"), if any caused by such changes. (For this purpose, LCDD means the number of days that substantial completion of Tenant's Improvements will be delayed as a result of the need to perform such changes). The cost of performing such changes shall be the actual costs charged to Landlord by Landlord's contractor , plus ten percent (10%) for overhead/supervisions and five percent (5%) for profit. Promptly following notification from Landlord as to the cost of the changes and the LCDD, Tenant shall notify Landlord whether or not to proceed with the changes. If Tenant elects to proceed, Tenant shall pay Landlord such increase by cashier's check, which payment shall be made within five (5) days of Landlord's notice to Tenant that Landlord is prepared to commence construction. Further the Lease Commencement Date shall be accelerated by the amount of the LCDD (but such acceleration shall not affect Landlord's obligations hereunder). If Tenant B-2 elects not to proceed, it may submit revised changes to Landlord in an effort to reduce the cost or LCDD caused by such changes. Landlord will cooperate in good faith to facilitate all requested changes, and to arrange for same to be performed at a reasonable and competitive cost and with minimal LCDD. (c) Dates. The Lease Commencement Date shall be as specified in Section ----- 1(a)(4) of this Lease, except that if the Leased Premises are not ready for occupancy on such date through no fault or delay occasioned Tenant, the same shall not be considered a default by Landlord and, the sole remedy (except as otherwise provided in the Lease) shall be that the Lease Commencement Date shall be delayed until the earlier of (i) the date identified in written notice to Tenant as the date that the Leased Premises was or will be ready for occupancy or (ii) the date which is identified in written notice to Tenant as the date that the Leased Premises would have been ready for occupancy if not for the delays set forth below in subsection (e). For this purpose, the Leased Premises shall be deemed to be substantially completed on the date which the required work is substantially completed as certified by Landlord's architect which certification shall be made with due regard for the delays set forth below in subsection (e). For this purpose, too, the date that the Leased Premises "would have been substantially completed" if not for delays occasioned by Tenant shall be certified to by Landlord's architect which certification shall be made with due regard for all of the obligations imposed upon the parties pursuant to above subsections (a) and (b) and binding. The assumption of possession of the Leased Premises by Tenant shall constitute an acknowledgement by Tenant that the Leased Premises are in good condition and the work done by Landlord therein is satisfactory and accepted in their then "as is" condition subject to the punchlist items. (d) Delay. Tenant acknowledges that any change requests made by ----- Tenant may affect the timely completion of the Leased Premises. In the event changes are required by Tenant in the final architectural and engineering plans, and/or Tenant fails to timely pay the amounts for special items, and/or the delivery time of special items delays completion of the Leased Premises without the fault of Landlord, and/or the installation time of special items delays completion of the Leased Premises, any resulting delay in the completion of construction of the Leased Premises shall be at Tenant's sole cost and expense. Punchlist items shall not affect the Lease Commencement Date. B-3 EXHIBIT B-1 =========== PLANS B-1-1 EXHIBIT C ========= VERIFICATION LETTER NOOSH, INC., a ____________________ corporation ("Tenant") hereby certifies that it has entered into a lease with MDM DEVELOPMENT COMPANY, L.L.C., a Virginia limited liability company ("Landlord") and verifies the following information as of the _____ day of ___________, 19__: Number of Rentable Square Feet in Leased Premises: --------------------------- Lease Commencement Date: ---------------------------------------------- Lease Termination Date: ---------------------------------------------- Tenant's Proportionate Share: ---------------------------------------------- Initial Basic Rent: ---------------------------------------------- Billing Address for Tenant: ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- Attention: ---------------------------------------------- Telephone Number: ---------------------------------------------- Federal Tax I.D. No.: ---------------------------------------------- Tenant acknowledges and agrees that all tenant improvements Landlord is obligated to make to the Leased Premises, if any, have been completed and that Tenant has accepted possession of the Leased Premises and that as of the date hereof, there exist no offsets or defenses to the obligations of Tenant under the Lease. Tenant acknowledges that it has inspected the Leased Premises and found them suitable for Tenant's intended commercial purposes. TENANT NOOSH, INC., a ___________ corporation By: _____________________________ Its: _____________________________ ACKNOWLEDGED AND AGREED TO: C-1 LANDLORD MDM DEVELOPMENT COMPANY, L.L.C., a Virginia limited liability company By: ______________________________ Mark D. Lerner, Manager C-2 EXHIBIT D ========= RULES AND REGULATIONS ===================== The following rules and regulations have been formulated for the safety and well-being of all tenants of the Building and are incorporated into and made part of the attached Lease (hereinafter, the "Lease"). Adherence to these rules and regulations insures that each and every tenant will enjoy a safe and undisturbed occupancy in the Building. Any violation of these rules and regulations by any tenant which continues after notice from Landlord shall be sufficient cause for termination, at the option of Landlord, of any tenant's Lease. Landlord shall have the continuing right to amend or eliminate any of these rules and regulations, and also to adopt additional reasonable rules and regulations of like force and effect. Any such change shall be effective at the earlier of actual notice or five (5) days after delivery of written notice thereof to the Leased Premises by Landlord. Landlord may, upon request by any tenant, for good cause, waive the compliance by such tenant of any of the following rules and regulations, provided that (a) no waiver shall be effective unless signed by Landlord or Landlord's authorized agent, (b) any such waiver shall not relieve the tenant from the obligation to comply with such rule or regulation in the future unless expressly consented to by Landlord, and (c) no waiver of a rule or regulation granted to any tenant shall relieve any other tenant from the obligation of complying with the rule or regulation unless such other tenant has received a similar waiver in writing from Landlord. Landlord shall use commercially reasonable efforts to enforce such rules and regulations in a reasonable, uniform and non-discriminatory manner. 1. The sidewalks, entrances, passages, and the parking, loading, and service areas, Common Areas, or other parts of the Building not occupied by any tenant shall not be obstructed or encumbered by any tenant or used for any purpose other than ingress and egress to and from the tenant's premises. Landlord shall have the exclusive right to control and operate the Common Areas, and the facilities furnished for the common use of the tenants of the Building, in such manner as Landlord deems best for the benefit of the tenants generally. No tenant shall permit the visit to its premises of persons in such numbers or under such conditions as to interfere with the use and enjoyment by other tenants of the Common Areas. Landlord shall in any cases retain the right to control or prevent access by any person whose presence, in Landlord's reasonable judgment, would be prejudicial or harmful to the safety, peace, character or reputation of the Building or of any tenant of the Building. 2. No awnings or other projections shall be attached to the outside walls of the Building without the prior written consent of Landlord. No drapes, blinds, shades, or screens shall be attached to or hung in, or used in connection with, any window or door of a tenant's premises, without the prior written consent of Landlord, except the blinds specified as building standard in Exhibit B of the Lease. If Landlord has installed or hereafter installs any - --------- shade, blind or curtain in any premises, no tenant shall remove it without first obtaining Landlord's written consent thereto. Approved blinds must be kept in the down position at all times but may be pivoted open or closed as chosen by each tenant. Any other awnings, projections, curtains, blinds, screens or other fixtures must be of a quality, type, design and color, and attached in the manner approved by Landlord. 3. No sign, advertisement, notice or other lettering shall be exhibited, installed, inscribed, painted or affixed by any tenant on any part of the outside or D-1 inside of the tenant's premises or any window thereof, or any part of the Building, including the rear entrance and loading areas, without the prior written consent of Landlord. In the event of the violation of the foregoing by any tenant, Landlord may remove same without any liability, and may charge the expense incurred by such removal to the tenant or tenants violating this rule. All signs, including interior signs on the doors and directory tablet shall be designed and installed by Landlord, and shall only identify each tenant and be of a size, color and style acceptable to Landlord. Approved vending machines must be placed so as to not be visible from outside of the Building. 4. No fixtures, plumbing, electrical equipment, show cases or other items not shown on approved plans shall be installed or affixed to any part of any tenant premises or the exterior of the Building, nor placed in the Common Areas, without the prior written consent of Landlord. 5. The toilet rooms, water and wash closets, and other plumbing fixtures shall not be used for any purposes other than those for which they were constructed, and no sweepings, rubbish, rags, or other substances shall be thrown therein. All damages resulting from any misuse of the fixtures shall be borne by the tenant who, or whose employees, agents, visitors or licensees, shall have caused the same. 6. There shall be no marking, painting, drilling into or other form of defacing or damage of any part of a tenant's premises or the Building. No boring, cutting or stringing of wires shall be done without the consent of Landlord. If any tenant desires to install signaling, telegraphic, telephonic, protective alarm or other wires, apparatus or devices within its premises, Landlord shall direct where and how they are to be installed and, except as so directed, no installation, boring or cutting shall be permitted. Landlord shall have the right (a) to prevent or interrupt the transmission of excessive, dangerous or annoying current of electricity or otherwise into or through the Building or the premises, (b) to require the changing of wiring connections or layout at such tenant's expense, to the extent that Landlord may deem necessary, (c) to require compliance with such reasonable rules as Landlord may establish relating thereto, and (d) in the event of noncompliance with such requirements or rules, immediately to cut wiring or do whatever else it considers necessary to remove the danger, annoyance or electrical interference with apparatus in any part of the Building. Each wire installed by any tenant must be clearly tagged at each distributing board and junction box and elsewhere where required by Landlord, with the number of the office to which such wire leads and the purpose for which it is used, together with the name of such tenant or other concern, if any, operating or using it. No tenant shall construct, maintain, use or operate within its premises or elsewhere within or on the outside of the Building, any electrical device, wiring or apparatus in connection with a loud speaker system or other sound system. 7. No tenant shall make, or permit to be made, any disturbing noises or disturb or interfere with occupants of the Building or neighboring buildings or premises or those having business with them, whether by the use of any musical instrument, radio, tape recorder, whistling, singing, or any other way. No tenant shall throw anything out of the doors or windows or down the corridors or stairs. 8. No vehicles or animals, birds or pets of any kinds shall be brought into or kept in or about a tenant's premises. Except in the kitchen and/or lounge facility shown on approved plans, no cooking shall be done or permitted by any tenant on its premises and no tenant may install and/or operate any additional lounge or coffee room or stove, sink and refrigerator, or the like. No tenant shall cause or permit any unusual or objectionable odors to D-2 originate from its premises. All approved kitchen facilities must be adequately exhausted by Tenant. 9. No space in or about the Building shall be used for the sale of merchandise, goods or property of any kind or for sleeping purposes. 10. No flammable, combustible or explosive fluid, chemical or substance shall be brought or kept upon any tenant's premises, unless approved by the appropriate local government authority. In any event, each tenant shall hold harmless Landlord from any damage caused by the same. 11. No additional locks or bolts of any kind shall be placed upon any of the doors or windows by any tenant, nor shall any changes be made in existing locks or the mechanism thereof. The doors leading to the corridors or main halls shall be kept closed during business hours except as they may be used for ingress and egress. Each tenant shall, upon the termination of its tenancy, return to Landlord all keys used in connection with its premises, including any keys to the premises, to rooms and offices within the premises, to storage rooms and closets, to cabinets and other built-in furniture, and to toilet rooms, whether or not such keys were furnished by Landlord or procured by tenant, and in the event of the loss of any such keys, such tenant shall pay to Landlord the cost of replacing the locks. On termination of a tenant's lease, the tenant shall disclose to Landlord the combination of all locks for safes, safe cabinets, and vault doors, if any, remaining in the premises. 12. All removals, or the carrying in or out of any safes, freight, furniture or bulky matter of any description, must take place in such manner and during such hours as Landlord may require. Landlord reserves the right to inspect all freight to be brought into the Building and to exclude from the Building all freight which violates any of these rules and regulations or the Lease. 13. Any person employed by any tenant to do janitorial work within the tenant's premises must obtain Landlord's consent prior to commencing such work, and such person shall, while in the Building and outside of said premises, comply with all instructions issued by the superintendent of the Building and must be properly identified. No tenant shall engage or pay any employees on the tenant's premises, except those actually working for such tenant on said premises. 14. No tenant shall purchase spring water, ice, coffee, soft drinks, towels, or other like merchandise or service from any company or person whose repeated violations of Building regulations have caused, in Landlord's opinion, a hazard or nuisance to the Building and/or its occupants. 15. Landlord shall have the right to prohibit any advertising by any tenant which, in Landlord's opinion, tends to impair the reputation of the Building or its desirability as a place for offices, and upon written notice from Landlord, such tenant shall refrain from or discontinue such advertising. 16. Landlord reserves the right to exclude from the Building at all times any person who is not known or does not properly identify himself to the Building management or its agents. Landlord may, at its option, require all persons admitted to or leaving the Building to register. Each tenant shall be responsible for all persons for whom it authorizes entry into the Building, and shall be liable to Landlord for all acts of such persons. Landlord shall also have the right to install an electronic access control system for the Building requiring the use of pass cards, identifications cards, passwords, confidential codes or the like as a prerequisite to admission of any person into the Building, and tenant agrees to faithfully abide by the rules of any such system. If cards or the like are used in D-3 any such system, each tenant shall be issued two (2) without charge, but each additional or replacement card requested shall be issued only upon payment of a standard service fee per card. 17. Each tenant, before closing and leaving its premises at any time, even though the Lease may be net of utilities, should use its best efforts to see that all lights, electrical appliances and mechanical equipment are turned off. 18. The requirements of tenants will be attended to only upon application at the management office for the Building. Building employees shall not perform any work or do anything outside of their regular duties, unless under special instructions from the management of the Building. 19. Canvassing, soliciting and peddling in the public Building is prohibited and each tenant shall cooperate to prevent the same, including notifying Landlord when and if such activity occurs. 20. There shall not be used in any space, or in any public halls of the Building, either by a tenant or by jobbers or others, in the delivery or receipt of merchandise, any hand trucks, except those equipped with rubber tires and side guards. 21. Access plates to under-floor conduits shall be left exposed. Where carpet is installed, carpet shall be cut around access plates. 22. Mats, trash or other objects shall not be placed in the public corridors. 23. Drapes which are visible from the exterior of the Building must be cleaned by each tenant at least once a year, without notice, at such tenant's own expense. 24. All office equipment of any electrical of mechanical nature shall be placed by any tenant in its premises in approved settings to absorb or prevent any vibration, noise or annoyance. 25. Tenant shall not permit or cause to be used in any premises any device or instrument such as a sound reproduction system, or excessively bright, changing, flashing, flickering, moving lights or lighting devices or any similar devices, the effect of which shall be audible or visible beyond the confines of the demised premises, nor shall tenant permit any act or thing upon the demised premises distributing to normal sensibilities of other tenants. 26. All moving of safes, freight, furniture or bulky matter of any description, to or from any premises shall only take place during the hours designated by the Landlord. Hand trucks may be used only if they are equipped with rubber tires and side guards, and only in designated delivery areas. Damages caused thereby shall be borne by Tenant. 27. Tenant shall not use the premises as headquarters for large scale employment of workers for other locations. 28. The premises shall never at any time be used for any illegal purposes. 29. Landlord shall have the right, from time to time, to designate specific parking spaces in the parking areas for the Building as being reserved for specific tenants or for members of the general public, or designated for trucks only, and each tenant agrees to honor such reservations and to permit parking D-4 for officers and employees only in those parking spaces available for such purposes. Violators can be towed at their own expense. Landlord shall have the further right, during holiday seasons or at other times when parking spaces may be in short supply, to temporarily change or restrict established parking areas in order to provide additional public parking, and tenant agrees to honor such temporary changes and restrictions. Trucks of any tenant's vendors are not to be left at the Building. Landlord makes no warranty as to the availability of parking spaces for any tenant unless specific spaces have been reserved as set forth above. 30. Any utilities meters approved by Landlord shall be placed in the name of such tenant immediately upon occupancy and, at that time, each tenant shall provide verification of the meters being in its name to Landlord. 31. Smoking shall not be permitted in the Building. 32. Nothing in these rules and regulations shall give any tenant any right or claim against Landlord or any other person if Landlord does not enforce any of them against any other tenant or person (whether or not Landlord has the right to enforce them against such tenant or person), and no such non- enforcement with respect to any tenant shall constitute a waiver of the right to enforce them as to such tenant or any other tenant person thereafter. 33. Each tenant and its employees, agents and invitees, shall observe and comply with the driving and parking signs and markers on the premises surrounding the Building. And, Landlord shall have the right to rescind, suspend or modify the rules and regulations and to promulgate such other rules or regulations as, in Landlord's reasonable judgment, are from time to time needed for the safety, care, maintenance, operation and cleanliness of the Building, or for the preservation of good order therein. Upon any tenant's having been given notice of the taking of any such action, the rules and regulations, as so rescinded, suspended, modified or promulgated, shall have the same force and effect as if in effect at the time at which such tenant's Lease was entered into (except that nothing in these rules and regulations shall be deemed in any way to alter or impair any provision of such Lease). D-5 EXHIBIT E ========= SUBORDINATION, NON-DISTURBANCE ============================== AND ATTORNMENT AGREEMENT ======================== THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT (this "Agreement") is made by and between TEACHERS INSURANCE AND ANNUITY ASSOCIATION - ---------- OF AMERICA, a New York corporation with offices at 730 Third Avenue, New York, New York 10017, and ("Lender") and _____________________, a ______________ with ------ its principal place of business at 1750 Tysons Boulevard, McLean, Virginia, 22102, ("Tenant"). ------ - RECITALS: --------- A. Lender has made or is about to make a loan (together with all advances and increases, the ("Loan") to MDM Development Company, L.L.C., a ---- - Maryland limited liability company ("Borrower"). -------- B. Borrower, as landlord, and Tenant have entered into a lease dated __________ as amended by amendments dated ____________ (the "Lease") which ----- leased to Tenant Suite No. _____ (the "Leased Space") located in the Property ------------ (defined below). C. The Loan is or will be secured by the Credit Line Deed of Trust, Assignment and Security Agreement recorded or to be recorded in the official records of the County of Fairfax, Commonwealth of Virginia (together with all advances, increases, amendments or consolidations, the "Mortgage") and the -------- Assignment of Leases and Rents recorded or to be recorded in such official records (together with all amendments or consolidations, the "Assignment"), ---------- assigning to Lender the Lease and all rent, additional rent and other sums payable by Tenant under the Lease (the "Rent"). ---- D. The Mortgage encumbers the real property, improvements and fixtures located at 1750 Tysons Boulevard, in the County of Fairfax, Commonwealth of Virginia, commonly known as The Corporate Office Centre at Tysons II (the "Property"). -------- IN CONSIDERATION of the mutual agreement contained in this Agreement, Lender and Tenant agree as follows: 1. The Lease and all of Tenant's rights under the Lease are and will remain subject and subordinate to the lien of the Mortgage and all of Lender's rights under the Mortgage and Tenant will not subordinate the Lease to any other lien against the Property without Lender's prior consent. 2. This agreement constitutes notice to Tenant of the Mortgage and the Assignment and, upon receipt of notice from Lender, Tenant will pay the Rent as and when due under the Lease to Lender and the payments will be credited against the Rent due under the Lease. 3. Tenant does not have and will not acquire and right or option to purchase any portion of or interest in the Property. E-1 4. Tenant and Lender agree that if Lender exercises its remedies under the Mortgage or the Assignment and if Tenant is not then in default under this Agreement and if Tenant is not then in default beyond any applicable grace and cure periods under the Lease: (a) Lender will not name Tenant as a party to any judicial or non- judicial foreclosure or other proceeding to enforce the Mortgage unless joinder is required under applicable law but in such case Lender will not seek affirmative relief against Tenant, the Lease will not be terminated and Tenant's possession of the Leased Space will not be disturbed; (b) If Lender or any other entity (a "Successor Landlord") acquires ------------------ the Property through foreclosure, by other proceeding to enforce the Mortgage or by deed-in-lieu of foreclosure (a "Foreclosure"), Tenant's possession of the ----------- Leased Space will not be disturbed and the Lease will continue in full force and effect between Successor Landlord and Tenant; and (c) If, notwithstanding the foregoing, the Lease is terminated as a result of a Foreclosure, a lease between Successor Landlord and Tenant will be deemed created, with no further instrument required, on the same terms as the Lease except that the term of the replacement lease will be the then unexpired term of the Lease. Successor Landlord and Tenant will execute a replacement lease at the request of either. 5. Upon Foreclosure, Tenant will recognize and attorn to Successor Landlord as the landlord under the Lease for the balance of the term. Tenant's attornment will be self-operative with no further instrument required to effectuate the attornment except that at Successor Landlord's request, Tenant will execute instruments reasonably satisfactory to Successor Landlord confirming the attornment. 6. Except as permitted in the Mortgage or Assignment, Successor Landlord will not be: (a) liable for any act or omission of any prior landlord under the Lease occurring before the date of the Foreclosure except for repair and maintenance obligations of a continuing nature imposed on the landlord under the Lease; (b) required to credit Tenant with any Rent paid more than one month in advance or for any security deposit unless such Rent or security Deposit has been received by Successor Landlord; (c) bound by any amendment, renewal or extension of the Lease that is inconsistent with the terms of this Agreement or is not in writing and signed both by Tenant and landlord; (d) bound by any reduction of the Rent unless the reduction is in connection with an extension or renewal of the Lease at prevailing market terms or was made with Lender's prior consent, which will not be unreasonably withheld; (e) bound by any reduction of the term/1/ of the Lease or any termination, cancellation or surrender of the Lease unless the reduction, termination, cancellation or surrender occurred during the last 6 months of the term or was made with Lender's prior consent; E-2 (f) bound by any amendment, renewal or extension of the Lease entered into without Lender's prior consent if the Leased Space represents 50% or more of the net rentable area of the building in which the Leased Space is located; (g) subject to any credits, offsets, claims, counterclaims or defenses that Tenant may have that arose prior to the date of the Foreclosure or liable for any damages Tenant may suffer as a result of any misrepresentation, breach of warranty or any act of or failure to act by any party other than Successor Landlord; (h) bound by any obligation to make improvements to the Property, including the Leased Space, to make any payment or give any credit or allowance to Tenant provided for in the Lease or to pay any leasing commissions arising out of the Lease, except that Successor Landlord will be: (i) bound by any such obligations provided for in the Lender- approved form lease; (ii) bound by any such obligations if the overall economic terms of the Lease (including the economic terms of any renewal options) represented market terms for similar space in properties comparable to the Property when the Lease was executed; and (iii) bound to comply with the casualty and condemnation restoration provisions included in the Lease provided that Successor Landlord receives the insurance or condemnation proceeds; or (i) liable for obligations under the Lease with respect to any off-site property or facilities for the use of Tenant (such as off-site leased space or parking) unless Successor Landlord acquires in the Foreclosure the right, title or interest to the off-site property. - -------------------------------------------------------------------------------- /1/For purposes of this subparagraph "the term of the Lease" includes any renewal term after the right to renew has been exercised. E-3 7. Lender will have the right, but not the obligation, to cure any default by Borrower, as Landlord, under the Lease. Tenant will notify Lender of any default that would entitle Tenant to terminate the Lease or abate the Rent and any notice of termination or abatement will not be effective unless Tenant has so notified Lender of the default and Lender has had a 30-day cure period (or such longer period as may be necessary if the default is not susceptible to cure within 30 days) commencing on the latest to occur of the date on which (i) the cure period under the Lease expires, (ii) Lender receives the notice required by this paragraph; and (iii) Successor Landlord obtains possession of the Property if the default is not susceptible to cure without possession. 8. All notices, requests or consents required or permitted to be given under this Agreement must be in writing and sent by certified mail, return receipt requested or by nationally recognized overnight delivery service providing evidence of the date of delivery, with all charges prepaid, addressed to the appropriate party at the address set forth above. 9. Any claim by Tenant against Successor Landlord under the Lease or this Agreement will be satisfied solely out of Successor Landlord's interest in the Property and Tenant will not seek recovery against or out of any other assets of Successor Landlord. Successor Landlord will have no liability or responsibility for any obligations under the Lease that arise subsequent to any transfer of the Property by Successor Landlord. 10. This Agreement is governed by and will be construed in accordance with the laws of the state or commonwealth in which the Property is located. 11. Lender and Tenant waive trial by jury in any proceeding brought by, or counterclaim asserted by, Lender or Tenant relating to this Agreement. 12. If there is a conflict between the terms of the Lease and this Agreement, the terms of this Agreement will prevail as between Successor Landlord and Tenant. 13. This Agreement binds and inures to the benefit of Lender and Tenant and their respective successors, assigns, heirs, administrators, executors, agents and representatives. 14. This Agreement contains the entire agreement between Lender and Tenant with respect to the subject matter of this Agreement, may be executed in counterparts that together constitute a single document and may be amended only by a writing signed by Lender and Tenant. E-4 IN WITNESS WHEREOF, Lender and Tenant have executed and delivered this Agreement as of _________ ____, _______. TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA, a New York corporation By:__________________________________ Name:_____________________________ Title:______________________________ [TENANT] By:___________________________________ Name:______________________________ Title: ______________________________ E-5 ACKNOWLEDGMENT State of ______________________ County of ____________________ On this the ______ day of ____________, ________ before me, the undersigned officer, personally appeared _________________ who acknowledged himself to be the _____________ of TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA, a corporation, and that he, as such ______________________________ being authorized so to do, executed the foregoing instrument for the purposes therein contained, by signing the name of the corporation by himself as _______________________. In witness whereof I hereunto set my hand and official seal. __________________________ __________________________ Title of Officer State of ______________________ County of ____________________ On this the ______ day of ____________, _______ before me, the undersigned officer, personally appeared _________________ who acknowledged himself to be the _____________ of __________________, a _____________, and that he, as such ______________________________ being authorized so to do, executed the foregoing instrument for the purposes therein contained, by signing the name of the corporation by himself as _______________________. In witness whereof I hereunto set my hand and official seal. __________________________ __________________________ Title of Officer E-6 EXHIBIT E ========= (CONTINUED) STATEMENT OF TENANT IN RE: LEASE Tenant's Letterhead Date Teachers Insurance and Annuity Association of America 730 Third Avenue New York, New York 10017 Attn: Real Estate Banking RE: TIAA Appl. #: VA-386 TIAA Mtge. #: 0004332-1 Name of Project: 1750 Tysons Boulevard Address: 1750 Tysons Boulevard McLean, VA 22102 Tenant Floor & Suite: Suite Ladies and Gentlemen: It is our understanding that you have committed to place a mortgage upon the subject premises and as a condition precedent thereof have required this certification of the undersigned. The undersigned, as lessee, under that certain lease dated ____________, made with MDM Development Company, L.L.C., as lessor, hereby ratifies said lease and certifies that: 1. the "Commencement Date" of said lease is ______________; and 2. the undersigned is presently solvent and free from reorganization and/or bankruptcy and is in occupancy, open, and conducting business with the public in the premises; and 3. the operation and use of the premises do not involve the generation, treatment, storage, disposal or release of a hazardous substance or a solid waste into the environment other than to the extent necessary to conduct its ordinary course of business in the premises and in accordance with all applicable environmental laws, and that the premises are being operated in accordance with all applicable environmental laws, zoning ordinances and building codes; and 4. the current base rental payable pursuant to the terms of said lease is $_________ per annum; and further, additional rental pursuant to said lease is payable as follows: $________; and 5. said lease is in full force and effect and has not been assigned, modified, supplemented or amended in any way (except by E-7 agreement(s) dated ___________), and neither party thereto is in default thereunder; and 6. the lease described above represents the entire agreement between the parties as to the leasing of the premises; and 7. the term of said lease expires on _____________; and 8. all conditions under said lease to be performed by the lessor have been satisfied, including, without limitation, all co-tenancy requirements thereunder, if any; and 9. all required contributions by lessor to lessee on account of lessee's improvements have been received; and 10. on this date there are no existing defenses or offsets, claims or counterclaims which the undersigned has against the enforcement of said lease by the lessor; and 11. no rental has been paid in advance and no security (except the security deposit in the amount of $____________) has been deposited with lessor; and 12. lessee's floor area is ________ square feet; and 13. the most recent payment of current basic rental was for the payment due on ___________, and all basic rental and additional rental payable pursuant to the terms of the lease have been paid up to said date; and 14. the undersigned acknowledges notice that lessor's interest under the lease and the rent and all other sums due thereunder will be assigned to you as part of the security for a mortgage loan by you to lessor. In the event that Teachers Insurance and Annuity Association of America, as lender, notifies the undersigned of a default under the mortgage and demands that the undersigned pay its rent and all other sums due under the lease to lender, lessee agrees that it shall pay its rent and all such other sums to lender. Very truly yours, [TENANT] By:___________________________ Name:_________________________ Title: _______________________ E-8 EX-10.31 4 OFFER LETTER TO MATTEW L. SPOLIN EXHIBIT 10.31 [NOOSH Letterhead] October 14, 1998 Matthew L. Spolin 300 Beale Street, No. 501 San Francisco, CA 94105 Dear Matthew, NOOSH, Inc. (the "Company") is pleased to offer you the position of R&D Chief Architect, reporting initially to NOOSH's CEO. Your starting monthly salary will be $9,583, less payroll deductions and all required withholding. You will also receive a bonus of $7,500 upon your start date as an employee of NOOSH, together with a loan from the Company of $8,000. The loan will bear interest at the rate of 8.0% per year, with all principal and accrued interest due upon the date your employment by the Company ends, for any reason. However, if you are still employed by the Company on the first anniversary of your start date, your obligation to repay all principal and accrued interest due under the loan will be forgiven. Please note that the amount forgiven will constitute income to you, and will, therefore, be subject to withholding. It will further be recommended to the Board of Directors that you be granted a stock option to purchase 108,360 shares of Common Stock under NOOSH's Employee Stock Option Plan. Your option will be subject to a four year vesting schedule, with vesting to commence as of your start date as an employee under this agreement. Under the vesting schedule, your option shares would vest at the rate of 25% upon completion of the first year of employment, with an additional 2.0833% of such shares vesting for each full month of continuous employment completed after the first anniversary. The exercise price of your stock option will not be fixed until the date of grant by the Board of Directors. We expect that the grant will occur during the two weeks following your start date. The exercise price for your option would be set equal to the fair market value of NOOSH's stock on the grant date. NOOSH also offers a benefits package, including medical insurance coverage, two weeks vacations annually, and sick leave and paid holidays as specified by Company policy for all employees. Until the Company implements its own medical insurance plan, NOOSH will reimburse you for up to $____ per month in payments required under COBRA to maintain your existing personal medical insurance coverage. Your employment with NOOSH is for no specified term and is "at will," and may be terminated by you or NOOSH at any time, with or without cause or advance notice. This letter, the Company's standard agreement relating to proprietary rights between you and NOOSH (the "Inventions Agreement") and the form of option agreement between you and NOOSH relating to your option grant described above set forth the terms of your employment with the Company and supersede any prior representations or agreements, whether written or oral. As required by law, this offer is subject to satisfactory proof of your right to work in the United States. This letter may not be modified or amended, except by a written agreement, signed by the Company and you. Matt, we believe this position will provide you with an excellent opportunity for professional growth, as well as offering you the excitement and rewards of a dynamic and growing company. NOOSH feels the single most important factor in our success will be our people. We are confident that the skills and background you bring to us will be instrumental to NOOSH's success. Please keep a copy and return the signed original of this offer letter to me by October 16, 1998. As we've discussed, we look forward to you joining our team and starting on or before October 23, 1998. Sincerely, NOOSH, INC. By: /s/ Ofer Ben-Shachar -------------------- Ofer Ben-Shachar President and CEO I agree to and accept this offer of employment with NOOSH, Inc.. /s/ Matthew L. Spolin 10/14/98 - --------------------- ------------------ Matthew L. Spolin Start Date EX-10.32 5 OFFER LETTER TO LARRY SLOTNICK EXHIBIT 10.32 [NOOSH Letterhead] April 10, 1999 Larry Slotnick 169 Lockhart Ln. Los Altos, CA 94022 Dear Larry, NOOSH, Inc. (the "Company") is pleased to offer you the position of VP Engineering, reporting initially to NOOSH's President & CEO. Your starting monthly salary will be $13,334, less payroll deductions and all required withholding. Additionally, you and NOOSH's CEO may mutually agree upon quarterly performance milestones for which you will receive quarterly performance bonuses of $7,500 if, in the sole discretion of NOOSH's CEO, such quarterly milestones have been achieved. It will further be recommended to the Board of Directors that you be granted a stock option to purchase 200,000 shares of Common Stock under NOOSH's Employee Stock Option Plan. Your option will be subject to a four year vesting schedule, with vesting to commence as of your start date as an employee under this agreement. In addition, if we achieve the service delivery goals for the beta and full launch of the Noosh service, it will further be recommended to the Board of Directors that you be granted a stock option to purchase 25,000 shares of Common Stock under NOOSH's Employee Stock Option Plan. Under the vesting schedule, your option shares would vest at the rate of 25% upon completion of the first year of employment, with an additional 2.0833% of such shares vesting for each full month of continuous employment completed after the first anniversary. The exercise price of your stock option will not be fixed until the date of grant by the Board of Directors. We expect that the grant will occur during the two weeks following your start date. The exercise price for your option would be set equal to the fair market value of NOOSH's stock on the grant date. NOOSH also offers a benefits package, including medical insurance coverage, two weeks vacations annually, and sick leave and paid holidays as specified by Company policy for all employees. Your employment with NOOSH is for no specified term and is "at will," and may be terminated by you or NOOSH at any time, with or without cause or advance notice. This letter, the Company's standard agreement relating to proprietary rights between you and NOOSH (the "Inventions Agreement") and the form of option agreement between you and NOOSH relating to your option grant described above set forth the terms of your employment with the Company and supersede any prior representations or agreements, whether written or oral. As required by law, this offer is subject to satisfactory proof of your right to work in the United States. This letter may not be modified or amended, except by a written agreement, signed by the Company and you. Larry, we believe this position will provide you with an excellent opportunity for professional growth, as well as offering you the excitement and rewards of a dynamic and growing company. NOOSH feels the single most important factor in our success will be our people. We are confident that the skills and background you bring to us will be instrumental to NOOSH's success. Please keep a copy and return the signed original of this offer letter to me by April 15, 1999. As we've discussed, we look forward to you joining our team and starting on or before May 10, 1999. Sincerely, NOOSH, INC. By: /s/ Ofer Ben-Shachar -------------------- Ofer Ben-Shachar President and CEO I agree to and accept this offer of employment with NOOSH, Inc.. /s/ Larry Slotnick 4/30/99 - ------------------ ---------- Larry Slotnick Start Date EX-10.33 6 OFFER LETTER TO KEVIN AKEROYD EXHIBIT 10.33 [NOOSH Letterhead] July 27, 1999 Kevin Akeroyd 9515 NW Englemen Portland, OR 97229 Dear Kevin, NOOSH, Inc. (the "Company") is pleased to offer you the position of VP Sales, reporting initially to NOOSH's President & CEO. Your starting monthly salary will be $12,500, less payroll deductions and all required withholding. In addition, you will receive a sales commission, yet to be determined, targeted at $12,500 per month. Until January 1, 2001 you will be guaranteed a minimum commission of $4,167. Your entire salary and bonus are subject to payroll deductions and all required withholding. NOOSH will also pay relocation expenses you incur up to $20,000. It will further be recommended to the Board of Directors that you be granted a stock option to purchase 100,000 shares of Common Stock under NOOSH's Employee Stock Option Plan. Your option will be subject to a four year vesting schedule, with vesting to commence as of your start date as an employee under this agreement. Under the vesting schedule, your option shares would vest at the rate of 25% upon completion of the first year of employment, with an additional 2.0833% of such shares vesting for each full month of continuous employment completed after the first anniversary. The exercise price of your stock option will not be fixed until the date of grant by the Board of Directors. We expect that the grant will occur during the two weeks following your start date. The exercise price for your option would be set equal to the fair market value of NOOSH's stock on the grant date. NOOSH also offers a benefits package, including medical insurance coverage, two weeks vacations annually, and sick leave and paid holidays as specified by Company policy for all employees. Your employment with NOOSH is for no specified term and is "at will," and may be terminated by you or NOOSH at any time, with or without cause or advance notice. This letter, the Company's standard agreement relating to proprietary rights between you and NOOSH (the "Inventions Agreement") and the form of option agreement between you and NOOSH relating to your option grant described above set forth the terms of your employment with the Company and supersede any prior representations or agreements, whether written or oral. As required by law, this offer is subject to satisfactory proof of your right to work in the United States. This letter may not be modified or amended, except by a written agreement, signed by the Company and you. Kevin, we believe this position will provide you with an excellent opportunity for professional growth, as well as offering you the excitement and rewards of a dynamic and growing company. NOOSH feels the single most important factor in our success will be our people. We are confident that the skills and background you bring to us will be instrumental to NOOSH's success. Please keep a copy and return the signed original of this offer letter to me by July 31, 1999. As we've discussed, we look forward to you joining our team and starting on or before August 5th, 1999. Sincerely, NOOSH, INC. By: /s/ Ofer Ben-Shachar -------------------- Ofer Ben-Shachar President and CEO I agree to and accept this offer of employment with NOOSH, Inc.. /s/ Kevin Akeroyd 8/16/99 - ----------------- ------------- Kevin Akeroyd Start Date EX-10.34 7 OFFER LETTER TO DAVE HANNEBRINK EXHIBIT 10.34 [NOOSH letterhead] January 6, 1999 Dave Hannebrink 25750 Moodey Rd Los Altos Hills, CA 94022 Dear Dave, NOOSH, Inc. (the "Company") is pleased to offer you the position of Vice President Business Development and Marketing, reporting initially to NOOSH's CEO. Your starting monthly salary will be $12,500, less payroll deductions and all required withholding. Additionally, you and NOOSH's CEO may mutually agree upon quarterly performance milestones for which you will receive quarterly performance bonuses of $7,500 if, in the sole discretion of NOOSH's CEO, such quarterly performance milestones have been achieved. You will further receive a start-up bonus from the Company of $30,000, such bonus to be made in four equal quarterly installments of $7,500 with the first installment to be made on your first day of employment. However, if you cease your employment with the Company for any reason prior to the first anniversary of your start date, you shall repay to the Company, immediately upon your termination date, all amounts received pursuant to the start-up bonus; and provided, further, the Company shall be entitled to offset any amount owed to you against amounts received pursuant to the start-up bonus. [Please note that both bonuses will constitute income to you, and will, therefore, be subject to withholding.] It will further be recommended to the Board of Directors that you be granted a stock option to purchase 208,000 shares of Common Stock under NOOSH's Equity Incentive Plan. Your option will be subject to a four year vesting schedule, with vesting to commence as of your start date as an employee under this agreement. In addition, if we achieve the revenue goals for the first two quarters of the Noosh service, it will be further recommended to the Board of Directors that you be granted a stock option to purchase 20,000 shares of Common Stock under NOOSH's Employee Stock Option Plan. Under the vesting schedule, your option shares would vest at the rate of 25% upon completion of the first year of employment, with an additional 2.0833% of such shares vesting for each full month of continuous employment completed after the first anniversary. The exercise price of your stock option will not be fixed until the date of grant by the Board of Directors. We expect that the grant will occur during the two weeks following your start date. The exercise price for your option would be set equal to the fair market value of NOOSH's stock on the grant date. NOOSH also offers a benefits package, including medical insurance coverage, two weeks vacations annually, and sick leave and paid holidays as specified by Company policy for all employees. Your employment with NOOSH is for no specified term and is "at will," and may be terminated by you or NOOSH at any time, with or without cause or advance notice. This letter, the Company's standard agreement relating to proprietary rights between you and NOOSH (the "Inventions Agreement") and the form of option agreement between you and NOOSH relating to your option grant described above set forth the terms of your employment with the Company and supersede any prior representations or agreements, whether written or oral. As required by law, this offer is subject to satisfactory proof of your right to work in the United States. This letter may not be modified or amended, except by a written agreement, signed by the Company and you. Dave, we believe this position will provide you with an excellent opportunity for professional growth, as well as offering you the excitement and rewards of a dynamic and growing company. NOOSH feels the single most important factor in our success will be our people. We are confident that the skills and background you bring to us will be instrumental to NOOSH's success. Please keep a copy and return the signed original of this offer letter to me by January 8, 1999. As we've discussed, we look forward to you joining our team and starting on or before January 18, 1999. Sincerely, NOOSH, INC. By: /s/ Ofer Ben-Shachar --------------------- Ofer Ben-Shachar President and CEO I agree to and accept this offer of employment with NOOSH, Inc. /s/ Dave Hannebrink 1/18/99 - ---------------------- -------------- Dave Hannebrink Start Date EX-10.35 8 OFFER LETTER TO HAGI SCHWARTZ Exhibit 10.35 [LOGO] October 7, 1999 Hagi Schwartz 745 Moreno Ave. Palo Alto, CA 94303 Dear Hagi, NOOSH, Inc. (the "Company") is pleased to offer you the position of Vice President Finance and Chief Financial Officer, reporting to NOOSH's CEO. Your starting monthly salary will be $12,916 less payroll deductions and all required withholding. You will also receive a sign on bonus of $65,000 to be paid within the first month after your start date as an employee of NOOSH. Please note that the sign on bonus provided will constitute income to you, and will, therefore, be subject to withholding. It will further be recommended to the Board of Directors that you be granted a stock option to purchase 300,000 shares of Common Stock. Your option will be subject to a four year vesting schedule, with vesting to commence as of your start date as an employee under this agreement. Also, you will be eligible to receive an additional 30,000 shares of common stock under NOOSH's Employee Stock option plan to be granted one year from your hire date and an additional 30,000 shares the second year after your hire date. Eligibility to be granted these additional options of common stock will be based on NOOSH meeting its business plan. Under the vesting schedule, your shares under your initial option would vest at the rate of 25% upon completion of the first year of employment, with an additional 2.0833% of such shares vesting for each full month of continuous employment completed after the first anniversary. The additional options are expected to vest at the rate of 2.0833% for each full month of continuous employment completed after the date of grant. Notwithstanding the above, however, all of the shares subject to your options will vest automatically upon the consummation of a sale of all or substantially all of the assets of the Company or a merger of the Company with or into another corporation in which the stockholders of the Company immediately before the transaction do not own, directly or indirectly, a majority of the Company or the surviving entity immediately following the transaction. Also, if your employment with the Company is terminated by the Company without "cause" (as defined below) or voluntarily, you will be deemed to have completed six (6) additional months of continuous employment solely for the purpose of calculating the percentage of shares subject to your options which are vested. The exercise price of your stock options will not be fixed until the date of grant by the Board of Directors. We expect that the grant of the initial option will occur during the two weeks following your start date. The exercise price for your options would be set equal to the fair market value of NOOSH's stock on the grant date. NOOSH also offers a benefits package, including medical insurance coverage, two weeks of vacation annually, and sick leave and paid holidays as specified by Company policy for all employees. Your employment with NOOSH is for no specified term and is "at will," and may be terminated by you or NOOSH at any time, with or without cause or advance notice. However, if the Company terminates 1. your employment without cause or voluntarily under this agreement then, during the six (6) month period following the termination date, you will be entitled to receive (i) continued payments on the Company's standard payroll dates at the rate of $ 12,916 per month, net of withholding, and (ii) reimbursement of COBRA payments required to continue your personal medical insurance coverage during such six (6) month period. You shall not be entitled to any such benefits if your employment is terminated by the Company for cause or by you voluntarily. For these purposes, "cause" will be defined to mean (i) your violation of any material provision of the Inventions Agreement (as defined below), (ii) any act of theft or dishonesty, (iii) any immoral or illegal act which has a detrimental effect on the business or reputation of the company or its affiliates. You agree that the benefits stated in this paragraph shall be your sole and exclusive remedy for any damages or injury arising out of or related to any termination of your employment by the Company. This offer letter, the Company's standard agreement relating to proprietary rights between you and NOOSH (the "Inventions Agreement"), and the form of option agreements between you and NOOSH (relating to your option grants described above), will set forth the terms of your employment with the Company. This letter also supersedes any prior representations or agreements, whether written or oral. As required by law, this offer is subject to proof of your right to work in the United States. This letter may not be modified or amended, except by a written agreement signed by the Company and you. Hagi, NOOSH is an exciting, dynamic, and growing company. We believe this position will provide you with an excellent opportunity for professional growth in a very unique culture. NOOSH feels the single most important factor in our success will be our people. We are pleased to extend this offer to join our company, and confident that the skills and background you bring to this position will be instrumental to NOOSH's success. Please review this offer letter, keep a copy of this document and return the signed original offer letter to me by October 11, 1999. As we've discussed, we look forward to your joining our team on or before October 21, 1999. Sincerely, /s/ Ofer Ben-Shachar - ------------------------ Ofer Ben-Shachar President and CEO NOOSH, INC. ______________________________________________________________________ I agree to and accept this offer of employment with NOOSH, Inc. /s/ Hagi Schwartz October 18, 1999 - ------------------------ ---------------- Hagi Schwartz Start Date 2 EX-10.36 9 OFFER LETTER TO TIMOTHY MO0RE EXHIBIT 10.36 [LOGO OF NOOSH] January 3, 2000 Timothy J. Moore 206 Galli Drive Los Altos, CA 94022 Dear Tim, NOOSH, Inc. (the "Company") is pleased to offer you the position of Vice President, Strategic Alliances, and General Counsel, reporting to Noosh's CEO. Your starting monthly salary will be $12,500, less payroll deductions and all required withholding. You will also be entitled to receive a bonus payment of $25,000 as of the end of each calendar quarter during the term of your employment, subject to the CEO's reasonable determination that you have worked diligently during such quarter on behalf of the Company. It will further be recommended to the Board of Directors that you be granted a stock option to purchase 285,000 shares of Common Stock under NOOSH's Employee Stock Option Plan. Your option will be immediately exercisable in full through delivery of a promissory note pursuant to the option plan, and will be subject to a four year vesting schedule, with vesting to commence as of your start date as an employee. Under the vesting schedule, your shares under your initial option would vest at the rate of 25% upon completion of the first year of employment following your start date, with an additional 2.0833% of such shares vesting for each full month of continuous employment completed after the first anniversary. Also, you will be eligible to receive additional grants of options under NOOSH's Employee Stock Option Plan at least annually in amounts to be determined by the Board based on your performance. Notwithstanding the above, however, all of the shares subject to your options will vest automatically upon the consummation of a sale of all or substantially all of the assets of the Company or a merger of the Company with or into another corporation in which the stockholders of the Company immediately before the transaction do not own, directly or indirectly, a majority of the Company or the surviving entity immediately following the transaction. Also, if your employment with the Company is terminated by the Company without "cause" (as defined below), (i) you will be deemed to have completed six (6) additional months of continuous employment solely for the purpose of calculating the percentage of shares subject to your options which are vested and (ii) if such a termination occurs during the first year of your employment, the shares subject to your initial option will be deemed to vest at the rate of 2.0833% for each month of continuous employment following your start date. The exercise price of your stock options will not be fixed until the date of grant by the Board of Directors. We expect that the grant of the initial option will occur promptly, and as early as today. The exercise price for your options would be set equal to the fair market value of NOOSH's stock on the grant date. 1. NOOSH also offers a benefits package, including medical insurance coverage, two weeks of vacation annually, and sick leave and paid holidays as specified by Company policy for all employees. Your employment with NOOSH is for no specified term and is "at will," and may be terminated by you or NOOSH at any time, with or without cause or advance notice. However, if the Company terminates your employment without cause, then, during the six month period following the termination date, you will be entitled to receive (i) continued payments on the Company's standard payroll dates at the rate of $20,833 per month, net of withholding, and (ii) reimbursement of COBRA payments required to continue your personal medical insurance coverage during such six month period. You shall not be entitled to any such benefits if your employment is terminated by the Company for cause or by you voluntarily. For these purposes, "cause" will be defined to mean (i) your violation of any material provision of the Inventions Agreement (as defined below), (ii) any act of theft or dishonesty or (iii) any immoral or illegal act which has a detrimental effect on the business or reputation of the Company or its affiliates. You agree that the benefits stated in this paragraph shall be your sole and exclusive remedy for any damages or injury arising out of or related to any termination of your employment by the Company. This offer letter, the Company's standard agreement relating to proprietary rights between you and NOOSH (the "Inventions Agreement"), and the form of option agreements between you and NOOSH (relating to your option grants described above), will set forth the terms of your employment with the Company. This letter also supersedes any prior representations or agreements, whether written or oral. As required by law, this offer is subject to satisfactory reference check information, and proof of your right to work in the United States. This letter may not be modified or amended, except by a written agreement signed by the Company and you. Tim, NOOSH is an exciting, dynamic, and growing company. We believe this position will provide you with an excellent opportunity for professional growth in a very unique culture. NOOSH feels the single most important factor in our success will be our people. We are pleased to extend this offer to join our company, and confident that the skills and background you bring to this position will be instrumental to NOOSH'S success. 2. Please review this offer letter, keep a copy of this document and return the signed original offer letter to me today. As we've discussed, we look forward to your joining our team on a half-time basis as of January 17, 1999 (your "start date") and as a full-time employee within some weeks thereafter. Sincerely, /s/ Ofer Ben-Shachar - -------------------- Ofer Ben-Shachar President and CEO NOOSH, INC. - --------------------------------------------------------------- I agree to and accept this offer of employment with NOOSH, Inc. /s/ Timothy J. Moore - -------------------- ------------------------ Timothy J. Moore Start Date 3. EX-10.37 10 OFFER LETTER TO ROBERT SHAW EXHIBIT 10.37 [LOGO OF NOOSH] January 4, 2000 Robert Shaw 930 North Clark Unit D Chicago, IL 60610 Dear Robert, NOOSH, Inc. (the "Company") is pleased to offer you the position of Senior Vice President Sales, reporting to NOOSH's CEO. Your starting monthly salary will be $16,666, less payroll deductions and all required withholding. You may be eligible for a monthly salary increase after your first year of employment. In addition, you will receive a sales commission of not less than $12,500 per month for your continued employment from January 14, 2000 through January 14, 2003. Your entire salary, sales commissions and any bonuses paid to you are subject to payroll deductions and all required withholdings. You will also receive a hire on bonus of $75,000 to be paid within the first month after your start date as an employee of NOOSH. As part of this offer NOOSH will also pay standard relocation expenses to include the following; movement of household items, travel expenses associated with the relocation, selling costs associated with the sale of your current residence, closing costs for the new property that you purchase and six months of interim living expenses. NOOSH will also reimburse you for all reasonable business expenses incurred by you in accordance with the Company's policy concerning business expense reimbursement. It will further be recommended to the Board of Directors that you be granted a stock option (the "Option") to purchase 270,000 shares of Common Stock under NOOSH's Employee Stock Option Plan (the "Plan"). Your option will be subject to a four year vesting schedule, with vesting to commence as of your start date as an employee under this agreement. Under the vesting schedule, your option shares would vest at the rate of 25% upon completion of the fast year of employment, with an additional 2.0833% of such shares vesting for each full month of continuous employment completed after the first anniversary. The exercise price of your stock option will not be fixed until the date of grant by the Board of Directors The exercise price for your option would be set equal to the fair market value of NOOSH's stock on the grant date. As part of this offer, if you are terminated from NOOSH without cause before one year of continuous employment, you will be deemed to be vested in 25% of your option shares as of the termination date. These shares will not vest if you are terminated for cause or voluntarily resign from NOOSH. The terms and conditions of your stock option, including, without limitation, the date by which you must exercise your right to purchase option shares, will be set forth in your option agreement for the Option and the Plan. NOOSH also offers a benefits package, including medical insurance coverage, two weeks of vacation annually, and sick leave and paid holidays as specified by Company policy for all employees. 1. Your employment with NOOSH is for no specified term and is "at will" and may be terminated by you or NOOSH at any time, with or without cause or advance notice. However, if the Company terminates your employment without cause under this agreement, or if you choose to terminate your employment because the Company has chosen to materially reduce your position or responsibilities (after 30 days notice from you and the Company's opportunity to cure such martial reduction), then, during the twelve (12) month period following the termination date, you will be entitled to receive (i) continued payments on the Company's standard payroll dates at the rate of $25,000 per month, less withholding, and (ii) reimbursement of COBRA payments required to continue your personal medical insurance coverage during such twelve (12) month period. In addition you will be eligible for outplacement services. You shall not be entitled to any such benefits if your employment is terminated by the Company for cause or by you voluntarily. For these purposes, "cause" will be defined to mean (i) your violation of any material provision of the Inventions Agreement (as defined below) or this agreement, (ii) any act of theft or material dishonesty which is detrimental to the best interests of the Company or (iii) any illegal act which has a detrimental effect on the business or reputation of the company or its affiliates. You agree that the benefits stated in this paragraph shall be your sole and exclusive remedy for any damages or injury arising out of or related to any termination of your employment by the Company. This offer letter, the Company's standard agreement relating to proprietary rights between you and NOOSH (the "Inventions Agreement"), and the Plan and option agreement between you and NOOSH (relating to your option grant described above), will set forth the terms of your employment with the Company. This letter also supersedes any prior representations or agreements, whether written or oral. As required by law, this offer is subject to proof of your right to work in the United States. This letter may not be modified or amended, except by a written agreement signed by the Company and you. Robert, NOOSH is an exciting, dynamic, and growing company. We believe this position will provide you with an excellent opportunity for professional growth in a very unique culture. NOOSH feels the single most important factor in our success will be our people. We are pleased to extend this offer to join our company, and confident that the skills and background you bring to this position will be instrumental to NOOSH's success. Please review this offer letter, keep a copy of this document and return the signed original offer letter to me by January 10, 2000. As we've discussed, we look forward to your joining our team on or before January 14, 2000. Sincerely, s/ Ofer Ben-Shachar - ------------------- Ofer Ben-Shachar President and CEO NOOSH, INC. - ---------------------------------------------------------------- I agree to and accept this offer of employment with NOOSH, Inc. /s/ Robert Shaw 1/14/00 - --------------- ------- Robert Shaw Start Date 2. EX-23.1 11 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in this Amendment No. 4 to Registration Statement on Form S-1 of our report dated January 21, 2000 relating to the financial statements of Noosh, Inc., which appear in such Registration Statement. We also consent to the reference to us under the headings "Experts" in such Registration Statement. /s/ PricewaterhouseCoopers LLP San Jose, California May 15, 2000 -----END PRIVACY-ENHANCED MESSAGE-----