<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 8, 2000
REGISTRATION NO. 333-91627
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ORGANIC, INC.
(Exact name of registrant as specified in its charter)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 7379 94-3258989
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code No.) Identification No.)
</TABLE>
510 THIRD STREET
SAN FRANCISCO, CALIFORNIA 94107
(415) 365-5500
(Address and telephone number of principal executive offices and principal place
of business)
------------------------
JONATHAN NELSON
CHIEF EXECUTIVE OFFICER
ORGANIC, INC.
510 THIRD STREET
SAN FRANCISCO, CALIFORNIA 94107
(415) 365-5500
(Name, address, and telephone number of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
BRUCE ALAN MANN, ESQ. ISSAC J. VAUGHN, ESQ.
KRISTIAN E. WIGGERT, ESQ. RICHARD S. ARNOLD, JR., ESQ.
VALERIE A. VILLANUEVA, ESQ. ROBERT E. DAWSON, ESQ.
PAMELA TY, ESQ. EFFIE TOSHAV, ESQ.
MORRISON & FOERSTER LLP WILSON SONSINI GOODRICH & ROSATI, P.C.
425 MARKET STREET 650 PAGE MILL ROAD
SAN FRANCISCO, CALIFORNIA 94105 PALO ALTO, CALIFORNIA 94304
</TABLE>
------------------------
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 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 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.
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<PAGE> 2
THE INFORMATION IN THIS PRELIMINARY 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 FEBRUARY 8, 2000.
5,500,000 Shares
ORGANIC LOGO ORGANIC, INC.
Common Stock
----------------------
This is an initial public offering of shares of common stock of Organic,
Inc. All of the 5,500,000 shares of common stock are being sold by Organic.
Prior to this offering, there has been no public market for the common
stock. It is currently estimated that the initial public offering price per
share will be between $18.00 and $20.00. The common stock has been approved for
quotation on the Nasdaq National Market under the symbol "OGNC". After the
offering, affiliates will own 83.6% of our common stock, of which Organic
Holdings, Inc. will own 64.9% and Omnicom Group Inc. will own 18.7%.
See "Risk Factors" beginning on page 8 to read about risks you should
consider before buying shares of the common stock.
----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----------
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Organic....................... $ $
</TABLE>
To the extent that the underwriters sell more than 5,500,000 shares of
common stock, the underwriters have the option to purchase up to an additional
825,000 shares from Organic at the initial public offering price, less the
underwriting discount.
----------------------
The underwriters expect to deliver the shares on .
GOLDMAN, SACHS & CO. DONALDSON, LUFKIN & JENRETTE
THOMAS WEISEL PARTNERS LLC
----------------------
Prospectus dated
<PAGE> 3
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary may not contain all of the information that you should
consider before investing in the common stock. You should read the entire
prospectus carefully, including "Risk Factors" and our consolidated financial
statements before making an investment decision.
OUR BUSINESS
Organic is an international Internet professional services firm. We provide
our clients various services to build and operate online businesses. These
services include iBusiness, media, communications and logistics.
- iBusiness refers to our consulting, Web site design and software
engineering services through which we develop online business plans and
create Web sites;
- Media refers to our services through which we plan and manage online
advertising campaigns including electronic mail promotions and
affiliate program management;
- Communications refers to our public relations services through which we
plan and manage our clients' press and publication relationships as
well as product and company launches; and
- Logistics refers to our customer service and fulfillment consulting and
transaction management services through which we evaluate, assist and
manage for our clients' warehouse and customer call center facilities.
We believe that the Internet has shifted the balance of power from
businesses to customers and has created the first truly global marketplace. We
also believe the ultimate customer, whether a business or consumer, is the
central and most influential participant in a commercial relationship. We
believe the key to our business is our complete focus on our clients'
customers -- the customer-to-business market. We designed our services in
recognition of the challenges our clients face due to this shift.
Founded in 1993 as a sole proprietorship and incorporated in January 1995,
we have a history as an innovator in the Internet professional services
industry. We have designed and developed a number of Web sites that were the
first in their industry category. We have performed work for over 250 clients
and have gained significant experience by working with both major offline and
emerging Internet companies. We have organically grown our business, creating
one of the largest independent Internet professional services organizations with
nearly 700 employees in eight offices worldwide including Asia, Europe and Latin
America.
Through September 30, 1999, we have experienced significant losses, with a
total loss of $20.5 million since inception largely due to a cumulative stock
compensation charge of $12.3 million. We expect to continue to have operating
losses in the future, mostly due to increased operating expenses from stock
compensation and other stock-based charges and increased capital expenses
incurred to create a leadership position in the highly competitive market in
which we operate. In addition, we derive a significant portion of our revenues
from a limited number of clients. For example, DaimlerChrysler and Blockbuster
accounted for approximately 12% and 10% of our total revenues during the nine
months ended September 30, 1999.
OUR MARKET OPPORTUNITY
Few businesses have the internal capabilities to address the opportunities
and challenges of the Internet. The complexity of conducting business online,
the rapidly changing technological environment, the need to improve
time-to-market and the limited supply of technically proficient internal
personnel creates significant demand for Internet professional services.
According to a 1998 Dataquest survey, 83% of Fortune 1000 companies currently
purchase, or plan to purchase, Internet professional services solutions such as
those we provide. Furthermore, International Data Corporation estimates the
worldwide market for
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Internet professional services will grow from $7.8 billion in 1998 to $78.6
billion in 2003, which represents a compound annual growth rate of more than
58%.
OUR OFFICES
Our headquarters are located at 510 Third Street, San Francisco, California
94107 and our telephone number is (415) 365-5500. Our Web site is
www.organic.com. This reference to our Web site does not constitute
incorporation by reference of the information contained at our site.
CONTROL OF OUR COMPANY BY INSIDERS
Immediately following the offering, Organic Holdings, Inc. will own 64.9%
of our outstanding common stock, and Omnicom Group will own 18.7% of our
outstanding common stock. Jonathan Nelson, through his ownership in Organic
Holdings, Inc., after the offering will beneficially own 64.9% of our common
stock. Jonathan Nelson, through his ownership in Organic Holdings, Inc., will
have the power to control the election of our directors, the appointment of new
management and the approval of any other action requiring the approval of our
stockholders, including any amendments to our certificate of incorporation and
mergers or sales of any or all of our assets.
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THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Organic................... 5,500,000 shares
Common stock to be outstanding after
this offering................................... 78,857,200 shares
Use of proceeds................................... To expand our corporate infrastructure, reduce
outstanding debt of $4 million to Omnicom Group,
which will own 18.7% of our common stock after the
offering, and for general corporate purposes,
including working capital and capital
expenditures.
Nasdaq National Market symbol..................... "OGNC"
</TABLE>
------------------------
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of September 30, 1999 and does
not include the following:
- 15,712,932 shares of common stock issuable upon exercise of stock
options outstanding at a weighted average exercise price of $0.72 per
share granted under our 1997 stock option plan and 5,392,953 shares
available for future issuance under our 1997 stock option plan;
- 10,500,000 shares of common stock reserved for future issuance under
our 1999 long-term stock incentive plan; or
- 10,000,000 shares of common stock reserved for future issuance under
our 2000 employee stock purchase plan.
Please see "Capitalization" for a more complete description regarding the
outstanding shares of our common stock and options to purchase our common stock
and other related matters.
------------------------
Unless otherwise noted, all information in this prospectus assumes that:
- the underwriters will not exercise their option to purchase additional
shares of common stock to cover over-allotments, if any;
- each outstanding share of our preferred stock will convert into three
shares of common stock prior to the closing of this offering;
- our outstanding warrant issued to Omnicom Group for 2,249,076 shares of
common stock at $0.0033 per share, which expires on the closing of this
offering, will be exercised prior to or upon the closing of this
offering;
- we will complete a 3-for-1 split of our common stock before our
preferred stock converts into common stock and before this offering is
completed; and
- the public offering price will be $19.00 per share.
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<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
The following table is a summary of our consolidated statement of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations". The financial results for the nine months ended
September 30, 1998 are unaudited.
<TABLE>
<CAPTION>
JANUARY 31, FOR THE
1995 NINE MONTHS ENDED
(INCEPTION) TO YEARS ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ----------------------------------- -------------------------
1995 1996 1997 1998 1998 1999
-------------- ----------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues..................................... $ 1,895 $ 4,294 $ 6,780 $ 27,734 $ 20,744 $ 51,781
Operating expenses:
Professional services (exclusive of $0, $0,
$0, $183, $57 and $3,355 reported below
of stock-based compensation for the years
ended 1995, 1996, 1997 and 1998 and for
the nine months ended September 30, 1998
and 1999, respectively).................. 530 1,889 4,285 16,801 11,191 29,929
Selling, general and administrative
(exclusive of $14, $53, $87, $511, $234
and $8,102 reported below of stock-based
compensation for the years ended 1995,
1996, 1997 and 1998 and for the nine
months ended September 30, 1998 and 1999,
respectively)............................ 655 2,104 5,473 12,068 7,276 26,018
Stock compensation and other stock-based
charges.................................. 14 53 87 694 291 11,457
Total operating expenses................. 1,199 4,046 9,845 29,563 18,758 67,404
Operating income (loss)...................... 696 248 (3,065) (1,829) 1,986 (15,623)
Net income (loss)............................ $ 412 $ 237 $(1,785) $ (2,766) $ 1,146 $ (15,737)
Net income (loss) per share:(1)
Basic...................................... $ 45,768 $ 26,286 $ (668) $ (10.81) $ 8.41 $ (13.01)
Diluted.................................... $ 0.01 $ 0.00 $ (668) $ (10.81) $ 0.02 $ (13.01)
Weighted average common shares
outstanding:(1)
Basic...................................... 9 9 2,671 255,888 136,259 1,209,591
Diluted.................................... 65,025,009 65,025,009 2,671 255,888 65,424,719 1,209,591
Unaudited pro forma basic and diluted net
loss per share(2).......................... $ (0.04) $ (0.22)
Unaudited pro forma weighted average common
shares outstanding(2)...................... 65,280,888 70,389,036
</TABLE>
(1) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of the number of weighted average shares used in
computing per share data.
(2) Unaudited pro forma net loss per share has been computed by dividing net
loss by the pro forma weighted average number of shares outstanding. The pro
forma weighted average number of common shares outstanding includes the pro
forma effects of the automatic conversion on a weighted average basis of our
preferred stock, and the exercise of a warrant for 2,249,076 shares of
common stock as if such conversion had occurred on January 1, 1998 for the
year ended December 31, 1998 and on January 1, 1999 for the nine months
ended September 30, 1999, or at the date of original issuance, if later.
The following table provides a summary of our consolidated balance sheet as
of September 30, 1999. The pro forma column gives effect to the conversion of
all outstanding preferred stock and the exercise of a warrant for 2,249,076
shares of common stock upon the closing of the offering. The pro forma as
adjusted column reflects the receipt of the net proceeds from the sale in this
offering of 5,500,000 shares of common stock at an assumed initial public
offering price of $19.00 per share, after deducting the
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estimated underwriting discounts and commissions and estimated offering
expenses. See "Use of Proceeds" and "Capitalization".
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- ----------- --------------
(UNAUDITED)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 3,204 $ 3,211 $ 99,331
Working capital............................................. 3,108 3,115 99,235
Total assets................................................ 60,077 60,084 156,204
Long-term obligations, less current portion................. 538 538 538
Total stockholders' equity.................................. 31,342 31,349 127,469
</TABLE>
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<PAGE> 8
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks described below and the other information in this prospectus,
including our consolidated financial statements and the related notes, before
you purchase any shares of our common stock.
The information in this prospectus includes forward-looking statements
which involve risks and uncertainties. Our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of factors including those set forth under the "Risk Factors",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" sections and elsewhere in this prospectus.
RISKS RELATED TO ORGANIC
WE MAY BE UNABLE TO RECRUIT AND RETAIN THE TALENTED PERSONNEL WHO ARE ESSENTIAL
FOR COMPLETING CLIENT PROJECTS, WHICH COULD HARM OUR PERFORMANCE ON EXISTING
PROJECTS AND REDUCE OUR ABILITY TO OBTAIN NEW PROJECTS, AND THEREFORE REDUCE OUR
REVENUES AND PROFITS
Our business is labor intensive, and our success depends on identifying,
hiring, training and retaining professionals. All of our current employees and
senior managers are employed on an at-will basis. If a significant number of our
current employees, contractors or any of our senior managers leave, we may be
unable to complete or retain existing projects or bid for new projects of
similar scope and revenues.
Even if we retain our current employees and contractors, our management
must continually recruit talented professionals for our business to grow.
Competition for these employees is intense, particularly in the Internet and
high technology industries. As a result, we may be unable to successfully
attract, assimilate or retain qualified personnel. As of September 30, 1999, we
had 681 employees. We believe that we need to hire additional personnel to
support our business. The failure to retain or attract the necessary personnel
would reduce our capacity to handle new client engagements and therefore our
revenue growth, which would seriously harm our business, financial condition and
results of operations.
WE MAY BE UNABLE TO EFFECTIVELY MANAGE OUR RAPID GROWTH, WHICH COULD RESULT IN
OUR BEING UNABLE TO EFFECTIVELY CONTROL OUR COSTS AND IMPLEMENT OUR BUSINESS
STRATEGIES
We began expanding our operations both in the U.S. and internationally in
the past year. We believe further expansion will be required to address the
anticipated growth in our client base and market opportunities. We also believe
expansion into new geographic areas is important because we believe we can
better serve clients with resources and professionals located near the client.
Our current expansion has placed, and any future expansion may continue to
place, a significant strain on our managerial, operational, financial and other
resources.
If we are unable to manage growth effectively or if we experience
disruptions during our expansion, our expenses could increase more quickly than
revenues or our revenues might be reduced as a result of failure to adequately
service new client engagements, either of which would seriously harm our
business, financial condition and results of operations.
OUR REVENUES COULD BE SIGNIFICANTLY REDUCED BY THE LOSS OF A MAJOR CLIENT
We derive a significant portion of our revenues from a limited number of
clients. The loss of any major client, if not replaced, could dramatically
reduce our revenues. For example, for the nine months ended September 30, 1999,
our five largest clients accounted for 41% of our revenues. During this period,
DaimlerChrysler accounted for approximately 12% of our revenues and Blockbuster
accounted for approximately 10% of our revenues.
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OUR LACK OF LONG-TERM CONTRACTS WITH OUR CLIENTS REDUCES THE PREDICTABILITY OF
OUR REVENUES
We generally do not have long-term contracts with our clients and are
generally retained on an engagement-by-engagement basis. These engagements vary
in size and scope and cause our revenues to be difficult to predict. In
addition, generally our contract provides for termination by either party after
notice and a transition period of up to 180 days. Our operating expenses are
relatively fixed and cannot be reduced on short notice to compensate for
unanticipated variations in the number or size of engagements in progress.
Because we incur costs based on our expectations of revenue from future
engagements, our failure to predict our revenues accurately may cause the
increase in our expenses to substantially outpace our revenue growth, which
would seriously harm our financial condition and results of operations.
IF WE FAIL TO ACCURATELY PREDICT COSTS RELATED TO OUR FIXED-PRICE PROJECTS, WE
MAY LOSE MONEY
Most of our current projects are on a fixed-price, fixed-timeframe basis,
rather than on a time and materials basis. For the nine month period ended
September 30, 1999, management estimates revenues from fixed price projects were
approximately 75% of total revenues. Often, we fix the price or timeframe before
we finalize the design specifications. If we miscalculate the resources or time
necessary to complete these projects, to meet client expectations about the
services to be performed or to complete projects within budget, we could have
cost overruns and we could lose money on these projects, which could seriously
harm our operating results. The risk of miscalculations in pricing is high
because we work with complex technologies in compressed timeframes, and
therefore it can be difficult to judge the time and resources necessary to
complete a project.
WE MAY HAVE DIFFICULTY IN MANAGING OUR INTERNATIONAL EXPANSION AND OPERATIONS,
WHICH COULD HARM OUR BUSINESS AND FINANCIAL CONDITION
A key element of our strategy is to expand our business into international
markets. In addition to our U.S. operations, we have operations in Sao Paulo,
Brazil which opened in February 1999; London, England which opened in April
1999; Singapore which opened in September 1999; and Toronto, Canada which opened
in January 2000. Our international offices provide the same or similar services
as our U.S. offices, sometimes in conjunction with our U.S. offices. Our
management may have difficulty in managing our international operations because
of distance, as well as language and cultural differences. Our management cannot
assure you that they will be able to market and deliver our services
successfully in foreign markets.
Other risks related to our international operations include:
- success in finding and acquiring suitable strategic acquisition
candidates;
- difficulties arising from staffing and managing foreign operations;
- legal and regulatory requirements of different countries, including
different tax or labor laws;
- difficulties in using equity incentives for employees;
- international currency issues, including fluctuations in currency
exchange rates;
- restrictions on the import and export of sensitive technologies,
including data security and encryption technologies that we may wish to
use in solutions we develop for clients; and
- potential political or economic instability.
If any of these risks should materialize, our international and U.S.
businesses, financial conditions and results of operations could be harmed. Our
revenues derived from international operations were 4.6% of our total revenues
for the nine months ended September 30, 1999.
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OUR BILLABLE EMPLOYEES MAY BE UNDERUTILIZED IF CLIENTS DO NOT RETAIN OUR
SERVICES, WHICH COULD REDUCE OUR REVENUES AND MARGINS AND DAMAGE OUR POTENTIAL
PROFITABILITY
Many of our current or potential clients that are in the early stages of
development may be unable to continue to retain our services because of
financial constraints. In addition, some of our large clients who utilize our
services for multiple engagements or in stages may choose not to retain our
services for additional stages of a project or may choose to cancel or delay
additionally planned projects. Such cancellations or delays could result from
factors unrelated to our work product or the progress of the project, but could
be related to general business or financial condition of the client. If a client
defers, modifies or cancels an engagement or chooses not to retain our services
for additional phases of a project, we may be unable to rapidly redeploy
billable employees to other engagements, to minimize underutilization of those
employees. This underutilization could reduce our revenues and gross margins and
damage our potential profitability.
For example, if DaimlerChrysler, the sole client of our Detroit, Michigan
office at the present time, chooses not to retain our services, the billable
employees in our Detroit office could be underutilized.
HISTORICALLY WE HAVE GRANTED OPTIONS TO PURCHASE COMMON STOCK AT LOW EXERCISE
PRICES, WHICH WILL RESULT IN ADDITIONAL COMPENSATION EXPENSE IN THE FUTURE AND
REDUCE OUR REPORTED EARNINGS
Historically we have granted employees options to purchase our common stock
at exercise prices less than the offering price. During the nine months ended
September 30, 1999, we granted options to purchase 9,528,150 shares of common
stock to employees and non-employee directors with exercise prices ranging from
$1.1667 to $2.00 per share. We recognized stock-based compensation expense of
$11.0 million for the nine months ended September 30, 1999 relating to the
difference between the exercise price of the options and the offering price of
our common stock. Based on grants made through December 31, 1999, we will
recognize in the aggregate additional stock-based compensation expense of $85.5
million as the options vest over the next four years which will dilute any
future earnings that we may achieve.
WE ARE LIKELY TO EXPERIENCE SIGNIFICANT FLUCTUATIONS IN OUR QUARTERLY OPERATING
RESULTS WHICH MAY MAKE THE PRICE OF OUR COMMON STOCK DIFFICULT TO PREDICT
Our quarterly operating results have varied in the past and we expect that
our revenues and operating results will continue to fluctuate significantly from
quarter to quarter due to a variety of factors, many of which are outside of our
control. Some important factors affecting our revenues and operating results
from quarter to quarter, in order of their relative magnitude are:
- changes in our operating expenses as we expand operations;
- timing and execution of major client engagements;
- the timing and cost of advertising and related media;
- timing of employee hiring and utilization rates;
- increases in the number of independent contractors we must hire to meet
client needs, which would result in increased costs versus an
equivalent number of employees;
- our ability to develop, market and introduce new and significant online
business solutions on a timely basis;
- our success in obtaining suitable locations for expansion;
- client budgetary cycles;
- pricing changes in the industry;
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- demand for our Internet professional services;
- economic conditions in the Internet professional services market; and
- legal or regulatory developments regarding the Internet.
Our quarterly revenues and operating results are volatile and difficult to
predict. Our revenues for the first, second, third and fourth quarters of 1998
were 18.2%, 29.3%, 27.3% and 25.2%, respectively, of our total revenues for the
year ended December 31, 1998. Our revenues for the first, second and third
quarters of 1999 were 19.5%, 33.3% and 47.2%, respectively, of our total
revenues for the nine months ended September 30, 1999. It is likely that in some
future quarter or quarters our operating results will be below the expectations
of public market analysts or investors. In such event, the market price of our
common stock may decline significantly.
THE SEASONALITY OF OUR REVENUES COULD CAUSE OUR QUARTERLY OPERATING RESULTS TO
FALL BELOW THE EXPECTATIONS OF MARKET ANALYSTS AND INVESTORS, WHICH COULD HAVE A
NEGATIVE EFFECT ON THE MARKET PRICE OF OUR COMMON STOCK
In general, our clients concentrate their expenditures on our services in
the second and third quarters of the calendar year. We expect this concentration
of expenditures to result in fluctuations in our revenues between these quarters
and the first and fourth quarters of the calendar year. It is also possible that
in the future our revenues will decline from one quarter to the next as a result
of this concentration. If these fluctuations or declines are greater than market
analysts or investors expect, our stock price could decline.
WE HAVE A HISTORY OF LOSSES AND WE MAY EXPERIENCE LOSSES IN THE FUTURE, WHICH
COULD RESULT IN THE MARKET PRICE OF OUR COMMON STOCK DECLINING
We have experienced operating losses as well as net losses during fiscal
1997 and 1998 and the nine months ended September 30, 1999. For the fiscal years
1997, 1998 and the nine months ended September 30, 1999, our net losses were
$1.8 million, $2.8 million, and $15.7 million, respectively. For the fiscal
years 1997, 1998 and the nine months ended September 30, 1999, our net losses
were 26.3%, 10.0%, and 30.4% of total revenues, respectively. We may not be able
to sustain the revenue growth we have experienced or the levels of revenues
obtained previously. In addition, we intend to continue to invest heavily in
development of our infrastructure and recruiting. As a result, we will need to
generate significant revenues to achieve profitability. We cannot assure you
that we will achieve profitability in the future or, if we achieve
profitability, that we will be able to sustain it. If we do not achieve and
maintain profitability, the market price for our common stock may decline,
perhaps substantially.
WE RELY ON THE SERVICES OF OUR SENIOR MANAGEMENT AND OTHER KEY PERSONNEL, AND
THOSE PERSONS' KNOWLEDGE OF OUR BUSINESS AND TECHNICAL EXPERIENCE WOULD BE
DIFFICULT TO REPLACE
We believe that our success will depend on the continued employment of our
senior management team and other key personnel. Any of our officers or employees
can terminate his or her employment relationship at any time. Currently, our key
executives are Jonathan Nelson, our Chief Executive Officer and Chairman of the
Board, and Michael Hudes, our President. The loss of either of these key
employees or our inability to attract or retain other qualified employees could
harm our business, financial condition and results of operations. While we
currently maintain a key person life insurance policy for Jonathan Nelson, the
amount of this insurance may be inadequate to compensate us for his loss.
IF WE ARE NOT SUCCESSFUL IN OPENING AND GROWING NEW OFFICES, OUR FINANCIAL
RESULTS MAY SUFFER
An important component of our growth strategy is to open offices in new
geographic locations. Once we select a new location, we typically devote
substantial financial and
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management resources to properly launch and grow that office. We cannot assure
you that we will select appropriate markets to enter, open new offices
efficiently or manage new offices profitably. Our failure to accurately assess
these issues could negatively affect our business.
IF NEW SERVICES WE DEVELOP ARE NOT SUCCESSFUL, OUR BUSINESS COULD BE HARMED
Clients may not favorably receive any new services that we launch, which
could damage our reputation and brand name. We also cannot be certain that we
will generate satisfactory revenues from any expanded services to offset the
costs we incur to expand those services. Any expansion of our operations also
would require significant additional expenses, and these efforts may strain our
management, financial and operational resources.
WE WILL LIKELY CONTINUE TO FACE INTENSE COMPETITION WHICH COULD HARM OUR
OPERATING RESULTS
The market for Internet professional services is relatively new, intensely
competitive, quickly evolving and subject to rapid technological change. In
addition, our industry is experiencing rapid consolidation. Our current national
and international competitors include the following:
- other providers of Internet professional services, including
AGENCY.COM, iXL, Proxicom, Razorfish, Scient, USWeb/CKS and Viant;
- large information technology consulting services providers, including
Andersen Consulting, Cambridge Technology Partners, Cap Gemini, CSC,
EDS, IBM and Sapient;
- strategic consulting firms, including Bain & Company, Booz Allen &
Hamilton and Boston Consulting Group; and
- internal information technology, marketing and other departments of
current and potential clients.
We also anticipate facing additional competition from new entrants into our
markets due to the low barriers of entry.
Moreover, many of our competitors have longer operating histories, larger
client bases, greater brand recognition, greater financial, marketing, service,
support, technical, intellectual property and other resources than we do. As a
result, our competitors may be able to devote greater resources to marketing
campaigns, adopt more aggressive pricing policies or devote substantially more
resources to client and business development than us. This increased competition
may result in reduced operating margins, loss of market share and a diminished
brand. In addition, we may from time to time make pricing, service or marketing
decisions or acquisitions as a strategic response to changes in the competitive
environment. These actions could reduce our profits and harm our financial
condition and results of operation.
OUR INVESTMENTS IN CLIENT COMPANIES INVOLVE RISK, INCLUDING LOSING SOME OR ALL
OF OUR INVESTMENT, WHICH COULD HARM OUR OPERATING RESULTS
In exchange for our services we have from time to time made investments in
some of our clients. As of September 30, 1999, we have $1.2 million of such
investments accounted for in our balance sheet. We may continue to invest in our
clients as opportunities arise. In general, these equity investments are
structured so our clients pay for all of the costs related to their engagement
in cash and use equity incentives to compensate us for a portion of our profit
margin. The businesses of the clients in which we invest, however, are generally
unproven and involve substantial risk. If these clients' businesses do not
succeed, we could lose some or all of our investment, which would harm our
operating results and cause our profitability to be lower than it would have
been if we had taken payment for our entire engagement in cash.
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OUR BUSINESS OPPORTUNITIES MAY BE RESTRAINED BY CONFLICTS BETWEEN POTENTIAL
CLIENTS, WHICH COULD REDUCE OUR POTENTIAL PROFITABILITY
Conflicts between potential clients are inherent in aspects of our
business. We have in the past, and will likely in the future, be unable to
pursue potential opportunities because they would result in offering similar
services to direct competitors of existing clients. Additionally, we risk
alienating existing clients if we provide services to even indirect competitors.
Because these potential conflicts may jeopardize revenues generated from
existing clients and preclude access to business prospects, these conflicts
could cause our operating results to suffer. Furthermore, in limited
circumstances, we have agreed not to reuse some software code developed by us
for a client for competitors of the client and, in the case of DaimlerChrysler,
not to perform work for some competitors. These agreements reduce the number of
our prospective clients and the number of potential sources of revenues. In
addition, these agreements increase the significance of our client selection
process because many of our clients compete in markets where only a limited
number of players gain meaningful market share. If we agree not to perform
services for a particular client's competitors and our client fails to capture a
significant portion of its market, we are unlikely to receive future revenues in
that particular market.
WE FACE POTENTIAL LIABILITY FOR DEFECTS OR ERRORS IN THE SOLUTIONS WE DEVELOP,
THE OCCURRENCE OF WHICH COULD REDUCE OUR REVENUES
Many of the solutions we develop are critical to the operations of our
clients' businesses. Any defects or errors in these solutions could result in:
- delayed or lost client revenues;
- adverse client reaction to us;
- negative publicity;
- additional expenditures to correct the problem; or
- claims against us for negligence in performing our services or errors
in the software code provided by us.
Our standard contracts limit our damages arising from our negligent conduct
and for other potential liabilities in rendering our services. However, these
contractual provisions may not protect us from liability for damages. In
addition, large claims may not be adequately covered by insurance and may raise
our insurance costs.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS ADEQUATELY, OUR
REPUTATION COULD BE DAMAGED AND OUR COMPETITIVE POSITION COULD BE HARMED
We believe our trademarks, trade secrets and other proprietary rights in
our intellectual property, including our trademark name, Organic, software code
and Internet business processes we have developed, are important to our success
and competitive position. In particular, our trademarks help establish our brand
identity and, we believe, enhance the marketability of our services. Our trade
secrets, including the Internet business processes we have developed, are a
significant aspect of the services we provide. If we are unable to protect our
trademarks, trade secrets and other intellectual property against unauthorized
use by others, our reputation among existing and potential clients could be
damaged and our competitive position could be harmed. We generally enter into
confidentiality or license agreements with our employees and consultants, and
generally control access to and distribution of our documentation and other
proprietary intellectual property. Despite these precautions, our management
cannot ensure that these strategies will be adequate to deter misappropriation
of our proprietary intellectual property.
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Despite efforts to protect our intellectual property, we also face the
following risks:
- non-recognition or inadequate protection of proprietary rights;
- undetected misappropriation of proprietary intellectual property or
materials;
- development of similar technologies by competitors;
- unenforceability of non-competition agreements entered into by our
employees; and
- infringement claims, even if not meritorious, against us.
If any of these risks materialize, we could be required to pay significant
amounts to defend our rights and in some cases to indemnify our customers and as
a result the time of our senior management could be diverted.
WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS AND MAY REQUIRE
ADDITIONAL FINANCINGS
Our future liquidity and capital requirements will depend on numerous
factors, including:
- timing and amount of funds required for, or generated by, operations;
- success and duration of our expansion program, both domestically and
internationally; and
- unanticipated opportunities or difficulties.
We anticipate that the net proceeds of this proposed initial public
offering, together with our existing resources and expected cash flow from
operations, will be sufficient to meet our present growth strategies and capital
expenditure requirements for at least the next 12 months. If the offering is not
completed, or 12 months from the date of the offering have passed, and our cash
flows from operations and existing liquidity resources are insufficient to fund
our operations, we may need to obtain additional equity or debt financing. In
both of these cases, we may seek to raise additional funds through public or
private financings, strategic relationships or other arrangements. This
additional funding may not be available on terms acceptable to us, or at all. We
may have to sell stock at prices lower than those paid by existing stockholders,
which would result in dilution, or we may have to sell stock or bonds with
rights superior to rights of holders of common stock. Also, any debt financing
might involve restrictive covenants that would limit our operating flexibility.
Moreover, strategic arrangements may require us to relinquish our rights to
certain of our intellectual property. Finally, if adequate funds are not
available on acceptable terms, we may be unable to develop or enhance our
services, take advantage of future opportunities or respond to competitive
pressures.
RISKS RELATED TO OUR INDUSTRY
OUR SUCCESS DEPENDS ON OUR CLIENTS' WILLINGNESS TO ADOPT AN INTERNET BUSINESS
MODEL AND OUTSOURCE THEIR INTERNET NEEDS TO INTERNET PROFESSIONAL SERVICE
PROVIDERS
The market for our services will depend upon the adoption of Internet
professional services by companies. Critical issues concerning the use of the
Internet remain unresolved and may affect the use of these technologies to solve
business problems. Critical issues which influence a client to adopt an Internet
business model or expand its business on the Internet include:
- security of Internet technologies and client information;
- reliability of the technology and services;
- cost of development of an electronic business Web site; and
- administration and bandwidth of the Internet itself.
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The process of implementing or expanding a business on the Internet can be
difficult. The difficulty expected or experienced by clients in utilizing the
Internet and the expected costs of outsourcing compared to the expected costs of
internal development will affect their decisions on hiring and retaining
Internet professional services providers. Many entities may choose not to
outsource their Internet needs.
Additionally, some entities would have to make significant changes in their
current business practice to adapt to the Internet. Thus, even if the above
listed issues were resolved, businesses may choose not to adopt an Internet
business model.
IF WE ARE UNABLE TO KEEP UP WITH RAPID TECHNOLOGICAL AND OTHER CHANGES IN THE
INTERNET AND THE ELECTRONIC COMMERCE INDUSTRY, OUR BUSINESS WILL BE HARMED
To remain competitive, we must continue to enhance and improve the
responsiveness, functionality and features of our online business solutions. The
Internet and the electronic commerce industry are characterized by rapid
technological change, changes in user and client requirements and preferences,
frequent new product and service introductions embodying new technologies, and
the emergence of new industry standards and practices. The evolving nature of
the Internet could render our existing proprietary technology, as well as the
skills of our employees, obsolete. Our success will depend, in part, on our
ability to:
- effectively use leading technologies critical to our business;
- enhance our existing solutions;
- continue to develop new solutions and technology that address the
increasingly sophisticated and varied needs of our current and
prospective clients and their customers; and
- influence and respond to technological advances, emerging industry and
regulatory standards and practices and competitive service offerings.
Our ability to remain technologically competitive may require substantial
expenditures and lead-time. If we are unable to adapt in a timely manner to
changing market conditions or customer requirements, our business, financial
condition and results of operations could be seriously harmed.
OUR REVENUES COULD BE HARMED IF GROWTH IN THE USE OF THE INTERNET OR GROWTH OF
ELECTRONIC COMMERCE DOES NOT OCCUR
Our future success is substantially dependent upon continued growth in the
use of the Internet, particularly growth in commerce over the Internet. However,
consumer use of the Internet for commerce may not grow as quickly as projected.
If the number of users on the Internet does not increase or commerce over the
Internet does not become more accepted and widespread, demand for our services
may decrease and, as a result, our revenues would decline. Capacity constraints
caused by growth in Internet usage may, unless resolved, impede further growth
in Internet use. Other factors that may affect Internet usage or electronic
commerce adoption include:
- actual or perceived lack of security of information;
- lack of access and ease of use;
- congestion of Internet traffic;
- inconsistent quality or availability of Internet or customer service;
- possible outages due to difficulties or other damage to the Internet;
- excessive governmental regulation;
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- uncertainty regarding intellectual property ownership;
- costs associated with the obsolescence of existing infrastructure; and
- level of consumer satisfaction with electronic commerce experiences.
Further, the adoption of the Internet for commerce and communications,
particularly by those individuals and companies that have historically relied
upon alternative means of commerce and communications, generally requires the
understanding and acceptance of a new way of conducting business and exchanging
information. In particular, companies that have already invested substantial
resources in other means of conducting commerce and exchanging information may
be particularly reluctant or slow to adopt a new Internet-based strategy that
may make their existing personnel and infrastructure obsolete. If the necessary
infrastructure, products, services or facilities are not developed, or if the
Internet does not become a viable commercial medium, our business, results of
operations and financial condition could be harmed.
THE APPLICATION OR ADOPTION OF GOVERNMENT REGULATIONS AND THE EXISTENCE OF LEGAL
UNCERTAINTIES MAY HARM OUR BUSINESS
We, and our clients, are subject to regulations applicable to businesses
generally, and laws and regulations directly applicable to electronic commerce.
However, laws and regulations may be modified or adopted with respect to the
Internet relating to user privacy, pricing, content, copyrights, distribution
and characteristics and quality of products and services. The modification or
adoption of any additional laws or regulations may decrease the expansion of the
Internet, which could increase our cost of doing business or decrease demand for
our online business solutions.
In addition, the applicability of existing laws to the Internet remains
uncertain with regard to many issues including property ownership, export of
encryption technology, sales tax, libel and personal privacy. Any new
legislation or regulation in these areas could seriously harm our business,
financial condition and results of operations.
Finally, the application of laws and regulations of jurisdictions where we
plan to offer our Internet services could also harm our business. Other states
or foreign countries may:
- require us to qualify to do business as a foreign corporation in each
state or foreign country, or otherwise subject us to taxes and
penalties;
- attempt to regulate our Internet solutions;
- prosecute us for unintentional violations of their laws; or
- modify or enact new laws in the near future.
YEAR 2000 RISKS MAY HARM OUR BUSINESS BECAUSE OF DAMAGE TO OUR INTERNAL SYSTEMS
OR LIABILITY ARISING FROM NON-YEAR 2000 COMPLIANT SOLUTIONS THAT WE PROVIDE
Many currently installed computer systems and software products are coded
to accept only two-digit entries in the date code field. As a result, many of
these systems could fail or malfunction because they may not be able to
distinguish between 20th century dates and 21st century dates. Accordingly, many
companies, including our clients, potential customers, vendors and strategic
partners, may need to upgrade their systems or change their software to comply
with applicable year 2000 requirements. We currently rely on the following
computer systems to conduct our business:
- programming software;
- graphics design software;
- accounting and billing software;
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- word processing, spreadsheet, project management and presentation
software;
- communications software; and
- network, server and personal computing hardware.
Because we and our clients are extremely dependent upon the proper
functioning of our and their computer systems, a failure of our or their systems
to correctly recognize dates beyond December 31, 1999 could materially disrupt
our operations, which could harm our business, financial condition and results
of operations.
We monitored our internal systems and the work that we have done for
clients during December 1999 and through the first days of January 2000. The few
issues noted were dealt with at the time they arose. We believe there were no
significant disruptions of either client or internal operations. We continue to
monitor both our internal systems and client work.
We have warranted in the past, and expect to continue to warrant, to
clients that our work will be year 2000 compliant. In these cases, we do not
warrant the compliance of third party software; rather, we warrant only that
software created by us will be year 2000 compliant. However, even absent a
specific year 2000 warranty, there is a risk that clients for whom we have
created or implemented software will attempt to hold us liable for any damages
that result in connection with year 2000 problems. Furthermore, if the clients
change or update their software, then their change or upgrade may not interact
properly with our previously established services.
Additionally, our failure to make our online business solutions year 2000
compliant could result in a decrease in sales of our services, or an increase in
the allocation of resources to address year 2000 problems of our clients without
additional revenue for such invested resources. Also, year 2000 issues may
affect purchasing patterns of our clients or potential clients as they may
expend significant resources to correct their current systems. These
expenditures may result in reduced funds available to use our services, which
could harm our business, operating results and financial condition.
RISKS RELATED TO THIS OFFERING
BECAUSE THERE IS NO PRIOR MARKET FOR OUR COMMON STOCK, THE PRICE OF OUR COMMON
STOCK MAY BE VOLATILE, WHICH MAY LEAD TO LOSSES BY INVESTORS AND SECURITIES
LITIGATION
There is currently no public market for our common stock. The initial
public offering price of our stock will be determined through negotiations
between us and representatives of the underwriters, and may not be
representative of the price that will prevail in the open market. You may not be
able to resell your shares at or above the initial public offering price. See
"Underwriting" for a description of factors evaluated in determining the initial
public offering price and of the arrangement between us and the underwriters.
We have filed an application for the quotation of the common stock on the
Nasdaq National Market. We do not know the extent to which investor interest
will lead to the development of a trading market or how liquid it may be. The
market price for the common stock could be highly volatile and could be subject
to wide fluctuations in response to the following factors:
- quarterly variations in our operating results;
- investor perception about us and the Internet professional services
market in general;
- announcements of technological innovations that affect the demand for
our services;
- announcements of new products or services by us or our competitors; and
- changes in financial estimates for us or our industry by securities
analysts.
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The common stock of many Internet professional services companies has
experienced significant fluctuations in trading price and volume. It is possible
that our common stock will experience similar fluctuations. Often these
fluctuations have been unrelated to operating performance. In the past,
following periods of market volatility, security holders of these companies have
instituted class action litigation. If we were involved in such litigation, we
could incur substantial costs and diversion of management's attention, which
could harm our business, results of operations and financial condition. Declines
in the trading price of our common stock could also harm employee morale and
retention, our access to capital and other aspects of our business.
ORGANIC HOLDINGS AND OMNICOM GROUP OWN ENOUGH OF OUR SHARES TO CONTROL US WHICH
WILL LIMIT YOUR ABILITY TO INFLUENCE CORPORATE MATTERS, AND COULD PREVENT
MERGERS OR OTHER BUSINESS COMBINATIONS THAT YOU MAY BELIEVE ARE DESIRABLE
Immediately following the offering, the stockholders set forth below
collectively will own approximately 83.6% of the outstanding shares of our
common stock and will own individually the percentage set forth opposite their
respective names:
<TABLE>
<S> <C>
Organic Holdings, Inc. ..................................... 64.9%
Omnicom Group Inc. ......................................... 18.7%
</TABLE>
Jonathan Nelson, through his majority ownership in Organic Holdings, Inc.,
after the offering will beneficially own 64.9% of our common stock.
Jonathan Nelson, through his majority ownership in Organic Holdings, Inc.,
will have the power to control the election of our directors, the appointment of
new management and the approval of any other action requiring the approval of
our stockholders, including any amendments to our certificate of incorporation
and mergers or sales of any or all of our assets. In addition, without the
consent of Organic Holdings, Inc., we could be prevented from entering into
transactions that could be beneficial to us. Conversely, third parties could be
discouraged from making a tender offer or bid to acquire us at a price per share
that is above the price at which the common stock will trade on the Nasdaq
National Market.
THE SUBSTANTIAL NUMBER OF SHARES THAT WILL BE ELIGIBLE FOR SALE IN THE NEAR
FUTURE MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK
Sales of a substantial number of shares of common stock in the public
market following this offering could cause the market price for our common stock
to decline. Upon completion of the offering, there will be 78,857,200
outstanding shares of common stock, of which 5,500,000 shares sold in the
offering plus any shares issued upon exercise of the underwriters' over-
allotment option, if any, will be immediately available for sale. The remaining
73,357,200 shares will be available for sale 180 days after the date of this
prospectus, as a result of the expiration of lock-up agreements with the
underwriters that prohibit the sale of these shares, subject to restrictions set
forth in Rules 144 and 701 under the Securities Act of 1933. However, the
underwriters might waive these lock-up restrictions prior to the end of the 180
day period. In addition, the underwriters could waive lock-up restrictions on
the sale of newly issued shares by us. The waiver of restrictions is solely at
the discretion of the underwriters and no specific criteria determine the timing
of a waiver or the number of shares released from lock-up. The shares subject to
lock-up may therefore be available for sale at any time.
OUR RECENT INCREASE IN THE NUMBER OF EMPLOYEES MAY DECREASE FUTURE EARNINGS
For the nine months ended September 30, 1999, we paid to our employees a
significant amount of compensation, which included stock-based compensation
expense of $11.0 million. This increase in employee compensation resulted from
our efforts to rapidly expand our
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operations. Based on grants made through December 31, 1999, we will recognize in
aggregate additional stock-based compensation expense of $85.5 million as the
options vest over the next four years. This substantial investment in our
employees will dilute any future earnings that we may achieve.
WE HAVE BROAD DISCRETION IN HOW WE USE THE PROCEEDS OF THIS OFFERING AND WE MAY
NOT USE THE PROCEEDS EFFECTIVELY
Our management could spend most of the proceeds from this offering in ways
with which you may not agree or that do not yield a favorable return. Our
primary purpose in conducting this offering is to create a public market for our
common stock. As of the date of this prospectus, we intend to use a majority of
the proceeds from this offering for working capital and general corporate
purposes. Because of the number and variability of factors that determine our
use of the net proceeds from this offering, we cannot assure you that you will
agree with our use of the proceeds. Pending their use, we intend to invest the
net proceeds of this offering in short-term, investment-grade, interest-bearing
investments or accounts.
INVESTORS IN THIS OFFERING WILL SUFFER IMMEDIATE DILUTION AND DISPARITY IN STOCK
PURCHASE PRICE
The initial public offering price is expected to be substantially higher
than the pro forma net tangible book value per share of the outstanding common
stock immediately after the offering. Accordingly, purchasers of common stock in
this offering will experience immediate and substantial dilution of
approximately $17.61 in net tangible book value per share, or approximately
92.3% of the assumed offering price of $19.00 per share. In contrast,
stockholders as of September 30, 1999 paid an average price of $0.28 per share.
Investors will incur additional dilution upon the exercise of outstanding stock
options. Furthermore, any additional equity financing may be dilutive to
stockholders and debt financing, if available, may involve restrictive
covenants, which may limit our operating flexibility with respect to business
matters. If additional funds are raised through the issuance of equity
securities, the percentage ownership of our stockholders will be reduced.
Stockholders may experience additional dilution in net book value per share and
newly-issued equity securities may have rights, preferences and privileges
senior to those of the holders of our common stock.
PROVISIONS OF OUR CERTIFICATE OF INCORPORATION, BYLAWS AND SOME OF OUR CONTRACTS
COULD DETER POTENTIAL ACQUISITION BIDS THAT A STOCKHOLDER MAY BELIEVE ARE
DESIRABLE, AND THE MARKET PRICE OF OUR COMMON STOCK MAY BE LOWER AS A RESULT
Upon completion of this offering, our board of directors will have the
authority to issue up to 25,000,000 shares of preferred stock. The board of
directors can fix the price, rights, preferences, privileges and restrictions of
the preferred stock without any further vote or action by our stockholders. The
issuance of shares of preferred stock may delay or prevent a change in control
transaction. As a result, the market price of our common stock and the voting
and other rights of our stockholders may be adversely affected. The issuance of
preferred stock may result in the loss of voting control to other stockholders.
We have no current plans to issue any shares of preferred stock.
Other provisions of our certificate of incorporation and bylaws may
discourage, delay or prevent a merger or acquisition that a stockholder may
consider favorable. These provisions include:
- authorizing our board of directors to issue additional preferred stock;
- limiting the persons who can call special meetings of stockholders;
- prohibiting stockholder actions by written consent;
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- creating a classified board of directors under which our directors will
serve staggered three-year terms;
- establishing advance notice requirements for nominations for election
to the board of directors or for proposing matters that can be acted on
by stockholders at stockholder meetings;
- limiting the ability of stockholders to remove directors without cause;
and
- adopting a stockholder rights plan, which would cause substantial
dilution to any person or group that attempts to acquire our company on
terms not approved in advance by our board of directors.
Further, some of our existing contracts may require a notice of assignment.
Since our contracts generally provide for termination by either party after
notice and a transition period of up to 180 days, a client may choose to
terminate our contract if the client does not like the assignment.
OUR STOCKHOLDER RIGHTS PLAN MAY DISCOURAGE ACQUISITION BIDS
Our board of directors has adopted a stockholder rights plan. Under this
plan, we have issued Series C preferred stock purchase rights as a dividend on
our outstanding common stock and on any other common stock issued after adoption
of the plan. This will include the shares issued by us in this offering. These
rights are not currently exercisable. They would become exercisable, however, if
someone acquired or offered to acquire specified amounts of common stock, in
which case holders of our common stock other than such acquiror or offeror would
have the right to acquire our common stock, or the common stock of a surviving
company, at one half the market price of the stock. Exercise of this right would
substantially dilute a person or group seeking to acquire us without approval of
our board of directors, making such an acquisition prohibitively expensive.
DELAWARE LAW MAY INHIBIT POTENTIAL ACQUISITION BIDS; THIS MAY ADVERSELY AFFECT
THE MARKET PRICE OF OUR COMMON STOCK, DISCOURAGE MERGER OFFERS AND PREVENT
CHANGES IN OUR MANAGEMENT
Section 203 of the Delaware General Corporation Law may inhibit potential
acquisition bids for our company. Upon completion of this offering, we will be
subject to the antitakeover provision of the Delaware General Corporation Law,
which regulates corporate acquisitions. See "Description of Capital Stock" for a
discussion of how Section 203 operates. Under Delaware law, a corporation may
opt out of the antitakeover provisions. We do not intend to opt out of the
antitakeover provisions of Delaware Law.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that are subject to a
number of risks and uncertainties, many of which are beyond our control, which
may include statements about our:
- plans for and ability to hire additional personnel;
- business strategy;
- expectations for future expansion both in the U.S. and internationally;
- anticipated growth in revenue from our various service offerings;
- uncertainty regarding our future operating results;
- anticipated sources of funds, including the proceeds from this
offering, to fund our operations for the 12 months following the date
of this prospectus; and
- plans, objectives, expectations and intentions contained in this
prospectus that are not historical facts.
All statements, other than statements of historical facts included in this
prospectus, regarding our strategy, future operations, financial position,
estimated revenues or losses, projected costs, prospects, plans and objectives
of management are forward-looking statements. When used in this prospectus, the
words "will", "believe", "anticipate", "intend", "estimate", "expect", "project"
and similar expressions are intended to identify forward-looking statements,
although not all forward-looking statements contain such identifying words. All
forward-looking statements speak only as of the date of this prospectus. You
should not place undue reliance on these forward-looking statements. Although we
believe that our plans, intentions and expectations reflected in or suggested by
the forward-looking statements we make in this prospectus are reasonable, we can
give no assurance that these plans, intentions or expectations will be achieved.
We disclose important factors that could cause our actual results to differ
materially from our expectations under "Risk Factors" and elsewhere in this
prospectus. These cautionary statements qualify all forward-looking statements
attributable to us or persons acting on our behalf.
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USE OF PROCEEDS
We estimate that we will receive net proceeds of approximately $96.1
million from the sale of the shares of common stock in this offering
(approximately $110.7 million if the underwriters' over-allotment option is
exercised in full), assuming an initial public offering price of $19.00 per
share and after deducting the estimated underwriting discounts and offering
expenses.
While we cannot predict with certainty how the proceeds of this offering
will be used, we currently intend to use them as follows:
- to expand our corporate infrastructure of approximately $30 million;
- to repay $4.0 million of outstanding debt as of September 30, 1999
under our revolving credit facility with Omnicom Group, which will own
24.7% of our common stock after the offering; and
- for general corporate purposes, including capital expenditures and
working capital of approximately $62.1 million.
We may also use a portion of the net proceeds to acquire or invest in
complementary businesses or obtain the right to use complementary technologies.
However, we have no current commitments or agreements with respect to any of
these types of investments. Pending these uses, the net proceeds of this
offering will be invested in short-term, investment-grade, interest-bearing
investments or accounts.
Our revolving credit facility with Omnicom Group bears interest at a rate
equal to the lender's commercial paper rate, based on the published 30 day
commercial lending rate in The Wall Street Journal at the last day of the month,
plus 3.0% on borrowings up to $30.0 million until the closing of this offering.
After the offering, we may borrow up to $15.0 million at the lender's commercial
paper rate plus 1.25% through September 30, 2002. The interest rate on our
borrowings under this facility as of September 30, 1999 was 6.4%.
The amounts we actually spend for the above purposes may vary significantly
and will depend on a number of factors, including our future revenues and cash
generated by operations and the other factors described under "Risk Factors".
Therefore, we will have broad discretion in the way we use the net proceeds. See
"Risk Factors -- We have broad discretion in how we use the proceeds of this
offering and we may not use the proceeds effectively" for more information.
DIVIDEND POLICY
We have never declared or paid any cash dividends on shares of our common
stock. We intend to retain any future earnings for future growth and do not
anticipate paying any cash dividends in the foreseeable future.
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CAPITALIZATION
The following table sets forth our:
- actual capitalization at September 30, 1999;
- pro forma capitalization after giving effect to the conversion of all
outstanding shares of preferred stock into 69,489,000 shares of common
stock and the exercise of a warrant for 2,249,076 shares of common
stock immediately prior to the completion of this offering; and
- pro forma as adjusted capitalization, which gives effect to the sale in
this offering of 5,500,000 shares of common stock at an assumed initial
public offering price of $19.00 per share and after deducting the
estimated underwriting discounts and commissions and estimated offering
expenses.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
--------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Long-term obligations, less current
portion................................... $ 538 $ 538 $ 538
-------- -------- --------
Stockholders' equity:
Convertible Preferred stock, $.0001 par
value; 25,000,000 shares authorized,
23,163,000 shares issued and outstanding,
actual; no shares issued or outstanding,
pro forma and pro forma as adjusted....... 2 -- --
Common stock, $.0001 par value; 200,000,000
shares authorized, 1,619,124 shares issued
and outstanding, actual; 73,357,200 shares
issued and outstanding, pro forma;
78,857,200 shares issued and outstanding,
pro forma as adjusted..................... -- 7 8
Additional paid-in capital.................. 89,816 89,818 185,937
Deferred compensation....................... (37,993) (37,993) (37,993)
Accumulated deficit......................... (20,469) (20,469) (20,469)
Accumulated other comprehensive income...... (14) (14) (14)
-------- -------- --------
Total stockholders' equity............. 31,342 31,349 127,469
-------- -------- --------
Total capitalization................. $ 31,880 $ 31,887 $128,007
======== ======== ========
</TABLE>
This table excludes the following shares:
- 15,712,932 shares of common stock issuable upon exercise of stock
options outstanding as of September 30, 1999 at a weighted average
exercise price of $0.72 per share;
- 5,392,953 shares of common stock available for future grant or issuance
under our 1997 stock option plan as of September 30, 1999;
- 10,500,000 shares of common stock available for future grant or
issuance under our 1999 long-term stock incentive plan; and
- 10,000,000 shares of common stock available for future issuance under
our 2000 employee stock purchase plan.
23
<PAGE> 24
DILUTION
Our pro forma net tangible book value as of September 30, 1999, giving
effect to the conversion of all shares of preferred stock outstanding as of
September 30, 1999 into common stock and the exercise of a warrant for 2,249,076
shares of common stock upon completion of this offering, was approximately $13.7
million, or approximately $0.19 per share of common stock. Pro forma net
tangible book value per share represents the amount of tangible assets less
total liabilities, divided by 73,357,200 shares of common stock.
Dilution in net tangible book value per share represents the difference
between the amount per share paid by purchasers of shares of our common stock in
this offering and the pro forma net tangible book value per share of our common
stock immediately after the offering. After giving effect to our sale of
5,500,000 shares of common stock in this offering at an assumed initial public
offering price of $19.00 per share and after deduction of the estimated
underwriting discounts and commissions and estimated offering expenses payable
by us, our pro forma net tangible book value as of September 30, 1999 would have
been approximately $109.8 million, or $1.39 per share. This represents an
immediate increase in pro forma net tangible book value of $1.20 per share to
existing stockholders and an immediate dilution in pro forma net tangible book
value of $17.61 per share to purchasers of common stock in this offering.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $19.00
Pro forma net tangible book value per share before
offering............................................... $0.19
Increase per share attributable to new investors.......... 1.20
-----
Pro forma net tangible book value per share after the
offering.................................................. 1.39
------
Net tangible book value dilution per share to new
investors................................................. $17.61
======
</TABLE>
The following table sets forth on a pro forma basis as of September 30,
1999, after giving effect to the conversion of all outstanding shares of
preferred stock into common stock and the exercise of a warrant for 2,249,076
shares of common stock upon completion of this offering, the total consideration
paid and the average price per share paid by our existing stockholders and by
new investors, before deducting estimated underwriting discounts and commissions
and estimated offering expenses payable by us, at an assumed initial public
offering price of $19.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders............. 73,357,200 93.0% $ 20,849,281 16.6% $ 0.28
New investors..................... 5,500,000 7.0 $104,500,000 83.4 19.00
---------- ----- ------------ -----
Total................... 78,857,200 100.0% $125,349,281 100.0%
========== ===== ============ =====
</TABLE>
This table assumes that no options were exercised after September 30, 1999.
As of September 30, 1999, there were outstanding options to purchase a total of
15,712,932 shares of common stock at a weighted average exercise price of
approximately $0.72 per share; 5,392,953 shares of common stock reserved for
issuance under our 1997 stock option plan; 10,500,000 shares of common stock
available for issuance under our 1999 long-term stock incentive plan; and
10,000,000 shares of common stock available for issuance under our 2000 employee
stock purchase plan.
24
<PAGE> 25
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and the
notes to the consolidated financial statements, appearing elsewhere in this
prospectus. The selected balance sheet data as of December 31, 1997 and 1998 and
September 30, 1999 and the statement of operations data for the years ended
December 31, 1996, 1997 and 1998 and for the nine months ended September 30,
1999 are derived from our consolidated financial statements included elsewhere
in this prospectus, which have been audited by PricewaterhouseCoopers LLP,
independent accountants. The selected balance sheet data as of December 31, 1995
and 1996 and the statement of operations data for the period ended December 31,
1995 are derived from our consolidated financial statements that are not
included in this prospectus, which have been audited by PricewaterhouseCoopers
LLP. The statement of operations data for the nine months ended September 30,
1998 are derived from our unaudited consolidated financial statements included
elsewhere in this prospectus, which, in the opinion of our management, include
all adjustments necessary to fairly present the results of our operations for
such interim period. The historical results presented below are not necessarily
indicative of future results.
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 31, 1995 FOR THE NINE MONTHS
(INCEPTION) YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
THROUGH ----------------------------------- -------------------------
DECEMBER 31, 1995 1996 1997 1998 1998 1999
----------------- ----------- ------- ----------- ----------- -----------
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues............................... $ 1,895 $ 4,294 $ 6,780 $ 27,734 $ 20,744 $ 51,781
Operating expenses:
Professional services (exclusive of
$0, $0, $0, $183, $57, and $3,355
reported below of stock-based
compensation for the years ended
1995, 1996, 1997, 1998 and for the
nine months ended September 30,
1998 and 1999, respectively)....... 530 1,889 4,285 16,801 11,191 29,929
Selling, general and administrative
(exclusive of $14, $53, $87, $511,
$234, and $8,102 reported below of
stock-based compensation for the
years ended 1995, 1996, 1997, 1998
and for the nine months ended
September 30, 1998 and 1999,
respectively)...................... 655 2,104 5,473 12,068 7,276 26,018
Stock compensation and other stock-
based charges...................... 14 53 87 694 291 11,457
----------- ----------- ------- ----------- ----------- -----------
Total operating expenses........... 1,199 4,046 9,845 29,563 18,758 67,404
----------- ----------- ------- ----------- ----------- -----------
Operating income (loss)................ 696 248 (3,065) (1,829) 1,986 (15,623)
Minority interest in operations of
consolidated subsidiary.............. -- (106) -- -- -- (39)
Interest and other income, net......... -- 4 283 73 73 (11)
----------- ----------- ------- ----------- ----------- -----------
Net income (loss) before taxes..... 696 146 (2,782) (1,756) 2,059 (15,673)
Income tax expense (benefit)........... 284 (91) (997) 1,010 913 64
----------- ----------- ------- ----------- ----------- -----------
Net income (loss).................. $ 412 $ 237 $(1,785) $ (2,766) $ 1,146 $ (15,737)
=========== =========== ======= =========== =========== ===========
Net income (loss) per share:
Basic................................ $ 45,768 $ 26,286 $ (668) $ (10.81) $ 8.41 $ (13.01)
=========== =========== ======= =========== =========== ===========
Diluted.............................. $ 0.01 $ 0.00 $ (668) $ (10.81) $ 0.02 $ (13.01)
=========== =========== ======= =========== =========== ===========
Weighted average common shares
outstanding:
Basic................................ 9 9 2,671 255,888 136,259 1,209,591
=========== =========== ======= =========== =========== ===========
Diluted.............................. 65,025,009 65,025,009 2,671 255,888 65,424,719 1,209,591
=========== =========== ======= =========== =========== ===========
Unaudited pro forma basic and diluted
net loss per share................... $ (0.04) $ (0.22)
=========== ===========
Weighted average common shares
outstanding -- unaudited pro forma
basic and diluted.................... 65,280,888 70,389,036
=========== ===========
</TABLE>
25
<PAGE> 26
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------ SEPTEMBER 30,
1995 1996 1997 1998 1999
---- ------ ------- ------- -------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $ 66 $ 243 $ 6,135 $ 2,067 $ 3,204
Working capital............................................. 36 307 8,290 339 3,108
Total assets................................................ 979 1,677 11,426 17,605 60,077
Long-term obligations, less current portion................. -- -- 604 661 538
Total stockholders' equity.................................. 338 923 9,225 7,190 31,342
</TABLE>
Unaudited pro forma basic and diluted net loss per share for the year ended
December 31, 1998 and nine months ended September 30, 1999 has been computed
using the weighted average number of common shares outstanding, adjusted to
include the pro forma effects of the conversion of Series A and Series B
convertible preferred stock and the exercise of a warrant for shares of common
stock as if such conversion had occurred on January 1, 1998 for the year ended
December 31, 1998 and on January 1, 1999 for the nine months ended September 30,
1999, or at the date of original issuance, if later.
26
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our consolidated
financial position and the results of our operations in conjunction with
"Selected Consolidated Financial Data" and our consolidated financial statements
and the notes to those financial statements appearing elsewhere in this
prospectus. This discussion and analysis contains forward-looking statements
that involve risks, uncertainties and assumptions. 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.
OVERVIEW
Since our founding in 1993 as a sole proprietorship and incorporation in
January 1995, we have been an innovator in the Internet professional services
industry. We focus on providing services to our clients including consulting,
Web site design and software engineering implementation services; media
services; communication public relations services; and logistics customer
service and fulfillment consulting services. These services provide our clients
with various opportunities to manage and grow their customer and business
relationships as the Internet continues to evolve. We have performed work for
over 250 major offline and online companies to establish or enhance brands and
have introduced several new service lines to serve particular client needs.
We expect that our revenues will be driven primarily by the number, size
and scope of our client engagements and by our professional services headcount,
all of which have been increasing. For the nine months ended September 30, 1999,
five clients accounted for approximately 41% of our revenues, with
DaimlerChrysler and Blockbuster accounting for approximately 12% and 10%,
respectively, of our revenues. Revenues from any given client will vary from
period to period; however, we expect that significant customer concentration
will continue for the foreseeable future as we have had customer concentration
in the past. To the extent that any significant client reduces its use of our
services or terminates its relationship with us, our revenues could decline
substantially. As a result, the loss of any significant client could negatively
impact our business and results of operations.
Substantially all of our revenues are derived from providing professional
services on a fixed-fee, retainer or time and materials basis. For the nine
month period ended September 30, 1999 we estimate revenues from fixed-fee,
retainer or time and materials basis engagements were approximately 75%, 20% and
5%, respectively, of total revenues. Media and public relations services are
typically provided under long-term relationships. Customer service and
fulfillment consulting services are typically provided under contracts that
range from a few months to over a year. We generally enter into a service
agreement with our clients, which establishes the legal and general business
terms of our relationship. Our engagements vary depending on what type of
services we provide and they range from a few months to more than a year.
Generally our client relationships span several years. Revenues from fixed-fee
contracts are generally recognized as services are rendered using the
percentage-of-completion method of accounting in accordance with Statement of
Position ("SOP") 81-1 based on the percentage of costs incurred to date to total
estimated project costs. We periodically evaluate the actual status of each
project to ensure that the estimated cost to complete each contract and
provisions for estimated losses, if necessary, are made in the period in which
such losses are determined. To date, such losses have not been significant.
Revenues pursuant to retainer contracts are generally recognized over the life
of the contract on a straight-line basis. Revenues pursuant to time and
materials contracts are generally recognized as services are provided. Revenues
exclude reimbursable expenses charged to clients.
27
<PAGE> 28
Our professional services expenses include the direct costs associated with
employees and contractors in billable departments. These expenses include
salaries, bonuses, benefits, vacation, travel and entertainment expenses.
Historically our professional services expenses have increased and we expect
these expenses to continue to increase in the foreseeable future.
Our selling, general and administrative expenses primarily consist of our
investment in our corporate support services, our employee recruitment, training
and retention programs and our research and development and knowledge management
initiatives. Our selling, general and administrative expenses also include the
direct costs associated with employees and contractors in non-billable
departments, real estate costs and other investments in our corporate support
services.
Our net losses primarily consist of the increase in operating expenses
mostly due to stock compensation and other stock-based charges. Management
foresees future net losses mostly due to increased operating expenses from stock
compensation and other stock-based charges and increased capital expenses
incurred to create a leadership position in the highly competitive market in
which we operate.
Our clients tend to spend proportionally more during the second and third
quarters. We expect this seasonality to continue in the near term future.
Therefore, our financial results may fluctuate from quarter to quarter.
Fluctuations also can result from such factors as the number, size and scope of
our engagements, the efficiency with which we utilize our employees and the
ability to complete our projects within the estimated timeframe.
We are rapidly growing to accommodate the increasing need for Internet
professional service offerings and to better serve our existing clients in their
various domestic and international locations. For the nine months ended
September 30, 1999, we opened permanent offices in Detroit, Sao Paulo, London
and Singapore. Our international operations collectively accounted for 4.6% of
total revenues for the nine months ended September 30, 1999. Our headcount
increased from 278 as of December 31, 1998 to 681 as of September 30, 1999. We
intend to open additional offices in the U.S. and internationally during 2000
and accordingly, we expect associated headcount and infrastructure costs to
continue to increase. Personnel-related compensation represents a high
percentage of our operating expenses and accordingly, if revenues do not
increase at a rate proportionally equal to expenses, our business, consolidated
financial position or results of operations could be harmed.
On January 29, 1997, Organic Online, Inc., an S corporation that contained
our operating assets and liabilities at the time, was renamed Organic Holdings,
Inc. and we were formed as a subsidiary C corporation under the name Organic
Online, Inc. This reorganization was performed in connection with an investment
by Omnicom Group in our business, which, if made directly in Organic Holdings
Inc., would have resulted in the termination of its S corporation status because
S corporations may not have owners that are corporate entities. The stockholders
of Organic Holdings, Inc. consist of a group of individuals including Jonathan
Nelson, the majority owner. We exchanged 18,323,712 shares of Series A
convertible preferred stock and nine shares of common stock for substantially
all of the assets and liabilities of Organic Holdings, Inc., having a book value
of approximately $0.7 million. Certain non-operating assets and liabilities
(approximately $0.3 million, net) were retained by Organic Holdings, Inc. and
have been excluded from the accompanying financial statements. We also issued a
total of 3,351,288 shares of our Series A preferred stock to Omnicom Group for
an aggregate purchase price of approximately $10.0 million. Because this
reorganization did not result in a change in control, there was no change in the
basis of accounting at the time of the reorganization. We changed our name from
Organic Online, Inc. to Organic, Inc. on January 28, 1999.
28
<PAGE> 29
RESULTS OF OPERATIONS
The following table presents our consolidated statement of operations as a
percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- -------------------
1996 1997 1998 1998 1999
----- ----- ----- ----------- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Professional services.................... 44.0 63.2 60.6 53.9 57.8
Selling, general and administrative...... 49.0 80.7 43.5 35.1 50.3
Stock compensation and other stock-based
charges............................... 1.2 1.3 2.5 1.4 22.1
----- ----- ----- ----- -----
Total operating expenses.............. 94.2 145.2 106.6 90.4 130.2
----- ----- ----- ----- -----
Operating income (loss).................... 5.8 (45.2) (6.6) 9.6 (30.2)
Minority interest in operations of
consolidated subsidiary.................. (2.5) 0.0 0.0 0.0 (0.1)
Interest and other income, net............. 0.1 4.2 0.3 0.3 0.0
----- ----- ----- ----- -----
Net income (loss) before taxes........ 3.4 (41.0) (6.3) 9.9 (30.3)
Income tax expense (benefit)............... (2.1) (14.7) 3.7 4.4 0.1
----- ----- ----- ----- -----
Net income (loss)..................... 5.5% (26.3)% (10.0)% 5.5% (30.4)%
===== ===== ===== ===== =====
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
REVENUES
Our revenues were $20.7 million for the nine months ended September 30,
1998, compared to $51.8 million for the nine months ended September 30, 1999.
This increase of 150% was primarily due to increases in the number of clients
and size of our engagements. Our increased sales and marketing efforts resulted
in the addition of several large accounts such as DaimlerChrysler and
Blockbuster, which represented 12% and 10% of our total revenues, respectively,
for the nine months ended September 30, 1999. Our revenues from international
operations for the nine months ended September 30, 1999 was 4.6% of total
revenues. To a lesser extent, existing clients also increased the breadth and
scope of their engagements with us, attributable, in part, to the additions of
marketing and public relations services and customer service and fulfillment
consulting and transaction management services to our service offerings.
PROFESSIONAL SERVICES
Our professional services expenses were $11.2 million for the nine months
ended September 30, 1998, compared to $29.9 million for the nine months ended
September 30, 1999. This increase of 167% was primarily attributable to an
increase of 324 in professional services personnel, increased costs associated
with contractors and employee-related benefit accruals in 1999. The increase in
professional services headcount resulted from opening new offices in Detroit,
London, Sao Paulo and Singapore and continued growth in our San Francisco,
Chicago and New York offices and an increase in the size and number of our
projects. As a percentage of revenues, professional services expenses were 54%
and 58% for the nine months ended September 30, 1998 and 1999, respectively.
This increase was primarily due to increased costs in San Francisco engineering
contractors.
29
<PAGE> 30
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses were $7.3 million for the nine
months ended September 30, 1998, compared to $26.0 million for the nine months
ended September 30, 1999. This increase of 258% was primarily due to the
increase of 116 in non-billable personnel to support our growth, increased costs
associated with the addition of new offices and improvements in our office
infrastructure and increased consulting fees associated with several internal
software implementations. As a percentage of revenues, selling, general and
administrative expenses were 35% and 50% for the nine months ended September 30,
1998 and 1999, respectively. This increase reflects costs associated with hiring
of executive management and personnel to fill open positions within the
corporate services departments. We anticipate significant additional investment
throughout 2000.
STOCK COMPENSATION AND OTHER STOCK-BASED CHARGES
Stock compensation and other stock-based charges consist of non-cash
compensation expenses arising from stock option grants and the issuance of
detachable warrants to Omnicom Group. For the nine months ended September 30,
1998 and 1999, we recorded aggregate deferred stock-based compensation of $1.1
million and $49.0 million, respectively. This increase was primarily due to an
increase in the number of option grants associated with increased hiring of
personnel. Additional deferred stock-based compensation will be recorded for
future grants made prior to our initial public offering. Stock-based
compensation expense is being amortized over the vesting period of the related
options, generally four years, and is expected to be significant through 2004.
For the nine months ended September 30, 1998 and 1999, we recognized stock-based
compensation expense of $0.3 million and $11.0 million, respectively. See Note 7
of Notes to Financial Statements.
In connection with the $30.0 million revolving credit facility obtained on
August 27, 1999, we issued a warrant that entitles Omnicom Group to purchase
2,249,076 shares of common stock, and recorded a deferred bank facility charge
of approximately $18.2 million. This amount is being amortized on a
straight-line basis over 36 months, the term of the credit facility. For the
nine months ended September 30, 1999, we recognized bank facility expense of
$0.5 million. We expect to terminate the revolving credit facility in the first
quarter of year 2000, which will result in the recognition of a one-time bank
facility expense charge of $16.1 million.
INCOME TAX EXPENSE
Income tax expense for the nine months ended September 30, 1998 reflects
the establishment of a valuation allowance against our net deferred tax asset
recorded in the year ended December 31, 1997.
NET INCOME (LOSS)
Net income was $1.1 million for the nine months ended September 30, 1998,
compared to the net loss of $15.7 million for the nine months ended September
30, 1999. The decrease of $16.9 million was primarily due to the increase in
operating expenses of $48.6 million from the 1998 period to the 1999 period. In
particular, stock compensation and other stock-based charges increased $11.2
million during this period.
COMPARISON OF FISCAL YEARS 1996, 1997 AND 1998
REVENUES
Our revenues increased 58% from $4.3 million for the year ended December
31, 1996 to $6.8 million for the year ended December 31, 1997. This increase was
primarily due to increases in the number of new clients in New York. Our
revenues increased 309% from $6.8 million for the
30
<PAGE> 31
year ended December 31, 1997 to $27.7 million for the year ended December 31,
1998. This increase was primarily due to increases in the number of clients and
the average size of our engagements as a result of increased sales and marketing
efforts. This increase also was attributable, in part, to additional revenues
generated from our new office in Chicago and from our new marketing and public
relations service lines.
PROFESSIONAL SERVICES
Our professional services expenses increased 127% from $1.9 million for the
year ended December 31, 1996 to $4.3 million for the year ended December 31,
1997. As a percentage of revenues, professional services expenses were 44%, 63%
and 61% for the years ended December 31, 1996, 1997 and 1998, respectively. The
increase from 1996 to 1997 was attributable to an increase of 36 in professional
services personnel resulting from opening our New York office and continued
growth in our San Francisco office to accommodate revenue growth. Our
professional services expenses increased 292% from $4.3 million for the year
ended December 31, 1997 to $16.8 million for the year ended December 31, 1998,
primarily due to an increase of 132 in our professional services personnel
resulting from opening our Chicago office and continued growth in our San
Francisco and New York locations in order to accommodate the increase in the
volume of our projects.
SELLING, GENERAL AND ADMINISTRATIVE
Our selling, general and administrative expenses increased 160% from $2.1
million for the year ended December 31, 1996 to $5.5 million for the year ended
December 31, 1997. As a percentage of revenues, selling, general and
administrative expenses were 49%, 81% and 44% for the years ended December 31,
1996, 1997 and 1998, respectively. This increase from 1996 to 1997 reflected an
increase of 15 in non-billable personnel and increased costs associated with
opening our New York office and improving our office infrastructure to
accommodate growth. Our selling, general and administrative expenses increased
121% from $5.5 million for the year ended December 31, 1997 to $12.1 million for
the year ended December 31, 1998. This increase reflected the increase of 39 in
non-billable personnel, costs associated with opening our Chicago office and
improving our office infrastructure to accommodate growth, and consulting fees
associated with several internal software implementations.
STOCK COMPENSATION AND OTHER STOCK-BASED CHARGES
Stock compensation and other stock-based charges consist of non-cash
compensation expenses arising from stock option grants. For the years ended
December 31, 1996, 1997 and 1998, we recorded aggregate deferred stock-based
compensation of $0.4 million, $0, and $2.3 million, respectively. This increase
was primarily due to an increase in the number of option grants associated with
increased hiring of personnel. During the years ended December 31, 1996, 1997
and 1998, we recognized stock-based compensation expense of $0.1 million, $0.1
million and $0.7 million, respectively.
NET INCOME (LOSS)
Net income was $0.2 million for the year ended December 31, 1996, compared
to the net loss of $1.8 million for the year ended December 31, 1997. The
decrease of $2.0 million was due to a $5.8 million increase in operating
expenses, partially offset by a $2.5 million increase in revenues and the
establishment of a valuation allowance in 1997 against our deferred tax asset.
Our net loss increased from $1.8 million for the year ended December 31, 1997 to
$2.8 million for the year ended December 31, 1998. The increase in the net loss
of $1.0 million from 1997 to 1998 is primarily due to the establishment of a
valuation allowance against our net deferred tax asset recorded in 1997.
31
<PAGE> 32
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth a summary of our unaudited quarterly
financial information for the periods indicated. We derived this data from our
unaudited interim financial statements and, in our opinion, included all
adjustments necessary to fairly present the results of operations for the
periods shown. These unaudited quarterly results should be read in conjunction
with our consolidated financial statements and notes to those financial
statements included elsewhere in this prospectus. The operating results in any
quarter are not necessarily indicative of the results that may be expected for
any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1998 1998 1998 1998 1999 1999 1999
--------- -------- --------- -------- --------- -------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................... $5,051 $8,114 $ 7,579 $ 6,990 $10,087 $17,267 $ 24,427
Operating expenses:
Professional
services(1)........... 2,172 3,562 5,457 5,610 5,568 8,263 16,098
Selling, general and
administrative(1)..... 1,677 2,688 2,911 4,792 4,649 8,325 13,044
Stock compensation and
other stock-based
charges............... 16 79 196 403 723 2,176 8,558
------ ------ ------- ------- ------- ------- --------
Total operating
expenses............ 3,865 6,329 8,564 10,805 10,940 18,764 37,700
------ ------ ------- ------- ------- ------- --------
Operating income (loss).... 1,186 1,785 (985) (3,815) (853) (1,497) (13,273)
Minority interest in
operations of
consolidated
subsidiary............... -- -- -- -- 23 4 (66)
Other income (expense),
net...................... 44 35 (6) -- (21) 36 (26)
------ ------ ------- ------- ------- ------- --------
Net income (loss)
before taxes........ 1,230 1,820 (991) (3,815) (851) (1,457) (13,365)
Income tax expense
(benefit)................ 12 100 801 97 15 23 26
------ ------ ------- ------- ------- ------- --------
Net income (loss)..... $1,218 $1,720 $(1,792) $(3,912) $ (866) $(1,480) $(13,391)
====== ====== ======= ======= ======= ======= ========
</TABLE>
- -------------------------
(1) Amounts are exclusive of reported below stock-based compensation for the
quarters ended:
<TABLE>
<CAPTION>
PROFESSIONAL SELLING, GENERAL AND
SERVICES ADMINISTRATIVE
------------ --------------------
<S> <C> <C>
March 31, 1998...................................... $ 8 $ 8
June 30, 1998....................................... 19 60
Sept. 30, 1998...................................... 30 166
Dec. 31, 1998....................................... 126 277
March 31, 1999...................................... 301 422
June 30, 1999....................................... 800 1,376
Sept. 30, 1999...................................... 2,254 6,304
</TABLE>
COMPARISON OF QUARTERS ENDED JUNE 30, 1998, SEPTEMBER 30, 1998 AND DECEMBER
31, 1998
Revenues decreased 7% from $8.1 million in the second quarter of 1998 to
$7.6 million in the third quarter of 1998 due to a $1.3 million decrease in
revenues from our San Francisco office related to reduced work on Formica, Nike
and Nortel. This decrease was partially offset by
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<PAGE> 33
an increase in revenues from our New York office during the third quarter.
Revenues decreased 8% from $7.6 million in the third quarter of 1998 to $7.0
million in the fourth quarter of 1998 due to most projects in the San Francisco
office being completed by early fourth quarter that was partially offset by
continued revenue growth from our New York office during the fourth quarter.
Selling, general and administrative expenses increased 8% from $2.7 million
in the second quarter of 1998 to $2.9 million in the third quarter of 1998 due
to the opening of our Chicago office and increased infrastructure costs incurred
to support our New York office. Selling, general and administrative expenses
increased 65% from $2.9 million in the third quarter of 1998 to $4.8 million in
the fourth quarter of 1998 due to hiring of non-billable personnel, especially
middle level managers, to support our growth.
COMPARISON OF QUARTERS ENDED MARCH 31, 1999, JUNE 30, 1999 AND SEPTEMBER 30,
1999
Revenues increased 71% from $10.1 million in the first quarter of 1999 to
$17.3 million in the second quarter of 1999 due to the addition of the
DaimlerChrysler account and the opening of our Detroit office. In addition, we
recognized revenues from several of our large clients, including Blockbuster,
Global Sports Interactive and Tommy Hilfiger. Revenues increased 41% from $17.3
million in the second quarter of 1999 to $24.4 million in the third quarter of
1999 as a result of the addition of our London office as well as the seasonality
of our business.
Selling, general and administrative expenses increased 79% from $4.6
million in the first quarter of 1999 to $8.3 million in the second quarter of
1999 due to continued hiring of corporate support services personnel and the
hiring of our Chief Information Officer and the promotion of our Chief
Technology Officer. Selling, general and administrative expenses increased 57%
from $8.3 million in the second quarter of 1999 to $13.0 million in the third
quarter of 1999 as we hired a Chief Financial Officer, Chief Legal and
Administrative Officer, Chief Operating Officer and Vice President of Human
Resources. We hired additional corporate personnel for a number of our support
services including human resources, finance, information services and legal.
INCOME TAX EXPENSE
Income tax expense in the year ended December 31, 1998 reflect the
establishment of a valuation allowance against our net deferred tax asset
recorded in the year ended December 31, 1997 due to projections that the Company
would incur a net operating loss for 1998 and the foreseeable future. In 1999,
taxes reflect actual payments made for state, local and foreign taxes.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through
operating cash flows, the issuance of Series A and Series B convertible
preferred stock and bank borrowings.
OPERATING CASH FLOWS
Cash and cash equivalents increased from $1.7 million as of December 31,
1998 to $3.2 million as of September 30, 1999. Net cash used in operating
activities of $0.2 million and net cash used in investing activities of $4.0
million for the year ended December 31, 1998 was offset with borrowings of $1.9
million during 1998 from the second credit agreement for the purchase of
equipment and the $10.0 million investment by Omnicom Group in 1997 as described
below. Net cash used in operating activities of $4.7 million and net cash used
in investing activities of $5.8 million for the nine months ended September 30,
1999 was more than offset by the issuance of Series B convertible preferred
stock and borrowings under the revolving credit facility as described below.
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<PAGE> 34
Capital expenditures were as follows (in millions):
<TABLE>
<S> <C>
For the years ended December 31,
1996...................................................... $0.5
1997...................................................... 1.1
1998...................................................... 5.6
Nine months ended September 30, 1999........................ 6.2
</TABLE>
Capital expenditures were used primarily for computer equipment, computer
software, other internal software implementations and leasehold improvements.
PREFERRED STOCK FINANCING
We raised $10.0 million through the issuance of 3,351,288 shares of Series
A convertible preferred stock to Omnicom Group in January 1997. In February
1999, we issued 1,488,000 shares of Series B convertible preferred stock to
Omnicom Group for net cash proceeds of $7.7 million plus the settlement of a
$3.0 million short-term bridge loan that was obtained in January 1999. For the
nine months ended September 30, 1999, we paid $38,000 in interest on this loan.
BANK AND OTHER BORROWINGS
In 1996, we had two credit agreements with a commercial lending
institution, Silicon Valley Bank, that allowed us to borrow against the purchase
of equipment and against our accounts receivable. As of September 30, 1999 we
had no amounts outstanding against these agreements. On August 27, 1999, we
entered into a revolving credit facility with Omnicom Group to be used for
working capital purposes. This credit facility allows us to borrow up to $30.0
million at the lender's commercial paper rate, based on the published 30 day
commercial lending rate in The Wall Street Journal at the last day of the month,
plus 3.0% until the closing of our proposed initial public offering. Thereafter,
we may borrow up to $15.0 million at the lender's commercial paper rate plus
1.25% through September 30, 2002. The revolving credit facility expires on
September 30, 2002. This credit facility contains some restrictions and any
borrowings pursuant to this agreement require us to comply with financial
covenants and are collateralized by some of our investments. These financial
covenants include minimum revenue targets and limitations on capital equipment
purchases. As of September 30, 1999, we had approximately $4.7 million in
outstanding debt, of which $4.0 million relates to this revolving credit
facility. For the nine months ended September 30, 1999, we accrued $12,000 in
interest on this loan. See Note 5 of Notes to Financial Statements.
We anticipate that the net proceeds of this proposed initial public
offering, together with our existing liquidity sources and expected cash flows
from operations, if any, will be sufficient to meet our present growth
strategies and related working capital and capital expenditure requirements for
at least the next 12 months. If the offering is not completed, or 12 months from
the date of the offering have passed, and our cash flows from operations and
existing liquidity resources are insufficient to fund our operations, we may
need to obtain additional equity or debt financing. We cannot be certain that
such additional financing will be readily available or can be obtained, if at
all, on terms, which are favorable to us. In the near term, we do not have any
current plans for further equity offerings, including a follow-on public
offering in the event of an increase in our share price.
RECENT OPERATING RESULTS
We recently completed our 1999 fiscal year. Based on information that we
have to date we have our preliminary unaudited consolidated operating results.
Our revenues increased by 272% from $7.0 million for the quarter ended December
31, 1998 to $26.0 million for the quarter ended
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December 31, 1999. Our net loss for the quarter ended December 31, 1998 was $3.9
million compared to $20.7 million for the quarter ended December 31, 1999. The
increase in net loss of $16.8 million or 431% was primarily due to an increase
in stock compensation and other stock-based charges from $0.4 million for the
quarter ended December 31, 1998 to $15.5 million for the same period in 1999.
Our revenues increased by 181% from $27.7 million for the year ended
December 31, 1998 to $77.8 million for the year ended December 31, 1999. Our net
loss for the year ended December 31, 1998 was $2.8 million compared to $36.5
million for the year ended December 31, 1999. The increase in net loss of $33.7
million or 1,204% was primarily due to an increase in stock compensation and
other stock-based charges from $0.7 million for the year ended December 31, 1998
to $27.0 million for the year ended December 31, 1999.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
To date, we have not utilized derivative financial instruments or
derivative commodity instruments. We invest our cash in money market funds,
which are subject to minimal credit and market risk. We believe the market risks
associated with these financial instruments are immaterial.
FOREIGN CURRENCY RISK
We face foreign currency risks primarily as a result of the revenues we
receive from services delivered through our foreign subsidiaries. These
subsidiaries incur most of their expenses in the local currency. Accordingly,
our foreign subsidiaries use the local currency as their functional currency.
We are also exposed to foreign exchange rate fluctuations, primarily with
respect to the British Pound and the Euro, as the financial results of foreign
subsidiaries are translated into United States dollars for consolidation. As
exchange rates vary, these results, when translated, may vary from expectations
and adversely impact net income (loss) and overall profitability. The effect of
foreign exchange rate fluctuation for the nine months ended September 30, 1999
was not material.
YEAR 2000 READINESS
The year 2000 problem exists because many computer systems and software
products use only the last two digits to refer to a year. This convention could
affect date-sensitive calculations that treat "00" as the year 1900, rather than
as the year 2000. As a result, computer systems and software used by many
companies, including us, our vendors, our clients and our potential clients, may
need to be upgraded to comply with such year 2000 requirements.
We have identified all of the major systems and software products and have
sought external and internal resources to renovate and test the systems and
products. Although we believe that our principal internal systems are year 2000
compliant, some of our systems are not yet certified. We have received year 2000
compliance statements from the suppliers of some of our principal internal
systems, and have sought similar statements from other vendors. In particular,
we have received a compliance statement from Peoplesoft, the supplier of our
enterprise resource planning software. Our review of our year 2000 readiness
programs, including our assessment of our internal systems as well as those of
third parties with whom we have material interactions, has been completed.
The year 2000 problem may also affect software or code that we develop or
third party software products that are incorporated into the services that we
provide for our clients. Although our clients license software directly from
third parties, we generally discuss year 2000
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<PAGE> 36
issues with these suppliers and sometimes perform internal testing on their
products, but we do not guarantee that the software licensed by these suppliers
is year 2000 compliant. Any failure on our part to provide year 2000 compliant
services to our clients could result in a re-deployment of internal resources to
remediate these problems and, as a result, hamper our ability to work or take on
additional projects. This may result in financial loss, harm to our reputation
and potential liability to others and could harm our business, financial
condition and results of operations. In addition, our current or potential
clients may incur significant expenses to achieve year 2000 compliance. If our
clients are not year 2000 compliant, they may experience material costs to
remedy problems, or they may face litigation costs. In either case, year 2000
issues could reduce or eliminate the budgets that current or potential clients
could have for purchases of our services. As a result, our business, financial
condition and results of operations could be materially affected.
We have funded our year 2000 plan from operating cash flows and have not
separately accounted for these costs in the past. At this time, we cannot
estimate the costs associated with remediating the year 2000 problem. However,
we may experience unexpected problems associated with year 2000 compliance that
may adversely affect our costs and as a result, our results of operations. In
addition, we expect that additional costs will be incurred for personnel to
monitor the results of the year 2000 project to ensure client satisfaction. For
example, we may experience material problems and costs with year 2000 compliance
that could seriously harm our business, financial condition and results of
operations, including:
- operational disruptions and inefficiencies for us, our clients and
vendors that provide us with internal systems that will divert
management's time and attention and financial and human resources from
ordinary business activities;
- business disputes and claims for pricing adjustments by our clients,
some of which could result in litigation or contract termination; and
- harm to our reputation to the extent that our client deliverables
experience errors or interruptions of service.
The principal risks associated with the year 2000 problem can be grouped
into three categories:
- failure to successfully ready our operations for the next century;
- disruption of our operations due to operational failures of our
significant vendors; and
- inability of our customers to adequately prepare their operations for
the next century.
The only risk largely under our control is preparing our internal
operations for the year 2000.
Operational failures among our significant vendors could jeopardize our
operations, but the seriousness of this risk depends on the nature and duration
of the failures. Despite our continuing assessment, we are unable, however, to
estimate the likelihood of significant disruptions during the year 2000 among
our basic infrastructure suppliers.
We monitored our internal systems and the work that we have done for
clients during December 1999 and through the first days of January 2000. The few
issues noted were dealt with at the time they arose. We believe there were no
significant disruptions of either client or internal operations. We continue to
monitor both our internal systems and client work.
Operational failures during the year 2000 among our current or potential
clients could result in losses of expected or potential revenue streams. If our
clients are not year 2000 compliant, they may experience material costs to
remedy problems, or they may face litigation costs. In either case, year 2000
issues could reduce or eliminate the budgets that current or potential clients
could have for purchases of our services. The year 2000 problem may also affect
software or code that we have developed or third party software products that
are incorporated
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<PAGE> 37
into the services that we provide for our clients. Any failure on our part to
provide year 2000 compliant services to our clients could result in a
re-deployment of internal resources to remediate these problems and, as a
result, hamper our ability to work or take on additional projects. As a result,
these failures could have a material adverse effect on our business, financial
condition and results of operations.
In view of this unknown probability of occurrence and impact on operations,
we consider the need to cease normal operations for an indefinite period of time
while we attempt to respond to our significant vendors' year 2000 problems to be
our worst case scenario.
We have developed year 2000 contingency plans to address situations that
did or may continue to result if we were unable to successfully ready our
operations for the next century. We cannot, however, guarantee that our
contingency plans will shield operations from potential failures that may occur.
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<PAGE> 38
BUSINESS
OVERVIEW
Organic is an international Internet professional services firm. We believe
that the Internet has shifted the balance of power from businesses to customers
and has created the first truly global market. We believe that the ultimate
customer, whether a business or consumer, is the central and most influential
participant in a commercial relationship. We believe that the key to our
business, is our complete focus on our clients' customers -- the
customer-to-business market. We designed our services in recognition of the
challenges our clients face due to this shift. Our services are:
- iBusiness refers to our consulting, Web site design and software
engineering services through which we develop online business plans and
create Web sites;
- Media refers to our services through which we plan and manage online
advertising campaigns including electronic mail promotions and
affiliate program management;
- Communications refers to our public relations services through which we
plan and manage our clients' press and publication relationships as
well as product and company launches; and
- Logistics refers to our customer service and fulfillment consulting
services through which we evaluate, assist and manage for our clients'
warehouse and customer call center facilities.
Clients that use our services tend to spend proportionally more during the
second and third quarters due to their requirements that their projects be
completed in time for commercial holidays.
Founded in 1993 as a sole proprietorship and incorporated in January 1995,
we have a history as an innovator in the Internet professional services
industry. We have designed and developed a number of Web sites that were the
first in their industry category. We have performed work for over 250 clients
and have gained significant experience by working with both major offline and
emerging Internet companies. We have organically grown our business, creating
one of the largest independent Internet professional services organizations with
nearly 700 employees in eight offices worldwide. By expanding our business into
Asia, Europe, Latin America, and Canada, we believe we have established the
presence to deliver our services globally.
INDUSTRY BACKGROUND
CUSTOMER EMPOWERMENT
The Internet has created an environment for businesses where the
competition is only "one click away". Online customers can reach a large number
of vendors and can compare pricing and product information in order to obtain
higher levels of service and lower prices. These factors have increased the
importance of customer satisfaction and loyalty as well as the quality of the
online experience, forcing many businesses to redefine the way they build and
maintain relationships with their customers.
As the number of Internet users and the value of transactions over the
Internet grow, businesses are becoming increasingly aware of the importance of
focusing their online strategies on attracting, servicing and retaining
customers. International Data Corporation estimates that the number of Internet
users worldwide will grow from 142 million in 1998 to 502 million by 2003.
International Data Corporation also estimates that electronic commerce, which
totaled approximately $50 billion in 1998, is expected to increase to
approximately $1.3 trillion by 2003.
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<PAGE> 39
This growth in both the number of users and the value of electronic commerce
creates significant opportunities and challenges for businesses on the Internet.
BUSINESSES FACE SIGNIFICANT OPPORTUNITIES AND CHALLENGES ONLINE
Increased competition for customers forces both traditional and online
businesses to create or redefine themselves as the global reach of the Internet
removes traditional geographic boundaries. Companies that have never had direct
relationships with their end customers can establish them, in some cases
bypassing traditional intermediaries. In addition, companies now have the
opportunity to form lasting relationships directly with new customers. Some
companies must also integrate their online and offline business strategies. In
addressing these changes, businesses face significant opportunities and
challenges including:
CREATING STRATEGIES TO ADDRESS ONLINE OPPORTUNITIES. Developing strategies
that can be quickly evaluated and implemented is a critical factor in improving
the time-to-market for online businesses. Companies that can quickly identify
opportunities, target and service diverse groups of customers, define and
develop sustainable online business models, and evaluate their online success
may improve their performance.
CREATING A POSITIVE CUSTOMER EXPERIENCE. Companies must create online
businesses that deliver consistent, engaging and responsive customer
experiences. If done effectively, the foundation for a long-term relationship
between the business and the customer is formed.
CONNECTING WITH POTENTIAL CUSTOMERS ONLINE. Understanding how to
communicate with online customers requires businesses to develop new knowledge
and skill sets. These skill sets include identifying, targeting, attracting and
retaining customers.
MANAGING INTERNET TECHNOLOGY. Internet technology differs from traditional
information technology. Therefore, many businesses do not possess the technical
skills required to design, build and maintain a functional and reliable online
business. Internet technology requires the expertise to select and build
platforms that can handle high volumes of transactions.
EFFECTIVELY UTILIZING CUSTOMER DATA. Businesses can collect, store and
analyze significant quantities of customer information. This information if
properly analyzed can be used to improve the total customer experience and
increase loyalty.
MEETING CUSTOMER SERVICE AND FULFILLMENT EXPECTATIONS. Often overlooked,
customer service and fulfillment services can create long-lasting, positive or
negative, impressions with customers. Businesses that can distinguish themselves
by offering quality customer service and fulfillment will maximize the value of
their customer relationships.
To capitalize on these opportunities and overcome these challenges, online
businesses need to focus on delivering a positive customer experience.
Increasingly, this requires the ability to draw upon significant experience in a
variety of disciplines, manage large multi-disciplinary teams and successfully
deliver an integrated solution worldwide.
DEMAND FOR INTERNET PROFESSIONAL SERVICES
Few businesses have the internal capabilities to address the opportunities
and challenges of the Internet. The complexity of conducting business online,
the rapidly changing technological environment, the need to improve
time-to-market and the limited supply of technically proficient internal
personnel creates significant demand for Internet professional services.
According to a 1998 Dataquest survey, 83% of Fortune 1000 companies currently
purchase, or plan to purchase, Internet professional services solutions such as
those we provide. Furthermore, International Data Corporation estimates the
worldwide market for Internet professional services will grow from $7.8 billion
in 1998 to $78.6 billion in 2003, which represents a compound annual growth rate
of more than 58%.
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We believe that companies seek Internet professional services firms that
deliver complete and integrated global services with a focus on establishing,
maintaining and enhancing customer relationships with the appropriate
technology. We believe that such firms must have the capabilities to design and
build online businesses, use technology as a strategic tool, employ effective
marketing strategies and improve customer service and fulfillment to enhance the
customer experience.
THE ORGANIC SOLUTION
We have developed an integrated solution to address the evolving needs of
the customer and our clients. The key elements of the Organic solution are:
CUSTOMER-TO-BUSINESS MARKET FOCUS
We are exclusively focused on, and have built our reputation in, the large
and growing customer-to-business market. The customer-to-business market
encompasses both the traditional business-to-consumer and business-to-business
markets, but views the ultimate customer as the central and most influential
participant in a commercial relationship.
We recognize that a complete focus on the customer has become important to
our clients as the Internet allows every customer to demand positive online
experiences. We help our clients transform their businesses by building them
from the customer's perspective, enhancing their ability to create and maintain
a direct relationship with their customers and effectively incorporate customer
feedback into their business. We believe that we provide a unique value
proposition to our clients because we approach our solutions as potential
drivers of growth in overall customer satisfaction rather than as isolated
assignments. This approach requires a comprehensive and integrated skill set.
Therefore, our projects are typically of substantial size. For the nine months
ended September 30, 1999, 66% of our revenues were generated from engagements
with a value of more than $1.0 million.
COMPREHENSIVE AND INTEGRATED SERVICE OFFERING
We deliver value to our clients and their ultimate customers by addressing
all of the points of contact in the customer experience. These contact points
include advertising and communicating with customers as well as selling and
delivering goods or services to them. Since our inception, we have sought to
provide an integrated solution by expanding our service offering to meet our
clients' evolving needs, including:
- iBusiness refers to our consulting, Web site design and software
engineering services through which we develop online business plans and
create Web sites;
- Media refers to our services through which we plan and manage online
advertising campaigns including electronic mail promotions and
affiliate program management;
- Communications refers to our public relations services through which we
plan and manage our clients' press and publication relationships as
well as product and company launches; and
- Logistics refers to our customer service and fulfillment consulting
services through which we evaluate, assist and manage for our clients'
warehouse and customer call center facilities.
We believe that these disciplines are highly dependent and must be
integrated to create a positive customer experience. Our approach helps us
maintain long-term relationships with our clients. This also encourages our
clients to use more than one of our service offerings and enables us to assist
our clients with the implementation of their online businesses and the
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<PAGE> 41
refinement of their strategies. Furthermore, the opportunity to have an ongoing
role in our clients' online businesses provides us with a recurring revenue
base.
GLOBAL PRESENCE
The Internet has removed geographic barriers. Many of our multi-national
clients demand a consistent brand image and tailored customer experience, which
often requires localized content and specific knowledge about local practices
and customs. We believe that establishing a global presence is critical to our
clients' and ultimately to our success. Therefore, we will continue to expand
internationally, as well as in the U.S. We currently have offices in four
international locations including London, Sao Paulo, Singapore and Toronto.
Currently we serve 23 clients internationally. We believe that our global
presence allows us to establish and deepen relationships with multi-national
clients and grow with them by effectively meeting the needs of their customers
on a global basis.
TECHNOLOGY AS A STRATEGIC TOOL
Technology is a critical element in our service offerings and influences
our solutions. We combine custom software with third party software and
integrate them into the existing technical infrastructure of our clients. Using
this approach, we create systems that can handle a high volume of transactions
from the Internet as well as the changing demands of customers over time. For
example, we obtain information from clients about their potential business and
customer needs, and recommend various hardware and software.
In addition to managing the implementation of Internet solutions, we also
introduce new technology to our clients.
Examples include:
- We provide rich media online, including Web audio and video;
- We develop online, transaction-enabled advertising banners, which allow
an entire electronic commerce transaction to occur through the banner;
and
- We develop customer service and fulfillment solutions, which use
transaction management software to connect our clients' Web sites
seamlessly to fulfillment centers.
These innovations use technology as a strategic tool to deliver a unique
and positive customer experience.
COLLABORATIVE AND BALANCED TEAM APPROACH
Our client teams work together to design, build and maintain online
businesses. Client teams contain individuals from each discipline required by
the engagement and are managed by a multidisciplinary group of team leaders
including a client service representative, known as a client partner, an
interactive strategist, a creative leader, a technical leader and a project
manager that work in close coordination to ensure successful execution of an
engagement. Marketing and public relations and customer service and fulfillment
leaders round out each team depending on the scope of the engagement. These team
leaders work together as peers to actively manage and monitor each client
engagement through the use of milestones, planning and implementation processes
and regular feedback mechanisms.
From planning to design to problem-solving the expertise of every
discipline is involved and team members share knowledge and ideas. This ensures
that the strategy we design can be implemented and the technology we recommend
meets customer needs. Our corporate culture promotes the open discussion of
strategic, design, creative and technical challenges. We believe
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that this culture allows us to solve problems efficiently and effectively,
helping us to deliver on the high expectations of our clients and their
customers.
OUR GROWTH STRATEGY
Our objective is to be the leading Internet professional services firm
focused on the customer-to-business market. To achieve this objective, the key
elements of our growth strategy include:
HIRE AND RETAIN THE BEST PEOPLE
We view our culture and commitment to professional development to be an
asset in attracting and retaining our professionals. We have a group of
recruiters that identify and hire outstanding professionals, an extensive
training and development program to foster employee satisfaction and competitive
compensation and benefits programs. Given our growth we also provide our
employees with the opportunity for professional mobility and focus on developing
our managers from within the organization. We have invested in local human
resources teams for our offices that monitor employee morale and daily human
resources operations.
LEVERAGE OUR BUSINESS PROCESSES AND INFRASTRUCTURE
We have developed a business model that can accommodate our growth and
serve our expanding client base. To support this model, we continue to improve
our internal processes by which we manage our business and corporate knowledge
including our proprietary workflow methods, the reuse of common programming
elements and our use of prototypes. We will continue to invest in our
infrastructure including our management information systems, our financial
planning processes and controls and our Intranet. Our strategy for office
expansion, known as office-in-a-box, is designed to provide both a systematic
approach and the processes necessary to efficiently and effectively implement
critical business functions in a new office on a global basis. We believe that
the development and evolution of these processes and infrastructure will allow
us to continue to effectively manage our growing business operations.
CONTINUE OUR TRACK RECORD OF INNOVATION
Our ability to innovate will continue to be an important factor to our
business. We have demonstrated a track record of innovation. We led the
development of the Apache Web server. In addition, we continue to identify and
address the changing needs of our clients and their customers through the
creation of new service offerings. Our logistics customer service and
fulfillment consulting services and our practice known as Value Optimization
through Improved Customer Engagements, or VOICE, an offering that helps
businesses incorporate the needs of the customer into online business
operations, are two more such examples. We will continue to develop additional
service offerings as we anticipate new customer needs.
EXPAND OUR RELATIONSHIPS WITH OUR EXISTING CLIENT BASE
We intend to use our service offerings to expand relationships with our
existing clients as their needs change. The Internet has proven to be a highly
dynamic and powerful medium and the extent of its global impact on traditional
businesses and the creation of new commercial opportunities is not fully known.
This gives us the opportunity to sell additional services to our existing
clients as their needs change or the scope of our engagement grows. By expanding
relationships with our existing clients, we can reduce the cost of acquiring
additional revenues, strengthen our partnership with our current clients and
increase recurring revenues.
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EFFECTIVELY TARGET AND SOLICIT NEW CLIENTS
We believe that by targeting new clients we will improve our long-term
prospect for success. We will target new clients that understand the Internet
and that will benefit from using more than one of our service offerings,
however, they may use just one of our services. We also pursue engagements that
enhance our overall franchise in the Internet professional services industry by
allowing us to implement Internet solutions for new industries, technologies and
business models. By effectively targeting new clients, we believe that we can
build mutually beneficial long-term client relationships and gain valuable
experience.
CONTINUE OUR GLOBAL EXPANSION
To be a global business, we believe that we need to expand into non-U.S.
markets that we anticipate will have an increasing number of Internet customers.
To meet our global growth objectives we intend to open new offices, both in the
U.S. and internationally, to expand our base of clients and to deepen our
relationships with our existing clients. In addition to organic growth, we may
make small strategic acquisitions in selected international markets to acquire
local talent and experience as appropriate.
To effectively manage and achieve our planned global growth, we anticipate
the need to open a number of new offices over the next several years. To manage
our office expansion program we have assembled and trained an experienced
corporate development team, which has successfully opened four offices since
1998. The corporate development team led the design of our office-in-a-box
program to provide a systematic set of procedures and tools to open new offices,
including workflow, project management, recruiting, training and budgeting. We
currently have U.S. offices in San Francisco, New York, Chicago and Detroit, and
international offices in London, Sao Paulo, Singapore and Toronto.
ORGANIC SERVICES
We provide services focused on the total customer experience. We developed
our service offerings to meet the changing needs of our clients and their
customers and we anticipate that these offerings will continue to evolve and
expand. Each of our services is implemented through a team, which consists of
interdisciplinary team members. Our current service offerings include:
IBUSINESS CONSULTING SERVICES
The value of our iBusiness consulting offering lies in our ability to
understand our clients' business objectives, collaborate with our creative and
engineering teams and make recommendations that clients can use to create online
businesses. Our ability to deliver prototypes provides our clients with the
opportunity to have a time-to-market advantage.
SERVICES PROVIDED. Our iBusiness consulting teams provide Internet-focused
business strategy expertise, strategic marketing, branding and research
services, and customer service and technology consulting. Our team helps clients
identify online market opportunities, define and develop sustainable online
business models, understand competitive differentiation, identify, analyze and
segment online target markets, develop compelling online brand strategies and
evaluate their online efforts.
Our research services focus on five key areas including audience profiling,
concept testing, site development and usability, brand strategy and market
positioning and messaging. Our researchers use surveys, usability testing,
one-on-one interviews and focus groups during the development of online
businesses.
IMPLEMENTATION. Our iBusiness consulting teams work with our clients and
other specialists within Organic. These teams create a plan, test multiple
scenarios and refine that plan based on
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the rapid prototyping of potential strategies. In addition, our teams share
ideas and best practices through education and brainstorming sessions, summits
and workshops.
IBUSINESS WEB SITE DESIGN SERVICES
Our Web site design teams design a user experience that enhances the
interaction and communication between our clients and their customers consistent
with our clients' strategic goals and the needs of their customers.
SERVICES PROVIDED. Our Web site design services involve the creation or
extension of a client's online brand identity, defining the theme or unifying
concept for the business or media campaign and creating an experience and
message to attract and retain customers. At the simplest level, our services
involve Web site design, but they also include the design and implementation of
the other creative elements of a customer interface, such as online banner
advertisements. Our creative team works closely with our strategy and
engineering teams to ensure that the technical architecture and the user
interface of a client's online business work together to create a consistent,
engaging and responsive customer experience.
IMPLEMENTATION. We implement our Web site design services through experts
in four key areas, including:
- visual design, which focuses on the visual appearance of a Web site to
the customer;
- editorial, which focuses on making interesting text-based content;
- information architecture, which focuses on site navigation; and
- interactive art production, which focuses on transforming visual images
into an electronic format.
Our Web site design staff has expertise and training as animators,
cinematographers, editors and sound, multi-media and game designers. Our use of
prototypes to evaluate interface design, content and customer behavior improves
our ability to quickly test multiple scenarios and incorporate feedback into the
design and implementation of a solution. The prototyping process also allows us
to investigate new uses for applications, technologies and platforms including
broadband and interactive television.
IBUSINESS SOFTWARE ENGINEERING SERVICES
Our software engineering teams combine traditional software engineering and
new technologies to implement technical infrastructure recommendations and
software that can be adapted for the growth of our clients' businesses.
SERVICES PROVIDED. We combine custom software with third party software and
integrate them into the existing technical infrastructure of our clients. Our
Internet expertise includes all aspects of technical design, development and
integration related to electronic commerce; Web-based applications development;
database systems; content and transaction management tools; and Internet
features including community, personalization and customization. We also
incorporate the ability to measure site performance and track customer behavior
information allowing our clients to calculate their return on investment.
IMPLEMENTATION. Our software engineering teams analyze a problem and
recommend, design and deploy a solution. Our software engineering teams
implement interface designs developed in conjunction with our creative teams
using interactive technologies including dynamic hypertext markup language, or
DHTML, Shockwave and Flash. These technologies allow us to create Web sites that
include interactive content, audio and video versus traditional text-based Web
sites. Throughout all phases of development, a group of quality assurance
specialists work in conjunction with our development teams to ensure that our
solutions meet our client's needs.
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MEDIA SERVICES
Our media services build brands, generate awareness and drive traffic and
transactions for our clients' online businesses. We believe we are a significant
buyer and manager of online media, and that our accumulated purchasing power and
analysis of customer behavior data delivers measurable results for our clients
through lower customer acquisition costs, higher customer retention rates and
increased revenues.
SERVICES PROVIDED. Our media teams use their knowledge of customer behavior
to design online marketing campaigns and also offer services including direct
response, electronic mail promotion, sampling, sponsorships, brand development
and affiliate program management. In collaboration with our engineering teams,
we have created new "beyond the banner" advertising vehicles using DHTML
technology. These advertisements allow entire transactions to be completed
within the banner, facilitating commerce by reducing the time and effort
required to complete a transaction. This innovation also delivers a consistent
branding message and effectively shares information between the Web site and the
advertisement. As appropriate, we also extend our media expertise offline either
directly or through arrangements with offline agencies.
IMPLEMENTATION. Creating an online advertising program begins with research
and strategic planning from a team that provides overall direction consistent
with our client's strategy. The team generally includes an art director, a
writer, a technical lead, a performance analyst and a media planner and buyer.
The team collaborates to develop advertising designs, promotional or sponsorship
ideas, media recommendations and test scenarios and metrics for each campaign.
After a marketing program launches, our team analyzes the success of the
campaign by reviewing response rates, traffic and transaction volumes and then
uses this feedback to refine the campaign or future campaigns.
COMMUNICATIONS PUBLIC RELATIONS SERVICES
Our communications public relations services assist our clients with the
management of their ongoing press and publication relationships.
SERVICES PROVIDED. Our communications public relations services include:
- strategic message and identity development, which helps clients
position themselves in their markets and differentiate themselves from
their competitors in the eyes of current and potential customers;
- product and company launch or relaunch services, which aim to create
awareness of and position a product or company with customers; and
- broadcast, online and print media and analyst relations services, which
help clients enhance their brand recognition.
IMPLEMENTATION. We work with our clients to assess their public
communication objectives, formulate short-term and long-term public relations
plans and utilize our industry knowledge and expertise to implement these plans.
LOGISTICS CUSTOMER SERVICE AND FULFILLMENT CONSULTING SERVICES
Our logistics customer service and fulfillment consulting offering includes
both consulting and transaction management services. We deliver a complete
electronic commerce experience to our clients' customers. We provide advice on
best practices based on facility visits and audits of 20 electronic commerce
fulfillment and customer service providers as well as our proprietary database
which contains the logistical features of 500 leading Web sites and profiles of
current relevant Web-based applications, including live chat, electronic mail
and collaborative filtering.
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SERVICES PROVIDED. Our logistics consulting services include a needs and
capabilities assessment, consulting services, technology assessment services,
third party vendor selection and negotiation, development of performance
monitoring procedures and the integration of customer service and fulfillment
functions into our clients' Web operations.
Our logistics transaction management services provide a complete outsourced
solution, including customer service, fulfillment and transportation management
services. Our fulfillment specialists monitor the performance of third party
fulfillment houses, identify and implement service enhancements and can manage
all of the vendors used by our clients. In addition to fulfillment services we
also help our clients improve their customer service experience by designing,
and managing highly automated third party call centers. Our staff incorporates
telephone, electronic mail and live chat services that extend beyond traditional
order taking and tracking functions in ways that help our clients improve and
extend their relationship with their customers and potentially increase
satisfaction and loyalty.
IMPLEMENTATION. Our customer service and fulfillment professionals are
experts in electronic commerce distribution and focus on integrating order
management, transportation management, customer fulfillment, distribution,
payment processing, call center and data management activities.
INNOVATIVE SERVICE OFFERINGS
Driven by the needs of our clients and their customers we continue to
develop innovative service offerings. We are developing a service offering
called Value Optimization through Improved Customer Engagements, or VOICE. We
believe that if a company can effectively collect, analyze and use customer
information it will improve its business. We developed our VOICE service to
gather information from customers, understand customer behavior and generate
useful recommendations for our clients. We believe that VOICE's innovation is
based on its use of both behavioral psychology and statistical modeling. We
continue to develop innovative service offerings as we anticipate new customer
needs.
CLIENTS
We believe that to succeed we need to maintain a broad client base of both
large, established companies and emerging Internet companies. For the nine
months ended September 30, 1999, approximately 75% of our revenues were derived
from established, offline companies either extending their businesses or
creating a new presence or identity online. Since our founding in 1993, we have
performed work for over 250 clients. Consistent with our strategy, we have
derived approximately one-third of our revenues for the nine months ended
September 30, 1999 from clients who have used more than one of our service
offerings.
The following is a list of our clients that generated over $100,000 in
revenues for us during the nine months ended September 30, 1999, which we
believe is representative of our overall client base:
ESTABLISHED COMPANIES
American Century
Avis
Barnes & Noble
Blockbuster
Brahma Beer
British Telecom
Chase Manhattan Bank
Compaq
DaimlerChrysler
Day Timers
Gap
Garnet Hill
Global Sport Interactive
Hambrecht & Quist
Hewlett-Packard
Home Depot
Iomega
Knowledge Universe
Lucent
Nature Conservancy
Nickelodeon
Payless Shoe Source
Prodigy
RCN Corp.
Seagate
Starbucks
Tommy Hilfiger
United Missouri Bank
Washington Mutual
Waterhouse Securities
Zagat
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EMERGING INTERNET COMPANIES
Adauction
Awards.com
Accent Health
Boo.com
CDNOW
Career Mosaic
CTC
Deja.com
Digital River
E-Negatives
E/Town
eToys
Fragrance Counter
FTD.com
Haystock Toys
Guild.com
iWare
JPKids
Lucy.com
Next Planet Over.com
Seagate
Starbucks
Stan Lee Media
Party Host.com
Pseudo
Rx.com
Textbooks.com
Tomorrow Lab
Worldly Information
Networks
Zip.Net
We currently derive a significant portion of our revenues from a limited
number of clients. For the nine months ended September 30, 1999, our five
largest clients accounted for approximately 41% of our revenues. During this
period DaimlerChrysler and Blockbuster accounted for approximately 12% and 10%
of our total revenues, respectively.
In exchange for our services we have from time to time made investments in
some of our Internet clients. Our venture catalyst investment strategy has been
focused on select early stage clients with attractive business models seeking
alternative forms of payment and/or who are interested in more closely aligning
our goals through equity-based compensation. In general, these equity
investments are structured so our clients pay for all of the costs related to
their engagement in cash and use equity incentives to compensate us for a
portion of our profit margin. As of September 30, 1999, we made equity
investments in the following clients: Stan Lee Media, HomeGrocer.com, Worldly
Information Networks and Next Planet Over.com.
CLIENT CASE STUDIES
Each of the case studies that follow demonstrate our ability to deliver
global, integrated solutions with complex technologies. Tommy Hilfiger,
DaimlerChrysler and Compaq accounted for approximately 4%, 12% and 6% of our
total revenues for the nine months ended September 30, 1999.
TOMMY.COM
The work that we are performing for Tommy.com, Inc., a subsidiary of Tommy
Hilfiger Corporation, illustrates the value that our service offerings can
deliver to our customers. Our services include design, content creation,
branding, site construction and establishing a framework for broadband
technologies. We are also managing the call centers that customers who visit
Tommy.com are directed to contact. We believe that all of these services are
critical to delivering a customer experience that fulfills the promise regarding
brand and product that are presented on the Tommy.com Web site.
CLIENT CHALLENGE. In launching its online efforts, Tommy.com faced the
challenge of building an online presence that would further define and extend
its brand through a deeper interaction with customers. We were asked to help
Tommy.com convey the meaning and extend the consistent message of the existing
brand onto the Internet.
ORGANIC SOLUTION. We are delivering a solution that uses a number of our
service offerings in order to ensure the success of Tommy.com's online
initiative. We are building Tommy.com's new online presence on a solid
technological foundation consisting of custom developed software that is
integrated with Tommy.com's existing systems creating a unified platform. Using
this architecture, we are creating a rich media interface to communicate the
Tommy Hilfiger brand to customers through audio, video, text and other visuals.
We are also assisting
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Tommy.com to create original audio, video and editorial online content to
augment existing content and to build an interactive forum. The platform we are
building is able to handle a high volume of transactions and allows for
broadband delivery in the future.
DAIMLERCHRYSLER
The work that we are performing for DaimlerChrysler demonstrates our
ability to create a successful strategic relationship and to deliver services on
a global basis to large international clients.
CLIENT CHALLENGE. In creating its online initiative, DaimlerChrysler needed
to broaden its mission to include interactive strategies and to address its
growing technical needs in the global marketplace. It had a variety of Web sites
in different countries that were controlled locally. To implement its global
strategy, DaimlerChrysler needed to create a unifying image for all of its
Internet properties. This required a global team approach to interact and build
consensus with both local and corporate constituencies within DaimlerChrysler.
ORGANIC SOLUTION. We have begun to deliver a solution that is designed to
create a unified Web strategy that presents DaimlerChrysler brands consistently
worldwide in a way that appeals to local customers. We focused our initial
efforts on Europe. A team comprised of personnel from our London, New York and
Detroit offices collaborated to:
- conduct audits of the Web sites in each local market to develop a
cohesive long-term European strategy;
- develop Web sites to incorporate both the corporate and local market
customer messages; and
- leverage technology and information across the organization.
We developed the content and copy for branded Web sites and implemented
multi-lingual functionality for global audiences, a process commonly referred to
as localization.
To transition from locally to centrally controlled Web sites, we developed
a phased approach to conform all Web sites with our recommended global
architecture, while allowing local design input. The first phase included
transforming the content of each local Web site from 10 pages with limited
functionality and product information to 300 pages using a template with
multiple car information and expanded functionality that could be easily
replicated to add other countries. We leveraged technologies created in the
U.S., including electronic mail fulfillment and user data capture for use across
Europe. In the second phase, we plan to redesign the application infrastructure
to create a dynamic, personalized experience and extensively use Shockwave and
Flash technology to enable rich media experiences for new vehicle introductions.
Recently the scope of our efforts for DaimlerChrysler has expanded to include
the Asia-Pacific region, South America and the Middle East.
COMPAQ
The work we performed for Compaq Computer Corporation illustrates our
skills with cutting-edge Internet technology. In working with Compaq, we
developed a dynamic, highly technical Web site, to connect Compaq, a Fortune 500
company, with consumers in the online world.
CLIENT CHALLENGE. Compaq wanted to build a Web site to showcase the Sting
World Tour and enhance Compaq's position as an Internet savvy company. Compaq
wanted to create a Web site that would have a life span of 18 months, the length
of the tour, and would be able to take advantage of broadband technologies as
they become more available.
ORGANIC SOLUTION. Our solution was to create a dynamic Web site featuring
tour information, information about Sting and a behind the scenes section to
showcase the Compaq technology
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supporting the Web site. We performed the systems integration and database
design using Compaq ProLiant servers and Microsoft software technology. Repeat
visits to the Web site are enhanced through the use of the community tools and
the Songline Engine -- a real time tool to create and compose original audio,
video and text based on rich media available throughout the Web site. It
encourages word of mouth marketing by giving users the ability to invite others
to view a Songline creation on the site. In addition to the Songline Engine, we
developed a rich media interface using Flash and other technologies and also
created a registration engine to capture potential customer information,
allowing for targeted marketing efforts.
Our solution makes use of some of the latest Internet technologies. We
employed Flash extensively to enable the user to experience a true next
generation Web site sponsored by Compaq. We also designed the Web site's
architecture to allow for a long life span and eventual integration of materials
for broadband delivery. In addition, we developed custom publishing and content
management tools to allow geographically diverse teams to manage the Web site
and update rich media portions of the system through a Web-based interface.
These tools reduce the overall operating costs and resources necessary to
maintain the Web site.
SALES AND MARKETING
Our local business development professionals and client partners market and
sell our services. Opportunities are prioritized by client engagement type,
vertical industry and the opportunity to innovate. Our marketing efforts are
focused on assignments which may use more than one service offering and/or
include large, multi-national clients. Extended engagements, defined as
multi-year and recurring revenue opportunities with the potential to evolve into
relationships that use all of our service offerings are also prioritized. We
also pursue basic engagements, which tend to be smaller in size or shorter in
duration, when new vertical markets or innovation opportunities exist.
We target vertical industries based on the size of the market opportunity
and the influence of the Internet. Current industry verticals include apparel,
automotive, consumer electronics, education, entertainment and content,
financial services, healthcare, travel and home categories.
In addition to new clients, a key component of our growth strategy is the
ability to penetrate existing client accounts through the cross selling of
additional services. We currently manage opportunities with existing clients
through our account management process. In this process, a client partner is
responsible for understanding the client's needs and how other Organic services
could be beneficial. All members of the client team meet on a monthly basis to
review business development plans with respect to each client and evaluate our
progress on earlier initiatives.
Our business development group is complemented by a variety of marketing
programs designed to generate demand and strengthen our brand. We have built our
reputation through client references, industry conferences, trade publications
and our Web site. To promote our brand, we will continue to pursue a marketing
strategy through both Internet and traditional media-based channels to increase
our visibility with potential clients and prospective employees. In addition to
these formal marketing efforts we have historically established a number of new
client relationships based on referrals from previous engagements.
MAINTAINING THE ORGANIC CULTURE
OUR CULTURE AND EMPLOYEES
We view the Organic culture as one of our most strategic assets. We have
built a creative and adaptive environment that inspires individuals to excel.
The influence of our culture extends to the design of our office space, which
has an open plan with few offices or cubicles to promote a barrier-free
environment. Our organization is centered on people, and espouses the core
values of collaboration, innovation and learning. We are committed to recruiting
outstanding
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professionals, providing ongoing, role specific and general management training
and development and offering competitive compensation and benefits packages. Our
learning transfer occurs both through structured, moderated sessions and
informal employee gatherings. Examples of structured sessions include our
specialized summits, new hire orientation seminars and local all hands meetings.
Unstructured employee gatherings include Wednesday bagel mornings and Friday
afternoon socials during which employees from all disciplines and functions
within an Organic office can come together in a supportive setting to share and
generate ideas, or just to relax and have fun.
As of September 30, 1999, we had 681 full-time employees. Of these,
approximately 30 were strategy consultants, 41 were media and communications
specialists, 117 were Web site design specialists and 152 were software
engineers and technical professionals. Experts in other functional groups
included 11 in business development, 58 in client services and 79 in project
management. None of our employees is represented by a labor union. We have not
experienced any work stoppages and believe our relationship with our employees
is good.
RECRUITING
Given our historical and anticipated growth, identifying and hiring
outstanding professionals that fit within the Organic culture is one of the most
important functions within Organic. Our recruiting department consists of 15
professionals domestically and internationally, and includes 10 full-time
recruiters. The recruiting department is organized along geographic lines so
that we can develop an in-depth knowledge of the local market and scale in
accordance with our expansion strategy. As we open and expand new offices, they
will usually be supported by the recruiting department of an existing office
until the new office reaches sufficient size, at which point a dedicated
recruiting professional is assigned.
We recruit through a broad array of channels, including:
- general and job specific advertising;
- internal hires;
- job fairs;
- open houses; and
- trade shows.
We are currently implementing a number of key recruiting initiatives
including:
- an enterprise-wide, Web-based hiring automation system with a
PeopleSoft interface;
- an internal sourcing team focused on proactive identification of key
talent; and
- a college relations program to target highly qualified students and
promote our image at colleges and universities around the world.
Our new recruiting system is designed to enhance our ability to maintain
detailed performance metrics to monitor and control open positions, time to fill
open positions, cost per hire, source of hire and quality of hire.
TRAINING AND DEVELOPMENT
We have an extensive training and development program, which is designed to
increase employee productivity, complement our recruiting and retention efforts
by enhancing employee job satisfaction and promote knowledge sharing. Our
training and development initiatives include new hire orientation, ongoing
management and professional skills training and annual summits for a number of
functions including:
- Web site design;
- project management;
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- software engineering;
- media;
- business development;
- strategy; and
- client services personnel.
Training and development also complements our office expansion strategy by
promoting consistency across all of our offices, service lines and departments.
As we continue to open new offices and expand existing offices, we can deploy
existing employees who have mastered the skills required and understand the
Organic culture.
RESEARCH AND DEVELOPMENT
Our research and development, or R&D team, is focused on assisting local
teams with solving problems. Our R&D team also maintains relationships with
companies that provide knowledge and recommendations on software, hardware and
training that will speed team problem solving.
We focus on three service lines: engineering, creative and strategy. Our
engineering R&D efforts involve investigating new technologies, products and
standards. We also develop platforms that allow for rapid solution delivery.
While developing core skill sets, our engineering team has taken a
technology-agnostic stance, allowing our clients to benefit from objective
recommendations. Our engineering R&D supports our teams with the knowledge to
quickly select the best technology solution, and if necessary, provide the
support to implement it.
Our creative R&D focuses on both extending and enabling our engineering
team efforts. Three areas of particular emphasis are exploratory prototypes,
re-use strategies for information design and strategic creative partnerships.
Our creative R&D team also collaborates with local creative teams, as well as
our strategic consulting and VOICE teams to increase our understanding of the
patterns and interfaces that allow our solutions to connect with their intended
audience. Behavioral knowledge and communication expertise are intrinsic to
success on any interactive platform; therefore, creative research, analysis and
invention are all methodically gathered and shared with our teams.
Our R&D team also works closely with our strategy teams throughout the
organization to create new and enhanced business models, revenue streams and
cost savings opportunities for our clients. The end result is faster, more
robust, more efficient solutions for developing our client's businesses. For the
years ended December 31, 1997 and 1998 and for the nine months ended September
30, 1999, we estimate that we spent $0.1 million, $0.2 million and $0.5 million
on R&D, respectively.
KNOWLEDGE MANAGEMENT
We capture and share knowledge through our Intranet, training and
development classes, discipline summits, off-site management meetings and our
office-in-a-box tools and processes. We re-use technology when appropriate
through the development of standard software platforms, centrally-managed
software licensing, software re-use and strategic technology partnerships. We
also share best practice creative design solutions across our teams for use with
our clients.
INTRANET
The mission of our Intranet is to create a sense of community, enhance
communication and simplify processes. Our workflow processes are accessible
through the Intranet, and teams are expected to follow them as standard
procedure on client engagements. We encourage constant improvement in these
processes, which are discussed at our various discipline summits.
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Although every solution created for a client is unique, many of the underlying
functional elements can either be re-used for a period of time or share common
building blocks that serve as a base for other engagements.
LEARNING AND SUMMITS
In recognition of the need to create and maintain relationships with our
employees, we have a number of initiatives that focus on participatory learning,
culture sharing and knowledge transfer. We provide general training and
development classes through our human resources department to both new hires and
current employees. In addition, each of the discipline heads is responsible for
the development and communication of best practices and tools throughout the
organization. We share ideas at various summits that are held each year within
the strategic consulting, creative, project management, engineering, media and
business development disciplines. Our senior executives also participate twice a
year in off-site management sessions.
OFFICE-IN-A-BOX
The corporate development team has created our office-in-a-box program to
systematize the process of opening new offices. The program provides a plan for
new office initiation, including process documents, monitoring and control tools
and training plans. The office-in-a-box information exists in centralized
hardcopy form as well as electronically on our Intranet. It includes manuals on
departmental descriptions, organization charts, job descriptions, roles and
responsibilities, contact lists, workflows, policies and procedures and
templates, formats and example documents.
COMPETITION
The market for Internet professional services is relatively new, intensely
competitive, quickly evolving and subject to rapid technological change.
Further, our industry is experiencing rapid consolidation. Our principal current
national and international competitors include the following:
- other providers of Internet professional services, including
AGENCY.COM, iXL, Proxicom, Razorfish, Scient, USWeb/CKS and Viant;
- large information technology consulting services providers, including
Andersen Consulting, Cambridge Technology Partners, Cap Gemini, CSC,
EDS, IBM and Sapient;
- strategic consulting firms, including Bain & Company, Booz Allen &
Hamilton and Boston Consulting Group; and
- internal information technology, marketing and other departments of
current and potential clients.
We anticipate facing additional competition from new entrants into our
markets due to low barriers to entry.
We believe that the principal factors upon which we compete are the ability
to offer a comprehensive suite of services, the ability to handle large, complex
projects, the ability to attract and retain the best professionals through our
culture, the blending of strategy, creative and engineering expertise, brand
recognition and reputation, client service and price. Although we believe that
few of our competitors currently offer as comprehensive a suite of services as
we offer, many competitors have announced an intention to expand their service
offerings. Many of our competitors have longer operating histories, larger
client bases, longer relationships with clients, greater brand or name
recognition and significantly greater financial, technical, marketing and public
relations resources than we have. These competitors, as well as new competitors,
could develop or offer services that are comparable to or superior to ours, or
are less expensive. The entry of new competitors or changes in the service
offerings of existing competitors would harm our business, financial condition
and results of operations.
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INTELLECTUAL PROPERTY
We rely on a combination of nondisclosure and other contractual
arrangements with our employees and third parties, copyright, trademark, service
mark and trade secret laws to protect our intellectual property. We are pursuing
the protection of our trademarks in the United States and internationally,
including filing for trademark registration on foreign registries and enforcing
our rights against potential infringement. We have obtained trademark
registrations in the U.S. for the "Organic" and "Organic Online" marks and have
applied for registration of the "Organic Media" mark and some of our other
trademarks and service marks. We are pursuing expanded international trademark
and service mark protection. In addition, although we do not currently pursue
patent protection for our intellectual property, we may do so in the future, as
appropriate.
If we fail to adequately protect our intellectual property rights and
proprietary information or if we become involved in litigation relating to our
intellectual property rights and proprietary technology, our business could be
harmed. Any actions we take may not be adequate to protect our proprietary
rights and other companies may develop technologies that are similar or superior
to our proprietary technology. In addition, the legal status of intellectual
property on the Internet is currently subject to various uncertainties.
Although we believe that our products and services do not infringe on the
intellectual property rights of others and that we have all rights needed to use
the intellectual property employed in our business, it is possible that we could
in the future become subject to claims alleging infringement of third party
intellectual property rights. Any claims could subject us to costly litigation,
and may require us to pay damages and develop non-infringing intellectual
property or acquire licenses to the intellectual property that is the subject of
the alleged infringement.
FACILITIES
Our headquarters are located in two leased facilities in San Francisco,
California consisting of an aggregate of approximately 82,000 square feet of
office space. The primary lease consisting of approximately 52,000 square feet
expires in September 2002. The secondary lease consisting of approximately
30,000 square feet expires in December 2000. We also have entered into a lease
for a new headquarters location in San Francisco consisting of approximately
210,000 square feet of office space, commencing September 2000 and expiring in
September 2010. We also lease office space in Chicago, Detroit, New York,
London, Sao Paulo and Singapore. We are currently exploring real estate options
consistent with our future growth plans. We do not anticipate acquiring property
or buildings in the foreseeable future.
LEGAL PROCEEDINGS
From time to time, we may be involved in litigation incidental to the
conduct of our business. We are not currently party to any material legal
proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information regarding our executive officers
and directors as of December 31, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Jonathan Nelson.................. 32 Chief Executive Officer and Chairman of the Board
Michael Hudes.................... 38 President and Director
Susan L. Field................... 40 Executive Vice President and Chief Financial Officer
Larry K. Geisel.................. 58 Executive Vice President and Chief Operating Officer
Arthur I. Williams............... 32 Executive Vice President, Global Operations
Daniel J. Lynch.................. 34 President, Logistics
Margaret Maxwell Zagel........... 50 Vice President, Chief Legal and Administrative
Officer and Secretary
Matthew Bernardini............... 26 Vice President, Chief Technology Officer
Marita C. Scarfi................. 33 Vice President, Finance
Shelly A. Saunders............... 38 Vice President, Corporate Controller and Treasurer
Janis M. Nakano Spivack.......... 36 Vice President, Chief Creative Officer
Lynda Ward Pierce................ 36 Vice President, Human Resources
Gary F. Hromadko................. 47 Director
Gerald Bruce Redditt............. 48 Director
</TABLE>
Biographies of our executive officers and directors are as follows:
JONATHAN NELSON co-founded our company in 1993 and has served as our Chief
Executive Officer and Chairman of the Board since January 1995. From February
1996 to May 1996, Mr. Nelson served as President and Chief Executive Officer of
Accrue Software, a developer of network based tools for measuring Web site
performance. Mr. Nelson also served as Chairman of the Board of Accrue from
February 1996 to November 1999.
MICHAEL HUDES has served as our President and as a member of our board of
directors since October 1995 and until August 1999 he also served as our Chief
Operating Officer. From October 1993 to September 1995, Mr. Hudes was the
Director of Marketing for daVinci Time & Space, an interactive media company.
SUSAN L. FIELD has served as our Executive Vice President and Chief
Financial Officer since June 1999. From June 1997 to April 1999, Ms. Field was
employed at Sears, Roebuck and Co., a multi-line retailer providing merchandise
and services, most recently as the Senior Vice President -- Strategy, Planning
and Corporate Development. From August 1985 to June 1997, Ms. Field served in
various capacities at Merrill Lynch & Co., a global investment bank, most
recently as a Managing Director.
LARRY K. GEISEL has served as our Executive Vice President and Chief
Operating Officer since September 1999. From April 1998 to September 1999, Mr.
Geisel served as the Executive Vice President, Chief Technical Officer of
Knowledge Universe, Inc., a holding company focused on educational products and
services. From February 1996 to April 1998, Mr. Geisel was the Senior Vice
President, Chief Information Officer of Netscape Communications, Inc., a
provider of client and server software, development tools and commercial
applications. From February 1994 to February 1996, Mr. Geisel was an Executive
Vice President of Xerox Corporation, a provider of various document services.
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ARTHUR I. WILLIAMS has served as our Executive Vice President, Global
Operations since December 1999. From June 1998 to December 1999, Mr. Williams
was the Executive Vice President North America Operations of AGENCY.COM, Ltd.,
an online marketing and advertising agency, specializing in the development of
Web sites. From June 1994 to June 1998, Mr. Williams was the Chief Executive
Officer and President of Spiral Media, Inc., a designer of digital media and
developer of original content.
DANIEL J. LYNCH has served as President, Logistics since May 1999. From
February 1993 to March 1999, Mr. Lynch served as the Senior Vice President,
Marketing and Sales of Technicolor Entertainment, a film processing and
distribution company.
MARGARET MAXWELL ZAGEL has served as our Vice President, Chief Legal and
Administrative Officer and Secretary since August 1999. From March 1998 to March
1999, Ms. Zagel served as the Vice President, General Counsel and Secretary of
Tellabs Operations, Inc., a manufacturer of telecommunications equipment
solutions. From September 1984 to January 1998, Ms. Zagel served as General
Counsel of Grant Thornton LLP, an accounting and management consulting firm.
MATTHEW BERNARDINI has served as our Vice President, Chief Technology
Officer since July 1999, and prior to that, from October 1997 to July 1999, he
served as our Director of Engineering. From January 1996 to August 1997, Mr.
Bernardini was Vice President, Technology of Meta4Digital Design, an interactive
marketing company. From May 1995 to January 1996, Mr. Bernardini was an
independent consultant, working as a programmer and developer.
MARITA C. SCARFI has served as our Vice President, Finance since January
1998. She served as our Director of Finance from January 1997 to January 1998
and as our Controller from July 1996 to July 1997. From August 1988 to July
1996, Ms. Scarfi served as a Manager of Business Assurance for Coopers &
Lybrand, an accounting firm.
SHELLY A. SAUNDERS has served as our Vice President, Corporate Controller
and Treasurer since January 2000. From December 1998 to October 1999, Ms.
Saunders was the Corporate Controller at Thoratec Laboratories Corporation, a
developer, manufacturer and marketer of medical devices. From July 1998 to
December 1998, Ms. Saunders was the Life Science Group Controller at Bio-Rad
Laboratories, Inc., a multinational manufacturer and distributor of life science
research products. From July 1994 to July 1998, Ms. Saunders was the Corporate
Controller at American Protective Services, Inc., a provider of security guard
and patrol services.
JANIS M. NAKANO SPIVACK has served as our Vice President, Chief Creative
Officer since November 1996. From October 1993 to October 1996, Ms. Spivack was
a partner of leftBrain-rightBrain, a provider of consulting, technical and
design production expertise to both Web site builders and individual companies.
From October 1993 to January 1997, Ms. Spivack was also the President of
GoFISH!, a private interactive, online directory of production companies.
LYNDA WARD PIERCE has served as our Vice President, Human Resources since
July 1999. From August 1998 to July 1999, Ms. Pierce served as the Director of
Human Resources of The Metzler Group, Inc., a provider of consulting services to
the utilities industry. From April 1997 to August 1998, Ms. Pierce served as the
Director of Human Resources for LECG, Inc., a provider of expert analysis,
litigation support and management consulting. From October 1996 to March 1997,
Ms. Pierce served as the Director of Human Resources for Party America, Inc., a
party merchandise retailer. From April 1991 to October 1996, Ms. Pierce served
as the Manager of Human Resources of Mervyn's, a department store.
GARY F. HROMADKO has served as one of our directors since January 1997 and
has served as a director of Organic United Kingdom, one of our wholly-owned
subsidiaries, since February 1999. Since 1993, Mr. Hromadko has been a private
venture investor in early stage technology companies.
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GERALD BRUCE REDDITT has served as a member of our board of directors since
October 1998. Since May 1998, Mr. Redditt has served as an Executive Vice
President of Omnicom Group Inc., a strategic and financial holding company. From
July 1995 to May 1998, Mr. Redditt served as an Executive Vice President of Sony
Pictures Entertainment, a creator and distributor of entertainment products,
services and technology. From March 1991 to July 1995, Mr. Redditt served as a
Corporate Vice President of GTE Corporation, a telecommunications company. Since
January 1999, Mr. Redditt has served as a director of AGENCY.COM, Ltd.
BOARD COMPOSITION
Our bylaws authorize the number of directors to be not less than five nor
more than nine. The number of directors on the Board is currently fixed at six.
Our bylaws provide that following the completion of this offering our board of
directors will be divided into three classes of directors designated Class I,
Class II and Class III. Each class will have a three-year term. Initially, two
directors will serve in Class I, two directors will serve in Class II and two
directors will serve in Class III. The initial directors in each class will hold
office for terms of one year, two years or three years. Thereafter each class
will serve a three-year term. Executive officers are elected by and serve at the
direction of the board of directors.
BOARD COMMITTEES
The board of directors has established a compensation committee and an
audit committee. The compensation committee, consisting of Mr. Hromadko and Mr.
Redditt, reviews and approves the salaries, bonuses and other compensation
payable to our executive officers and administers and makes recommendations
concerning our employee benefit plans.
The audit committee, currently consisting of Mr. Hromadko, Mr. Redditt and
Mr. Hudes, recommends the selection of independent public accountants to the
board of directors, reviews the scope and results of the audit and other
services provided by our independent accounts, and reviews our accounting
practices and systems of internal accounting controls.
DIRECTOR COMPENSATION
Our directors currently are not compensated for their services. However, in
the future we intend to compensate our non-employee directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of our compensation committee serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving as a member of our board of directors or compensation
committee.
There are no family relationships among any of our directors or executive
officers other than between Michael Hudes and Daniel Lynch, who are
brothers-in-law.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION INFORMATION
The following table contains information in summary form concerning the
compensation paid to our chief executive officer and each of our four most
highly compensated executive officers whose total salary, bonus and other
compensation exceeded $100,000 during the fiscal year ended December 31, 1999.
In accordance with the rules of the SEC, the compensation described in this
table does not include perquisites and other personal benefits received by the
executive officers named in the table below which do not exceed the lesser of
$50,000 or 10% of the total salary and bonus reported for these officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ALL OTHER 1999
1999 ANNUAL COMPENSATION
COMPENSATION --------------
------------------- TOTAL HEALTH
NAME AND PRINCIPAL POSITION SALARY BONUS INSURANCE
- --------------------------- -------- -------- --------------
<S> <C> <C> <C>
Jonathan Nelson
Chief Executive Officer and Chairman of the Board.... $180,000 54,922 $3,072
Michael Hudes
President and Director............................... 212,755 75,000 5,792
Janis Nakano Spivack
Vice President, Chief Creative Officer............... 171,250 47,500 --
Susan Field
Executive Vice President, Chief Financial Officer.... 130,773 150,000 --
Matthew Bernardini
Vice President, Chief Technology Officer............. 166,967 45,000 --
</TABLE>
OPTION GRANTS DURING FISCAL 1999
The following table sets forth information concerning grants of stock
options to each of the executive officers named in the table above during the
fiscal year ended December 31, 1999. All options granted to these executive
officers in the last fiscal year were granted under our 1997 stock option plan.
Each option vests and becomes exercisable over a period of four years. The
percentage of total options set forth below is based on an aggregate of
15,294,525 options granted to employees in fiscal 1999. All options were granted
at a fair market value as determined by the board of directors on the date of
grant. The board of directors determined the fair market value based on our
financial results and prospects and the share price in arms-length transactions.
The exercise price may in some cases be paid by delivery of other shares or by
offset of the shares subject to options. The deemed value for the date of grant
has been adjusted solely for financial accounting purposes. Potential realizable
values are net of exercise price, but before taxes associated with exercise.
Amounts represent hypothetical gains that could be achieved for the options if
exercised at the end of the option term. The assumed 5% and 10% rates of stock
price appreciation are based on the exercise price of the options and are
provided
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in accordance with the rules of the SEC and do not represent our estimate or
projection of the future common stock price.
OPTIONS GRANTED IN FISCAL YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES IN EXERCISE OPTION TERM
OPTIONS FISCAL YEAR PRICE PER EXPIRATION ----------------------
NAME GRANTED 1999 SHARE DATE 5% 10%
---- ---------- ------------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jonathan Nelson........... -- -- -- -- -- --
Michael Hudes............. -- -- -- -- -- --
Janis Nakano Spivack...... 67,500 0.4% $2.6667 11/22/09 $113,202 $ 286,877
Susan Field............... 1,755,000 11.5% $0.8333 6/23/09 $919,722 $2,330,755
Matthew Bernardini........ 382,500 2.5% $1.3333 7/13/09 $320,736 $ 812,809
</TABLE>
OPTION EXERCISES
The following table sets forth information concerning exercisable and
unexercisable stock options held by each of the executive officers named in the
summary compensation table at December 31, 1999. The value of unexercised
in-the-money options represents the positive spread between the exercise price
of the stock options and the deemed fair market value of our common stock as of
December 31, 1999, which our board of directors determined was $2.6667 per
share. All options were granted under our 1997 stock option plan. These options
vest over four years and otherwise generally conform to the terms of our 1997
stock option plan.
AGGREGATE OPTION EXERCISES IN FISCAL YEAR ENDED DECEMBER 31, 1999
AND OPTION VALUES AT DECEMBER 31, 1999
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jonathan Nelson...... -- -- -- -- -- --
Michael Hudes........ -- 553,500 922,500 $1,421,880 $2,369,800
Janis Nakano
Spivack............ 183,282 $409,737 15,937 250,781 $ 40,940 $ 470,829
Susan Field.......... -- -- -- 1,755,000 -- $3,217,500
Matthew Bernardini... -- -- 60,938 456,562 $ 152,994 $ 690,706
</TABLE>
EMPLOYMENT AGREEMENTS
JONATHAN NELSON
On January 29, 1997, Jonathan Nelson entered into an employment agreement
with us to serve as our Chief Executive Officer. Mr. Nelson currently serves as
our Chief Executive Officer and as a member of our board of directors. As
amended on February 24, 1997, the employment agreement provides Mr. Nelson with
an annual base salary of $90,000. In addition, Mr. Nelson is eligible to receive
discretionary bonus compensation in an amount determined by the board of
directors.
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Under the terms of his agreement, Mr. Nelson's employment shall continue
until either party gives the other party 90 days advance written notice of the
expiration of the employment agreement. Should we terminate Mr. Nelson's
employment for cause, we must pay Mr. Nelson all compensation due on the date of
termination. Cause is defined as:
- repeated failure or refusal by Mr. Nelson to materially perform his
duties and responsibilities, or his failure to devote substantially all
of his business time and attention exclusively to our business and
affairs;
- willful misappropriation of our funds or property;
- use of alcohol or illegal drugs, which interferes with his performance
and which continues after written warning;
- conviction in a court of law of, or entering a plea of guilty or no
contest to, any felony or any crime involving moral turpitude,
dishonesty or theft;
- any commission in bad faith of any act which injures or could
reasonably injure our reputation, business or business relationships;
or
- any material breach of his employment agreement, which is not cured
within 30 days of our written notice.
Should we terminate Mr. Nelson's employment without cause and without 90
days advance written notice, Mr. Nelson is entitled to receive from us, so long
as Mr. Nelson is not in breach of the non-competition and protection of
confidential information provisions of his employment agreement,
- his applicable salary compensation less any income earned from
subsequent employment, limited to 90 days once written notice is given,
and
- any unpaid reimbursable expenses outstanding, and any unused accrued
vacation, as of the date of termination.
Under the terms of his employment agreement, Mr. Nelson agrees that while
he is employed by us and for a period of two years after the date of his
termination, he shall not, except on our behalf:
- solicit any client business;
- solicit any of our employees or exclusive consultants; or
- render to or for any client any services that we provide.
Additionally, Mr. Nelson also agrees that he will not at any time
- disclose any confidential information or trade secret of ours or our
clients; or
- use any confidential information or trade secret for his own benefit,
or for the benefit of third parties.
MICHAEL HUDES
On January 29, 1997, Michael Hudes entered into an employment agreement
with us to serve as our President. Mr. Hudes currently serves as our President
and a member of our board of directors. As amended on February 24, 1997, the
employment agreement provides Mr. Hudes with an annual base salary of $140,000.
In addition, Mr. Hudes is eligible to receive discretionary bonus compensation
in an amount determined by the board of directors.
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<PAGE> 60
Under the terms of his agreement, Mr. Hudes' employment shall continue
until either party gives the other party 90 days advance written notice of the
expiration of the employment agreement. Should we terminate Mr. Hudes'
employment for cause, we must pay Mr. Hudes all compensation due on the date of
termination. Cause is defined as:
- repeated failure or refusal by Mr. Hudes to materially perform his
duties and responsibilities, or his failure to devote substantially all
of his business time and attention exclusively to our business and
affairs;
- willful misappropriation of our funds or property;
- use of alcohol or illegal drugs, which interferes with his performance
and which continues after written warning;
- conviction in a court of law of, or entering a plea of guilty or no
contest to, any felony or any crime involving moral turpitude,
dishonesty or theft;
- any commission in bad faith of any act which injures or could
reasonably injure our reputation, business or business relationships;
or
- any material breach of his employment agreement, which is not cured
within 30 days of our written notice.
Should we terminate Mr. Hudes' employment without cause and without 90 days
advance written notice, Mr. Hudes is entitled to receive from us, so long as Mr.
Hudes is not in breach of the non-competition and protection of confidential
information provisions of his employment agreement,
- his applicable salary compensation less any income earned from
subsequent employment, limited to 90 days once written notice is given,
and
- any unpaid reimbursable expenses outstanding, and any unused accrued
vacation, as of the date of termination.
Under the terms of his employment agreement, Mr. Hudes agrees that while he
is employed by us and for a period of two years after the date of his
termination, he shall not, except on our behalf:
- solicit any client business;
- solicit any of our employees or exclusive consultants; or
- render to or for any client any services that we provide.
Additionally, Mr. Hudes also agrees that he will not at any time
- disclose any confidential information or trade secret of ours or our
clients; or
- use any confidential information or trade secret for his own benefit,
or for the benefit of third parties.
SUSAN L. FIELD
On June 22, 1999, Susan L. Field entered into an employment agreement with
us to serve as our Executive Vice President and Chief Financial Officer. The
employment agreement provides Ms. Field with an annual base salary of $250,000
and a bonus of up to 40% of her base salary upon achievement of specific goals
and objectives. Additionally, Ms. Field was paid a signing bonus of $50,000 in
connection with her entering the employment agreement.
Ms. Field's employment agreement also provides her with an incentive stock
option for the purchase of 480,000 shares of our common stock pursuant to our
1997 stock option plan at an exercise price of $0.8333 per share, and a
nonstatutory stock option for the purchase of
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1,125,000 shares of our common stock pursuant to our 1997 stock option plan, at
an exercise price of $0.8333 per share. These options contain a four year
vesting period, with 25% vesting after the first continuous year of employment
and the remaining option shares vesting in equal monthly portions through the
fourth year. Also, Ms. Field is entitled to an additional nonstatutory stock
option grant of 150,000 shares of common stock pursuant to our 1997 stock option
plan, at an exercise price of $0.8333 per share. Of these shares, 75,000 will
vest upon the closing of this offering and 75,000 of the shares will vest upon
our hiring employees to fill at least two key management positions and our
retaining these employees for nine continuous months of employment.
Under the terms of her agreement, Ms. Field's employment may be terminated
by either party at any time with or without cause and with or without notice.
Should we terminate Ms. Field's employment for cause or should she voluntarily
resign, she will not be entitled to severance pay, pay in lieu of notice, or any
other compensation or benefits, other than payment of accrued salary and
vacation. Cause is defined as:
- conviction of any felony or of any crime against us;
- participation of any fraud against us;
- willful breach of any duties to us, including persistent unsatisfactory
job performance;
- breach of provisions in the employment agreement or of her proprietary
information and invention agreement; or
- engagement of conduct determined by our board of directors to
demonstrate gross unfitness to serve.
In the event Ms. Field's employment is terminated without cause, we will
provide her with
- a payment equal to three months of her salary, less standard
withholdings and deductions and
- a one-year acceleration of vesting of the common stock subject to
purchase pursuant to the options granted to her as of the date of the
employment agreement.
Under the terms of her employment agreement, Ms. Field agrees that while
she is employed by us, she will not in any capacity whatsoever engage in, become
financially interested in, be employed by or have any business connection with
any of our competitors.
In connection with her employment agreement, Ms. Field entered into a
proprietary information and invention agreement, which provides that she:
- will not use any of our proprietary information without our prior
written authorization;
- will assign to us in the future her interest in any and all inventions,
subject to a limited exclusion; and
- will not, for a period of one year after the termination of her
employment, solicit any of our employees or clients.
BENEFIT PLANS
1997 STOCK OPTION PLAN
Our 1997 stock option plan was approved by our board of directors and our
stockholders in April 1997 and was amended in November 1998, February 1999,
September 1999 and November 1999. Our 1997 stock option plan provides for the
grant to our employees, including officers and employee directors, of incentive
stock options within the meaning of Section 422 of the Internal Revenue Code and
for the grant of nonstatutory stock options to our employees, outside directors
and consultants. Our 1997 stock option plan is currently administered by our
board of
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directors which selects the optionees, determines the number of shares to be
subject to each option and determines the exercise price of each option. Our
1997 stock option plan authorizes the issuance of an aggregate of up to
22,725,000 shares of common stock. The maximum number of shares that may be
granted to any individual under our 1997 stock option plan in any year is
956,250. As of September 30, 1999, options to purchase an aggregate of
15,712,932 shares of common stock were outstanding under the 1997 stock option
plan, and an aggregate of 5,392,953 shares of common stock remained available
for future grants.
The exercise price of all incentive stock options granted under our 1997
stock option plan must be at least equal to the fair market value of the common
stock on the date of grant. The exercise price of all nonstatutory stock options
granted under our 1997 stock option plan shall be determined by the
administrator, but in no event may be less than 85% of the fair market value on
the date of grant. With respect to any participant who owns stock possessing
more than 10% of the voting power of all our classes of stock, the exercise
price of any incentive or nonstatutory option granted must equal at least 110%
of the fair market value on the grant date and the maximum term of any these
options must not exceed five years. The term of all other options granted under
our 1997 stock option plan may not exceed ten years.
In the event a participant in our 1997 stock option plan ceases to be an
employee, director or consultant, other than upon the participant's death or
disability, the participant may exercise his or her vested options for a period
of three months following termination, unless a different exercise period is
specified in his or her option agreement.
In the event of our merger with or into another corporation or a sale of
substantially all of our assets, our 1997 stock option plan requires that each
outstanding option be assumed or an equivalent option substituted by the
successor corporation; provided, however, that in the event the successor
corporation refuses to assume or substitute for the outstanding options, the
vesting of these options and the time during which these options may be
exercised shall be accelerated prior to such event and the options terminated if
not exercised after such acceleration and at or prior to such event.
In the event of a change of control, all participants shall receive two
additional years of vesting for all outstanding options and all stock acquired
through the exercise of an option. In addition, if a participant is employed by
us or a subsidiary at the time of the change of control and, prior to the
one-year anniversary of the change of control, the participant is either
terminated for reasons other than for cause or terminates employment for good
reason, the participant shall have the greater of 90 days from the date of
termination or the period otherwise specified for exercise after termination to
exercise any vested options. Under the 1997 stock option plan, a change of
control is defined as:
- acquisition of 25% or more of our stock by any individual or entity;
- a change of a majority of the members on our board of directors;
- consummation of our reorganization, merger or consolidation or the sale
or disposition of more than 50% of our operating assets;
- a tender offer made for our stock; or
- approval of a plan of complete liquidation by our stockholders.
Our 1997 stock option plan will terminate in 2007. Our board of directors
has authority to amend or terminate our 1997 stock option plan, provided that
such action will not impair the rights of the holder of any outstanding options
without the written consent of that holder.
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1999 LONG-TERM STOCK INCENTIVE PLAN
Our 1999 long-term stock incentive plan was approved by our board of
directors and our stockholders in November 1999. Our 1999 long-term stock
incentive plan provides for the grant to our employees, including officers and
employee directors, of incentive stock options within the meaning of Section 422
of the Internal Revenue Code and for the grant of nonstatutory stock options to
our employees, directors and consultants, stock appreciation rights and other
types of awards. Our 1999 long-term stock incentive plan will be administered by
our compensation committee which selects the optionees, determines the number of
shares to be subject to each option, determines the exercise price of each
option and determines the vesting and exercise periods of each option. Our 1999
long-term stock incentive plan authorizes the issuance of an aggregate of up to
10,500,000 shares of common stock. No options to purchase shares of common stock
have yet been granted under this plan, therefore options to purchase 10,500,000
shares of common stock remain available for grant.
The exercise price of all incentive stock options granted under our 1999
long-term stock incentive plan must be at least equal to the fair market value
of the common stock on the date of grant. The exercise price of all nonstatutory
stock options granted under our 1999 long-term stock incentive plan shall be
determined by the compensation committee, but in no event may be less than 85%
of the fair market value on the date of grant. With respect to any participant
who owns stock possessing more than 10% of the voting power of all our classes
of stock, the exercise price of any incentive or nonstatutory option granted
must equal at least 110% of the fair market value on the grant date and the
maximum term of any these options must not exceed five years. The term of all
other options granted under our 1999 long-term stock incentive plan may not
exceed ten years.
In the event a participant in our 1999 long-term stock incentive plan
terminates employment, or is terminated by us for any reason other than cause,
any options which have become exercisable prior to the time of termination,
shall remain exercisable for six months from the date of termination if
termination was caused by death or disability, or 30 days from the date of
termination if termination was caused by reasons other than death or disability.
In the event of a change of control, all participants shall receive two
additional years of vesting for all outstanding options and share appreciation
rights, all stock acquired through the exercise of an option or a share
appreciation right, and all other awards. In addition, if a participant is
employed by us or a subsidiary at the time of the change of control and, prior
to the one-year anniversary of the change of control, the participant is either
terminated for reasons other than for cause or terminates employment for good
reason, the participant shall have the greater of 90 days from the date of
termination or the period otherwise specified for exercise after termination to
exercise any vested options. Under the 1999 long-term stock incentive plan, a
change of control is defined as:
- acquisition of 25% or more of our stock by any individual or entity;
- a change of a majority of the members on our board of directors;
- consummation of our reorganization, merger or consolidation or the sale
or disposition of more than 50% of our operating assets;
- a tender offer made for our stock; or
- a plan of complete liquidation by our stockholders.
Unless terminated sooner, our 1999 long-term stock incentive plan will
terminate in 2009. Our board of directors has authority to amend or terminate
our 1999 long-term stock incentive plan, provided that this action will not
impair the rights of any participant without the written consent of that
participant.
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2000 EMPLOYEE STOCK PURCHASE PLAN
Our stock purchase plan was approved by the board of directors on January
7, 2000 and has been approved by a majority of our stockholders.
The stock purchase plan is intended to qualify as an "employee stock
purchase plan" under Section 423 of the Internal Revenue Code in order to
provide our employees with an opportunity to purchase common stock through
payroll deductions. An aggregate of 10,000,000 shares of common stock has been
reserved for issuance and are available for purchase under the stock purchase
plan during the 10 year term of the plan, subject to adjustment in the event of
a stock split, stock dividend or other similar change in our common stock or our
capital structure. All Organic employees whose customary employment is for more
than five months in any calendar year and more than 20 hours per week are
eligible to participate in the stock purchase plan. Employees hired after the
consummation of our initial public offering are eligible to participate in the
stock purchase plan at the beginning of the next offering period.
The stock purchase plan designates offering periods and purchase periods.
Offering periods are generally overlapping periods of 24 months. The initial
offering period begins on the effective date of the stock purchase plan, which
is the first trading day on or after this registration statement is declared
effective and ends on the last trading day in the period ending June 30, 2000.
Purchase periods are generally six month periods, with the initial purchase
period commencing on the first trading day on or after this registration
statement is declared effective and ending on June 30, 2000.
Each employee who is eligible to and wishes to participate chooses a
percentage of his or her compensation, not exceeding 15%, that will be used to
purchase Organic stock. In no event may an employee purchase more than $25,000
worth of stock in a 12 month period or more than 1,250 shares in any six month
purchase period. The percentage designated by the employee will be deducted from
each paycheck of the employee and credited to an account. At the end of a six
month purchase period the amount in the account will be used to purchase Organic
stock. The price of the Organic stock purchased will be the lesser of 85% of the
market price on that date or 85% of the market price, or the case of the initial
offering period, the offering price, on the first day of the offering period
which will begin from six to twenty-four months prior to the purchase date. If
the value of the stock at the end of any purchase period is lower than the value
of the stock on the first day of the next offering period, then all participants
will be automatically withdrawn from the prior offering period immediately after
the exercise of their option and automatically reenrolled in the immediately
following offering period.
The stock purchase plan will be administered by our board of directors or
compensation committee, which will have the authority to terminate or amend the
stock purchase plan, subject to specified restrictions, and otherwise to
administer the stock purchase plan and to resolve all questions relating to the
administration of the stock purchase plan.
401(k) PLAN
In January 1997, we established a 401(k) Plan. All employees with at least
one month of service are eligible to participate in the plan. Employees may
contribute up to 20% of their pre-tax covered compensation through salary
deductions. In 1999, we began contributing 25% of every pre-tax dollar an
employee contributes up to the first 5% of the employee's pre-tax covered
compensation. Employees are 50% vested in the employer's contributions after one
year of service and fully vested after two years. The 401(k) Plan is intended to
qualify under Section 401 of the Internal Revenue Code so that all contributions
and income earned in the plan are not taxable to employees until withdrawn and
our contributions will be deductible by us when made. Our matching contribution
expense was not material for the nine months ended September 30, 1999. In
addition, we may make a discretionary profit-sharing contribution to all
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eligible employees, regardless of whether an employee is participating in the
401(k) Plan. However, no such contributions have been made through September 30,
1999.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation and bylaws provide that we will indemnify
all of our directors and officers to the fullest extent permitted by Delaware
law. Our certificate of incorporation and bylaws also authorize us to indemnify
our employees and other agents, at our option, to the fullest extent permitted
by Delaware. We intend to enter into agreements to indemnify our directors and
officers, in addition to indemnification provided for in our charter documents.
These agreements, among other things, will provide for the indemnification of
our directors and officers for some types of expenses (including attorneys'
fees), judgments, fines and settlement amounts incurred by any such person in
any action or proceeding, including any action by or in the right of Organic,
arising out of such person's services as one of our directors or officers or any
other company or enterprise to which such person provides services at our
request to the fullest extent permitted by applicable law. We believe that these
provisions and agreements will assist us in attracting and retaining qualified
persons to serve as directors and officers.
Delaware law permits a corporation to provide in its certificate of
incorporation that a director of the corporation shall not be personally liable
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability for any breach of the
director's duty of loyalty to the corporation or its stockholders, for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, under Section 174 of the General Corporation Law of the State
of Delaware, or for any transaction from which the director derived an improper
personal benefit. Our certificate of incorporation provides for the elimination
of personal liability of a director for breach of fiduciary duty, as permitted
by Delaware law.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons pursuant to
the provisions contained in our charter documents, Delaware law or otherwise, we
have been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. If a claim for indemnification against such
liabilities (other than the payment by us of expenses incurred or paid by one of
our directors, officers or controlling persons in the successful defense of any
action, suit, or proceeding) is asserted by such director, officer or
controlling person, we will, unless in the opinion of our counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by us is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of this issue.
We intend to purchase and maintain insurance on behalf of the officers and
directors insuring them against liabilities that they may incur in such
capacities or arising out of such status.
There is no pending litigation or proceeding involving one of our directors
or officers as to which indemnification is being sought, nor are we aware of any
pending or threatened litigation that may result in claims for indemnification
by any director or officer.
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RELATED PARTY TRANSACTIONS
ORGANIC HOLDINGS, INC.
On January 29, 1997, our predecessor company changed its name from Organic
Online, Inc. to Organic Holdings, Inc., and we were formed as a subsidiary under
the name Organic Online, Inc. At that time, we exchanged 18,323,712 shares of
our Series A preferred stock and nine shares of our common stock for
substantially all of the assets and liabilities of Organic Holdings, Inc.
Organic Holdings, Inc. retained some of our non-operating assets and
liabilities.
Our directors Jonathan Nelson, Michael Hudes and Gary Hromadko are also
directors of Organic Holdings, Inc.
OMNICOM GROUP
In January 1997, we issued 3,351,288 shares of our Series A preferred stock
at $2.9833 per share to Omnicom Group for net cash proceeds of $10.0 million.
In February 1999, we issued 1,488,000 shares of our Series B preferred
stock at $7.2067 per share to Omnicom Group for net cash proceeds of $7.7
million plus the settlement of a $3.0 million short-term bridge loan that we
obtained from Omnicom Group in January 1999.
On August 27, 1999, we entered into a revolving credit facility with
Omnicom Group, which allows us to borrow up to $30.0 million at the lender's
commercial paper rate plus 3.0% until the closing of this offering. Thereafter,
we may borrow up to $15.0 million from Omnicom Group at the lender's commercial
paper rate plus 1.25% through September 30, 2002. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" for further information. Additionally, in connection with the
revolving credit facility, we issued a warrant to purchase 2,249,076 shares of
our common stock to Omnicom Group at an exercise price of $0.0033 per share.
One of our directors, Bruce Redditt, has served as Executive Vice President
of Omnicom Group since 1998.
OFFICER LOAN
On March 31, 1999, we loaned $200,000 to Michael Hudes at an interest rate
of 7%. This loan was secured by a pledge by Mr. Hudes to us of his shares of our
common stock, with principal and interest payments due upon the second, fourth,
sixth, eighth and tenth anniversaries of the loan. The amount becomes payable
upon the expiration of the lock-up period as long as the offering price is at
least $10.00 per share and the aggregate proceeds are at least $75.0 million.
STOCK OPTION GRANTS TO OFFICERS
On March 20, 1997, we issued to Marita Scarfi options to purchase 765,000
shares of our common stock at an exercise price of $0.0011 per share which
became exercisable on July 15, 1997.
On December 8, 1997, we issued to Janis Nakano Spivack options to purchase
382,500 shares of our common stock at an exercise price of $0.0978 per share
which became exercisable on November 17, 1998. On the same date, we issued to
Matthew Bernardini options to purchase 90,000 shares of our common stock at the
same exercise price which became exercisable on October 15, 1998.
On June 24, 1998, we issued to Michael Hudes options to purchase 1,476,000
shares of our common stock at an exercise price of $0.0978 per share which
became exercisable on June 1, 1999.
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On November 25, 1998, we issued to Matthew Bernardini options to purchase
45,000 shares of our common stock at an exercise price of $0.3889 per share
which became exercisable on November 1, 1999.
On June 23, 1999, we issued to Susan Field options to purchase 1,755,000
shares of our common stock at an exercise price of $0.8333 per share which
become exercisable on June 23, 2000.
On July 13, 1999, we issued to Matthew Bernardini options to purchase
382,500 shares of our common stock at an exercise price of $1.3333 per share
which become exercisable on July 13, 2000.
On August 26, 1999, we issued to (a) Margaret Maxwell Zagel options to
purchase 225,000 shares of our common stock which become exercisable on August
26, 2000, (b) Lynda Ward Pierce options to purchase 90,000 shares of our common
stock which become exercisable on July 21, 2000, and (c) Larry Geisel options to
purchase 1,200,000 shares of our common stock which become exercisable on
September 8, 2000. Each of these officers were issued these options at an
exercise price of $1.6667 per share.
On November 22, 1999, we issued to (a) Daniel Lynch options to purchase
845,070 shares of our common stock which became exercisable on January 1, 1999,
(b) Janis Nakano Spivack options to purchase 67,500 shares of our common stock
which become exercisable on November 22, 2000, (c) Lynda Ward Pierce options to
purchase 90,000 shares of our common stock which become exercisable on November
22, 2000, and (d) Arthur Williams options to purchase 690,000 shares of our
common stock which become exercisable on December 14, 2000. Each of these
officers were issued these options at an exercise price of $2.6667 per share.
On January 18, 2000, we issued to Shelly Saunders options to purchase
90,000 shares of our common stock at an exercise price of $3.00 which became
exercisable on January 14, 2000.
We intend to enter into indemnification agreements with each of our
directors and officers. These indemnification agreements will require us to
indemnify these individuals to the fullest extent permitted by Delaware law.
We also have entered into various employment agreements with our officers.
See "Management -- Employment Agreements" for a more detailed description.
We believe that all of the transactions set forth above were made on terms
no less favorable to us than could have been obtained from unaffiliated third
parties. We intend that all future transactions, including loans, between us and
our officers, directors, principal stockholders and their affiliates will be
approved by a majority of the board of directors, including a majority of the
independent and disinterested outside directors on the board of directors, and
will be on terms no less favorable to us than could be obtained from
unaffiliated third parties.
REGISTRATION RIGHTS
We have entered into an investors' rights agreement with Organic Holdings,
Inc. and Omnicom Group. This agreement provides that, subject to specified
limitations, if we propose to register any of our common stock under the
Securities Act, Organic Holdings, Inc., Omnicom Group and their permitted
transferees have the right to include their shares of common stock in the
registration. Furthermore, subject to specified limitations, Organic Holdings,
Inc., Omnicom Group and their permitted transferees may require us to register
all or part of the common stock they hold. These demand rights apply during the
period commencing six months after the date of this offering and ending on the
fifth anniversary of this offering. The number of shares included in any
underwritten offering can be limited by the underwriters of that offering.
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PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of our common stock
as of December 31, 1999 and as adjusted to reflect the sale of the shares of
common stock in this offering by:
- each person or entity known by us to own beneficially more than five
percent of our common stock;
- our chief executive officer, each of the executive officers named in
the summary compensation table and each of our directors; and
- all of our executive officers and directors as a group.
The beneficial ownership is calculated based on 74,582,718 shares of our
common stock outstanding as of December 31, 1999 and 80,082,718 shares
outstanding immediately following the completion of this offering. Beneficial
ownership is determined in accordance with the rules of the SEC and generally
includes voting or investment power with respect to securities. Unless otherwise
indicated, each person or entity named in the table has sole voting power and
investment power, or shares voting and investment power with his or her spouse,
with respect to all shares of capital stock listed as owned by such person.
Shares issuable upon the exercise of options that are currently exercisable or
become exercisable within sixty days of December 31, 1999 are considered
outstanding for the purpose of calculating the percentage of outstanding shares
of our common stock held by the individual, but not for the purpose of
calculating the percentage of outstanding shares of our common stock held by
another individual.
The address of each of the executive officers and directors is c/o Organic,
Inc., 510 Third Street, San Francisco, California 94107.
<TABLE>
<CAPTION>
PERCENTAGE
OF SHARES
SHARES ISSUABLE BENEFICIALLY OWNED
UPON EXERCISE --------------------
NUMBER OF SHARES OF STOCK OPTIONS PRIOR TO AFTER
NAME AND ADDRESS BENEFICIALLY OWNED OR WARRANTS OFFERING OFFERING
---------------- ------------------ ---------------- -------- --------
<S> <C> <C> <C> <C>
5% STOCKHOLDERS
Omnicom Group Inc.
437 Madison Avenue
New York, New York 10022....... 12,734,025 2,249,076 20.1% 18.7%
Organic Holdings, Inc.
c/o Organic, Inc.
510 Third Street
San Francisco, California
94107.......................... 51,954,975 -- 69.7% 64.9%
NAMED EXECUTIVE OFFICERS AND
DIRECTORS
Jonathan Nelson.................. 51,954,975 -- 69.7% 64.9%
Michael Hudes.................... -- 553,500 * *
Janis Nakano Spivack............. 183,282 15,937 * *
Susan Field...................... -- -- * *
Matthew Bernardini............... -- 60,938 * *
Gary F. Hromadko................. -- -- * *
Bruce Redditt.................... -- -- * *
All executive officers and
directors as a group (12
persons)....................... 52,138,257 630,375 70.8% 65.9%
</TABLE>
- ---------------
* Represents beneficial ownership of less than one percent of the common stock.
Shares beneficially owned by Jonathan Nelson consist of 51,954,975 shares owned
by Organic Holdings, Inc., of which Mr. Nelson is the majority stockholder.
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DESCRIPTION OF CAPITAL STOCK
Following the closing of this offering, our authorized capital stock will
consist of 200,000,000 shares of common stock and 25,000,000 shares of
undesignated preferred stock. The following description of our capital stock
does not purport to be complete and is subject to, and qualified in its entirety
by, the provisions of our certificate of incorporation and bylaws, which are
included as exhibits to the registration statement of which this prospectus is a
part, and by the provisions of applicable law.
COMMON STOCK
As of September 30, 1999, after giving effect to the conversion of all
outstanding shares of our Series A and Series B preferred stock prior to the
closing of this offering, 71,108,124 shares of common stock were issued and
outstanding and held by approximately 50 stockholders. The holders of our common
stock are entitled to one vote for each share held of record upon such matters
and in such manner as may be provided by law. Subject to preferences applicable
to any outstanding shares of preferred stock, the holders of common stock are
entitled to receive ratably dividends, if any, as may be declared by the board
of directors out of funds legally available for dividend payments. In the event
we liquidate, dissolve or wind up, the holders of common stock are entitled to
share ratably in all assets remaining after payment of liabilities and
liquidation preferences of any outstanding shares of the preferred stock.
Holders of common stock have no preemptive rights or rights to convert their
common stock into any other securities. There are no redemption or sinking fund
provisions applicable to the common stock. All outstanding shares of common
stock are fully paid and nonassessable.
PREFERRED STOCK
As of September 30, 1999, there were 23,163,000 shares of preferred stock
outstanding and held of record by two stockholders. In connection with the
closing of this offering, all outstanding shares of our Series A and Series B
preferred stock will automatically be converted into common stock on a
one-for-three basis. Upon the closing of this offering, our board of directors
will be authorized, absent any limitations prescribed by law, without
stockholder approval, to issue up to an aggregate of 25,000,000 shares of
preferred stock, in one or more series, each of the series to have rights and
preferences, including voting rights, dividend rights, conversion rights,
redemption privileges and liquidation preferences, as shall be determined by the
board of directors.
Following the closing of the offering, 3,000,000 shares of our preferred
stock will be designated as Series C preferred stock. The Series C preferred
stock will be issuable under the terms of our stockholder rights plan. Each one
one-hundredth of a share of Series C preferred stock will have voting rights
equivalent to one share of our common stock and shall have a right to a
preferential quarterly dividend of $0.01 or any higher dividend that is declared
on one share of common stock.
The rights of the holders of common stock will be subject to, and may be
adversely affected by, the rights of holders of Series C preferred stock and any
other preferred stock that may be issued in the future. Issuance of preferred
stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from attempting to acquire, a majority of our outstanding voting stock. We have
no present plans to issue any shares of preferred stock or rights to purchase
shares of preferred stock other than rights to purchase shares of Series C
preferred stock issuable under our stockholder rights plan.
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WARRANTS
As of September 30, 1999, a warrant to purchase an aggregate of 2,249,076
shares of our common stock issued to Omnicom Group was outstanding at an
exercise price of $0.0033 per share. This warrant contains provisions for the
adjustment of the exercise price and the aggregate number of shares issuable
upon the exercise of the warrant in the event of stock dividends, stock splits,
reorganizations and reclassifications and consolidations. Upon the closing of
this offering, this warrant to purchase common stock will expire.
DELAWARE LAW AND PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS
Provisions of Delaware law and our certificate of incorporation and bylaws
could make our acquisition by means of a tender offer, a proxy contest, or
otherwise, and the removal of incumbent officers and directors more difficult.
These provisions are expected to discourage types of coercive takeover practices
and inadequate takeover bids and to encourage persons seeking to acquire control
to first negotiate with us. We believe that the benefits of increased protection
of our potential ability to negotiate with the proponent of an unfriendly or
unsolicited proposal to acquire or restructure us outweighs the disadvantages of
discouraging proposals, including proposals that are priced above the then
current market value of our common stock, because, among other things,
negotiation of these proposals could result in an improvement of their terms.
We are subject to Section 203 of the Delaware General Corporation Law. This
provision generally prohibits any Delaware corporation from engaging in any
business combination with any interested stockholder for a period of three years
following the date the stockholder became an interested stockholder, unless:
- prior to that date the board of directors approved either the business
combination or the transaction that resulted in the stockholder
becoming an interested stockholder;
- upon completion of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock outstanding at the time the transaction
began; or
- on or following that date, the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock that is not owned by the interested
stockholder.
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 of 10% or more of the
assets of the corporation involving the interested stockholder;
- subject to some exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the corporation
to the interested stockholder;
- any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series
of the corporation beneficially owned by 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 entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by the entity or person.
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Our bylaws provide that following the completion of this offering our board
of directors will be divided into three classes of directors designated Class I,
Class II and Class III. Each class will have a three-year term. Initially, two
directors will serve in Class I, two directors will serve in Class II and two
directors will serve in Class III. The initial directors in each class will hold
office for terms of one year, two years or three years. Thereafter each class
will serve a three-year term.
We believe that a classified board of directors will help to assure the
continuity and stability of the board of directors and our business strategies
and policies as determined by the board of directors, since a majority of the
directors at any given time will have had prior experience as our directors. We
believe that this, in turn, will permit the board of directors to more
effectively represent the interest of our stockholders. With a classified board
of directors, at least two annual meetings of our stockholders, instead of one,
will generally be required to effect a change in the majority of the board of
directors. As a result, a provision relating to a classified board of directors
may discourage proxy contests for the election of directors or purchases of a
substantial block of our common stock because its provisions could operate to
prevent obtaining control of the board of directors in a relatively short period
of time. The classification provision and the prohibition on stockholder action
by written consent also could have the effect of discouraging a third party from
making a tender offer or otherwise attempting to obtain control of us. Under
Delaware law, a director on a classified board may be removed by the
stockholders of the corporation only for cause.
Our bylaws provide that special meetings of the stockholders may be called
only by our President or at the direction of the board of directors, by our
Secretary. Our bylaws require advance written notice, which generally must be
received by our Secretary not less than 30 days prior to the meeting, by a
stockholder of a proposal or director nomination which a stockholder desires to
present at a meeting of stockholders. Our certificate of incorporation does not
include a provision for cumulative voting in the election of directors. Under
cumulative voting, a minority stockholder holding a sufficient number of shares
may be able to ensure the election of one or more directors. The absence of
cumulative voting may have the effect of limiting the ability of minority
stockholders to effect changes in the board of directors and, as a result, may
have the effect of deterring hostile takeover or delaying or preventing changes
in control or our management.
STOCKHOLDER RIGHTS PLAN
We have adopted a stockholder rights plan under which all outstanding
shares of common stock as of the effective date of the offering and each share
of common stock issued between the effective date of the offering and the
distribution date will be coupled with a stockholder right. Unless our board of
directors has previously approved the acquisition or offer, the distribution
date would occur upon the earlier of the following two events:
- The tenth day after the date of the first public announcement that a
person or group of affiliated or associated persons has acquired
beneficial ownership of 15% or more of our outstanding common stock.
The date of this announcement is referred to in the stockholder rights
plan as the stock acquisition date.
- The tenth business day after the commencement or announcement of a
tender offer or exchange offer that would result in a person or group
becoming the beneficial owner of 15% or more of our outstanding common
stock.
A person who becomes the beneficial owner of 15% or more of our outstanding
common stock is referred to in the stockholder rights plan as an acquiring
person.
Initially, the stockholder rights will be attached to the certificates
representing outstanding shares of common stock, and no separate rights
certificates will be distributed. Each right will
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entitle the holder to purchase one one-hundredth of a share of our Series C
preferred stock. Until the right is exercised, the holder of a stockholder
right, as such, will not have any rights as a stockholder, including the right
to receive dividends or to vote at stockholder meetings.
Stockholder rights are not exercisable until the distribution date, and
will expire at the close of business on the tenth anniversary of the date of
this prospectus, unless earlier redeemed or exchanged by us.
If any person becomes an acquiring person, each holder of a stockholder
right will be entitled to exercise the right and receive, instead of Series C
preferred stock, common stock having a value equal to two times the exercise
price of the stockholder right. All stockholder rights that are beneficially
owned by an acquiring person or its transferee will become null and void.
If at any time following a stock acquisition date (1) we are acquired in a
merger or other business combination, or (2) 50% or more of our assets, cash
flow or earning power is sold or transferred, each holder of a stockholder right
other than an acquiring person or its transferee shall have the right to
receive, upon exercise, common stock of the acquiring company having a value
equal to two times the exercise price of the right.
The purchase price payable, the number of one one-hundredths of a share of
Series C preferred stock or other securities or property issuable upon exercise
of rights and the number of rights outstanding are subject to adjustment from
time to time to prevent dilution. With some exceptions, no adjustment in the
purchase price or the number of shares of Series C preferred stock issuable upon
exercise of a stockholder right will be required until the cumulative adjustment
would require an increase or decrease of at least one percent in the purchase
price or number of shares for which a right is exercisable.
At any time until the earlier of (1) ten days after a stock acquisition
date and (2) the termination of the stockholder rights plan, we may redeem the
stockholder rights at a price of $0.01 per right. The terms of the stockholder
rights plan allow us to extend the ten day period referred to in the previous
sentence. At any time after a public announcement that a person has become an
acquiring person, we may exchange the stockholder rights at an exchange ratio of
one share of common stock, or one one-hundredth of a share of Series C preferred
stock per right.
The stockholder rights plan is designed to protect stockholders of Organic
in the event of unsolicited offers to acquire Organic and other coercive
takeover tactics that, in the opinion of our board of directors, could impair
its ability to represent stockholder interests. The provisions of the
stockholder rights plan may render an unsolicited takeover of Organic more
difficult or less likely to occur or might prevent such a takeover, even if such
takeover may offer our stockholders the opportunity to sell their stock at a
price above the prevailing market price and may be favored by the majority of
our stockholders. This could occur because the plan would substantially dilute a
person or group seeking to acquire us without approval of our board of
directors, making such an acquisition prohibitively expensive.
REGISTRATION RIGHTS
Under an investors' rights agreement entered into between us and Organic
Holdings, Inc. and Omnicom Group, we are obligated, under limited circumstances
and subject to specified conditions and limitations, to use our best efforts to
register the shares of common stock held by Organic Holdings, Inc., Omnicom
Group or their permitted transferees under the Securities Act.
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We must use our best efforts to register these shares, which are referred
to in the investors' rights agreement as registrable securities:
- if we receive written notice from Organic Holdings, Inc. or Omnicom Group
requesting that we effect a registration with respect to not less than
20% of the outstanding registrable securities, or a lesser percentage
where the anticipated aggregate offering price to the public will exceed
$10.0 million;
- if we decide to register our own securities, except in connection with
this offering; or
- if we receive written notice from holders of registrable securities
requesting that we effect a registration on Form S-3, which is a
short-form registration statement, with respect to registrable securities
the anticipated price to the public of which is at least $1.0 million, so
long as we are then eligible to use Form S-3, which at the earliest will
occur twelve calendar months after the closing of this offering.
Our obligation to register shares is subject to some conditions and
limitations. If requested to register registrable securities other than on Form
S-3, we can delay registration for up to 120 days, but not more than once in any
twelve-month period. We can delay Form S-3 registrations for up to 60 days, but
not more than once in any twelve-month period. In addition, unless the request
is for a registration on Form S-3, we are obligated to effect only two
registrations requested by the holders of registrable securities. In cases where
we decide to register our own securities, the managing underwriter may limit the
registrable securities to be included in the registration to not less than 20%
of the total amount of securities to be registered.
These registration rights terminate with respect to registrable securities
upon the first to occur of when the holder can transfer his, her or its
registrable securities under Rule 144 in any 90-day period or five years after
the closing of this offering.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is EquiServe Trust
Company, N.A. Its address is 150 Royall Street, Canton, Massachusetts 02021, and
its telephone number is (781) 575-3400.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of common stock in the public market could
adversely affect prevailing market prices. As described below, no shares
currently outstanding will be available for sale immediately after this offering
because of contractual restrictions on resale. Sales of substantial amounts of
our common stock in the public market after the restrictions lapse or are
released could adversely affect the prevailing market price and impair our
ability to raise equity capital in the future.
Upon completion of the offering, we will have 78,857,200 outstanding shares
of common stock. Of these shares, the 5,500,000 shares sold in the 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 or 10%
stockholders.
The remaining 73,357,200 shares outstanding are "restricted securities"
within the meaning of Rule 144. Restricted securities may be sold in the public
market only if registered or if they qualify for an exemption from registration
under Rules 144, 144(k) or 701 promulgated under the Securities Act, which are
summarized below. Sales of the restricted securities in the public market, or
the availability of such shares for sale, could adversely affect the market
price of the common stock.
Our directors, officers and stockholders have entered into lock-up
agreements in connection with this offering generally providing that they will
not offer, sell, contract to sell or grant any option to purchase or otherwise
dispose of our common stock or any securities exercisable for or convertible
into our common stock without the prior written consent of Goldman, Sachs & Co.
The lock-up restrictions will expire on the date which is 180 days after the
date of this prospectus. However, Goldman, Sachs & Co. may waive these
restrictions at any time in its discretion before the end of the 180 day lock-up
period. Notwithstanding possible earlier eligibility for sale under the
provisions of Rules 144, 144(k) and 701, shares subject to lock-up agreements
will not be salable until these agreements expire or are waived by Goldman,
Sachs & Co. Taking into account the lock-up agreements, and assuming Goldman,
Sachs & Co. does not release stockholders from these agreements, the following
shares will be eligible for sale in the public market at the following times:
- Beginning on the date of this prospectus, only the shares sold in the
offering will be immediately available for sale in the public market.
- Beginning 180 days after the date of this prospectus, shares
will be freely tradable pursuant to Rule 144(k), and an additional
shares will be eligible for sale subject to volume
limitations, as explained below, pursuant to Rules 144 and 701.
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 788,572 shares immediately after the
offering; or
- the average weekly trading volume of the 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. Under Rule 144(k), a person who is not deemed to have been our affiliate and
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, is
74
<PAGE> 75
entitled to sell these shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
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 these shares in reliance upon Rule 144 but without
compliance with specific restrictions. Rule 701 provides that affiliates may
sell their Rule 701 shares under Rule 144 without complying with the holding
period requirement and that non-affiliates may sell these shares in reliance on
Rule 144 without complying with the holding period, public information, volume
limitation or notice provisions of Rule 144.
In addition, we intend to file a registration statement on Form S-8 under
the Securities Act within 180 days following the date of this prospectus to
register shares to be issued pursuant to our employee benefit plans. As a
result, any options or rights exercised under the 1997 stock option plan, the
1999 long-term stock incentive plan, the 2000 employee stock purchase plan we
intend to adopt or any other benefit plan after the effectiveness of the
registration statement will also be freely tradable in the public market.
However, these 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 resaleable under Rule 701. As of September 30, 1999, there
were outstanding options for the purchase of 15,712,932 shares of common stock,
of which options to purchase 2,525,502 shares were vested and exercisable.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Morrison & Foerster LLP, San Francisco, California. Certain legal matters in
connection with the offering will be passed upon for the underwriters by Wilson
Sonsini Goodrich & Rosati, P.C., Palo Alto, California.
EXPERTS
The audited financial statements included in this prospectus have been so
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
We have filed with Securities and Exchange Commission in Washington, D.C. a
Registration Statement on Form S-1 under the Securities Act with respect to the
common stock offered in this prospectus. This prospectus, filed as part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement and its exhibits and schedules, certain portions of which
have been omitted as permitted by the rules and regulations of the SEC. For
further information about us and the common stock, we refer you to the
Registration Statement and to its exhibits and schedules. Statements in this
prospectus about the contents of any contract, agreement or other document are
not necessarily complete and, in each instance, we refer you to the copy of such
contract, agreement or document filed as an exhibit to the Registration
Statement, and each such statement being qualified in all respects by reference
to the document to which it refers. Anyone may inspect the Registration
Statement and its exhibits and schedules without charge at the public reference
facilities the SEC maintains at 450 Fifth Street, N.W., Washington, D.C. 20549
and at the regional offices of the SEC located at 7 World Trade Center, Suite
1300, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois, 60661. You may obtain copies of all or any part of these materials
from the SEC upon the payment of certain fees prescribed by the SEC. You may
also inspect these reports and
75
<PAGE> 76
other information without charge at a Web site maintained by the SEC. The
address of this site is http://www.sec.gov.
Upon completion of this offering, we will become subject to the
informational requirements of the Exchange Act and will be required to file
reports, proxy statements and other information with the SEC. You will be able
to inspect and copy these reports, proxy statements and other information at the
public reference facilities maintained by the SEC and at the SEC's regional
offices at the addresses noted above. You also will be able to obtain copies of
this material from the Public Reference Section of the SEC as described above,
or inspect them without charge at the SEC's Web site. Following the offering,
our common stock will be quoted on the Nasdaq National Market and you will be
able to inspect reports, proxy and information statements and other information
concerning us at the National Association of Securities Dealers, Inc. at 1735 K
Street, N.W., Washington, D.C. 20006.
76
<PAGE> 77
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of PricewaterhouseCoopers LLP, Independent
Accountants............................................... F-2
Consolidated Balance Sheet.................................. F-3
Consolidated Statement of Operations........................ F-4
Consolidated Statement of Stockholders' Equity.............. F-5
Consolidated Statement of Cash Flows........................ F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 78
REPORT OF PRICEWATERHOUSECOOPERS LLP,
INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Organic, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Organic,
Inc. ("the Company") at December 31, 1997, 1998 and September 30, 1999, and the
results of its operations and its cash flows for the years ended December 31,
1996, 1997, and 1998 and the nine months ended September 30, 1999, in conformity
with generally accepted accounting principles. 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 financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audits 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.
November 22, 1999
San Francisco, California
To the Board of Directors and Stockholders of Organic, Inc.
- ---------------
The above report will be signed upon completion of the stock split described in
Note 1 to the financial statements, assuming that from February 8, 2000, no
other events shall have occurred that would affect the accompanying financial
statements and notes thereto.
PricewaterhouseCoopers LLP
February 8, 2000
San Francisco, California
F-2
<PAGE> 79
ORGANIC, INC.
CONSOLIDATED BALANCE SHEET
AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
----------------- SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1999 1999
------- ------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 4,264 $ 1,667 $ 3,204
Short-term investments...................................... 1,871 400 --
Accounts receivable, net of allowance of $96 at December 31,
1997, $283 at December 31, 1998, and $564 at September 30,
1999...................................................... 2,597 5,447 18,084
Accounts receivable -- media spending....................... -- 1,472 2,762
Costs in excess of billings................................. 3 574 5,707
Deposits and prepaid expenses............................... 160 287 612
Other assets................................................ 4 108 318
Deferred tax asset, current................................. 988 -- --
------- ------- --------
Total current assets.................................... 9,887 9,955 30,687
Property and equipment, net................................. 1,313 6,570 9,604
Long-term investments....................................... 100 602 1,289
Deferred bank facility charge, net of accumulated
amortization of $504...................................... -- -- 17,647
Other assets................................................ 126 478 850
------- ------- --------
Total assets............................................ $11,426 $17,605 $ 60,077
======= ======= ========
LIABILITIES
Accounts payable............................................ $ 722 $ 3,899 $ 5,996
Current portion of long-term debt........................... 364 2,735 4,302
Current portion of obligations under capital leases......... -- 36 42
Accrued expenses............................................ 67 674 4,182
Accrued employee costs...................................... 93 187 3,157
Deferred revenue............................................ 351 1,013 3,106
Deferred revenue -- media spending.......................... -- 1,072 6,794
------- ------- --------
Total current liabilities............................... 1,597 9,616 27,579
Long-term debt, net of current portion...................... 604 553 430
Obligations under capital leases, net of current portion.... -- 108 108
Deferred rent............................................... -- 138 338
------- ------- --------
Total liabilities....................................... 2,201 10,415 28,455
------- ------- --------
Commitments and contingencies (Note 10)
Minority interest in consolidated subsidiary................ -- -- 280
STOCKHOLDERS' EQUITY
Convertible Series A preferred stock, $.0001 par value,
21,675,000 shares authorized, issued and outstanding at
December 31, 1997 and 1998 and September 30, 1999
(aggregate liquidation preference $64,664) (none pro
forma).................................................... 2 2 2 $ --
Convertible Series B preferred stock, $.0001 par value,
1,488,000 shares authorized, issued and outstanding at
September 30, 1999 (aggregate liquidation preference
$10,724) (none pro forma)................................. -- -- -- --
Common stock, $.0001 par value, 200,000,000 shares
authorized, 7,002, 902,817 and 1,619,124 shares issued and
outstanding at December 31, 1997, December 31, 1998 and
September 30, 1999, respectively (73,357,200 pro forma)... -- -- -- 7
Additional paid-in capital.................................. 11,250 13,584 89,816 89,818
Deferred compensation....................................... (61) (1,664) (37,993) (37,993)
Accumulated deficit......................................... (1,966) (4,732) (20,469) (20,469)
Accumulated other comprehensive income...................... -- -- (14) (14)
------- ------- -------- --------
Total stockholders' equity.............................. 9,225 7,190 31,342 $ 31,349
------- ------- -------- ========
Total liabilities and stockholders' equity.............. $11,426 $17,605 $ 60,077
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 80
ORGANIC, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- --------------------------
1996 1997 1998 1998 1999
----------- ------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................................. $ 4,294 $ 6,780 $ 27,734 $ 20,744 $ 51,781
Operating expenses:
Professional services (exclusive of $0,
$0, $183, $57 and $3,355 reported
below of stock-based compensation for
the years ended 1996, 1997 and 1998
and for the nine months ended
September 30, 1998 and 1999,
respectively)........................ 1,889 4,285 16,801 11,191 29,929
Selling, general and administrative
(exclusive of $53, $87, $511, $234
and $8,102 reported below of
stock-based compensation for the
years ended 1996, 1997 and 1998 and
for the nine months ended September
30, 1998 and 1999, respectively)..... 2,104 5,473 12,068 7,276 26,018
Stock compensation and other stock-
based charges........................ 53 87 694 291 11,457
----------- ------- ----------- ----------- -----------
Total operating expenses............. 4,046 9,845 29,563 18,758 67,404
----------- ------- ----------- ----------- -----------
Operating income (loss).................. 248 (3,065) (1,829) 1,986 (15,623)
Minority interest in operations of
consolidated subsidiary................ (106) -- -- -- (39)
Interest and other income, net........... 4 283 73 73 (11)
----------- ------- ----------- ----------- -----------
Net income (loss) before taxes....... 146 (2,782) (1,756) 2,059 (15,673)
Income tax expense (benefit)............. (91) (997) 1,010 913 64
----------- ------- ----------- ----------- -----------
Net income (loss).................... $ 237 $(1,785) $ (2,766) $ 1,146 $ (15,737)
=========== ======= =========== =========== ===========
Basic net income (loss) per share........ $ 26,286 $ (668) $ (10.81) $ 8.41 $ (13.01)
=========== ======= =========== =========== ===========
Diluted net income (loss) per share...... $ 0.00 $ (668) $ (10.81) $ 0.02 $ (13.01)
=========== ======= =========== =========== ===========
Weighted average common shares
outstanding:
Basic.................................. 9 2,671 255,888 136,259 1,209,591
=========== ======= =========== =========== ===========
Diluted................................ 65,025,009 2,671 255,888 65,424,719 1,209,591
=========== ======= =========== =========== ===========
Unaudited pro forma basic and diluted net
loss per share......................... $ (0.04) $ (0.22)
=========== ===========
Weighted average common shares
outstanding -- unaudited pro forma
basic and diluted...................... 65,280,888 70,389,036
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 81
ORGANIC, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------- ------------------ PAID-IN DEFERRED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT
---------- ------ --------- ------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995................ -- $-- -- $-- $ 900 $ (145) $ (418)
Deferred stock-based compensation........... -- -- -- -- 426 (426) --
Amortization of deferred stock-based
compensation.............................. -- -- -- -- -- 53 --
Cash received in connection with investments
in Organic Holdings prior to
reorganization............................ -- -- -- -- 400 -- --
Adjustments related to certain assets and
liabilities retained by Organic
Holdings.................................. -- -- -- -- (105) -- --
Net income.................................. -- -- -- -- -- -- 237
---------- -- --------- -- ------- -------- --------
BALANCE AT DECEMBER 31, 1996................ -- -- -- -- 1,621 (518) (181)
Issuance of Series A preferred stock on
reorganization............................ 18,323,712 2 9 -- (2) -- --
Issuance of Series A preferred stock........ 3,351,288 -- -- -- 10,000 -- --
Common stock options exercised.............. -- -- 6,993 -- 1 -- --
Amortization of deferred stock-based
compensation.............................. -- -- -- -- -- 87 --
Reduction in deferred stock-based
compensation expense related to stock
options cancelled......................... -- -- -- -- (370) 370 --
Net loss.................................... -- -- -- -- -- -- (1,785)
---------- -- --------- -- ------- -------- --------
BALANCE AT DECEMBER 31, 1997................ 21,675,000 2 7,002 -- 11,250 (61) (1,966)
Common stock options exercised.............. -- -- 895,815 -- 37 -- --
Deferred stock-based compensation........... -- -- -- -- 2,348 (2,348) --
Amortization of deferred stock-based
compensation.............................. -- -- -- -- -- 694 --
Reduction in deferred stock-based
compensation expense related to stock
options cancelled......................... -- -- -- -- (51) 51 --
Net loss.................................... -- -- -- -- -- -- (2,766)
---------- -- --------- -- ------- -------- --------
BALANCE AT DECEMBER 31, 1998................ 21,675,000 2 902,817 -- 13,584 (1,664) (4,732)
Net loss.................................... -- -- -- -- -- -- (15,737)
Foreign currency translation adjustment..... -- -- -- -- -- -- --
Comprehensive loss..........................
Issuance of Series B preferred stock, net of
issuance costs of $6...................... 1,488,000 -- -- -- 10,718 -- --
Common stock options exercised.............. -- -- 716,307 -- 81 -- --
Deferred stock-based compensation........... -- -- -- -- 49,011 (49,011) --
Amortization of deferred stock-based
compensation.............................. -- -- -- -- -- 10,953 --
Reduction in deferred stock-based
compensation expense related to stock
options cancelled......................... -- -- -- -- (1,729) 1,729 --
Issuance of common stock warrants........... -- -- -- -- 18,151 -- --
---------- -- --------- -- ------- -------- --------
BALANCE AT SEPTEMBER 30, 1999............... 23,163,000 $2 1,619,124 $-- $89,816 $(37,993) $(20,469)
========== == ========= == ======= ======== ========
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE STOCKHOLDERS'
INCOME EQUITY
------------- -------------
<S> <C> <C>
BALANCE AT DECEMBER 31, 1995................ $ -- $ 337
Deferred stock-based compensation........... -- --
Amortization of deferred stock-based
compensation.............................. -- 53
Cash received in connection with investments
in Organic Holdings prior to
reorganization............................ -- 400
Adjustments related to certain assets and
liabilities retained by Organic
Holdings.................................. -- (105)
Net income.................................. -- 237
---- --------
BALANCE AT DECEMBER 31, 1996................ -- 922
Issuance of Series A preferred stock on
reorganization............................ -- --
Issuance of Series A preferred stock........ -- 10,000
Common stock options exercised.............. -- 1
Amortization of deferred stock-based
compensation.............................. -- 87
Reduction in deferred stock-based
compensation expense related to stock
options cancelled......................... -- --
Net loss.................................... -- (1,785)
---- --------
BALANCE AT DECEMBER 31, 1997................ -- 9,225
Common stock options exercised.............. -- 37
Deferred stock-based compensation........... -- --
Amortization of deferred stock-based
compensation.............................. -- 694
Reduction in deferred stock-based
compensation expense related to stock
options cancelled......................... -- --
Net loss.................................... -- (2,766)
---- --------
BALANCE AT DECEMBER 31, 1998................ -- 7,190
--------
Net loss.................................... -- (15,737)
Foreign currency translation adjustment..... (14) (14)
--------
Comprehensive loss.......................... (15,751)
Issuance of Series B preferred stock, net of
issuance costs of $6...................... -- 10,718
Common stock options exercised.............. -- 81
Deferred stock-based compensation........... -- --
Amortization of deferred stock-based
compensation.............................. -- 10,953
Reduction in deferred stock-based
compensation expense related to stock
options cancelled......................... -- --
Issuance of common stock warrants........... -- 18,151
---- --------
BALANCE AT SEPTEMBER 30, 1999............... $(14) $ 31,342
==== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 82
ORGANIC, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- -----------------------
1996 1997 1998 1998 1999
----- ------- ------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $ 237 $(1,785) $(2,766) $ 1,146 $(15,737)
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization............................. 203 432 1,248 765 2,226
Stock-based compensation and other stock-based charges.... 53 87 694 291 11,457
Provision for doubtful accounts........................... -- -- 280 180 637
Write-off of fixed assets................................. -- -- 12 -- 1,171
Minority interest in operations of consolidated
subsidiary.............................................. -- -- -- -- 280
Provision (benefit) for deferred income taxes............. (91) (1,000) 1,000 830 --
Revenue recognized in exchange for investments............ (90) (100) (577) (252) (687)
Changes in assets and liabilities:
Increase in accounts receivable......................... (159) (1,911) (4,622) (6,651) (14,763)
(Increase) decrease in costs in excess of billings...... 40 34 (571) (355) (5,133)
Increase in deposits and prepaid expenses............... (22) (138) (127) (58) (325)
Increase in other assets................................ (72) (76) (480) (405) (465)
Increase in accounts payable and accrued expenses....... 87 603 3,878 1,406 8,576
Increase (decrease) in deferred revenue................. (139) 235 1,734 2,132 7,814
Increase in deferred rent............................... -- -- 138 19 200
Decrease in income taxes payable........................ (111) -- -- -- --
----- ------- ------- ------- --------
Net cash used in operating activities................. (64) (3,619) (159) (952) (4,749)
----- ------- ------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.......................... (509) (1,099) (5,579) (3,143) (6,195)
Purchase of short-term investments.......................... -- (2,271) (1,865) (1,865) (2,005)
Proceeds from the sale and maturity of short-term
investments............................................... -- 400 3,336 1,880 2,405
Proceeds from the sale of long-term investments............. -- -- 75 75 --
----- ------- ------- ------- --------
Net cash used in investing activities................. (509) (2,970) (4,033) (3,053) (5,795)
----- ------- ------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from investment in Organic Holdings................ 400 -- -- -- --
Proceeds from issuance of convertible preferred stock,
net....................................................... -- 10,000 -- -- 7,718
Proceeds from exercises of common stock options............. -- 1 37 34 81
Proceeds from long-term debt................................ 350 757 1,938 1,100 7,000
Payments on notes payable -- related party.................. -- (8) -- -- --
Payments on capital leases.................................. -- -- (25) (16) (29)
Payments on long-term debt.................................. -- (140) (355) (212) (2,675)
----- ------- ------- ------- --------
Net cash provided by financing activities............. 750 10,610 1,595 906 12,095
Effect of exchange rate changes on cash and cash
equivalents......................................... -- -- -- -- (14)
----- ------- ------- ------- --------
Net increase (decrease) in cash and cash
equivalents....................................... 177 4,021 (2,597) (3,099) 1,537
Cash and cash equivalents at beginning of period............ 66 243 4,264 4,264 1,667
----- ------- ------- ------- --------
Cash and cash equivalents at end of period.................. $ 243 $ 4,264 $ 1,667 $ 1,165 $ 3,204
===== ======= ======= ======= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash paid for interest...................................... $ 13 $ 44 $ 138 $ 81 $ 231
===== ======= ======= ======= ========
Cash paid for income taxes.................................. $ 115 $ 5 $ 90 $ 90 $ 86
===== ======= ======= ======= ========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Property and equipment acquired under financing
obligations............................................... $ -- $ -- $ 906 $ 906 $ 153
===== ======= ======= ======= ========
Conversion of debt into preferred stock..................... $ -- $ -- $ -- $ -- $ 3,000
===== ======= ======= ======= ========
Issuance of common stock warrants........................... $ -- $ -- $ -- $ -- $ 18,151
===== ======= ======= ======= ========
Notes payable issued for investment......................... $ 8 $ -- $ -- $ -- $ --
===== ======= ======= ======= ========
Deferred stock-based compensation........................... $ 426 $ -- $ 2,348 $ 1,058 $ 49,011
===== ======= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 83
ORGANIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
NOTE 1 -- THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Organic, Inc. ("Organic" or "the Company") is an international Internet
professional services firm focused on the customer-to-business market. Organic
provides services to our clients including management consulting, creative
design and engineering implementation services; marketing services; public
relations services; and customer service and fulfillment consulting and
transaction management services. The marketing and public relations services are
typically provided under long-term agreements. The customer service and
fulfillment consulting and transaction management services are typically
provided under contracts that range from a few months to over a year.
The accompanying financial statements present the results of operations of the
Company and its predecessor, Organic Online, Inc. On January 29, 1997, Organic
Online Inc. was renamed Organic Holdings, Inc. and the Company was formed as a
subsidiary under the name Organic Online, Inc. The Company exchanged 18,323,712
shares of Series A convertible preferred stock and nine shares of common stock
for substantially all of the assets and liabilities of Organic Holdings, Inc.
Certain non-operating assets and liabilities (approximately $0.3 million, net)
were retained by Organic Holdings, Inc. and have been excluded from the
accompanying financial statements. Because this reorganization did not result in
a change in control of the Company, there was no change in the basis of
accounting at the time of the reorganization. The Company changed its name from
Organic Online, Inc. to Organic, Inc. on January 28, 1999.
CONSOLIDATION AND BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying financial statements include the accounts of the Company's
wholly owned subsidiaries, Organic Media, Inc., Organic Online, Ltd., and
Organic.com Private Ltd. and its share of a 70% owned subsidiary, Organic Brazil
Comunicacao Interativa Limitada. All intercompany transactions have been
eliminated in consolidation.
On May 25, 1999 the Company's Board of Directors effected a 3-for-1 split of its
outstanding shares of common and preferred stock. Prior to this offering, the
Company intends to effect a 3-for-1 split of its outstanding shares of common
stock. All share and per share information included in these financial
statements have been retroactively adjusted to reflect these stock splits.
INTERIM FINANCIAL STATEMENTS
The accompanying interim consolidated financial statements and related footnote
information as of and for the nine months ended September 30, 1998 are unaudited
but include, in management's opinion, all adjustments, consisting of only normal
recurring adjustments, necessary to present fairly, in all material respects,
the consolidated financial position, results of operations and cash flows.
Results for the nine months ended September 30, 1998 and 1999 are not
necessarily indicative of results for the entire year.
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 dates of
F-7
<PAGE> 84
ORGANIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist primarily of cash and investments in a money
market fund. The Company considers all highly liquid investments with an
original maturity of three months or less to be cash equivalents. The Company
maintains its cash in bank deposit accounts that, at times, may exceed federally
insured limits.
SHORT-TERM INVESTMENTS
The Company's investments in certain debt and equity securities are categorized
as available for sale securities, as defined by Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". At December 31, 1997 and 1998, the fair value of
the investments approximated their cost.
CONCENTRATION OF CREDIT RISK
The Company extends credit to customers based on an evaluation of their
financial condition and collateral is not required. The Company performs ongoing
credit evaluations of its customers and maintains an allowance for doubtful
accounts. Revenue derived from customers outside the United States has not been
significant. At December 31, 1997 and 1998, and September 30, 1999, three
customers, two customers and one customer accounted for 48%, 24%, and 21% of
total accounts receivable, respectively. In the year ended 1996, three customers
accounted for 30% of the Company's revenues. In the year ended 1997, no
customers accounted for more than 10% of the Company's revenues. In the year
ended 1998, one customer accounted for 12% of the Company's revenues. For the
nine months ended September 30, 1998 and 1999, one customer and two customers
accounted for 16% and 22% of the Company's revenues, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost, less accumulated depreciation and
amortization. Depreciation and amortization are calculated using the
straight-line method over the estimated useful lives of the related assets
ranging from three to five years. Leasehold improvements and equipment under
capital leases are amortized over the lease term or estimated useful lives,
whichever is shorter. Repairs and maintenance costs are charged to expense when
incurred. When assets are sold or retired, the cost and the related accumulated
depreciation are removed from the accounts, and any resulting gain or loss is
included in operations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's cash and cash equivalents, short-term
investments, accounts receivable, and accounts payable approximate fair value
because of the short-term maturity of these instruments. Fair values are based
on quoted market prices and assumptions concerning the amount and timing of
estimated future cash flows and assumed discount rates reflecting varying
degrees of perceived risk. Based upon borrowing rates currently available to the
Company with similar terms, the carrying value of long-term debt and capital
lease obligations approximate fair value.
F-8
<PAGE> 85
ORGANIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
FOREIGN CURRENCY TRANSLATION
The financial position and results of operations of foreign subsidiaries are
measured using the currency of the respective countries as the functional
currency. Assets and liabilities are translated into the reporting currency
(U.S. dollars) at the foreign exchange rate in effect at the balance sheet date,
while revenues and expenses for the year are translated at the average exchange
rate in effect during the year. Translation gains and losses are not included in
determining net income or loss but are accumulated and reported in stockholders'
equity, as a component of other comprehensive income, on a net of tax basis. The
Company has not entered into hedging contracts during any of the periods
presented.
REVENUE RECOGNITION
Revenue on contracts is recorded using the percentage-of-completion method,
retainer basis, or on a time and materials basis. Under the
percentage-of-completion method, revenue on contracts is recognized based on the
percentage of costs incurred to date to total estimated project costs. Earned
but unbilled project revenues are classified under current assets as costs in
excess of billings. Deferred revenue includes billings in excess of project
revenues earned, amounts payable on behalf of and billed to customers, and cash
received and other amounts billed in advance for services to be performed. The
Company periodically evaluates the estimated costs to complete its contracts.
Provisions for losses are recognized on uncompleted contracts when they become
known. Under the retainer basis, which relates primarily to media and
communications, revenue on contracts is recognized over the life of the contract
on a straight-line basis. Under the time and materials basis, revenue on
contracts is recognized based on agreed-upon hourly rates for the positions that
recorded time on the project during the period plus any materials used and
charged against the project. Sales of other services are recorded as revenue
when services are rendered.
ADVERTISING EXPENSES
The Company expenses the cost of advertising and promoting its services as
incurred. These costs are included in selling, general and administrative on the
statement of operations.
INCOME TAXES
Amounts provided for income tax expense are based on income reported for
financial statement purposes and do not necessarily represent amounts currently
payable under tax laws. Deferred taxes, which arise principally from temporary
differences between the period in which certain income and expenses are
recognized for financial reporting purposes and the period in which they affect
taxable income, are included in the amounts provided for income taxes. Under
this method, the computation of deferred tax assets and liabilities give
recognition to enacted tax rates in effect in the year the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to amounts that the Company expects to
realize.
NET INCOME (LOSS) PER SHARE
The Company computes basic and diluted net income (loss) per share in accordance
with SFAS No. 128, "Earnings Per Share", and SEC Staff Accounting Bulletin
("SAB") No. 98. Under the provisions of SFAS No. 128 and SAB No. 98, basic net
income (loss) per share is computed by dividing net income (loss) available to
common stockholders for the period by the weighted
F-9
<PAGE> 86
ORGANIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
average number of common shares outstanding during the period. Diluted net
income per share is computed by dividing net income available to common
stockholders for the period by the weighted average number of common and common
equivalent shares outstanding during the period. For those periods in which the
Company has incurred a net loss, diluted net loss per share is equivalent to
basic net loss per share since the assumed exercise of the Company's stock
options and a warrant and the assumed conversion of the Company's preferred
stock would be anti-dilutive and, accordingly, have been excluded from the
calculation.
PRO FORMA NET LOSS PER SHARE (UNAUDITED)
Unaudited pro forma net loss per share for the year ended December 31, 1998 and
nine months ended September 30, 1999 included in the statement of operations is
computed using the weighted average number of common shares outstanding,
adjusted to include the pro forma effects of the conversion of Series A and
Series B convertible preferred stock and the exercise of a warrant for common
stock as if such conversion had occurred on January 1, 1998 for the year ended
December 31, 1998 and on January 1, 1999 for the nine months ended September 30,
1999, or at the date of original issuance, if later.
PRO FORMA BALANCE SHEET (UNAUDITED)
Effective upon the closing of the Company's proposed initial public offering,
subject to certain conditions as described in Note 6, the outstanding shares of
Series A and Series B convertible preferred stock will automatically convert
into 65,025,000 and 4,464,000 shares of common stock, respectively, and a
warrant is exercisable for 2,249,076 shares of common stock. The unaudited pro
forma amounts included on the balance sheet reflect these conversions and the
assumed exercise, as if they had occurred on September 30, 1999.
COMPREHENSIVE INCOME
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income", which
requires that an enterprise report and display, by major components and as a
single total, the change in its net assets during the period from non-owner
sources. The adoption of this Statement did not have an impact on the Company's
consolidated financial position, results of operations or cash flows.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation in accordance with the
provisions of Accounting Principles Board Opinion ("APB") No. 25, "Accounting
for Stock Issued to Employees", and complies with the disclosure provisions of
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 grant
between the fair value of the Company's common stock and the exercise price of
the options to purchase that stock.
SEGMENT REPORTING
The Company manages its operations on a geographical basis and, to date, has
provided services primarily in the United States. Through September 30, 1999,
foreign operations have not been significant in either revenue or investment in
long-lived assets. Revenues from major customers are disclosed above in
"Concentration of Credit Risk".
F-10
<PAGE> 87
ORGANIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities". The
Statement will require the Company to recognize all derivatives on the balance
sheet at fair value. SFAS No. 133 requires that derivative instruments used to
hedge be identified specifically to assets, liabilities, unrecognized firm
commitments or forecasted transactions. The gains or losses resulting from
changes in the fair value of derivative instruments will either be recognized in
current earnings or in other comprehensive income, depending on the use of the
derivative and whether the hedging instrument is effective or ineffective when
hedging changes in fair value or cash flows. This Statement, as amended, is
effective for fiscal years beginning after June 15, 2000. Management believes
that the adoption of this Statement will not have a material effect on the
Company's consolidated financial position or results of operations.
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". This SOP provides guidance on
accounting for certain costs in connection with obtaining or developing computer
software for internal use and requires that entities capitalize such costs once
certain criteria are met. The Company adopted SOP 98-1 as of January 1, 1999.
The adoption of this SOP did not have a material effect on the Company's
consolidated financial position or results of operations.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities". This SOP requires that entities expense start-up costs and
organization costs as they are incurred. The Company adopted SOP 98-5 as of
January 1, 1999. The adoption of this SOP did not have a material effect on the
Company's consolidated financial position or results of operations.
NOTE 2 -- PROPERTY AND EQUIPMENT, NET
Property and equipment are carried at cost, less accumulated depreciation and
amortization. As of December 31, 1997 and 1998, and September 30, 1999, the
amounts were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1997 1998 1999
------ ------- -------------
<S> <C> <C> <C>
Computer hardware..................................... $1,322 $ 4,354 $ 7,780
Computer software..................................... 208 1,461 1,707
Equipment............................................. 159 721 986
Furniture............................................. 40 243 278
Leasehold improvements................................ 214 1,638 2,432
------ ------- -------
$1,943 $ 8,417 $13,183
Less: accumulated depreciation and amortization....... (630) (1,847) (3,579)
------ ------- -------
$1,313 $ 6,570 $ 9,604
====== ======= =======
</TABLE>
Depreciation expense for the years ended December 31, 1996, 1997 and 1998, and
for the nine months ended September 30, 1998 and 1999 were $196, $401, $1,220,
$744 and $2,144, respectively.
F-11
<PAGE> 88
ORGANIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
Included in the above is equipment acquired under capital leases of $169 at
December 31, 1998 and $204 at September 30, 1999. Accumulated amortization on
equipment acquired under capital leases was $28 and $66 at December 31, 1998 and
September 30, 1999 respectively.
NOTE 3 -- INVESTMENTS
The Company's investments comprise of common stock received from its customers
in exchange for services. The common stock, all of which is from privately held
companies, has been recorded on the financial statements based on the estimated
fair value of the services provided to the customers. The Company records a
writedown for any declines in value that are judged to be other than temporary.
During the years ended December 31, 1996, 1997 and 1998, and nine months ended
September 30, 1998 and 1999, the Company received common stock that was recorded
at $90, $100, $577, $252 and $687, respectively.
NOTE 4 -- ACCRUED EXPENSES AND EMPLOYEE COSTS
The following table presents the detailed categories of the Company's accrued
expenses and employee costs that, on an individual basis, exceed five percent of
total current liabilities:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- SEPTEMBER 30,
1997 1998 1999
---- ---- -------------
<S> <C> <C> <C>
Accrued vacation....................................... $ 92 $183 $ 639
Accrued bonuses........................................ -- -- 2,407
Other.................................................. 68 678 4,293
---- ---- ------
$160 $861 $7,339
==== ==== ======
</TABLE>
NOTE 5 -- DEBT
The Company had the following debt outstanding at December 31, 1998 and 1999 and
September 30, 1999:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
1997 1998 1999
----- ------- -------------
<S> <C> <C> <C>
Revolving credit facility.............................. $ -- $ -- $ 4,000
Amounts borrowed under equipment line of credit........ 968 2,551 --
Amounts borrowed under software financing agreements... -- 737 732
----- ------- -------
968 3,288 4,732
Less: current portion.................................. (364) (2,735) (4,302)
----- ------- -------
Total long-term debt................................... $ 604 $ 553 $ 430
===== ======= =======
</TABLE>
The revolving credit facility was established in August 1999 with Omnicom Group
and allows the Company to borrow up to $30.0 million at the lender's commercial
paper rate, based on the published 30 day commercial lending rate in The Wall
Street Journal at the last day of the month, plus 3.0% until the closing of the
Company's proposed initial public offering. Thereafter, the Company may borrow
up to $15.0 million at the lender's commercial paper rate plus 1.25%
F-12
<PAGE> 89
ORGANIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
through September 30, 2002. Interest is payable quarterly. A portion of the
funds was used to repay the amounts borrowed under the equipment line of credit.
Borrowings under the revolving loan agreement are collateralized by certain
long-term investments of the Company and are subject to certain financial
covenants, including minimum revenue targets and limitations on capital
equipment purchases. At September 30, 1999, the Company was in compliance with
these covenants.
In connection with this agreement, the Company issued warrants to purchase
2,249,076 shares of its common stock at $0.0033 per share (Note 6).
The equipment line of credit, together with an additional credit agreement
permitting borrowings through September 30, 1999 with the same financial
institution, allows the Company to borrow up to $1.5 million for equipment
purchases and $2.5 million limited to 75% of eligible accounts receivable and
any outstanding letters of credit up to $1.0 million. At September 30, 1999, the
Company had $144 in outstanding letters of credit under this agreement. Interest
for amounts borrowed under the equipment line of credit was at the bank's prime
lending rate plus 0.50%.
The amounts borrowed under the software financing agreements bear interest at
rates of 6.89% and 8.25% and are repayable $73, $307, $329, and $22, during the
three months ended December 31, 1999 and for each of the years through 2002,
respectively.
NOTE 6 -- COMMON AND CONVERTIBLE PREFERRED STOCK
COMMON AND CONVERTIBLE PREFERRED STOCK
At September 30, 1999, the Company had authorized 35,000,000 shares and
25,000,000 shares of common stock and preferred stock, respectively. Of the
25,000,000 authorized shares of preferred stock, the Company has designated
21,675,000 shares as Series A preferred stock and 1,488,000 shares as Series B
preferred stock. In November 1999, the Company's Board of Directors approved an
amendment to the Articles of Incorporation to increase the number of authorized
common shares to 200,000,000.
VOTING RIGHTS
Preferred stockholders receive one vote for each share of common stock into
which the preferred shares are convertible.
LIQUIDATION PREFERENCE
In the event of liquidation, Series A and B preferred stockholders are entitled
to receive $2.9833 and $7.2067 per share, respectively, plus any declared but
unpaid dividends prior to and in preference to any distribution to the holders
of the Company's common stock. If assets remain upon completion of this
liquidation distribution, the remaining assets of the Company would be
distributed ratably among the holders of the Company's common stock.
DIVIDENDS
Holders of Series A and B preferred stock are entitled to receive noncumulative
dividends at an annual rate of $0.1667 per share, payable when and if declared
by the Company's Board of Directors. The Company may not pay a dividend on its
common stock until Series A and B preferred stock dividends have been paid. The
Company may not pay a dividend if the resulting
F-13
<PAGE> 90
ORGANIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
aggregate stockholders' equity of the Company falls below $14.0 million. The
Company's Board of Directors through September 30, 1999 has declared no
dividends.
CONVERSION
Currently, at the option of the holder, each share of Series A and B preferred
stock is convertible into one share of the Company's common stock, subject to
adjustments under certain conditions as provided for in the Company's Articles
of Incorporation. Following the 3-for-1 split of the Company's outstanding
common stock, the conversion rate will be one share of preferred stock for three
shares of common stock. Each share of Series A and B preferred stock will be
automatically converted into common stock upon the earlier of i) a vote or
written consent by at least a majority of such shares when fewer than 2,100,000
shares of Series A preferred stock remain outstanding or ii) the closing of the
sale of the Company's common stock at a public offering price equal to or
exceeding $1.11 per share with aggregate proceeds of at least $7.5 million.
WARRANTS
In connection with the revolving credit facility (Note 5), the Company issued a
warrant that entitles the lender to purchase 2,249,076 shares of the Company's
common stock at an exercise price of $0.0033 per share. The warrant is
exercisable until the earlier of an initial public offering of the Company's
common stock or the expiration of the credit facility on September 30, 2002. The
fair value of the warrant of $8.07 per share was estimated using the
Black-Scholes pricing model with the following weighted average assumptions:
risk-free interest rate of 6.77%, expected life of six months, expected dividend
rate of 0%, and volatility of 110%. The Company recorded $18,151 as a deferred
bank facility charge that is being amortized on a straight-line basis over the
life of the revolving credit facility of three years.
NOTE 7 -- STOCK OPTIONS
In April 1997, the Company adopted the 1997 Stock Option Plan ("the Plan") which
authorizes the Board of Directors to grant incentive stock options and
nonstatutory stock options. Incentive stock options ("ISO") may be granted only
to Company employees (including officers and directors who are also employees).
Nonstatutory stock options ("NSO") may be granted to employees, outside
directors and consultants. The maximum number of options, as amended, cannot
exceed 22,725,000 shares of the Company's common stock.
The stock options vest at a rate of 25% of the options granted after one year
from date of grant, with the remaining options vesting on a pro rata monthly
basis over the next 36 months. Options generally expire ten years from the date
of grant; however, in the case of a stock option granted to a person owning more
than 10% of the combined voting power of all classes of the Company's stock, the
term of the option will be five years from the date of the grant. All cancelled
or expired options become available for future grants.
In accordance with the Plan, the stated exercise price shall not be less than
85% of the estimated fair value of the shares on the date of grant as determined
by the Board of Directors, provided, however, that (i) the exercise price of an
ISO and NSO shall not be less than 100% and 85% of the estimated fair value of
the shares on the date of grant, respectively, and (ii) the exercise price of an
ISO and NSO granted to a 10% shareholder shall not be less than 110% of the
estimated fair value of the shares on the date of grant, respectively.
F-14
<PAGE> 91
ORGANIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
The Company accounts for the Plan in accordance with APB No. 25, "Accounting for
Stock Issued to Employees" and related Interpretations. In connection with
certain stock grants, the Company recognized deferred compensation that is being
amortized over the vesting period of the options. Total stock-based compensation
expense for the years ended December 31, 1996, 1997 and 1998 and nine months
ended September 30, 1998 and 1999 was $53, $87, $694, $291, and $10,953,
respectively, for options granted to employees where the deemed fair value of
the stock for accounting purposes exceeded the exercise price of the option at
the grant date.
The following table summarizes the transactions under the Plan.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, FOR THE NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------- -----------------------------------------------
1997 1998 1998 1999
---------------------- ---------------------- ---------------------- ----------------------
WEIGHTED- WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
---------- --------- ---------- --------- ---------- --------- ---------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of
period............... -- $ -- 8,230,005 $0.09 8,230,005 $0.09 10,649,958 $0.13
Granted.............. 10,364,850 0.09 7,543,575 0.14 4,005,450 0.10 9,528,150 1.14
Exercised............ (6,993) 0.10 (895,815) 0.04 (348,606) 0.10 (716,307) 0.11
Expired or
cancelled.......... (2,127,852) 0.10 (4,227,807) 0.10 (2,935,179) 0.10 (3,748,869) 0.19
---------- ---------- ---------- ----------
Options outstanding,
end of period........ 8,230,005 $0.09 10,649,958 $0.13 8,951,670 $0.09 15,712,932 $0.72
========== ========== ========== ==========
Options exercisable,
end of period........ 1,870,734 $0.08 1,451,949 $0.10 1,879,107 $0.08 2,525,502 $0.09
========== ========== ========== ==========
</TABLE>
The following table summarizes information about stock options outstanding under
the Plan.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AT OPTIONS EXERCISABLE AT
SEPTEMBER 30, 1999 SEPTEMBER 30, 1999
------------------------------------------ -----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
NUMBER REMAINING EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
------------------------ ----------- ---------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 0.00...................... 239,202 10.79 years $0.00 79,827 $0.00
0.10 - 0.56...................... 7,732,080 10.08 0.20 2,445,675 0.10
0.67 - 1.33...................... 5,050,650 9.73 1.02 -- --
1.67 - 2.00...................... 2,691,000 9.92 1.75 -- --
---------- ---------
15,712,932 9.95 $0.72 2,525,502 $0.09
========== =========
</TABLE>
At December 31, 1997 and 1998, and September 30, 1998 and 1999, 14,488,002,
11,172,234, 13,417,731, and 5,392,953 shares, respectively, were available for
future stock option grants under the Plan.
F-15
<PAGE> 92
ORGANIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
The weighted-average fair value of Plan options granted was $0.02 and $0.34 for
the years ended December 31, 1997 and 1998, respectively, and $0.28 and $5.38
for the nine months ended September 30, 1998 and 1999. The fair value of each
option grant has been estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS
YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- -------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Risk-free interest rates.......................... 6.09% 5.72% 5.12% 5.12% 5.78%
Expected lives (years)............................ 4 4 4 4 4
Expected dividend yields.......................... 0% 0% 0% 0% 0%
Expected volatility............................... 0% 0% 0% 0% 0%
</TABLE>
Because the determination of fair value of all options granted after such time
as the Company becomes a public entity will include an expected volatility
factor in addition to the factors described above and because additional grants
are made each year, the results below may not be representative of future
periods.
Had the Company accounted for compensation expense on stock options granted to
employees according to SFAS No. 123, "Accounting for Stock-Based Compensation",
the Company's net income (loss) and net income (loss) per share would have
decreased (increased) to the pro forma amounts indicated in the following table.
Since no options were granted prior to 1997 under this Plan, the pro forma
results indicated for those periods presented in the following table do not
reflect the full effect of amortization over the entire vesting period, and
thus, may not be representative of future periods.
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS
YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------------ ------------------------
1997 1998 1998 1999
------- ------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net income (loss) -- as reported.......... $(1,785) $(2,766) $1,146 $(15,737)
Net income (loss) -- pro forma............ (1,808) (2,883) 1,079 (16,614)
Basic net income per common share -- as
reported................................ $ (668) $(10.81) $ 8.41 $ (13.01)
Basic net income per common share -- pro
forma................................... (677) (11.27) 7.92 (13.73)
Diluted net income (loss) per common
share -- as reported.................... $ (668) $(10.81) $ 0.02 $ (13.01)
Diluted net income (loss) per common
share -- pro forma...................... (677) (11.27) 0.02 (13.73)
</TABLE>
F-16
<PAGE> 93
ORGANIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
Prior to the adoption of the 1997 Stock Plan, the Company did not have a formal
stock option plan and options were granted to employees and directors to
purchase shares of the Company's predecessor, Organic Online Inc., at various
exercise prices. For the years ended December 31, 1996, 1997 and 1998, and nine
months ended September 30, 1998 and 1999, the employees and directors were
granted 58,000, 24,000, 5,000, 5,000, and 225,409 options, respectively, under
this arrangement. As of September 30, 1999, the number of options outstanding
under this arrangement was 364,517.
NOTE 8 -- INCOME TAXES
As of September 30, 1999, the Company had net operating loss carryforwards of
approximately $2.7 million for federal and state income tax purposes arising
from the taxable loss in the years ended December 31, 1997 and 1998. The federal
net operating loss carryforwards expire in the years 2012 and 2018,
respectively. The state net operating loss carryforwards expire in the years
2005. Valuation allowances have been provided against the net deferred tax
assets due to the uncertainty of their realization.
The Company's ability to utilize its net operating loss carryforwards to offset
future taxable income may be subject to restrictions attributable to equity
transactions that result in changes in ownership as defined in the Tax Reform
Act of 1986. These restrictions may limit, on an annual basis, the Company's
future use of its net operating loss carryforwards.
The difference between the income tax expense (benefit) at the federal statutory
rate of 34% and the Company's effective tax rate is due primarily to net
operating loss carryforwards and the valuation allowance.
Effective January 1, 1996, the Company became an S-Corporation and accordingly,
was not subject to income tax in 1996. The tax benefit in 1996 represents the
reversal of the net deferred tax liabilities at the date the Company changed
from a C-Corporation to an S-Corporation. Upon the formation of the Company into
Organic Online (see Note 1), in January 1997, the Company operated as a
C-Corporation.
F-17
<PAGE> 94
ORGANIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
The components of income tax expense (benefit) were as follows:
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS
YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
----------------- --------------------
1997 1998 1998 1999
------- ------ ----------- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
Current
Federal...................................... $ -- $ -- $ 60 $--
State........................................ 3 10 23 9
Foreign...................................... -- -- -- 55
------- ------ ---- ---
Total currently payable................... 3 10 83 64
------- ------ ---- ---
Deferred
Federal...................................... (753) 753 629 --
State........................................ (247) 247 201 --
------- ------ ---- ---
Total deferred............................ (1,000) 1,000 830 --
------- ------ ---- ---
Total income tax expense (benefit)........ $ (997) $1,010 $913 $64
======= ====== ==== ===
</TABLE>
The components of the deferred tax assets of the Company were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1997 1998 1999
------ ------- -------------
<S> <C> <C> <C>
Accumulated depreciation.............................. $ 12 $ (26) $ 203
Compensation costs.................................... -- -- 1,365
Organizational costs.................................. -- 6 11
Tax credits........................................... -- 9 66
Accruals and reserves................................. 132 243 2,028
Net operating loss carryforward....................... 856 1,240 1,371
------ ------- -------
Gross deferred tax asset......................... 1,000 1,472 5,044
Valuation allowance................................... -- (1,472) (5,044)
------ ------- -------
Net deferred tax asset........................... $1,000 $ -- $ --
====== ======= =======
</TABLE>
NOTE 9 -- 401(k) SAVINGS PLAN
In January 1997, the Company established a defined contribution plan authorized
under Section 401(k) of the Internal Revenue Code. All benefits-eligible
employees with at least one month of service are eligible to participate in the
plan. Employees may contribute up to 20 percent of their pre-tax covered
compensation through salary deductions. In 1999, the Company began contributing
25 percent of every pre-tax dollar an employee contributes up to the first 5
percent of the employee's pre-tax covered compensation. Employees are 50 percent
vested in the employer's contributions after one year of service and fully
vested after two years.
F-18
<PAGE> 95
ORGANIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
All employer contributions are tax deductible by the Company. The Company's
matching contribution expense was $57 for the nine months ended September 30,
1999. In addition, the Company may make a discretionary profit-sharing
contribution to all eligible employees, regardless of whether an employee is
participating in the 401(k) plan. However, no such contributions have been made
through September 30, 1999.
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
The Company leases various office space and office equipment under
non-cancelable operating and capital leases with initial or remaining terms of
one year or more. Total rent expense under operating leases was $70, $207, and
$876 for the years ended December 31, 1996, 1997 and 1998, respectively, and
$526 and $1,815 for the nine months ended September 30, 1998 and 1999,
respectively. At September 30, 1999, the future minimum lease payments under all
lease arrangements are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
<S> <C> <C>
Three months ending December 31, 1999....................... $ 546 $ 15
Years ending December 31, 2000.............................. 2,050 62
2001...................................................... 1,607 49
2002...................................................... 1,553 46
2003...................................................... 1,354 26
2004...................................................... 1,118 1
Thereafter.................................................. 4,368 --
------- ----
Total minimum lease payments................................ $12,596 199
=======
Less: amount representing interest.......................... 49
----
Present value of net minimum payments....................... 150
Less: current portion of obligations under capital leases... 42
----
Long-term obligations under capital leases.................. $108
====
</TABLE>
The Company has one lease in San Francisco, California that contains an
escalation clause that will become effective upon the consummation of the
proposed initial public offering. There are no restrictions on paying dividends,
incurring additional debt or negotiating additional leases under the terms of
the present lease agreements.
F-19
<PAGE> 96
ORGANIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
NOTE 11 -- EARNINGS PER SHARE
The following table presents a reconciliation of basic and diluted net income
per share for the year ended December 31, 1996 and nine months ended September
30, 1998.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
YEAR ENDED ENDED SEPTEMBER 30,
DECEMBER 31, 1996 1998
---------------------- -----------------------
BASIC DILUTED BASIC DILUTED
------- ----------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net income applicable to common stock... $ 237 $ 237 $ 1,146 $ 1,146
======= =========== ======== ===========
Weighted average common shares
outstanding........................... 9 9 136,259 136,259
Additional shares due to:
Assumed conversion of dilutive stock
options............................ -- -- -- 263,460
Assumed conversion of Series A
convertible preferred stock........ -- 65,025,000 -- 65,025,000
------- ----------- -------- -----------
Adjusted weighted average common shares
outstanding........................... 9 65,025,009 136,259 65,424,719
======= =========== ======== ===========
Net income per share.................... $26,286 $ 0.00 $ 8.41 $ 0.02
======= =========== ======== ===========
</TABLE>
The following table sets forth common stock equivalents that were not included
in the calculation of diluted net loss per share because to do so would be
anti-dilutive for those periods presented.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, FOR THE NINE MONTHS
------------------------ ENDED SEPTEMBER 30,
1997 1998 1999
---------- ---------- -------------------
<S> <C> <C> <C>
Weighted average effect of common stock
equivalents:
Series A convertible preferred
stock............................. 65,025,000 65,025,000 65,025,000
Series B convertible preferred
stock............................. -- -- 4,006,154
Common stock options................. 2,671 2,313,711 9,056,148
Common stock warrants................ -- -- 148,291
</TABLE>
NOTE 12 -- RELATED PARTY TRANSACTIONS
On March 31, 1999, the Company entered into a promissory note agreement for $200
with an Executive of the Company. This note bears an annual interest rate of 7%
with interest payments due every other year beginning on March 31, 2001. Under
the terms of this agreement, the entire principal amount will become payable
upon the consummation of the Company's proposed initial public offering, as long
as the offering price is at least $10 per share and the aggregate proceeds are
at least $75.0 million.
Concurrent with the reorganization in January 1997, the Company issued 3,351,288
shares of Series A convertible preferred stock to Omnicom Group for cash
proceeds of $10.0 million. In
F-20
<PAGE> 97
ORGANIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
February 1999, the Company issued 1,488,000 shares of Series B convertible
preferred stock to Omnicom Group for net cash proceeds of $7,718 plus the
settlement of a $3.0 million short-term bridge loan that was obtained from
Omnicom Group in January 1999. See Note 5 and 6 for detailed information on the
Company's revolving credit facility agreement with Omnicom Group and related
warrants. In the future, the Company expects to have transactions in the
ordinary course of business with Omnicom Group.
NOTE 13 -- SUBSEQUENT EVENTS
On November 4, 1999, the Company entered into a lease for office space in New
York. The office space consists of approximately 110,000 square feet and has a
lease term of 15 years, with a projected commencement date of June 1, 2000. The
monthly lease payment will be approximately $275, $298, and $321 during the
first five years, subsequent five years and last five years, respectively. The
lease has been guaranteed by Omnicom Group for up to $4.5 million.
On November 8, 1999, the Company entered into a lease for new headquarters
office space in San Francisco. In accordance with this lease agreement, the
Company provided a $10.0 million letter of credit to the landlord to secure this
space. The office space consists of approximately 212,000 square feet and has a
lease term of 10 years, with a projected commencement date of September 1, 2000.
The anticipated monthly lease payment during the first year will be
approximately $705 with an annual escalation clause of approximately 4%. The
Company expects to sublease a portion of the office space.
In October 1999, the Company's Board of Directors approved 360,000 options at
$2.33 per share. In November 1999 the Company's Board of Directors approved
5,406,375 stock options at $2.67 per share, an increase in the number of
authorized common shares to 200,000,000, adopted the 1999 long-term stock
incentive plan of 10,500,000 authorized shares, and the 2000 employee stock
purchase plan of 10,000,000 authorized shares.
F-21
<PAGE> 98
UNDERWRITING
Organic and the underwriters named below (the "Underwriters") have entered
into an underwriting agreement with respect to the shares being offered. Subject
to the conditions in the underwriting agreement, each underwriter has severally
agreed to purchase the number of shares indicated in the following table.
Goldman, Sachs & Co., Donaldson, Lufkin & Jenrette Securities Corporation and
Thomas Weisel Partners LLC are the representatives of the underwriters.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Goldman, Sachs & Co. .......................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
Thomas Weisel Partners LLC..................................
---------
Total............................................. 5,500,000
=========
</TABLE>
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 825,000
shares from us 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 approximately the same proportion as set forth in
the table above.
The underwriting fee is equal to the public offering price per share of
common stock less the amount paid by the underwriters to Organic per share of
common stock. The underwriting fee is expected to be 7% of the initial public
offering price.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by Organic. Such amounts are
shown assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.
<TABLE>
<CAPTION>
Paid By Organic No Exercise Full Exercise
--------------- ----------- -------------
<S> <C> <C>
Per share............................................... $ $
Total................................................... $ $
</TABLE>
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.
Each officer, director and shareholder of Organic has agreed with the
underwriters not to dispose of or hedge any of the common stock or securities
convertible into or exchangeable for shares of common stock during the period
from the date of this prospectus continuing through the date 180 days after the
date of this prospectus, except with the prior written consent of Goldman, Sachs
& Co. This agreement does not apply to any existing employee benefit plan and
does not apply to any of the shares offered and sold pursuant to the directed
share program described below. However, Goldman, Sachs & Co. may waive this
lock-up restrictions at any time before the end of the 180 day lock-up period.
See "Shares Eligible for Future Sale" for a discussion of other transfer
restrictions.
Prior to the offering, there has been no public market for the shares. The
initial public offering price for the common stock will be negotiated among us
and the representatives of the underwriters. The primary factors to be
considered in determining the initial public offering price
U-1
<PAGE> 99
of the shares, in addition to prevailing market conditions, will be Organic's
historical performance, estimates of the business potential and earnings
prospects of Organic, an assessment of Organic's management and the
consideration of the above factors in relation to market valuation of companies
in related businesses.
The common stock has been approved for quotation on the Nasdaq National
Market under the symbol "OGNC".
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 covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect that 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. Organic currently
anticipates that it will undertake a directed share program, pursuant to which
it will direct the underwriters to reserve up to fifteen percent of the shares
of its common stock for sale at the initial public offering price to directors,
officers and friends of Organic. In addition, Organic has requested that the
underwriters reserve 385,000 shares of its common stock for sale at the initial
public offering price to DaimlerChrysler, one of Organic's clients. The number
of shares of common stock available for sale to the general public will be
reduced to the extent such persons purchase any reserved shares. Any shares not
so purchased will be offered by the underwriters to the general public on the
same basis as other shares offered hereby.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since December
1998 Thomas Weisel Partners has been named as a lead or co-manager of 106 filed
public offerings of equity securities, of which 79 have been completed, and has
acted as a syndicate member in an additional 54 public offerings of equity
securities. Thomas Weisel Partners does not have any material relationship with
us or any of our officers, directors or other controlling persons, except for
our contractual relationship with us under the terms of the underwriting
agreement entered into in connection with this offering.
Organic estimates that its share of the total expenses of the offering,
excluding underwriting discounts and commissions, will be approximately
$ .
Organic has agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act.
U-2
<PAGE> 100
INSIDE BACK COVER:
ORGANIC LOGO
SUBHEAD: Key Areas of Focus
IMAGE 1: photo of Organic employees
SUBHEAD 1: Expand Client Engagements
SUBHEAD 2: Attaction & Retention
IMAGE 2: photo of Organic employees
SUBHEAD 3: Understaning & Innovation
SUBHEAD 4: Knowledge Management
IMAGE 3: photo of Organic employees
<PAGE> 101
- ----------------------------------------------------------
- ----------------------------------------------------------
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
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary...................... 3
Risk Factors............................ 8
Special Note Regarding Forward-Looking
Statements............................ 21
Use of Proceeds......................... 22
Dividend Policy......................... 22
Capitalization.......................... 23
Dilution................................ 24
Selected Consolidated Financial Data.... 25
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 27
Business................................ 38
Management.............................. 54
Related Party Transactions.............. 66
Principal Stockholders.................. 68
Description of Capital Stock............ 69
Shares Eligible for Future Sale......... 74
Legal Matters........................... 75
Experts................................. 75
Available Information................... 75
Index to Consolidated Financial
Statements............................ F-1
Underwriting............................ U-1
</TABLE>
-------------------------
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 underwriter and with respect to an unsold allotment or
subscription.
- ----------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
5,500,000 Shares
ORGANIC, INC.
Common Stock
-------------------------
[Organic logo]
-------------------------
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
THOMAS WEISEL PARTNERS LLC
Representatives of the Underwriters
- ----------------------------------------------------------
- ----------------------------------------------------------
<PAGE> 102
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses to be paid by the Registrant in connection with the distribution of
the securities being registered, other than underwriting discounts and
commissions, are as follows:
<TABLE>
<CAPTION>
AMOUNT*
----------
<S> <C>
Securities and Exchange Commission Filing Fee............... $ 24,428
NASD Filing Fee............................................. 8,000
Nasdaq National Market Listing Fee.......................... 95,000
Accounting Fees and Expenses................................ 345,000
Blue Sky Fees and Expenses.................................. 3,000
Legal Fees and Expenses..................................... 300,000
Transfer Agent and Registrar Fees and Expenses.............. 15,000
Printing Expenses........................................... 225,000
Miscellaneous Expenses...................................... 50,000
----------
Total.................................................. $1,065,428
==========
</TABLE>
- ---------------
* All amounts are estimates except the SEC filing fee, the NASD filing fee and
the Nasdaq National Market listing fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to award,
or a corporation's board of directors to grant, indemnity to officers, directors
and other corporate agents under certain circumstances and subject to certain
limitations. Our certificate of incorporation and bylaws provide that we shall
indemnify our directors, officers, employees and agents to the full extent
permitted by Delaware General Corporation Law, including in circumstances in
which indemnification is otherwise discretionary under Delaware law. In
addition, we intend to enter into separate indemnification agreements with our
directors, officers and certain employees which would require us, among other
things, to indemnify them against certain liabilities which may arise by reason
of their status as directors, officers or certain other employees. We also
intend to maintain director and officer liability insurance, if available on
reasonable terms.
These indemnification provisions and the indemnification agreement to be entered
into between us and our officers and directors may be sufficiently broad to
permit indemnification of our officers and directors for liabilities, including
reimbursement of expenses incurred, arising under the Securities Act.
The underwriting agreement filed as Exhibit 1.1 to this registration statement
provides for indemnification by the underwriters of us and our officers and
directors for certain liabilities arising under the Securities Act, or
otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
From our incorporation to September 30, 1999, we have granted or issued and sold
the following unregistered securities:
1. Stock options to employees, officers, directors and consultants under our
1997 stock option plan exercisable for up to an aggregate of 15,712,932 shares
of our common stock, with a weighted average exercise price of $0.72 per share.
II-1
<PAGE> 103
2. An aggregate of 1,619,115 shares exercised under our 1997 stock option plan,
with a weighted average exercise price of $.07 per share.
3. On January 29, 1997, we sold to Organic Holdings, Inc. 9 shares of our common
stock at $0.3333 per share for $1.00, and 18,323,712 shares of our Series A
preferred stock at $2.9833 per share for a total of $54,663,751.
4. On January 29, 1997, we sold to Omnicom Group Inc. 3,351,288 shares of our
Series A preferred stock at $2.9833 per share for an aggregate total of
approximately $10,000,000.
5. On January 7, 1999, we sold to Omnicom Group Inc. 1,488,000 shares of our
Series B preferred stock at $7.2067 per share for a total of $10,723,520.
6. On September 13, 1999, we issued a warrant to Omnicom Group Inc. to purchase
2,249,076 shares of common stock at $0.0033 per share for a total of $7,497.
The issuances of the securities in the transactions described in paragraphs 3
through 6 above were deemed to be exempt from registration under the Securities
Act in reliance on Section 4(2) of the Securities Act by an issuer not involving
a public offering, where the purchasers represented their intention to acquire
the securities for investment only and not with a view to distribution and
received or had access to adequate information about the Registrant. The
issuance of options and shares of common stock pursuant to the exercise of
options described in paragraphs 1 and 2 above were deemed to be exempted in
reliance on Rule 701 promulgated under the Securities Act as transactions
pursuant to a compensatory benefit plan or written compensation contract.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The exhibits are as set forth in the Exhibit Index.
(b) Financial Statement Schedules
All schedules have been omitted since they are not required or are not
applicable or the required information is shown in the financial statements or
related notes.
ITEM 17. UNDERTAKINGS
We hereby undertake to provide to the underwriters at the closing specified in
the underwriting agreement certificates in such denominations and registered in
such names as required by the underwriters to permit prompt delivery to each
purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to our directors, officers and controlling persons pursuant to the
foregoing provisions, or otherwise, we have been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by us of expenses incurred or paid by one of our directors, officers
or controlling persons in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
We hereby undertake that:
(1) For purposes of any liability under the Securities Act, the information
omitted from the form of prospectus filed as part of this Registration Statement
in reliance upon Rule 430A and
II-2
<PAGE> 104
contained in a form of prospectus filed by us pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-3
<PAGE> 105
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Organic, Inc. has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Francisco, State of
California on the 8th day of February, 2000.
ORGANIC, INC.
By: /s/ JONATHAN NELSON
-----------------------------------
Jonathan Nelson
Chief Executive Officer and
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JONATHAN NELSON Chief Executive Officer February 8, 2000
- ----------------------------------------------------- and Chairman of the
Jonathan Nelson Board (Principal
Executive Officer)
/s/ MICHAEL HUDES* President and Director February 8, 2000
- -----------------------------------------------------
Michael Hudes
/s/ SUSAN L. FIELD Executive Vice President February 8, 2000
- ----------------------------------------------------- and Chief Financial
Susan L. Field Officer (Principal
Financial and Accounting
Officer)
/s/ GARY F. HROMADKO* Director February 8, 2000
- -----------------------------------------------------
Gary F. Hromadko
/s/ GERALD BRUCE REDDITT* Director February 8, 2000
- -----------------------------------------------------
Gerald Bruce Redditt
*By: /s/ SUSAN L. FIELD
------------------------------------------------
Attorney-in-fact
</TABLE>
II-4
<PAGE> 106
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
------- --------
<C> <S>
1.1 Form of Underwriting Agreement**
3.1 Form of Amended and Restated Certificate of Incorporation of
Registrant
3.2 Amended and Restated Bylaws of Registrant
4.1 Reference is made to Exhibits 3.1 and 3.2
4.2 Specimen Stock Certificate of Registrant**
4.3 Form of Rights Agreement between Registrant and EquiServe
Trust Company, as Rights Agent**
4.4 Investors' Rights Agreement, dated as of February 8, 2000,
by and among Registrant, Organic Holdings, Inc. and
Omnicom Group Inc.
5.1 Opinion of Morrison & Foerster LLP as to the legality of the
common stock**
10.1 Form of Indemnification Agreement between Registrant and
each of its executive officers and directors**
10.2 Registrant's 1997 Stock Option Plan, as amended and
restated, including forms of agreements thereunder**
10.3 Registrant's 1999 Long-Term Stock Incentive Plan, including
forms of agreements thereunder**
10.4 Employment Agreement between Registrant and Jonathan Nelson,
dated January 29, 1997, and amendment on February 24,
1997**
10.5 Employment Agreement between Registrant and Michael Hudes,
dated January 29, 1997, and amendment on February 24,
1997**
10.6 Employment Agreement between Registrant and Susan L. Field,
dated June 22, 1999**
10.7 Loan Agreement between Registrant and Omnicom Group Inc.
dated as of August 27, 1999**
10.8 Guaranty and Security Agreement by and among Registrant,
Organic Media, Inc. and Omnicom Group Inc., dated August
27, 1999**
10.9 Revolving Note of Registrant payable to Omnicom Group Inc.,
dated August 27, 1999**
10.10 Lease between 500 Third Street Associates and Registrant,
dated July 22, 1996**
10.11 Lease between 500 Third Street Associates and Registrant,
dated July 22, 1996**
10.12 Lease between 500 Third Street Associates and Registrant,
dated December 5, 1996**
10.13 Lease between Trustees of the Masonic Hall and Asylum Fund
and Registrant, dated June 1998**
10.14 Lease between Trustees of the Masonic Hall and Asylum Fund
and Registrant, dated September 15, 1999
10.15 Lease between Baker Hamilton Properties, LLC and Registrant,
dated November 8, 1999**
10.16 Lease between 233 Broadway Owners LLC and Registrant, dated
November 4, 1999
10.17 Registrant's 2000 Employee Stock Purchase Plan**
10.18 Sublease between Looksmart, Ltd. and Registrant, dated
January 14, 2000
10.19 Omnibus Service Agreement between Registrant and Blockbuster
Inc., dated February 1, 1999
10.20 DaimlerChrysler Corporation Agreement with Registrant, dated
March 15, 1999
</TABLE>
<PAGE> 107
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
------- --------
<C> <S>
21.1 Subsidiaries of Registrant**
23.1 Consent of Morrison & Foerster LLP. Reference is made to
Exhibit 5.1**
23.2 Consent of PricewaterhouseCoopers LLP, Independent
Accountants
24.1 Power of Attorney of Gerald Bruce Redditt**
27.1 Financial Data Schedule as of and for the year ended
December 31, 1997**
27.2 Financial Data Schedule as of and for the year ended
December 31, 1998**
27.3 Financial Data Schedule as of and for the nine months ended
September 30, 1999**
</TABLE>
- ---------------
* To be filed by amendment
** Previously filed
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ORGANIC, INC.
Jonathan Nelson and Michael Hudes hereby certify that:
1. They are the duly elected and acting Chief Executive Officer and President,
respectively, of Organic, Inc., a Delaware corporation (the "Company").
2. The original Certificate of Incorporation of the Company was filed with the
Secretary of State of the State of Delaware (the "Secretary of State") on
January 6, 1997 in the name of Organic Online, Inc., an Amended and Restated
Certificate of Incorporation was filed with the Secretary of State on January
28, 1997, an Amended and Restated Certificate of Incorporation was filed with
the Secretary of State on February 8, 1999, and a Certificate of Amendment of
Amended and Restated Certificate of Incorporation changing the name of the
Company from "Organic Online, Inc." to "Organic, Inc." was filed with the
Secretary of State on March 11, 1999 (as so amended, the "Original Certificate
of Incorporation").
3. The Amended and Restated Certificate of Incorporation below was approved by
the Board of Directors of the Company by unanimous written action in lieu of
meeting in accordance with Section 141(f) of the General Corporation Law of the
State of Delaware (the "Corporation Law"), and was duly adopted by the
stockholders of the Company in accordance with the provisions of Sections 242
and 245 of the Corporation Law by written consent of stockholders given in
accordance with Section 228 of the Corporation Law, with written notice given to
stockholders who did not consent in writing.
4. The Original Certificate of Incorporation of this Corporation is hereby
amended and restated to read as follows:
I.
The name of this corporation is Organic, Inc. (the "Corporation").
II.
The address of the registered office of this Corporation in the State of
Delaware is 15 East North Street, City of Dover, County of Kent, and the name of
the registered agent of this Corporation in the State of Delaware at such
address is Incorporating Services, Ltd.
III.
The purpose of this Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware (the "Corporation Law").
<PAGE> 2
IV.
A. This Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which this Corporation is authorized to issue is Sixty Million
(60,000,000) shares. Thirty-Five Million (35,000,000) shares shall be Common
Stock (the "Common Stock"), each having a par value of one-hundredth of one cent
($.0001). Twenty-Five Million (25,000,000) shares shall be Preferred Stock (the
"Preferred Stock"), each having a par value of one-hundredth of one cent
($.0001). Upon the filing of this Amended and Restated Certificate of
Incorporation, each share of Common Stock and Preferred Stock issued and
outstanding shall, automatically and without any action on the part of the
respective holders thereof, be split and converted into three (3) shares of
Common Stock or Preferred Stock, respectively.
B. The shares of Preferred Stock may be issued from time to time in one
or more series. The Board of Directors of this Corporation (the "Board of
Directors") is expressly authorized to provide for the issue of all or any of
the remaining shares of the Preferred Stock in one or more series, and to fix
the number of shares and to determine or alter for each such series, such voting
powers, full or limited, or no voting powers, and such designations,
preferences, and relative, participating, optional, or other rights and such
qualifications, limitations, or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions adopted by the Board of Directors
providing for the issue of such shares (a "Preferred Stock Designation") and as
may be permitted by the Corporation Law. The Board of Directors is also
expressly authorized to increase or decrease (but not below the number of shares
of such series then outstanding) the number of shares of any series other than
Series A Preferred Stock and Series B Preferred Stock subsequent to the issue of
shares of that series. In case the number of shares of any such series shall be
so decreased, the shares constituting such decrease shall resume the status that
they had prior to the adoption of the resolution originally fixing the number of
shares of such series.
C. Seven Million Two Hundred Twenty-Five Thousand (7,225,000) shares of
Preferred Stock are hereby designated "Series A Preferred Stock" and Four
Hundred Ninety-Six Thousand (496,000) shares of Preferred Stock are hereby
designated "Series B Preferred Stock."
D. No share or shares of any series of Preferred Stock acquired by this
Corporation by reason of purchase, conversion or otherwise shall be reissued as
part of such series, and the Board of Directors is authorized, pursuant to
Section 243 of the Corporation Law, to retire any such share or shares. The
retirement of any such share or shares shall not reduce the total authorized
number of shares of Preferred Stock.
E. The powers, preferences, rights, restrictions, and other matters
relating to the Series A Preferred Stock and Series B Preferred Stock are as
follows:
1. DIVIDENDS.
a. Holders of Series A Preferred Stock and Series B Preferred
Stock shall be entitled to receive dividends at the rate of $0.1667 per share
(as adjusted for any stock dividends, combinations or splits with respect to
such shares) per annum, payable out of funds legally available therefor. Such
dividends shall be payable only when, as, and if declared by the
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Board of Directors and shall be noncumulative. No dividends (other than those
payable solely in Common Stock) shall be paid on any Common Stock during any
fiscal year of this Corporation until dividends in the total amount of $0.1667
per share (as adjusted for any stock dividends, combinations or splits with
respect to such shares) on the Series A Preferred Stock and the Series B
Preferred Stock shall have been paid or declared and set apart during that
fiscal year, and no dividends shall be paid on any share of Common Stock unless
a dividend (including the amount of any dividends paid pursuant to the above
provisions of this Paragraph IV.E.1.a.) is paid with respect to all outstanding
shares of Preferred Stock in an amount for each such share of Preferred Stock
equal to or greater than the aggregate amount of such dividends for all shares
of Common Stock into which each such share of Preferred Stock could then be
converted. No right shall accrue to holders of shares of Series A Preferred
Stock and Series B Preferred Stock by reason of the fact that dividends on said
shares are not declared in any prior year, nor shall any undeclared or unpaid
dividend bear or accrue any interest. Notwithstanding anything to the contrary
contained in this Paragraph IV.E.1.a., no dividend shall be payable if the
resulting aggregate stockholders' equity in this Corporation falls below
Fourteen Million Dollars ($14,000,000).
b. In the event this Corporation shall declare a distribution
(other than any distribution described in Paragraph IV.E.2.) payable in
securities of other persons, evidences of indebtedness issued by this
Corporation or other persons, assets (excluding cash dividends) or options or
rights to purchase any such securities or evidences of indebtedness, then, in
each such case holders of Series A Preferred Stock and Series B Preferred Stock
shall be entitled to a proportionate share of any such distribution as though
such holders were the holders of the number of shares of Common Stock into which
their respective shares of Series A Preferred Stock and Series B Preferred Stock
are convertible as of the record date fixed for the determination of the holders
of Common Stock entitled to receive such distribution.
2. LIQUIDATION PREFERENCE.
a. In the event of any liquidation, dissolution or winding up of
this Corporation, whether voluntary or involuntary, holders of Series A
Preferred Stock and Series B Preferred Stock shall be entitled to receive, prior
and in preference to any distribution of any of the assets or surplus funds of
this Corporation to the holders of Common Stock by reason of their ownership
thereof, the amount of $2.98 and $7.21, respectively, per share (as adjusted for
any stock dividends, combinations or splits with respect to such shares), plus
all accrued or declared but unpaid dividends on such share for each share of
Preferred Stock then held by them. The Series A Preferred Stock and Series B
Preferred Stock shall rank on a parity as to the receipt of the respective
preferential amounts for each such series upon the occurrence of such event. If
upon the occurrence of such event, the assets and funds thus distributed among
the holders of the Series A Preferred Stock and Series B Preferred Stock shall
be insufficient to permit the payment to such holders of the full aforesaid
preferential amount, then the entire assets and funds of this Corporation
legally available for distribution shall be distributed ratably among the
holders of the Series A Preferred Stock and Series B Preferred Stock in
proportion to the preferential amount each such holder is otherwise entitled to
receive.
b. After the payment of the full liquidation preference of the
Preferred Stock as set forth in Paragraph IV.E.2.a. above, the remaining assets
of this
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Corporation legally available for distribution, if any, shall be distributed
ratably to the holders of Common Stock.
c. For purposes of this Paragraph IV.E.2., (i) any acquisition
of this Corporation by means of merger or other form of corporate reorganization
in which outstanding shares of this Corporation are exchanged for securities or
other consideration issued, or caused to be issued, by the acquiring corporation
or its subsidiary (other than a mere reincorporation transaction) or (ii) a sale
of all or substantially all of the assets of this Corporation, shall be treated
as a liquidation, dissolution or winding up of this Corporation and shall
entitle the holders of Series A Preferred Stock and Series B Preferred Stock and
Common Stock to receive at the closing in cash, securities or other property
(valued as provided in Paragraph IV.E.2.d. below) amounts as specified in
Paragraphs IV.E.2.a. and b. above.
d. Whenever the distribution provided for in this Paragraph
IV.E.2. shall be payable in securities or property other than cash, the value of
such distribution shall be the fair market value of such securities or other
property as determined in good faith by the Board of Directors.
3. VOTING RIGHTS. Each holder of shares of Series A Preferred Stock and
Series B Preferred Stock shall be entitled to the number of votes equal to the
number of shares of Common Stock into which such shares of Series A Preferred
Stock and Series B Preferred Stock could be converted and shall have voting
rights and powers equal to the voting rights and powers of Common Stock (except
as otherwise expressly provided herein or as required by law, voting together
with Common Stock as a single class) and shall be entitled to notice of any
stockholders' meeting in accordance with the bylaws ("Bylaws") of this
Corporation. Fractional votes shall not, however, be permitted and any
fractional voting rights resulting from the above formula (after aggregating all
shares into which shares of Series A Preferred Stock and Series B Preferred
Stock held by each holder could be converted) shall be rounded to the nearest
whole number (with one-half being rounded upward). Each holder of Common Stock
shall be entitled to one (1) vote for each share of Common Stock held.
4. CONVERSION. The holders of Series A Preferred Stock and Series B
Preferred Stock shall have the following conversion rights (the "Conversion
Rights"):
a. OPTIONAL CONVERSION. Each share of Series A Preferred Stock
and Series B Preferred Stock shall be convertible, at the option of the holder
thereof, at any time after the date of issuance of such share, at the office of
this Corporation or any transfer agent for such stock, into such number of fully
paid and nonassessable shares of Common Stock as is determined by dividing $2.98
by the Series A Conversion Price and $7.21 by the Series B Conversion Price,
determined as hereinafter provided, in effect on the date the stock certificate
is surrendered for conversion. The price at which shares of Common Stock shall
be deliverable upon conversion of shares of Series A Preferred Stock (the
"Series A Conversion Price") shall initially be $2.98 per share of Common Stock
and the price at which shares of Common Stock shall be deliverable upon
conversion of shares of Series B Preferred Stock (the "Series B Conversion
Price") shall initially be $7.21 per share of Common Stock. Such initial Series
A Conversion Price and Series B Conversion Price shall be adjusted as
hereinafter provided.
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b. AUTOMATIC CONVERSION. Each share of Series A Preferred Stock
and Series B Preferred Stock shall automatically be converted into one (1) share
of Common Stock upon the earlier of (i) the date specified by vote or written
consent or agreement of holders of at least a majority of the shares of such
series when fewer than 700,000 shares of Series A Preferred Stock remain
outstanding, or (ii) immediately upon the closing of the sale of Common Stock in
a firm commitment, underwritten public offering registered under the Securities
Act of 1933, as amended (the "Securities Act"), other than a registration
relating solely to a transaction under Rule 145 under the Securities Act (or any
successor thereto) or to an employee benefit plan of this Corporation, at a
public offering price (prior to underwriters' discounts and expenses) equal to
or exceeding $10.00 per share of Common Stock (as adjusted for any stock
dividends, combinations or splits with respect to such shares) and the aggregate
proceeds to this Corporation and/or any selling stockholders (after deduction
for underwriters' discounts and expenses relating to the issuance, including,
without limitation, fees of this Corporation's counsel) of which exceed
$7,500,000.
c. MECHANICS OF CONVERSION.
(1) Before any holder of Series A Preferred Stock and
Series B Preferred Stock shall be entitled to convert the same into shares of
Common Stock, he shall surrender the stock certificate or certificates therefor,
duly endorsed, at the office of this Corporation or of any transfer agent for
such stock, and shall give written notice to this Corporation at such office
that he elects to convert the same and shall state therein the name or names in
which he wishes the stock certificate or certificates for shares of Common Stock
to be issued. This Corporation shall, as soon as practicable thereafter, issue
and deliver to such holder of Series A Preferred Stock and Series B Preferred
Stock a stock certificate or certificates for the number of shares of Common
Stock to which he shall be entitled as aforesaid. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of surrender of the shares of Series A Preferred Stock and Series B Preferred
Stock to be converted, and the person or persons entitled to receive the shares
of Common Stock issuable upon such conversion shall be treated for all purposes
as the record holder or holders of such shares of Common Stock on such date.
(2) If the conversion is in connection with an
underwritten offering of securities pursuant to the Securities Act, the
conversion may, at the option of any holder tendering shares of Series A
Preferred Stock and Series B Preferred Stock for conversion, be conditioned upon
the closing with the underwriters of the sale of securities pursuant to such
offering, in which event the person(s) entitled to receive Common Stock upon
conversion of Series A Preferred Stock and Series B Preferred Stock shall not be
deemed to have converted such Preferred Stock until immediately prior to the
closing of such sale of securities.
d. ADJUSTMENTS FOR STOCK DIVIDENDS AND FOR COMBINATIONS OR
SUBDIVISIONS OF COMMON STOCK. In the event that this Corporation at any time or
from time to time shall declare or pay, without consideration, any dividend on
Common Stock payable in Common Stock or in any right to acquire Common Stock for
no consideration, or shall effect a subdivision of the outstanding shares of
Common Stock into a greater number of shares of Common Stock (by stock split,
reclassification or otherwise than by payment of a dividend in Common Stock or
in any right to acquire Common Stock), or in the event the outstanding shares
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<PAGE> 6
of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, then the number of
shares of Common Stock into which the outstanding Series A Preferred Stock and
Series B Preferred Stock would be convertible shall, concurrently with the
effectiveness of such event, be proportionately decreased or increased, as
appropriate. In the event that this Corporation shall declare or pay, without
consideration, any dividend on Common Stock payable in any right to acquire
Common Stock for no consideration, then this Corporation shall be deemed to have
made a dividend payable in Common Stock in an amount of shares equal to the
maximum number of shares issuable upon exercise of such rights to acquire Common
Stock.
e. ADJUSTMENTS FOR RECLASSIFICATION AND REORGANIZATION. If
Common Stock issuable upon conversion of Series A Preferred Stock and Series B
Preferred Stock shall be changed into the same or a different number of shares
of any other class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of shares
provided for in Paragraph IV.E.4.d. above or a merger or other reorganization
referred to in Paragraph IV.E.2.c. above), the Series A Conversion Price and
Series B Conversion Price then in effect shall, concurrently with the
effectiveness of such reorganization or reclassification, be proportionately
adjusted so that the Series A Preferred Stock and Series B Preferred Stock shall
be convertible into, in lieu of the number of shares of Common Stock which the
holders would otherwise have been entitled to receive, a number of shares of
such other class or classes of stock equivalent to the number of shares of
Common Stock that would have been subject to receipt by the holders upon
conversion of Series A Preferred Stock and Series B Preferred Stock immediately
before that change.
f. REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF ASSETS.
If at any time or from time to time after the Original Issue Date, there is a
capital reorganization of Common Stock (other than as defined in Paragraph
IV.E.2.c. above or as recapitalization, subdivision, combination,
reclassification, exchange or substitution of shares provided for elsewhere in
this Paragraph IV.E.4.) as a part of such capital reorganization, provision
shall be made so that the holders of the Series A Preferred Stock and Series B
Preferred Stock shall thereafter be entitled to receive upon conversion of such
Series A Preferred Stock and Series B Preferred Stock the number of shares of
stock or other securities or property of this Corporation to which a holder of
the number of shares of Common Stock deliverable upon conversion would have been
entitled on such capital reorganization, subject to adjustment in respect of
such stock or securities by the terms thereof. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Paragraph
IV.E.4. with respect to the rights of the holders of Series A Preferred Stock
and Series B Preferred Stock after the capital reorganization to the end that
the provisions of this Paragraph IV.E.4. (including adjustment of the Series A
Conversion Price and Series B Conversion Price then in effect and the number of
shares issuable upon conversion of the Series A Preferred Stock and Series B
Preferred Stock) shall be applicable after that event and be as nearly
equivalent as practicable.
g. NO IMPAIRMENT. This Corporation will not, by amendment of
this Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by this Corporation, but
will at all times in good faith assist in the carrying out of all the
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provisions of this Paragraph IV.E.4. and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series A Preferred Stock and Series B Preferred Stock against
impairment.
h. CERTIFICATES AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of any Conversion Price pursuant to this Paragraph
IV.E.4., this Corporation at its expense shall promptly compute such adjustment
or readjustment in accordance with the terms hereof and prepare and furnish to
each holder of Series A Preferred Stock and Series B Preferred Stock a
certificate executed by this Corporation's President or Chief Financial Officer
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. This Corporation shall,
upon the written request at any time of any holder of Series A Preferred Stock
and Series B Preferred Stock, furnish or cause to be furnished to such holder a
like certificate setting forth (i) such adjustments and readjustments, (ii) the
Series A Conversion Price and Series B Conversion Price for such series of
Series A Preferred Stock and Series B Preferred Stock at the time in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of the Series A
Preferred Stock and Series B Preferred Stock.
i. NOTICES OF RECORD DATE. In the event that this Corporation
shall propose at any time: (i) to declare any dividend or distribution upon its
Common Stock, whether in cash, property, stock or other securities, whether or
not a regular cash dividend and whether or not out of earnings or earned
surplus; (ii) to offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any class or series or
other rights; (iii) to effect any reclassification or recapitalization of its
Common Stock outstanding involving a change in Common Stock; or (iv) to merge or
consolidate with or into any other corporation, or sell, lease or convey all or
substantially all of its assets, or to liquidate, dissolve or wind up; then, in
connection with each such event, this Corporation shall send to the holders of
the Series A Preferred Stock and Series B Preferred Stock:
(1) at least twenty (20) days' prior written notice of
the date on which a record shall be taken for such dividend, distribution or
subscription rights (and specifying the date on which the holders of Common
Stock shall be entitled thereto) or for determining rights to vote, if any, in
respect of the matters referred to in (iii) and (iv) above; and
(2) in the case of the matters referred to in (iii) and
(iv) above, at least twenty (20) days' prior written notice of the date when the
same shall take place (and specifying the date on which the holders of Common
Stock shall be entitled to exchange their Common Stock for securities or other
property deliverable upon the occurrence of such event).
j. ISSUE TAXES. This Corporation shall pay any and all issue and
other taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of the Series A Preferred Stock and Series B
Preferred Stock pursuant hereto; provided, however, that this Corporation shall
not be obligated to pay any transfer taxes resulting from any transfer requested
by any holder in connection with any such conversion.
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k. RESERVATION OF STOCK ISSUABLE UPON CONVERSION. This
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the Series A Preferred Stock and Series B Preferred Stock, such
number of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of Series A Preferred Stock and
Series B Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding Series A Preferred Stock and Series B Preferred Stock,
this Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose,
including, without limitation, engaging in best efforts to obtain the requisite
stockholder approval of any necessary amendment to this Certificate of
Incorporation.
l. FRACTIONAL SHARES. No fractional share shall be issued upon
the conversion of any share or shares of Series A Preferred Stock and Series B
Preferred Stock. All shares of Common Stock (including fractions thereof)
issuable upon conversion of more than one share of Series A Preferred Stock and
Series B Preferred Stock by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion would
result in the issuance of a fraction of a share of Common Stock, this
Corporation shall, in lieu of issuing any fractional share, pay the holder
otherwise entitled to such fraction a sum in cash equal to the fair market value
of such fraction on the date of conversion (as determined in good faith by the
Board of Directors).
m. NOTICES. Any notice required by the provisions of this
Paragraph IV.E.4. to be given to the holders of Series A Preferred Stock and
Series B Preferred Stock shall be deemed given if deposited in the United States
mail, postage prepaid, or if sent by facsimile or delivered personally by hand
or nationally recognized courier and addressed to each holder of record at such
holder's address or facsimile number appearing in the records of this
Corporation.
5. INCREASING COMMON STOCK. The number of authorized shares of Common
Stock may be increased or decreased (but not below the number of shares of
Common Stock then outstanding) by an affirmative vote of the holders of a
majority of the stock of this Corporation.
V.
For the management of the business and for the conduct of the affairs of
this Corporation, and in further definition, limitation and regulation of the
powers of this Corporation, of its directors and of its stockholders or any
class thereof, as the case may be, it is further provided that:
A.
1. The management of the business and the conduct of the affairs
of this Corporation shall be vested in its Board of Directors. The number of
directors which shall
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constitute the whole Board of Directors shall be fixed by the Board of Directors
as provided in the Bylaws. Each director shall serve until his successor is duly
elected and qualified or until his death, resignation or removal. No decrease in
the number of directors constituting the Board of Directors shall shorten the
term of any incumbent director.
2. Subject to the rights of the holders of any series of Series
A Preferred Stock and Series B Preferred Stock, the Board of Directors or any
individual director may be removed from office at any time (i) with cause by the
affirmative vote of the holders of a majority of the voting power of all the
then-outstanding shares of voting stock of this Corporation, entitled to vote at
an election of directors (the "Voting Stock") or (ii) without cause by the
affirmative vote of the holders of at least sixty-six and two-thirds percent (66
2/3%) of the voting power of all the then-outstanding shares of the Voting
Stock.
3. Subject to the rights of the holders of any series of Series
A Preferred Stock and Series B Preferred Stock, any vacancies on the Board of
Directors resulting from death, resignation, disqualification, removal or other
causes and any newly created directorships resulting from any increase in the
number of directors, shall, unless the Board of Directors determines by
resolution that any such vacancies or newly created directorships shall be
filled by the stockholders, except as otherwise provided by law, be filled only
by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors, and not by the
stockholders, provided, however, that any vacancy on the Board of Directors
caused by the death, resignation, disqualification or removal of the Director
designated by Omnicom (as defined below) shall, except as otherwise provided by
law, be filled by the stockholders. Any director elected in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
director for which the vacancy was created or occurred and until such director's
successor shall have been elected and qualified.
B.
1. Subject to paragraph (h) of Section 43 of the Bylaws, the
Bylaws may be altered or amended or new Bylaws adopted by the affirmative vote
of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of
all of the then-outstanding shares of the Voting Stock. The Board of Directors
shall also have the power to adopt, amend, or repeal Bylaws.
2. The directors of this Corporation need not be elected by
written ballot unless the Bylaws so provide.
3. No action shall be taken by the stockholders of this
Corporation except at an annual or special meeting of stockholders called in
accordance with the Bylaws or by written consent of stockholders in accordance
with the Bylaws.
4. Special meetings of the stockholders of this Corporation may
be called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption) or (iv) by the holders of the shares entitled to cast
not less that ten percent (10%) of the votes at
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the meeting, and shall be held at such place, on such date, and at such time as
the Board of Directors shall fix.
5. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of this Corporation shall be given in the manner provided in
the Bylaws of this Corporation.
C. Notwithstanding any other provision of this certificate of
incorporation, the following actions may not be taken by this Corporation
without the prior written consent of Omnicom Group Inc., a New York corporation,
or any assignee thereof ("Omnicom"), whether such approval is given by any
director appointed by Omnicom at a meeting of the Board of Directors or by
Omnicom pursuant to a vote of the stockholders of this Corporation:
1. the sale, lease or other disposition of all or substantially
all of this Corporation's assets or business including but not limited to a
merger, consolidation or amalgamation of this Corporation with and into another
corporation or entity, or of any other corporation or entity with and into this
Corporation;
2. the issuance or sale of stock or other securities of this
Corporation, or stock options, warrants or obligations convertible into such
stock or securities, to any lender providing debt financing of at least $500,000
to this Corporation;
3. the issuance or sale of stock or other securities of this
Corporation, or stock options, warrants or obligations convertible into such
stock or securities (other than pursuant to the Option Plan), to the extent that
such stock or securities carry rights (including without limitation rights to
dividends, rights upon liquidation, rights relating to conversion, and/or class
voting) which are senior to those of Omnicom and/or the issuance or sale thereof
shall be at a price per share lower than that paid by Omnicom;
4. the amendment of this Corporation's charter documents and
Bylaws, to the extent that any such amendment would affect one of the provisions
of this Paragraph V.C.. or which would alter the rights of the Series A
Preferred Stock and Series B Preferred Stock;
5. the making of any loans by this Corporation to any employee
other than travel and business expense advances to employees in the ordinary
course; and
6. the increase in the number of shares of Common Stock offered
under this Corporation's 1997 Stock Option Plan, as amended (the "Option Plan"),
by more than 500,000 shares, or the creation of any other plan of this
Corporation offering shares of capital stock or equivalent interests to
stockholders.
VI.
A. A director of this Corporation shall not be personally liable to this
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to this Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
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violation of law (iii) under Section 174 of the Corporation Law, or (iv) for any
transaction from which the director derived an improper personal benefit. If the
Corporation Law is amended after approval by the stockholders of this Paragraph
to authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director shall be eliminated or
limited to the fullest extent permitted by the Corporation Law, as so amended.
B. Any repeal or modification of this Paragraph VI shall be prospective
and shall not affect the rights under this Paragraph VI in effect at the time of
the alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
A. This Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, except as provided in Paragraph VII.B., and
all rights conferred upon the stockholders herein are granted subject to this
reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all of the then-outstanding shares of the Voting Stock, voting together
as a single class, shall be required to alter, amend or repeal Paragraphs IV, V,
VI, and VII."
IN WITNESS WHEREOF, the Company has caused this Amended and Restated
Certificate of Incorporation to be signed by the Chief Executive Officer and
President in San Francisco, California this 29th day of June, 1999.
ORGANIC, INC.,
a Delaware corporation
By: /s/ JONATHAN NELSON
----------------------------------------
Jonathan Nelson, Chief Executive Officer
ATTEST:
BY: /s/ MICHAEL HUDES
--------------------------------
Michael Hudes, President
-11-
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CERTIFICATE OF CORRECTION
OF
THE AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
ORGANIC, INC.
ORGANIC, INC., a Delaware corporation (the "Corporation"), certifies
pursuant to Section 103(f) of the General Corporation Law of the State of
Delaware that:
1. The name of the Corporation is Organic, Inc. and it is a Delaware
Corporation.
2. The instrument being corrected is entitled "Amended and Restated
Certificate of Incorporation of Organic, Inc." and said instrument was
filed in the office of the Secretary of State of the State of Delaware on
June 29, 1999.
3. Article IV, Section C of said amended and Restated Certificate of
Incorporation inaccurately set forth the shares of Preferred Stock
designated, and read in its entirety as follows:
"C. Seven Million Two Hundred Twenty-Five Thousand (7,225,000)
shares of Preferred Stock are hereby designated "Series A Preferred
Stock" and Four Hundred Ninety-Six Thousand (496,000) shares of
Preferred Stock are hereby designated "Series B Preferred Stock." "
Article IV, Section C of said Amended and Restated Certificate of
Incorporation, as corrected, should provide that the shares of the
Preferred Stock shall reflect the 3:1 split as designated in Article
IV, Section A and should read in its entirety as follows:
"C. Twenty-One Million Six Hundred Seventy-Five Thousand
(21,675,000) shares of Preferred Stock are hereby designated "Series A
Preferred Stock" and One Million Four Hundred Eighty-Eight Thousand
(1,488,000) shares of Preferred Stock are hereby designated "Series B
Preferred Stock." "
IN WITNESS WHEREOF, Organic, Inc. has caused this Certificate of Correction
to be signed by its Secretary this 17th day of August, 1999.
ORGANIC, INC
By: /s/ KENNETH L. GUERNSEY
------------------------------------
Kenneth L. Guernsey, Secretary
<PAGE> 13
CERTIFICATE OF AMENDMENT TO THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ORGANIC, INC.
Jonathan Nelson and Michael Hudes hereby certify that:
FIRST: They are the duly elected and acting Chief Executive Officer and
President, respectively, of Organic, Inc., a Delaware corporation (the
"Corporation").
SECOND: The original Certificate of Incorporation of the Corporation was
filed with the Secretary of State of the State of Delaware (the "Secretary of
State") on January 6, 1997 in the name of Organic Online, Inc., an Amended and
Restated Certificate of Incorporation was filed with the Secretary of State on
January 28, 1997, an Amended and Restated Certificate of Incorporation was filed
with the Secretary of State on February 8, 1999, a Certificate of Amendment of
Amended and Restated Certificate of Incorporation changing the name of the
Corporation from "Organic Online, Inc." to "Organic, Inc." was filed with the
Secretary of State on March 11, 1999, an Amended and Restated Certificate of
Incorporation was filed with the Secretary of State on June 29, 1999, and a
Certification of Correction of the Amended and Restated Certificate of
Incorporation was filed with the Secretary of State on August 17, 1999 (as so
amended, the "Original Certificate of Incorporation").
THIRD: The proposed amendment of the Original Certificate of
Incorporation below was approved by the Board of Directors of the Corporation at
a meeting duly held on November 22, 1999. Thereafter, the proposed amendment was
duly adopted by the stockholders of the Corporation in accordance with the
provisions of Sections 242 and 245 of the General Corporation Law of the State
of Delaware (the "Corporation Law") by written consent of stockholders given in
accordance with Section 228 of the Corporation Law, with written notice given to
stockholders who did not consent in writing.
FOURTH: The Original Certificate of Incorporation of this Corporation is
hereby amended as follows:
1. Article IV, Section A, shall be amended to read as follows:
IV.
A. This Corporation is authorized to issue two classes of stock
to be designated, respectively, "Common Stock" and "Preferred Stock."
The total number of shares which this Corporation is authorized to issue
is Two Hundred Twenty-Five Million (225,000,000) shares. Two Hundred
Million (200,000,000) shares shall be Common Stock (the "Common Stock"),
each having a par value of one-hundredth of one cent ($.0001).
Twenty-Five Million (25,000,000) shares
<PAGE> 14
shall be Preferred Stock (the "Preferred Stock"), each having a par
value of one-hundredth of one cent ($.0001). Upon the filing of this
Certificate of Amendment to the Amendment and Restated Certificate of
Incorporation, each share of Common Stock issued and outstanding shall,
automatically and without any action on the part of the holders thereof,
be split and converted into three (3) shares of Common Stock.
2. Article V is hereby amended to read in full as follows:
V.
For the management of the business and for the conduct of the
affairs of this Corporation, and in further definition, limitation and
regulation of the powers of this Corporation, of its directors and of
its stockholders or any class thereof, as the case may be, it is further
provided that:
A.
1. The management of the business and the conduct of the
affairs of this Corporation shall be vested in its Board of Directors.
The number of directors which shall constitute the whole Board of
Directors shall be fixed by the Board of Directors as provided in the
Bylaws. Each director shall serve until his successor is duly elected
and qualified or until his death, resignation or removal. No decrease in
the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.
2. Subject to the rights of the holders of any series of
Series A Preferred Stock and Series B Preferred Stock, the Board of
Directors or any individual director may be removed from office at any
time (i) with cause by the affirmative vote of the holders of a majority
of the voting power of all the then-outstanding shares of voting stock
of this Corporation, entitled to vote at an election of directors (the
"Voting Stock") or (ii) without cause by the affirmative vote of the
holders of at least eighty percent (80%) of the voting power of all the
then-outstanding shares of the Voting Stock.
3. Subject to the rights of the holders of any series of
Series A Preferred Stock and Series B Preferred Stock, any vacancies on
the Board of Directors resulting from death, resignation,
disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors,
shall, unless the Board of Directors determines by resolution that any
such vacancies or newly created directorships shall be filled by the
stockholders, except as otherwise provided by law, be filled only by the
affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors, and not by the
stockholders, provided, however, that, until an initial public offering
of the Common Stock of the Corporation (an "IPO"), any vacancy on the
Board of Directors caused by the death, resignation, disqualification or
removal of the Director designated by Omnicom (as defined below) shall,
except as otherwise provided by law, be filled by the stockholders. Any
director elected in accordance with the preceding sentence shall hold
office for the remainder of the full term of the director for which the
vacancy was created
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<PAGE> 15
or occurred and until such director's successor shall have been elected
and qualified.
B.
1. Subject to paragraph (h) of Section 43 of the Bylaws,
the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least eighty percent (80%) of the voting power of
all of the then-outstanding shares of the Voting Stock. The Board of
Directors shall also have the power to adopt, amend, or repeal Bylaws.
2. The directors of this Corporation need not be elected
by written ballot unless the Bylaws so provide.
3. No action shall be taken by the stockholders of this
Corporation except at an annual or special meeting of stockholders
called in accordance with the Bylaws or by written consent of
stockholders in accordance with the Bylaws; provided, however, that from
and after an IPO any actions required by the provisions of the General
Corporation Law of the State of Delaware must be taken at a
stockholders' meeting and not by written consent or consents without
meeting.
4. Special meetings of the stockholders of this
Corporation may be called, for any purpose or purposes, by (i) the
Chairman of the Board of Directors, (ii) the Chief Executive Officer,
(iii) the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not
there exist any vacancies in previously authorized directorships at the
time any such resolution is presented to the Board of Directors for
adoption) or (iv) until an IPO, by the holders of the shares entitled to
cast not less that ten percent (10%) of the votes at the meeting, and
shall be held at such place, on such date, and at such time as the Board
of Directors shall fix.
5. Advance notice of stockholder nominations for the
election of directors and of business to be brought by stockholders
before any meeting of the stockholders of this Corporation shall be
given in the manner provided in the Bylaws of this Corporation.
C. Notwithstanding any other provision of this Certificate of
Incorporation, until an IPO the following actions may not be taken by
this Corporation without the prior written consent of Omnicom Group
Inc., a New York corporation, or any assignee thereof ("Omnicom"),
whether such approval is given by any director appointed by Omnicom at a
meeting of the Board of Directors or by Omnicom pursuant to a vote of
the stockholders of this Corporation:
1. the sale, lease or other disposition of all or
substantially all of this Corporation's assets or business including but
not limited to a merger, consolidation or amalgamation of this
Corporation with and into another corporation or entity, or of any other
corporation or entity with and into this Corporation;
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<PAGE> 16
2. the issuance or sale of stock or other securities of
this Corporation, or stock options, warrants or obligations convertible
into such stock or securities, to any lender providing debt financing of
at least $500,000 to this Corporation;
3. the issuance or sale of stock or other securities of
this Corporation, or stock options, warrants or obligations convertible
into such stock or securities (other than pursuant to the Option Plan),
to the extent that such stock or securities carry rights (including
without limitation rights to dividends, rights upon liquidation, rights
relating to conversion, and/or class voting) which are senior to those
of Omnicom and/or the issuance or sale thereof shall be at a price per
share lower than that paid by Omnicom;
4. the amendment of this Corporation's charter documents
and Bylaws, to the extent that any such amendment would affect one of
the provisions of this Article V, Section C, or which would alter the
rights of the Series A Preferred Stock and Series B Preferred Stock;
5. the making of any loans by this Corporation to any
employee other than travel and business expense advances to employees in
the ordinary course; and
6. the increase in the number of shares of Common Stock
offered under this Corporation's 1997 Stock Option Plan, as amended (the
"Option Plan"), by more than 500,000 shares, or the creation of any
other plan of this Corporation offering shares of capital stock or
equivalent interests to stockholders.
D. Board of Directors after Initial Public Offering
1. Number, Qualifications and Term of Office. Effective
from and after an IPO, Section A of this Article V shall be of no
further force and effect, and the Board of Directors shall be
constituted as follows:
a. Except as otherwise provided herein or the
General Corporation Law of Delaware, the business and affairs of the
Corporation shall be managed by or under the direction of a board of
directors consisting of one or more members.
b. Directors need not be stockholders of the
Corporation.
c. The number of directors shall be fixed from
time to time, within the limits in the Bylaws, by a Bylaw or amendment
thereof duly adopted by the vote of a majority of the shares entitled to
vote represented at a duly held meeting at which a quorum is present or
by the board of directors.
d. The directors shall be divided into three
classes, designated Class I, Class II and Class III, as nearly equal in
number as the then total number of directors permits, serving staggered
terms so that the initial terms of each such class will expire,
respectively, at the first, second
4
<PAGE> 17
and third succeeding annual meetings of the stockholders held following
the IPO. At each such succeeding annual meeting of stockholders,
directors elected to succeed those directors whose terms are expiring at
such meeting shall be elected for a term of office to expire at the
third succeeding annual meeting of stockholders following such election.
If the number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors
in each class as nearly equal as possible, and any additional directors
of any class elected to fill a vacancy resulting from an increase in
such class shall hold office for a term that shall coincide with the
remaining term of that class, but in no case will a decrease in the
number of directors shorten the term of any incumbent director.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of preferred stock issued by the Corporation shall
have the right, voting separately by class or series, to elect directors
at an annual or special meeting of stockholders, the election, term of
office, filling of vacancies and other features of such directorships
shall be governed by the terms of this Certificate of Incorporation or
the Bylaws applicable thereto, and such directors so elected shall not
be divided into classes pursuant to this Article V, Section D unless
expressly provided by such terms.
e. Except as provided in sub-Clause (2) below,
the directors shall be elected by a plurality vote of the shares
represented in person or by proxy at the stockholders annual meeting in
each year and entitled to vote on the election of directors. Elected
directors shall hold office until the next annual meeting for the years
in which their terms expire and until their successors shall be duly
elected and qualified. If, for any cause, the board of directors shall
not have been elected at an annual meeting, they may be elected as soon
thereafter as convenient at a special meeting of the stockholders called
for that purpose in the manner provided in this Certificate of
Incorporation or the Bylaws.
2. Vacancies. Except as otherwise provided by the
Certificate of Incorporation or any amendments thereto, vacancies and
newly created directorships resulting from any increase in the number of
authorized directors may be filled by a majority of the directors then
in office, although less than a quorum, or by a sole remaining director,
and each director so elected shall hold office for the unexpired portion
of the term of the director whose place shall be vacant, and until his
successor shall have been duly elected and qualified. A vacancy in the
board of directors shall be deemed to exist under this sub-Clause (2) in
the case of the death, removal or resignation of any director, or if the
stockholders fail at any meeting of stockholders at which directors are
to be elected to elect the number of directors then constituting the
whole board.
3. Resignation. Any director may resign by delivering
his written resignation to the Corporation at its principal office,
addressed to the president or secretary. Such resignation shall be
effective upon receipt unless it is specified to be effective at some
other time or upon the
<PAGE> 18
happening of some other event. When one or more directors shall resign
from the board, effective at a future date, a majority of the directors
then in office, including those who have so resigned, shall have power
to fill such vacancy or vacancies, the vote thereon to take effect when
such resignation or resignations shall become effective, and each
director so chosen shall hold office for the unexpired portion of the
term of the director whose place shall be vacated and until his
successor shall have been duly elected and qualified.
3. Article VI is hereby amended to read in full as follows:
VI.
The Corporation shall indemnify, to the fullest extent permitted
by Section 145 of the General Corporation Law of Delaware, as amended
from time to time, all officers and directors of the Corporation whom it
may indemnify pursuant thereto. The personal liability of a director of
the Corporation to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director shall be limited to
the fullest extent permitted by the General Corporation Law of the State
of Delaware, as it now exists or may hereafter be amended. The
Corporation may indemnify, to the fullest extent permitted by Section
145 of the General Corporation Law of Delaware, as amended from time to
time, any or all employees or agents of the Corporation whom it may
indemnify pursuant thereto. Any repeal or modification of this Article
by the stockholders of the Corporation shall not adversely affect any
right or protection of an officer or director of the Corporation
existing at the time of such repeal or modification.
4. Article VII is hereby amended to read in full as follows:
VII.
The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation in
the manner now or hereafter prescribed herein and by the laws of the
State of Delaware, and all rights conferred upon stockholders herein are
granted subject to this reservation, provided, however, that, after an
IPO, any amendment, alteration, change or repeal of Article V, Sections
B and D, Article VI or this Article VII, or any other amendment to any
provision of this Certificate of Incorporation that will have the effect
of permitting circumvention of or modifying Article V, Sections B and D,
Article VI or this Article VII, shall require the favorable vote, at a
stockholders' meeting, of the holders of at least 80% of the
then-outstanding shares of stock of the Corporation entitled to vote.
5
<PAGE> 19
5. A new Article VIII is hereby added, as follows:
VIII.
The Corporation expressly elects to be governed by Section 203
of the General Corporation Law of the State of Delaware.
6
<PAGE> 20
IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated
Certificate of Incorporation to be signed by the Chief Executive Officer and
President in San Francisco, California this ____ day of February, 2000.
ORGANIC, INC.,
a Delaware corporation
By:
----------------------------------------
Jonathan Nelson, Chief Executive Officer
ATTEST:
BY:
--------------------------------
Michael Hudes, President
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
ORGANIC, INC.
(A DELAWARE CORPORATION)
<PAGE> 2
BYLAWS
OF
ORGANIC, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be in the City of Dover, County of Kent. (Del.
Code Ann., tit. 8, Section 131)
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain
an office or principal place of business at such place as may be fixed by the
Board of Directors, and may also have offices at such other places, both within
and without the State of Delaware as the Board of Directors may from time to
time determine or the business of the corporation may require. (Del. Code Ann.,
tit. 8, Section 122(8))
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise. (Del. Code Ann., tit. 8,
Section 122(3))
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof. (Del. Code Ann., tit. 8, Section
211(a))
SECTION 5. ANNUAL MEETING.
(a) The annual meeting of the stockholders of the corporation,
for the purpose of election of directors and for such other business as may
lawfully come before it, shall be held on such date and at such time as may be
designated from time to time by the Board of Directors. (Del. Code Ann., tit. 8,
Section 211(b))
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<PAGE> 3
(b) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (A) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, (B) otherwise properly brought before the meeting by
or at the direction of the Board of Directors, or (C) otherwise properly brought
before the meeting by a stockholder. For business to be properly brought before
an annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not later than the close of
business on the sixtieth (60th) day nor earlier than the close of business on
the ninetieth (90th) day prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that no annual meeting was
held in the previous year or the date of the annual meeting has been changed by
more than thirty (30) days from the date contemplated at the time of the
previous year's proxy statement, notice by the stockholder to be timely must be
so received not earlier than the close of business on the ninetieth (90th) day
prior to such annual meeting and not later than the close of business on the
later of the sixtieth (60th) day prior to such annual meeting or, in the event
public announcement of the date of such annual meeting is first made by the
corporation fewer than seventy (70) days prior to the date of such annual
meeting, the close of business on the tenth (10th) day following the day on
which public announcement of the date of such meeting is first made by the
corporation. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting: (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and address, as they appear on the corporation's books, of the stockholder
proposing such business, (iii) the class and number of shares of the corporation
which are beneficially owned by the stockholder, (iv) any material interest of
the stockholder in such business and (v) any other information that is required
to be provided by the stockholder pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as
a proponent to a stockholder proposal. Notwithstanding the foregoing, in order
to include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the procedures set
forth in this paragraph (b). The chairman of the annual meeting shall, if the
facts warrant, determine and declare at the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
this paragraph (b), and, if he should so determine, he shall so declare at the
meeting that any such business not properly brought before the meeting shall not
be transacted. (Del. Code Ann., tit. 8: Section 211(b))
(c) Only persons who are nominated in accordance with the
procedures set forth in this paragraph (c) shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the direction of
the Board of Directors or by any stockholder of the corporation entitled to vote
in the election of directors at the meeting who complies with the notice
procedures set forth in this paragraph (c). Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the Secretary of the corporation in accordance with
the provisions of paragraph (b) of this Section 5. Such
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<PAGE> 4
stockholder's notice shall set forth (i) as to each person, if any, whom the
stockholder proposes to nominate for election or re-election as a director: (A)
the name, age, business address and residence address of such person, (B) the
principal occupation or employment of such person, (C) the class and number of
shares of the corporation which are beneficially owned by such person, (D) a
description of all arrangements or understandings between the stockholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nominations are to be made by the stockholder, and (E) any
other information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the 1934 Act (including without
limitation such person's written consent to being named in the proxy statement,
if any, as a nominee and to serving as a director if elected); and (ii) as to
such stockholder giving notice, the information required to be provided pursuant
to paragraph (b) of this Section 5. At the request of the Board of Directors,
any person nominated by a stockholder for election as a director shall furnish
to the Secretary of the corporation that information required to be set forth in
the stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a director of the corporation unless nominated
in accordance with the procedures set forth in this paragraph (c). The chairman
of the meeting shall, if the facts warrant, determine and declare at the meeting
that a nomination was not made in accordance with the procedures prescribed by
these Bylaws, and if he should so determine, he shall so declare at the meeting,
and the defective nomination shall be disregarded. (Del. Code Ann., tit. 8,
Sections 212, 214).
(d) For purposes of this Section 5, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation may
be called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption) or (iv) by the holders of the shares entitled to cast
not less that ten percent (10%) of the votes at the meeting, and shall be held
at such place, on such date, and at such time as the Board of Directors, shall
fix.
(b) If a special meeting is called by any person or persons other
than the Board of Directors, the request shall be in writing, specifying the
general nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the Chairman of the Board of Directors, the Chief Executive
Officer, or the Secretary of the corporation. No business may be transacted at
such special meeting otherwise than specified in such notice. The Board of
Directors shall determine the time and place of such special meeting, which
shall be held not less than thirty-five (35) nor more than one hundred twenty
(120) days after the date of the receipt of the request. Upon determination of
the time and place of the meeting, the officer receiving the request shall cause
notice to be given to the stockholders entitled to vote, in accordance with the
provisions of
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<PAGE> 5
Section 7 of these Bylaws. If the notice is not given within sixty (60) days
after the receipt of the request, the person or persons requesting the meeting
may set the time and place of the meeting and give the notice. Nothing contained
in this paragraph (b) shall be construed as limiting, fixing, or affecting the
time when a meeting of stockholders called by action of the Board of Directors
may be held.
(c) Notwithstanding the foregoing, following the closing of the
initial public offering pursuant to an effective registration statement under
the Securities Act of 1933, as amended (the "1933 Act"), covering the offer and
sale of Common Stock of the corporation (the "Initial Public Offering"), no such
special meetings of the stockholders of the corporation may be called by any
person or persons other than by (i) the Chairman of the Board of Directors, (ii)
the Chief Executive Officer or (iii) the Secretary, if directed by the Board of
Directors. Furthermore, after the Initial Public Offering, any amendment, change
or repeal of this Section 6, or any other amendment to these Bylaws that will
have the effect of permitting circumvention of or modifying this Section 6,
shall require the favorable vote, at a stockholders' meeting, of the holders of
at least eighty percent (80%) of the then-outstanding shares of stock of the
Corporation entitled to vote.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given. (Del. Code Ann., tit. 8, Sections 222, 229)
SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a quorum,
any meeting of stockholders may be adjourned, from time to time, either by the
chairman of the meeting or by vote of the holders of a majority of the shares
represented thereat, but no other business shall be transacted at such meeting.
The stockholders present at a duly called or convened meeting, at which a quorum
is present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by law, the Certificate of Incorporation or these Bylaws, all
action taken by the holders of a majority of the vote cast, excluding
abstentions, at any meeting at which a quorum is present shall be valid and
binding upon the corporation; provided, however, that directors shall be elected
by a plurality of the votes of the shares present in person or represented by
proxy at the meeting and entitled to vote on the election of directors. Where a
separate vote by a class or classes or series is required, except where
otherwise provided by the statute or by the Certificate of Incorporation or
these Bylaws, a majority of the outstanding shares of such class or classes or
series, present in person or represented by proxy, shall
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<PAGE> 6
constitute a quorum entitled to take action with respect to that vote on that
matter and, except where otherwise provided by the statute or by the Certificate
of Incorporation or these Bylaws, the affirmative vote of the majority
(plurality, in the case of the election of directors) of the votes cast,
including abstentions, by the holders of shares of such class or classes or
series shall be the act of such class or classes or series. (Del. Code Ann.,
tit. 8, Section 216)
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes, excluding abstentions. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting, the corporation may transact any business which might
have been transacted at the original meeting. If the adjournment is for more
than thirty (30) days or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting. (Del. Code Ann., tit. 8,
Section 222(c))
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote or execute consents shall have the right to do so either
in person or by an agent or agents authorized by a proxy granted in accordance
with Delaware law. An agent so appointed need not be a stockholder. No proxy
shall be voted after three (3) years from its date of creation unless the proxy
provides for a longer period. (Del. Code Ann., tit. 8, Sections 211(e), 212(b))
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the General Corporation Law of Delaware, Section 217(b).
If the instrument filed with the Secretary shows that any such tenancy is held
in unequal interests, a majority or even-split for the purpose of subsection (c)
shall be a majority or even-split in interest. (Del. Code Ann., tit. 8, Section
217(b))
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within
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the city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not specified, at the place where the meeting is
to be held. The list shall be produced and kept at the time and place of meeting
during the whole time thereof and may be inspected by any stockholder who is
present. (Del. Code Ann., tit. 8, Section 219(a))
SECTION 13. ACTION WITHOUT MEETING.
(a) Unless otherwise provided in the Certificate of
Incorporation, any action required by statute to be taken at any annual or
special meeting of the stockholders, or any action which may be taken at any
annual or special meeting of the stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted.
(b) Every written consent shall bear the date of signature of
each stockholder who signs the consent, and no written consent shall be
effective to take the corporate action referred to therein unless, within sixty
(60) days of the earliest dated consent delivered to the corporation in the
manner herein required, written consents signed by a sufficient number of
stockholders to take action are delivered to the corporation by delivery to its
registered office in the State of Delaware, its principal place of business or
an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to a
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. (Del. Code Ann., tit. 8, Section 228)
(c) Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is consented
to is such as would have required the filing of a certificate under any section
of the General Corporation Law of the State of Delaware if such action had been
voted on by stockholders at a meeting thereof, then the certificate filed under
such section shall state, in lieu of any statement required by such section
concerning any vote of stockholders, that written notice and written consent
have been given as provided in Section 228 of the General Corporation Law of
Delaware.
(d) Notwithstanding the foregoing, no such action by written
consent may be taken after the Initial Public Offering.
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the Board
of Directors, or, if a Chairman has not been appointed or is absent, the
President, or, if the President is absent, a chairman of the meeting chosen by a
majority in interest of the stockholders entitled to vote, present in person or
by proxy, shall act as chairman. The Secretary, or, in his absence, an Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
(b) The Board of Directors of the corporation shall be entitled
to make such rules or regulations for the conduct of meetings of stockholders as
it shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if
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any, the chairman of the meeting shall have the right and authority to prescribe
such rules, regulations and procedures and to do all such acts as, in the
judgment of such chairman, are necessary, appropriate or convenient for the
proper conduct of the meeting, including, without limitation, establishing an
agenda or order of business for the meeting, rules and procedures for
maintaining order at the meeting and the safety of those present, limitations on
participation in such meeting to stockholders of record of the corporation and
their duly authorized and constituted proxies and such other persons as the
chairman shall permit, restrictions on entry to the meeting after the time fixed
for the commencement thereof, limitations on the time allotted to questions or
comments by participants and regulation of the opening and closing of the polls
for balloting on matters which are to be voted on by ballot. Unless and to the
extent determined by the Board of Directors or the chairman of the meeting,
meetings of stockholders shall not be required to be held in accordance with
rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER, QUALIFICATIONS AND TERM OF OFFICE.
(a) Prior to the Initial Public Offering, except as otherwise
provided in the Certificate of Incorporation or the Delaware General Corporation
Law, the business and affairs of the corporation shall be managed by or under
the direction of a board of directors consisting of one or more members.
Directors need not be stockholders of the corporation. The Board of Directors,
by resolution, may increase or decrease the number of directors from time to
time. Except as otherwise provided in these Bylaws, each director shall be
elected at each annual meeting of stockholders and shall hold such office until
the next annual meeting of stockholders and until his successor shall be elected
and shall qualify. No decrease in the number of directors shall have the effect
of shortening the term of any incumbent director.
(b) Effective from and after the Initial Public Offering, the
Board of Directors shall be constituted as follows:
(1) Except as otherwise provided in the Certificate of
Incorporation or the Delaware General Corporation Law, the business and affairs
of the corporation shall be managed by or under the direction of a board of
directors consisting of one or more members.
(2) Directors need not be stockholders of the
corporation.
(3) The number of directors of the corporation shall
not be less than five (5) nor more than nine (9) until changed by amendment of
the Certificate of Incorporation or by a Bylaw amending this Section 15 duly
adopted by the vote or written consent of holders of a majority of the
outstanding shares or by the board of directors. The exact number of directors
shall be fixed from time to time, within the limits specified in the Certificate
of Incorporation or in this Section 15, by a Bylaw or amendment thereof duly
adopted by the vote of a majority of the shares entitled to vote represented at
a duly held meeting at which a quorum is present or by the board of directors.
Subject to the foregoing provisions for changing the number of directors, the
number of directors of the corporation has been fixed at six (6).
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(4) Upon consummation of the Initial Public Offering,
the directors shall be divided into three classes, designated Class I, Class II
and Class III, as nearly equal in number as the then total number of directors
permits, serving staggered terms so that the initial terms of each such class
will expire, respectively, at the first, second and third succeeding annual
meetings of the stockholders held following the Initial Public Offering. At each
such succeeding annual meeting of stockholders, directors elected to succeed
those directors whose terms are expiring at such meeting shall be elected for a
term of office to expire at the third succeeding annual meeting of stockholders
following such election. If the number of directors is changed, any increase or
decrease shall be apportioned among the classes so as to maintain the number of
directors in each class as nearly equal as possible, and any additional
directors of any class elected to fill a vacancy resulting from an increase in
such class shall hold office for a term that shall coincide with the remaining
term of that class, but in no case will a decrease in the number of directors
shorten the term of any incumbent director. Notwithstanding the foregoing,
whenever the holders of any one or more classes or series of preferred stock
issued by the corporation shall have the right, voting separately by class or
series, to elect directors at an annual or special meeting of stockholders, the
election, term of office, filling of vacancies and other features of such
directorships shall be governed by the terms of these Bylaws applicable thereto,
and such directors so elected shall not be divided into classes pursuant to this
Section 15 unless expressly provided by such terms.
(5) Any amendment, change or repeal of this Section 15,
or any other amendment to these Bylaws that will have the effect of permitting
circumvention of or modifying this Section 15, shall require the favorable vote,
at a stockholders' meeting, of the holders of at least eighty percent (80%) of
the then-outstanding shares of stock of the corporation entitled to vote.
(6) Except as provided in Section 18 of these Bylaws,
the directors shall be elected by a plurality vote of the shares represented in
person or by proxy at the stockholders annual meeting in each year and entitled
to vote on the election of directors. Elected directors shall hold office until
the next annual meeting for the years in which their terms expire and until
their successors shall be duly elected and qualified. If, for any cause, the
board of directors shall not have been elected at an annual meeting, they may be
elected as soon thereafter as convenient at a special meeting of the
stockholders called for that purpose in the manner provided in these Bylaws.
SECTION 16. POWERS. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation.
SECTION 17. INTENTIONALLY OMITTED.
SECTION 18. VACANCIES. Any vacancies on the Board of Directors resulting
from death, resignation, disqualification, removal or other causes and any newly
created directorships resulting from any increase in the number of directors,
shall be filled as provided in the Certificate of Incorporation. Any director
elected in accordance with the preceding sentence shall hold office for the
remainder of the full term of the director for which the vacancy was created or
occurred and until such director's successor shall have been elected and
qualified. A
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vacancy in the Board of Directors shall be deemed to exist under this Bylaw in
the case of the death, removal or resignation of any director. (Del. Code Ann.,
tit. 8, Section 223(a), (b))
SECTION 19. RESIGNATION. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When one
or more directors shall resign from the Board of Directors, effective at a
future date, such vacancy or vacancies shall be filled as provided in the
Certificate of Incorporation, the vote thereon to take effect when such
resignation or resignations shall become effective, and each Director so chosen
shall hold office for the unexpired portion of the term of the Director whose
place shall be vacated and until his successor shall have been duly elected and
qualified. (Del. Code Ann., tit. 8, Sections 141(b), 223(d))
SECTION 20. REMOVAL.
(a) Prior to the Initial Public Offering and subject to the
rights of the holders of any series of Preferred Stock, the Board of Directors
or any individual director may be removed from office at any time (i) with cause
by the affirmative vote of the holders of a majority of the voting power of all
the then-outstanding shares of voting stock of the corporation, entitled to vote
at an election of directors (the "Voting Stock") or (ii) without cause by the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of all the then-outstanding shares of the Voting
Stock.
(b) After the Initial Public Offering and subject to any
limitations imposed by law, Section 20(a)(ii) above shall no longer apply and no
director shall be removed without cause unless at a stockholders' meeting at
least eighty percent (80%) of the Voting Stock votes in favor of such removal.
Subject to any limitations imposed by law, the Board of Directors or any
individual director may be removed from office at any time with cause by the
affirmative vote of the holders of a majority of the Voting Stock.
SECTION 21. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of Directors
shall be held immediately before or after the annual meeting of stockholders and
at the place where such meeting is held. No notice of an annual meeting of the
Board of Directors shall be necessary and such meeting shall be held for the
purpose of electing officers and transacting such other business as may lawfully
come before it.
(b) REGULAR MEETINGS. Except as hereinafter otherwise provided,
regular meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors may also be held at any place within or without the State
of Delaware which has been designated by resolution of the Board of Directors or
the written consent of all directors. (Del. Code Ann., tit. 8, Section 141(g))
(c) SPECIAL MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place
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within or without the State of Delaware whenever called by the Chairman of the
Board, the President or any two of the directors (Del. Code Ann., tit. 8,
Section 141(g))
(d) TELEPHONE MEETINGS. Any member of the Board of Directors, or
of any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting. (Del. Code
Ann., tit. 8, Section 141(i))
(e) NOTICE OF MEETINGS. Notice of the time and place of all
special meetings of the Board of Directors shall be orally or in writing, by
telephone, facsimile, telegraph or telex, during normal business hours, at least
twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. (Del. Code Ann., tit. 8, Section 229)
(f) WAIVER OF NOTICE. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either before
or after the meeting, each of the directors not present shall sign a written
waiver of notice. All such waivers shall be filed with the corporate records or
made a part of the minutes of the meeting. (Del. Code Ann., tit. 8, Section 229)
SECTION 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 43 hereof, for which a quorum shall be one-third of the exact number of
directors fixed from time to time in accordance with the Certificate of
Incorporation, a quorum of the Board of Directors shall consist of a majority of
the exact number of directors fixed from time to time by the Board of Directors
in accordance with the Certificate of Incorporation; provided, however, at any
meeting whether a quorum be present or otherwise, a majority of the directors
present may adjourn from time to time until the time fixed for the next regular
meeting of the Board of Directors, without notice other than by announcement at
the meeting. (Del. Code Ann., tit. 8, Section 141(b))
(b) At each meeting of the Board of Directors at which a quorum
is present, all questions and business shall be determined by the affirmative
vote of a majority of the directors present, unless a different vote be required
by law, the Certificate of Incorporation or these Bylaws. (Del. Code Ann., tit.
8, Section 141(b))
SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing,
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and such writing or writings are filed with the minutes of proceedings of the
Board of Directors or committee. (Del. Code Ann., tit. 8, Section 141(f))
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor. (Del. Code
Ann., tit. 8, Section 141(h))
SECTION 25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may by resolution
passed by a majority of the whole Board of Directors appoint an Executive
Committee to consist of one (1) or more members of the Board of Directors. The
Executive Committee, to the extent permitted by law and provided in the
resolution of the Board of Directors shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation, including without limitation the power or authority
to declare a dividend, to authorize the issuance of stock and to adopt a
certificate of ownership and merger, and may authorize the seal of the
corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
Certificate of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the Board of Directors fix the designations and any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
corporation or fix the number of shares of any series of stock or authorize the
increase or decrease of the shares of any series), adopting an agreement of
merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the corporation's property and assets,
recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the bylaws of the corporation. (Del.
Code Ann., tit. 8, Section 141(c))
(b) OTHER COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board of Directors, from time to time appoint
such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall consist of one (1) or more members of
the Board of Directors and shall have such powers and perform such duties as may
be prescribed by the resolution or resolutions creating such committees, but in
no event shall such committee have the powers denied to the Executive Committee
in these Bylaws. (Del. Code Ann., tit. 8, Section 141(c))
(c) TERM. Each member of a committee of the Board of Directors
shall serve a term on the committee coexistent with such member's term on the
Board of Directors. The Board of Directors, subject to the provisions of
subsections (a) or (b) of this Bylaw may at any time increase or decrease the
number of members of a committee or terminate the existence of a committee. The
membership of a committee member shall terminate on the date of his death or
voluntary resignation from the committee or from the Board of Directors. The
Board of
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Directors may at any time for any reason remove any individual committee member
and the Board of Directors may fill any committee vacancy created by death,
resignation, removal or increase in the number of members of the committee. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee, and, in addition, in the absence or disqualification of any
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. (Del. Code Ann.,
tit. 8, Section 141(c))
(d) MEETINGS. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 25 shall be held at such times and places as
are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at any place which has been determined from time
to time by such committee, and may be called by any director who is a member of
such committee, upon written notice to the members of such committee of the time
and place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any director by attendance thereat, except when the director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A majority of the authorized number of
members of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of such committee. (Del. Code Ann., tit. 8,
Sections 141(c), 229)
SECTION 26. ORGANIZATION. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the directors present, shall preside over the meeting.
The Secretary, or in his absence, an Assistant Secretary directed to do so by
the President, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer, the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one
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person may hold any number of offices of the corporation at any one time unless
specifically prohibited therefrom by law. The salaries and other compensation of
the officers of the corporation shall be fixed by or in the manner designated by
the Board of Directors. (Del. Code Ann., tit. 8, Sections 122(5), 142(a), (b))
SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of
the Board of Directors and until their successors shall have been duly elected
and qualified, unless sooner removed. Any officer elected or appointed by the
Board of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors. (Del. Code Ann., tit. 8, Section 141(b), (e))
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of
the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28. (Del. Code Ann., tit. 8, Section 142(a))
(c) DUTIES OF PRESIDENT. The President shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is present.
Unless some other officer has been elected Chief Executive Officer of the
corporation, the President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. The President shall perform other duties commonly incident to his
office and shall also perform such other duties and have such other powers as
the Board of Directors shall designate from time to time. (Del. Code Ann., tit.
8, Section 142(a))
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume and
perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time. (Del. Code Ann., tit. 8,
Section 142(a))
(e) DUTIES OF SECRETARY. The Secretary shall attend all meetings
of the stockholders and of the Board of Directors and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have
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such other powers as the Board of Directors or the President shall designate
from time to time. (Del. Code Ann., tit. 8, Section 142(a))
(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial
Officer shall keep or cause to be kept the books of account of the corporation
in a thorough and proper manner and shall render statements of the financial
affairs of the corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the order of
the Board of Directors, shall have the custody of all funds and securities of
the corporation. The Chief Financial Officer shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. The President may direct the Treasurer or any Assistant Treasurer,
or the Controller or any Assistant Controller to assume and perform the duties
of the Chief Financial Officer in the absence or disability of the Chief
Financial Officer, and each Treasurer and Assistant Treasurer and each
Controller and Assistant Controller shall perform other duties commonly incident
to his office and shall also perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to
time. (Del. Code Ann., tit. 8, Section 142(a))
SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officer
or agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer. (Del. Code Ann., tit. 8, Section 142(b))
SECTION 31. REMOVAL. Any officer may be removed from office at any time,
either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws,
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and such execution or signature shall be binding upon the corporation. (Del.
Code Ann., tit. 8, Sections 103(a), 142(a), 158)
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock
owned by the corporation, shall be executed, signed or endorsed by the Chairman
of the Board of Directors, or the President or any Vice President, and by the
Secretary or Treasurer or any Assistant Secretary or Assistant Treasurer. All
other instruments and documents requiring the corporate signature, but not
requiring the corporate seal, may be executed as aforesaid or in such other
manner as may be directed by the Board of Directors.
(Del. Code Ann., tit. 8, Sections 103(a), 142(a), 158)
All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount. (Del. Code
Ann., tit. 8, Sections 103(a), 142(a), 158).
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President. (Del. Code Ann., tit. 8, Section 123)
ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the President
or any Vice President and by the Treasurer or Assistant Treasurer or the
Secretary or Assistant Secretary, certifying the number of shares owned by him
in the corporation. Any or all of the signatures on the certificate may be
facsimiles. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall state
upon the face or back thereof, in full or in summary, all of the powers,
designations, preferences, and rights, and the limitations or restrictions of
the shares authorized to be issued or shall, except as otherwise required by
law, set forth on the face or back a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional, or other special rights
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of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Within a reasonable time after
the issuance or transfer of uncertificated stock, the corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to this section or
otherwise required by law or with respect to this section a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical. (Del. Code Ann., tit. 8, Section 158)
SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall
be issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require or to
give the corporation a surety bond in such form and amount as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen, or destroyed.
(Del. Code Ann., tit. 8, Section 167)
SECTION 36. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation
shall be made only upon its books by the holders thereof, in person or by
attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares. (Del. Code Ann., tit.
8, Section 201, tit. 6, Section 8-401(1))
(b) The corporation shall have power to enter into and perform
any agreement with any number of stockholders of any one or more classes of
stock of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the General Corporation Law of Delaware. (Del. Code Ann., tit.
8, Section 160 (a))
SECTION 37. FIXING RECORD DATES.
(a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall not be more than sixty (60) nor less than ten (10) days before the date of
such meeting. If no record date is fixed by the Board of Directors, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of
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stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
(b) Prior to the Initial Public Offering, in order that the
corporation may determine the stockholders entitled to consent to corporate
action in writing without a meeting, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which date
shall not be more than 10 days after the date upon which the resolution fixing
the record date is adopted by the Board of Directors. Any stockholder of record
seeking to have the stockholders authorize or take corporate action by written
consent shall, by written notice to the Secretary, request the Board of
Directors to fix a record date. The Board of Directors shall promptly, but in
all events within 10 days after the date on which such a request is received,
adopt a resolution fixing the record date. If no record date has been fixed by
the Board of Directors within 10 days of the date on which such a request is
received, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the Board
of Directors is required by applicable law, shall be the first date on which a
signed written consent setting forth the action taken or proposed to be taken is
delivered to the corporation by delivery to its registered office in the State
of Delaware, its principal place of business or an officer or agent of the
corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.
(c) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto. (Del. Code Ann., tit. 8, Section 213)
SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.
(Del. Code Ann., tit. 8, Sections 213(a), 219)
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ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 34), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may be
authorized by the Board of Directors, and the corporate seal impressed thereon
or a facsimile of such seal imprinted thereon and attested by the signature of
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Treasurer; provided, however, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature, or where permissible facsimile signature, of a trustee under an
indenture pursuant to which such bond, debenture or other corporate security
shall be issued, the signatures of the persons signing and attesting the
corporate seal on such bond, debenture or other corporate security may be the
imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the corporation or such other person as may be authorized
by the Board of Directors, or bear imprinted thereon the facsimile signature of
such person. In case any officer who shall have signed or attested any bond,
debenture or other corporate security, or whose facsimile signature shall appear
thereon or on any such interest coupon, shall have ceased to be such officer
before the bond, debenture or other corporate security so signed or attested
shall have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.
ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock
of the corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors pursuant to law
at any regular or special meeting. Dividends may be paid in cash, in property,
or in shares of the capital stock, subject to the provisions of the Certificate
of Incorporation. (Del. Code Ann., tit. 8, Sections 170, 173)
SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created. (Del.
Code Ann., tit. 8, Section 171)
ARTICLE X
FISCAL YEAR
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SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall
indemnify its directors and executive officers (for the purposes of this Article
XI, "executive officers" shall have the meaning defined in Rule 3b-7 promulgated
under the 1934 Act) and officers to the fullest extent not prohibited by the
Delaware General Corporation Law; provided, however, that the corporation may
modify the extent of such indemnification by individual contracts with its
directors and executive officers; and, provided, further, that the corporation
shall not be required to indemnify any director or executive officer in
connection with any proceeding (or part thereof) initiated by such person unless
(i) such indemnification is expressly required to be made by law, (ii) the
proceeding was authorized by the Board of Directors of the corporation, (iii)
such indemnification is provided by the corporation, in its sole discretion,
pursuant to the powers vested in the corporation under the Delaware General
Corporation Law or (iv) such indemnification is required to be made under
subsection (d).
(b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation
shall have power to indemnify its other officers, employees and other agents as
set forth in the Delaware General Corporation Law.
(c) EXPENSES. The corporation shall advance to any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or executive
officer, of the corporation, or is or was serving at the request of the
corporation as a director or executive officer of another corporation,
partnership, joint venture, trust or other enterprise, prior to the final
disposition of the proceeding, promptly following request therefor, all expenses
incurred by any director or executive officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph
(e) of this Bylaw, no advance shall be made by the corporation to an executive
officer of the corporation (except by reason of the fact that such executive
officer is or was a director of the corporation in which event this paragraph
shall not apply) in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, if a determination is reasonably and promptly
made (i) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to the proceeding, or (ii) if such quorum is not
obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, that the facts known
to the decision-making party at the time such determination is made
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demonstrate clearly and convincingly that such person acted in bad faith or in a
manner that such person did not believe to be in or not opposed to the best
interests of the corporation.
(d) ENFORCEMENT. Without the necessity of entering into an
express contract, all rights to indemnification and advances to directors and
executive officers under this Bylaw shall be deemed to be contractual rights and
be effective to the same extent and as if provided for in a contract between the
corporation and the director or executive officer. Any right to indemnification
or advances granted by this Bylaw to a director or executive officer shall be
enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. In connection with any claim for indemnification, the
corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standards of conduct that make it permissible under the
Delaware General Corporation Law for the corporation to indemnify the claimant
for the amount claimed. In connection with any claim by an executive officer of
the corporation (except in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
executive officer is or was a director of the corporation) for advances, the
corporation shall be entitled to raise a defense as to any such action clear and
convincing evidence that such person acted in bad faith or in a manner that such
person did not believe to be in or not opposed to the best interests of the
corporation, or with respect to any criminal action or proceeding that such
person acted without reasonable cause to believe that his conduct was lawful.
Neither the failure of the corporation (including its Board of Directors,
independent legal counsel or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the corporation (including its Board of Directors, independent
legal counsel or its stockholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that claimant has not met the applicable standard of conduct. In any suit
brought by a director or executive officer to enforce a right to indemnification
or to an advancement of expenses hereunder, the burden of proving that the
director or executive officer is not entitled to be indemnified, or to such
advancement of expenses, under this Article XI or otherwise shall be on the
corporation.
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person
by this Bylaw shall not be exclusive of any other right which such person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is specifically
authorized to enter into individual contracts with any or all of its directors,
officers, employees or agents respecting indemnification and advances, to the
fullest extent not prohibited by the Delaware General Corporation Law.
(f) SURVIVAL OF RIGHTS. The rights conferred on any person by
this Bylaw shall continue as to a person who has ceased to be a director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
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(g) INSURANCE. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Bylaw.
(h) AMENDMENTS. Any repeal or modification of this Bylaw shall
only be prospective and shall not affect the rights under this Bylaw in effect
at the time of the alleged occurrence of any action or omission to act that is
the cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:
(i) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation,
prosecution, defense, settlement, arbitration and appeal of, and the
giving of testimony in, any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or
investigative.
(ii) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees,
fines, amounts paid in settlement or judgment and any other costs and
expenses of any nature or kind incurred in connection with any
proceeding.
(iii) The term the "corporation" shall include, in addition to
the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger
which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents,
so that any person who is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of
this Bylaw with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
(iv) References to a "director," "executive officer," "officer,"
"employee," or "agent" of the corporation shall include, without
limitation, situations where such person is serving at the request of
the corporation as, respectively, a director, executive officer,
officer, employee, trustee or agent of another corporation, partnership,
joint venture, trust or other enterprise.
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(v) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include
any service as a director, officer, employee or agent of the corporation
which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan,
its participants, or beneficiaries; and a person who acted in good faith
and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of
the corporation" as referred to in this Bylaw.
ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of
these Bylaws, notice is required to be given to any stockholder, it shall be
given in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent. (Del. Code Ann., tit. 8,
Section 222)
(b) NOTICE TO DIRECTORS. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by facsimile,
telex or telegram, except that such notice other than one which is delivered
personally shall be sent to such address as such director shall have filed in
writing with the Secretary, or, in the absence of such filing, to the last known
post office address of such director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a
duly authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained. (Del. Code Ann., tit. 8, Section
222)
(d) TIME NOTICES DEEMED GIVEN. Except as provided otherwise in
these Bylaws, all notices given by mail, as above provided, shall be deemed to
have been given as at the time of mailing, and all notices given by facsimile,
telex or telegram shall be deemed to have been given as of the sending time
recorded at time of transmission.
(e) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any
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privilege, pursuant to any notice sent him in the manner above provided, shall
not be affected or extended in any manner by the failure of such stockholder or
such director to receive such notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person shall
not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such person.
Any action or meeting which shall be taken or held without notice to any such
person with whom communication is unlawful shall have the same force and effect
as if such notice had been duly given. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate shall state,
if such is the fact and if notice is required, that notice was given to all
persons entitled to receive notice except such persons with whom communication
is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice
is required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to be
given pursuant to this paragraph. (Del. Code Ann, tit. 8, Section 230)
ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least eighty percent (80%) of the voting power of all of
the then-outstanding shares of the Voting Stock. The Board of Directors shall
also have the power to adopt, amend, or repeal Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS. Subject to the terms of the corporation's
Articles of Incorporation, the corporation may lend money to, or guarantee any
obligation of, or otherwise assist any officer or other employee of the
corporation or of its subsidiaries, including any officer
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or employee who is a Director of the corporation or its subsidiaries, whenever,
in the judgment of the Board of Directors, such loan, guarantee or assistance
may reasonably be expected to benefit the corporation. The loan, guarantee or
other assistance may be with or without interest and may be unsecured, or
secured in such manner as the Board of Directors shall approve, including,
without limitation, a pledge of shares of stock of the corporation. Nothing in
these Bylaws shall be deemed to deny, limit or restrict the powers of guaranty
or warranty of the corporation at common law or under any statute. (Del. Code
Ann., tit. 8, Section 143)
ARTICLE XV
MISCELLANEOUS
SECTION 47. ANNUAL REPORT.
(a) Subject to the provisions of paragraph (b) of this Bylaw, the
Board of Directors shall cause an annual report to be sent to each stockholder
of the corporation not later than one hundred twenty (120) days after the close
of the corporation's fiscal year. Such report shall include a balance sheet as
of the end of such fiscal year and an income statement and statement of changes
in financial position for such fiscal year, accompanied by any report thereon of
independent accounts or, if there is no such report, the certificate of an
authorized officer of the corporation that such statements were prepared without
audit from the books and records of the corporation. When there are more than
100 stockholders of record of the corporation's shares, as determined by Section
605 of the California Corporations Code, additional information as required by
Section 1501(b) of the California Corporations Code shall also be contained in
such report, provided that if the corporation has a class of securities
registered under Section 12 of the 1934 Act, that Act shall take precedence.
Such report shall be sent to stockholders at least fifteen (15) days prior to
the next annual meeting of stockholders after the end of the fiscal year to
which it relates.
(b) If and so long as there are fewer than 100 holders of record
of the corporation's shares, the requirement of sending of an annual report to
the stockholders of the corporation is hereby expressly waived.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C> <C>
ARTICLE I...................................................................................1
Section 1. Registered Office.....................................................1
Section 2. Other Offices.........................................................1
ARTICLE II..................................................................................1
Section 3. Corporate Seal........................................................1
ARTICLE III.................................................................................1
Section 4. Place of Meetings.....................................................1
Section 5. Annual Meeting........................................................1
Section 6. Special Meetings......................................................3
Section 7. Notice of Meetings....................................................4
Section 8. Quorum................................................................4
Section 9. Adjournment and Notice of Adjourned Meetings..........................5
Section 10. Voting Rights.........................................................5
Section 11. Joint Owners of Stock.................................................5
Section 12. List of Stockholders..................................................5
Section 13. Action Without Meeting................................................6
Section 14. Organization..........................................................6
ARTICLE IV..................................................................................7
Section 15. Number, Qualifications and Term of Office.............................7
Section 16. Powers................................................................8
Section 17. Intentionally Omitted................................................8
Section 18. Vacancies.............................................................8
Section 19. Resignation...........................................................9
Section 20. Removal...............................................................9
Section 21. Meetings..............................................................9
(a) Annual Meetings.......................................................9
(b) Regular Meetings......................................................9
(c) Special Meetings......................................................9
(d) Telephone Meetings...................................................10
(e) Notice of Meetings...................................................10
(f) Waiver of Notice.....................................................10
Section 22. Quorum and Voting....................................................10
Section 23. Action Without Meeting...............................................10
Section 24. Fees and Compensation................................................11
Section 25. Committees...........................................................11
(a) Executive Committee..................................................11
(b) Other Committees.....................................................11
(c) Term.................................................................11
(d) Meetings.............................................................12
Section 26. Organization.........................................................12
ARTICLE V..................................................................................12
</TABLE>
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Section 27. Officers Designated..................................................12
Section 28. Tenure and Duties of Officers........................................13
(a) General..............................................................13
(b) Duties of Chairman of the Board of Directors.........................13
(c) Duties of President..................................................13
(d) Duties of Vice Presidents............................................13
(e) Duties of Secretary..................................................13
(f) Duties of Chief Financial Officer....................................14
Section 29. Delegation of Authority..............................................14
Section 30. Resignations.........................................................14
Section 31. Removal..............................................................14
ARTICLE VI.................................................................................14
Section 32. Execution of Corporate Instruments...................................14
Section 33. Voting of Securities Owned by the Corporation........................15
ARTICLE VII................................................................................15
Section 34. Form and Execution of Certificates...................................15
Section 35. Lost Certificates....................................................16
Section 36. Transfers............................................................16
Section 37. Fixing Record Dates..................................................16
Section 38. Registered Stockholders..............................................17
ARTICLE VIII...............................................................................18
Section 39. Execution of Other Securities........................................18
ARTICLE IX.................................................................................18
Section 40. Declaration of Dividends.............................................18
Section 41. Dividend Reserve.....................................................18
ARTICLE X..................................................................................18
Section 42. Fiscal Year..........................................................19
ARTICLE XI.................................................................................19
Section 43. Indemnification of Directors, Executive Officers, Other Officers,
Employees and Other Agents...........................................19
(a) Directors and Executive Officers.....................................19
(b) Other Officers, Employees and Other Agents...........................19
(c) Expenses.............................................................19
(d) Enforcement..........................................................20
(e) Non-Exclusivity of Rights............................................20
(f) Survival of Rights...................................................20
(g) Insurance............................................................21
(h) Amendments...........................................................21
(i) Saving Clause........................................................21
(j) Certain Definitions..................................................21
ARTICLE XII................................................................................22
</TABLE>
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Section 44. Notices..............................................................22
(a) Notice to Stockholders...............................................22
(b) Notice to directors..................................................22
(c) Affidavit of Mailing.................................................22
(d) Time Notices Deemed Given............................................22
(e) Methods of Notice....................................................22
(f) Failure to Receive Notice............................................22
(g) Notice to Person with Whom Communication Is Unlawful.................23
(h) Notice to Person with Undeliverable Address..........................23
ARTICLE XIII...............................................................................23
Section 45. Amendments...........................................................23
ARTICLE XIV................................................................................23
Section 46. Loans to Officers....................................................23
ARTICLE XV.................................................................................24
Section 47. Annual Report........................................................24
</TABLE>
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<PAGE> 1
ORGANIC, INC. INVESTORS' RIGHTS AGREEMENT
-----------------------------------------
THIS INVESTORS' RIGHTS AGREEMENT is made as of the 8th day of
February 2000, by and among Organic, Inc., a Delaware corporation (the
"Company"), and Organic Holdings, Inc. and Omnicom Group Inc., a New York
corporation ("Omnicom"), each of which is herein referred to as an "Investor."
RECITALS
WHEREAS, the Company and Organic Holdings, Inc. entered into an
Asset Purchase Agreement dated January 29, 1997, pursuant to which the Company
issued to Organic Holdings, Inc. 18,323,712 shares (as adjusted for splits
subsequent to January 29, 1997) of the Company's Series A Preferred Stock, par
value $0.0001 per share (the "Series A Preferred Stock");
WHEREAS, the Company and the Investors are parties to a Series A
Preferred Stock Purchase Agreement dated January 29, 1997 (the "Series A
Agreement"), pursuant to which the Company issued to Omnicom 3,351,288 shares
(as adjusted for splits subsequent to January 29, 1997) of Series A Preferred
Stock;
WHEREAS, on January 29, 1997, Organic Holdings, Inc. transferred
3,106,161 shares of Series A Preferred Stock (as adjusted for splits subsequent
to January 29, 1997) to Omnicom.
WHEREAS, the Company and the Investors are parties to a Series B
Preferred Stock Purchase Agreement dated January 7, 1999 (the "Series B
Agreement"), pursuant to which the Company issued to Omnicom 1,488,000 shares
(as adjusted for splits subsequent to January 7, 1999) of the Company's Series B
Preferred Stock, par value $0.0001 per share (the "Series B Preferred Stock");
WHEREAS, the Company issued a warrant (the "Warrant") to
purchase 2,249,076 shares (as adjusted for splits on or prior the Company's
initial public offering) of common stock to Omnicom in connection with Omnicom
providing the Company with a $30 million revolving credit facility; and
WHEREAS, Omnicom has transferred 1,600,000 shares of Series A
Preferred Stock to Delta Holding Ventures LLC.
NOW, THEREFORE, in consideration of the mutual promises and
covenants set forth herein, and for other good and valuable consideration, the
parties hereto agree as follows:
1. REGISTRATION RIGHTS.
The Company covenants and agrees as follows:
1.1 DEFINITIONS.
For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as amended.
(b) The term "Form S-3" means such form under the Act as in effect
on the date hereof or any registration form under the Act subsequently adopted
by the SEC which permits inclusion or incorporation of substantial information
by reference to other documents filed by the Company with the SEC.
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(c) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any assignee thereof in accordance with
Section 1.13 hereof.
(d) The term "1934 Act" shall mean the Securities Exchange Act of
1934, as amended.
(e) The term "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document.
(f) The term "Registrable Securities" means (i) the Common Stock
issuable or issued upon conversion of the Series A Preferred Stock or the Series
B Preferred Stock or upon exercise of the Warrant, or (ii) any Common Stock of
the Company issued as (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of the shares
referenced in (i) above, excluding in all cases, however, any Registrable
Securities sold by a person in a transaction in which such person's rights under
this Section 1 are not assigned.
(g) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities.
(h) The term "SEC" shall mean the Securities and Exchange
Commission.
1.2 REQUEST FOR REGISTRATION.
(a) If the Company shall receive at any time after the earlier of
(i) January 1, 2003, or (ii) six (6) months after the effective date of the
first registration statement for a public offering of securities of the Company
(other than a registration statement relating either to the sale of securities
to employees of the Company pursuant to a stock option, stock purchase or
similar plan or a SEC Rule 145 transaction), a written request from either
Organic Holdings, Inc. or Omnicom that the Company file a registration statement
under the Act covering the registration of at least twenty percent (20%) of the
Registrable Securities then outstanding (or a lesser percent if the anticipated
aggregate offering price, net of underwriting discounts and commissions, would
exceed $10,000,000) then the Company shall:
(i) within ten (10) days of the receipt thereof, give written notice
of such request to all Holders; and
(ii) effect as soon as practicable, and in any event within ninety
(90) days of the receipt of such request, the registration under the Act
of all Registrable Securities which the Holders request to be
registered, subject to the limitations of subsection 1.2(b), within
twenty (20) days of the mailing of such notice by the Company in
accordance with Section 2.5.
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(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to subsection 1.2(a) and the Company
shall include such information in the written notice referred to in subsection
1.2(a). The underwriter will be selected by the Company and shall be reasonably
acceptable to a majority in interest of the Holders of Registrable Securities
included in such registration. In such event, the right of any Holder to include
its Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall (together with the Company as provided in subsection
1.4(e)) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting. Notwithstanding any
other provision of this Section 1.2, if the underwriter advises the Initiating
Holders in writing that marketing factors require a limitation of the number of
shares to be underwritten, then the Initiating Holders shall so advise all
Holders of Registrable Securities which would otherwise be underwritten pursuant
hereto, and the number of shares of Registrable Securities that may be included
in the underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided, however,
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting.
(c) Notwithstanding the foregoing, if the Company shall furnish to
Holders requesting a registration statement pursuant to this Section 1.2, a
certificate signed by the Chief Executive Officer of the Company stating that in
the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its stockholders for such registration
statement to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer taking action
with respect to such filing for a period of not more than one hundred twenty
(120) days after receipt of the request of the Initiating Holders; provided,
however, that the Company may not utilize this right more than once in any
twelve-month period.
(d) In addition, the Company shall not be obligated to effect, or to
take any action to effect, any registration pursuant to this Section 1.2:
(i) After the Company has effected two registrations pursuant to
this Section 1.2 and such registrations have been declared or ordered
effective and kept effective for the period set forth in Section 1.4(a);
(ii) During the period starting with the date sixty (60) days
prior to the Company's good faith estimate of the date of filing of, and
ending on a date one hundred eighty (180) days after the effective date
of, a registration in which the Holders are eligible to cause their
registrable securities to be registered pursuant to Section 1.3 hereof;
provided that the Company is actively employing in good faith all
reasonable efforts to cause such registration statement to become
effective and provided further that the Company has complied with its
obligations set forth in Section 1.3; or
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(iii) If the Initiating Holders propose to dispose of shares of
Registrable Securities that may be immediately registered on Form S-3
pursuant to a request made pursuant to Section 1.12 below.
1.3 COMPANY REGISTRATION.
If (but without any obligation to do so) the Company proposes to
register (including for this purpose a registration effected by the Company for
stockholders other than the Holders) any of its stock or other securities under
the Act in connection with the public offering of such securities solely for
cash other than (a) a registration relating solely to the sale of securities to
participants in a Company stock plan, (b) a registration on any form which does
not include substantially the same information as would be required to be
included in a registration statement covering the sale of the Registrable
Securities (including, without limitation, a registration statement for a SEC
Rule 145 transaction), (c) a registration in which the only Common Stock being
registered is Common Stock issuable upon conversion of debt securities which are
also being registered or (d) a registration relating to the initial public
offering of the securities of the Company, the Company shall, at such time,
promptly give each Holder written notice of such registration. Upon the written
request of each Holder given within twenty (20) days after mailing of such
notice by the Company in accordance with Section 2.5, the Company shall, subject
to the provisions of Section 1.8, cause to be registered under the Act all of
the Registrable Securities that each such Holder has requested to be registered.
1.4 OBLIGATIONS OF THE COMPANY.
Whenever required under this Section 1 to effect the registration of
any Registrable Securities, the Company shall, as expeditiously as reasonably
possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and keep such registration statement
effective for a period of up to ninety (90) days or until the distribution
contemplated in the Registration Statement has been completed.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders;
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
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<PAGE> 5
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
(i) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Section 1, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Section 1, if such securities are being
sold through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated such date, from
the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities.
1.5 FURNISH INFORMATION.
(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Section 1 with respect to the
Registrable Securities of any selling Holder that such Holder shall furnish to
the Company such information regarding itself, the Registrable Securities held
by it, and the intended method of disposition of such securities as shall be
required to effect the registration of such Holder's Registrable Securities.
(b) The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 or Section 1.12 if, due to the
operation of subsection 1.5(a), the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
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aggregate offering price required to originally trigger the Company's obligation
to initiate such registration as specified in subsection 1.2(a) or subsection
1.12(b)(2), whichever is applicable.
1.6 EXPENSES OF DEMAND REGISTRATION.
All expenses other than underwriting discounts and commissions
incurred in connection with registrations, filings or qualifications pursuant to
Section 1.2, including (without limitation) all registration, filing and
qualification fees, printers' and accounting fees, fees and disbursements of
counsel for the Company (including fees and disbursements of counsel for the
Company in its capacity as counsel to the selling Holders hereunder; if Company
counsel does not make itself available for this purpose, the Company will pay
the reasonable fees and disbursements of one counsel for the selling Holders)
shall be borne by the Company; provided, however, that the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 1.2 if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities to be
registered (in which case all participating Holders shall bear such expenses pro
rata according to the number of Registrable Securities held by such Holder
included in such registration), unless Organic Holdings, Inc. and Omnicom agree
to forfeit their right to one demand registration pursuant to section 1.2;
provided further, however, that if at the time of such withdrawal, the Holders
have learned of a material adverse change in the condition, business, or
prospects of the Company from that known to the Holders at the time of their
request and have withdrawn the request with reasonable promptness following
disclosure by the Company of such material adverse change, then the Holders
shall not be required to pay any of such expenses and shall retain their rights
pursuant to Section 1.2.
1.7 EXPENSES OF COMPANY REGISTRATION.
The Company shall bear and pay all expenses incurred in connection
with any registration, filing or qualification of Registrable Securities with
respect to the registrations pursuant to Section 1.3 for each Holder (which
right may be assigned as provided in Section 1.13), including (without
limitation) all registration, filing, and qualification fees, printers and
accounting fees relating or apportionable thereto and the fees and disbursements
of counsel for the Company in its capacity as counsel to the selling Holders
hereunder; if Company counsel does not make itself available for this purpose,
the Company will pay the reasonable fees and disbursements of one counsel for
the selling Holders selected by them, but excluding underwriting discounts and
commissions relating to Registrable Securities.
1.8 UNDERWRITING REQUIREMENTS.
In connection with any offering involving an underwriting of shares
of the Company's capital stock, the Company shall not be required under Section
1.3 to include any of the Holders' securities in such underwriting unless they
(together with the Company and the other Holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the managing underwriter selected for such underwriting. If the total
amount of securities, including Registrable Securities, requested by
stockholders to be included in such offering exceeds the amount of securities
sold other than by the Company that the underwriters determine in their sole
discretion is compatible with the success of the offering,
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then the Company shall be required to include in the offering only that number
of such securities, including Registrable Securities, which the underwriters
determine in their sole discretion will not jeopardize the success of the
offering (the securities so included to be apportioned pro rata among the
selling stockholders according to the total amount of securities entitled to be
included therein owned by each selling Stockholder or in such other proportions
as shall mutually be agreed to by such selling stockholders) but in no event
shall (i) the amount of securities of the selling Holders included in the
offering be reduced below twenty percent (20%) of the total amount of securities
included in such offering or (ii) notwithstanding (i) above, any shares being
sold by a stockholder exercising a demand registration right similar to that
granted in Section 1.2 be excluded from such offering. For purposes of the
preceding parenthetical concerning apportionment, for any selling stockholder
which is a holder of Registrable Securities and which is a partnership or
corporation, the partners, retired partners and stockholders of such holder, or
the estates and family members of any such partners and retired partners and any
trusts for the benefit of any of the foregoing persons shall be deemed to be a
single "selling stockholder," and any pro-rata reduction with respect to such
"selling stockholder" shall be based upon the aggregate amount of shares
carrying registration rights owned by all entities and individuals included in
such "selling stockholder," as defined in this sentence.
1.9 DELAY OF REGISTRATION.
No Holder shall have any right to obtain or seek an injunction
restraining or otherwise delaying any such registration as the result of any
controversy that might arise with respect to the interpretation or
implementation of this Section 1.
1.10 INDEMNIFICATION.
In the event any Registrable Securities are included in a
registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the 1934 Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the Act,
the 1934 Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Act, the 1934 Act, any state securities law or
any rule or regulation promulgated under the Act, the 1934 Act or any state
securities law; and the Company will pay to each such Holder, underwriter or
controlling person, as incurred, any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity agreement
contained in this subsection 1.10(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected
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without the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case for any such loss,
claim, damage, liability, or action to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
Holder selling securities in such registration statement and any controlling
person of any such underwriter or other Holder, against any losses, claims,
damages, or liabilities (joint or several) to which any of the foregoing persons
may become subject, under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished by such Holder expressly for
use in connection with such registration; and each such Holder will pay any
legal or other expenses reasonably incurred by any person intended to be
indemnified pursuant to this subsection 1.10(b), in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this subsection
1.10(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder, which consent shall not be unreasonably withheld; provided, that,
in no event shall any indemnity under this subsection 1.10(b) exceed the gross
proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.10, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
indemnified party under this Section 1.10, unless and to the extent the omission
so to deliver written notice to the indemnifying party is prejudicial to its
ability to defend such action.
(d) If the indemnification provided for in this Section 1.10 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable
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by such indemnified party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.
(f) The obligations of the Company and Holders under this Section
1.10 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.11 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934.
With a view to making available to the Holders the benefits of Rule
144 promulgated under the Act and any other rule or regulation of the SEC that
may at any time permit a Holder to sell securities of the Company to the public
without registration or pursuant to a registration on Form S-3, the Company
agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(b) take such action, including the voluntary registration of its
Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably
9
<PAGE> 10
requested in availing any Holder of any rule or regulation of the SEC which
permits the selling of any such securities without registration or pursuant to
such form.
1.12 FORM S-3 REGISTRATION.
In case the Company shall receive from any Holder or Holders a
written request or requests that the Company effect a registration on Form S-3
and any related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed registration, and
any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within 15
days after receipt of such written notice from the Company; provided, however,
that the Company shall not be obligated to effect any such registration,
qualification or compliance, pursuant to this section 1.12: (1) if Form S-3 is
not available for such offering by the Holders; (2) if the Holders, together
with the holders of any other securities of the Company entitled to inclusion in
such registration, propose to sell Registrable Securities and such other
securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $1,000,000; (3) if the
Company shall furnish to the Holders a certificate signed by the Chief Executive
Officer of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company and
its stockholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than sixty (60) days after
receipt of the request of the Holder or Holders under this Section 1.12;
provided, however, that the Company shall not utilize this right more than once
in any twelve month period; (4) if the Company has, within the six (6) month
period preceding the date of such request, already effected one registration on
Form S-3 for the Holders pursuant to this Section 1.12; or (5) in any particular
jurisdiction in which the Company would be required to qualify to do business or
to execute a general consent to service of process in effecting such
registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a registration
statement covering the Registrable Securities and other securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Holders. All expenses incurred in connection with a registration
requested pursuant to Section 1.12, including (without limitation) all
registration, filing, qualification, printer's and accounting fees and the
reasonable fees and disbursements of counsel for the selling Holder or Holders
and counsel for the Company, but excluding any underwriters' discounts or
commissions associated with Registrable Securities, shall be borne by the
Company. Registrations effected pursuant to this Section 1.12 shall not be
counted as demands for registration or registrations effected pursuant to
Sections 1.2 or 1.3, respectively.
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<PAGE> 11
1.13 ASSIGNMENT OF REGISTRATION RIGHTS.
The rights to cause the Company to register Registrable Securities
pursuant to this Section 1 may be assigned (but only with all related
obligations) by a Holder to a transferee or assignee of such securities who
after such assignment or transfer, holds at least 1,000,000 shares (as adjusted
for splits on or prior to the Company's initial public offering) of Registrable
Securities (subject to appropriate adjustment for stock splits, stock dividends,
combinations and other recapitalizations after the Company's initial public
offering); provided: (a) the Company is, within a reasonable time after such
transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; (b) such transferee or assignee agrees
in writing to be bound by and subject to the terms and conditions of this
Agreement, including without limitation the provisions of Section 1.15 below;
and (c) such assignment shall be effective only if immediately following such
transfer the further disposition of such securities by the transferee or
assignee is restricted under the Act. For the purposes of determining the number
of shares of Registrable Securities held by a transferee or assignee, the
holdings of transferees and assignees of a partnership who are partners or
retired partners of such partnership (including spouses and ancestors, lineal
descendants and siblings of such partners or spouses who acquire Registrable
Securities by gift, will or intestate succession) shall be aggregated together
and with the partnership; provided that all assignees and transferees who would
not qualify individually for assignment of registration rights shall have a
single attorney-in-fact for the purpose of exercising any rights, receiving
notices or taking any action under this Section 1.
1.14 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS.
From and after the date of this Agreement, the Company shall not,
without the prior written consent of Organic Holdings, Inc. and Omnicom enter
into any agreement with any holder or prospective holder of any securities of
the Company which would allow such holder or prospective holder (a) to include
such securities in any registration filed under Section 1.2 hereof, unless under
the terms of such agreement, such holder or prospective holder may include such
securities in any such registration only to the extent that the inclusion of
such securities will not reduce the amount of the Registrable Securities of the
Holders which is included or (b) to make a demand registration which could
result in such registration statement being declared effective prior to the
earlier of either of the dates set forth in subsection 1.2(a) or within one
hundred twenty (120) days of the effective date of any registration effected
pursuant to Section 1.2.
1.15 "MARKET STAND-OFF" AGREEMENT.
Each Investor hereby agrees that, during the period of duration
specified by the Company and an underwriter of common stock or other securities
of the Company, following the effective date of a registration statement of the
Company filed under the Act, it shall not, to the extent requested by the
Company and such underwriter, directly or indirectly sell, offer to sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of (other than to donees who
agree to be similarly bound) any securities of the Company held by it at any
time during such period except common stock included in such registration;
provided, however, that:
11
<PAGE> 12
(a) such agreement shall be applicable only to the first such
registration statement of the Company which covers common stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
(b) all officers and directors of the Company and all other persons
with registration rights (whether or not pursuant to this Agreement) enter into
similar agreements; and
(c) such market stand-off time period shall not exceed 180 days and
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
Notwithstanding the foregoing, the obligations described in this
Section 1.15 shall not apply to a registration relating solely to employee
benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated
in the future, or a registration relating solely to a Commission Rule 145
transaction on Form S-14 or Form S-15 or similar forms which may be promulgated
in the future.
1.16 TERMINATION OF REGISTRATION RIGHTS.
(a) No Holder shall be entitled to exercise any right provided for
in this Section 1 (other than Section 1.10) after five (5) years following the
consummation of the sale of securities pursuant to a registration statement
filed by the Company under the Act in connection with the initial firm
commitment underwritten offering of its securities to the general public.
(b) In addition, the right of any Holder to request registration or
inclusion in any registration pursuant to Section 1.3 shall terminate on the
closing of the first Company-initiated registered public offering of Common
Stock of the Company if all shares of Registrable Securities held or entitled to
be held upon conversion by such Holder may immediately be sold under Rule 144
during any 90-day period, or on such date after the closing of the first
Company-initiated registered public offering of Common Stock of the Company as
all shares of Registrable Securities held or entitled to be held upon conversion
by such Holder may immediately be sold under Rule 144 during any 90-day period.
2. MISCELLANEOUS.
2.1 SUCCESSORS AND ASSIGNS.
Except as otherwise provided herein, the terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties (including transferees of any shares of
Registrable Securities), including any successor or assign of the Company by
reason of a merger, consolidation or reorganization to which the Company is a
party and pursuant to which securities of the Company are exchanged for
securities of such successor or assign or of an affiliate of such sucessor or
assign. Nothing in this Agreement, express or implied, is intended to confer
upon any party other than the parties hereto or their respective successors and
assigns any rights, remedies, obligations, or liabilities under or by reason of
this Agreement, except as expressly provided in this Agreement.
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<PAGE> 13
2.2 GOVERNING LAW.
This Agreement shall be governed by and construed under the laws of
the State of California as applied to agreements among California residents
entered into and to be performed entirely within California.
2.3 COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
2.4 TITLES AND SUBTITLES.
The titles and subtitles used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
2.5 NOTICES.
Any notice or other communication required or permitted to be
delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by telecopier during
business hours) to the address or telecopier number for each party set forth on
the signature page hereof (or to such other address or telecopier number as such
party shall have specified in a written notice given to the other parties
hereto).
2.6 EXPENSES.
If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party shall be entitled to
reasonable attorneys' fees, costs and necessary disbursements in addition to any
other relief to which such party may be entitled.
2.7 AMENDMENTS AND WAIVERS.
Any term of this Agreement may be amended and the observance of any
term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company, Organic Holdings, Inc. and Omnicom. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
holder of any Registrable Securities then outstanding, each future holder of all
such Registrable Securities, and the Company.
2.8 SEVERABILITY.
If one or more provisions of this Agreement are held to be
unenforceable under applicable law, such provision shall be excluded from this
Agreement and the balance of the
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<PAGE> 14
Agreement shall be interpreted as if such provision were so excluded and shall
be enforceable in accordance with its terms.
2.9 AGGREGATION OF STOCK.
All shares of Registrable Securities held or acquired by affiliated
entities or persons shall be aggregated together for the purpose of determining
the availability of any rights under this Agreement.
2.10 ENTIRE AGREEMENT.
This Agreement (including the Exhibits hereto, if any) constitutes
the full and entire understanding and agreement between the parties with regard
to the subjects hereof and thereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
ORGANIC, INC.
By: /s/ MICHAEL HUDES
--------------------------------
Michael Hudes
President
Address: 510 Third Street, Suite 540
San Francisco, CA 94107
OMNICOM GROUP INC.
By: /s/ RANDALL J. WEISENBURGER
--------------------------------
Randall J. Weisenburger,
Chief Financial Officer
Address: 437 Madison Avenue
New York, NY 10022
ORGANIC HOLDINGS, INC.
By: /s/ JONATHAN NELSON
--------------------------------
Jonathan Nelson
Chief Executive Officer
Address: 510 Third Street, Suite 540
San Francisco, CA 94107
14
<PAGE> 1
EXHIBIT 10.14
STANDARD FORM OF OFFICE LEASE
The Real Estate Board of New York, Inc.
Agreement of Lease, made as of this 15th day of September 1999, between TRUSTEES
OF THE MASONIC HALL AND ASYLUM FUND, having an address at 71 West 23rd Street,
New York, New York 10010 party of the first part, hereinafter referred to as
OWNER, and ORGANIC ONLINE, INC., having an address at 71 West 23rd Street, New
York, New York 10010 from and after the Commencement Date, party of the second
part, hereinafter referred to as TENANT,
Witnesseth; Owner hereby leases to Tenant and Tenant hereby hires from Owner
part Seventh (7th) floor as shown on Exhibit A annexed hereto (the "demised
premises") in the building known as 71 West 23rd Street (the "Building") in the
Borough of Manhattan, City of New York, for the term of one (1) year (or until
such term shall sooner cease and expire as hereinafter provided) to commence on
the Commencement Date (hereinafter defined), and to end on the Expiration Date
(hereinafter defined) both dates inclusive, at an annual rental rate as set
forth in Article 37B hereof which Tenant agrees to pay in lawful money of the
United States which shall be legal tender in payment of all debts and dues,
public and private, at the time of payment, in equal monthly installments in
advance on the first day of each month during said term, at the office of Owner
or such other place as Owner may designate, without any set off or deduction
whatsoever, except that Tenant shall pay the first monthly installment(s) on the
execution hereof (unless this lease be a renewal), and except that Tenant shall
pay four (4) additional months' rent on the Commencement Date which shall be
advance rent for the ninth, tenth, eleventh and twelfth months of this lease.
In the event that, at the commencement of the term of this lease, or
thereafter, Tenant shall be in default in the payment of rent to Owner pursuant
to the terms of another lease with Owner or with Owner's predecessor in
interest, Owner may at Owner's option and without notice to Tenant add the
amount of such arrears to any monthly installment of rent payable hereunder and
the same shall be payable to Owner as additional rent.
The parties hereto, for themselves, their heirs, disributees, executors,
administrators, legal representatives, successors and assigns, hereby covenant
as follows:
Rent:
1. Tenant shall pay the rent as above and as hereinafter provided.
Occupancy:
2. Tenant shall use and occupy demised premises for ______________ and for no
other purpose.
Tenant Alterations:
3. Tenant shall make no changes in or to the demised premises of any nature
without Owner's prior written consent. Subject to the prior written consent of
Owner, and to the provisions of this article, Tenant, at Tenant's expense, may
make alterations, installations, additions or improvements which are
non-structural and which do not affect utility services or plumbing and
electrical lines, in or to the interior of the demised premises by using
contractors or mechanics first approved in each instance by Owner.
3.1 Tenant shall, before making any alterations, additions, installations
or improvements, at its expense, obtain all permits, approvals and certificates
required by any governmental or quasi-governmental bodies and (upon completion)
certificates of final approval thereof and shall deliver promptly duplicates of
all such permits, approvals and certificates to Owner and Tenant agrees to carry
and will cause Tenant's contractors and sub-contractors to carry such workman's
compensation, general liability, personal and property damage insurance as Owner
may require. If any mechanic's lien
3.2 is filed against the demised premises, or the building of which the
same forms a part, for work claimed to have been done for, or materials
furnished to, Tenant, whether or not done pursuant to this article, the same
shall be discharged by Tenant within thirty days thereafter at Tenant's expense,
by payment or filing the bond required by law.
3.3 All fixtures and all paneling, partitions, railings and like
installations, installed in the premises at any time, either by Tenant or by
Owner on Tenant's behalf, shall, upon installation, become the property of Owner
and shall remain upon and be surrendered with the demised premises unless Owner,
by notice to Tenant no later than twenty days prior to the date fixed as the
termination of this lease, elects to relinquish Owner's right thereto and to
have them removed by Tenant, in which event the same shall be removed from the
premises by Tenant prior to the expiration of the lease, at Tenant's expense.
Nothing in this Article shall be construed to give Owner title to or to prevent
Tenant's removal of trade fixtures, moveable office furniture and equipment, but
upon removal of any such from the premises or upon removal of other
installations as may be required by Owner, Tenant shall immediately and at its
expense, repair and restore the premises to the condition existing prior to
installation and repair any damage to the demised premises or the building due
to such removal. All property permitted or required to be removed, by Tenant at
the end of the term remaining in the premises after Tenant's removal shall be
deemed abandoned and may, at the election of Owner, either be retained as
Owner's property or may be removed from the premises by Owner, at Tenant's
expense.
Maintenance and Repairs:
4. Tenant shall, throughout the term of this lease, take good care of the
demised premises and the fixtures and appurtenances therein. Tenant shall be
responsible for all damage or injury to the demised premises or any other part
of the building and the systems and equipment thereof, whether requiring
structural or nonstructural repairs caused by or resulting from carelessness,
omission, neglect or improper conduct of Tenant, Tenant's subtenants, agents,
employees, invitees or licensees, or which arise out of any work, labor, service
or equipment done for or supplied to Tenant or any subtenant or arising out of
the installation, use or operation of the property or equipment of Tenant or any
subtenant. Tenant shall also repair all damage to the building and the demised
premises caused by the moving of Tenant's fixtures, furniture and equipment.
Tenant shall promptly make, at Tenant's expense, all repairs in and to the
demised premises for which Tenant is responsible, using only the contractor for
the trade or trades in question, selected from a list of at least two
contractors per trade submitted by Owner. Any other repairs in or to the
building or the facilities and systems thereof for which Tenant is responsible
shall be performed by owner at the Tenant's expense. Owner shall maintain in
good working order and repair the exterior and the structural portions of the
building, including the structural portions of
4.1 demised premises, and the public portions of the building interior and
4.2 (to the extent such systems presently exist) serving the demised
premises. Tenant agrees to give prompt notice of any defective condition in the
premises for which Owner may be responsible hereunder. There shall be no
allowance to Tenant for diminution of rental value and no liability on the part
of Owner by reason of inconvenience, annoyance or injury to business arising
from Owner or others making repairs, alterations, additions or improvements in
or to any portion of the building or the demised premises or in and to the
fixtures, appurtenances or equipment thereof. It is specifically agreed that
Tenant shall not be entitled to any setoff or reduction of rent by reason of any
failure of Owner to comply with the covenants of this or any other article of
this Lease. Tenant agrees that Tenant's sole remedy at law in such instance will
be by way of an action for damages for breach of contract. The provisions of
this Article 4 shall not apply in the case of fire or other casualty which are
dealt with in Article 9 hereof.
Window Cleaning:
5. Tenant will not clean nor require, permit, suffer or allow any window in
the demised premises to be cleaned from the outside in violation of Section 202
of the Labor Law or any other applicable law or of the Rules of the Board of
Standards and Appeals, or of any other Board or body having or asserting
jurisdiction.
Requirements of Law, Fire Insurance, Floor Loads:
6. Prior to the commencement of the lease term, if Tenant is then in
possession, and at all times thereafter, Tenant, at Tenant's sole cost and
expense, shall promptly comply with all present and future laws orders and
regulations of all state, federal, municipal and local governments, departments,
commissions and boards and any direction of any public officer pursuant to law,
and all orders, rules and regulations of the New York Board of Fire
Underwriters, Insurance Services Office, or any similar body
6.1 which shall impose any violation, order or duty upon Owner or Tenant
with respect to the demised premises, whether or not arising out of Tenant's use
or manner of use thereof, (including Tenant's permitted use) or, with respect to
the building if arising out of Tenant's use or manner of use of the premises or
the building (including the use permitted under the lease). Nothing herein shall
require Tenant to make structural repairs or alterations unless Tenant has, by
its manner of use of the demised premises or method of operation therein,
violated any such laws, ordinances, orders, rules, regulations or requirements
with respect thereto. Tenant may, after securing Owner to
<PAGE> 2
Owner's satisfaction against all damages, interest, penalties and expenses,
including, but not limited to, reasonable attorney's fees, by cash deposit or by
surety bond in an amount and in a company satisfactory to Owner, contest and
appeal any such laws, ordinances, orders, rules, regulations or requirements
provided same is done with all reasonable promptness and provided such appeal
shall not subject Owner to prosecution for a criminal offense or constitute a
default under any lease or mortgage under which Owner may be obligated, or cause
the demised premises or any part thereof to be condemned or vacated. Tenant
shall not do or permit any act or thing to be done in or to the demised premises
which is contrary to law, or which will invalidate or be in conflict with public
liability, fire or other policies of insurance at any time carried by or for the
benefit of Owner with respect to the demised premises or the building of which
the demised premises form a part, or which shall or might subject Owner to any
liability or responsibility to any person or for property damage. Tenant shall
not keep anything in the demised premises except as now or hereafter permitted
by the Fire Department, Board of Fire Underwriters, Fire Insurance Rating
Organization or other authority having jurisdiction, and then only in such
manner and such quantity so as not to increase the rate for fire insurance
applicable to the building, nor use the premises in a manner which will increase
the insurance rate for the building or any property located therein, over 6.2.
Tenant shall pay all costs, expenses, fines, penalties, or damages, which may
be imposed upon Owner by reason of Tenant's failure to comply with the
provisions of this article and if by reason of such failure the fire insurance
rate shall, at the beginning of this lease or at any time thereafter, be higher
than it otherwise would be, then Tenant shall reimburse Owner, as additional
rent hereunder, for that portion of all fire insurance premiums thereafter paid
by Owner which shall have been charged because of failure by Tenant. In any
action or proceeding wherein Owner and Tenant are parties, a schedule or
"make-up" of rate for the building or demised premises issued by the New York
Fire Insurance Exchange, or other body making fire insurance rates applicable to
said premises shall be conclusive evidence of the facts therein stated and of
the several items and charges in the fire insurance rates then applicable to
said premises. Tenant shall not place a load upon any floor of the demised
premises exceeding the floor load per square foot area which it was designed to
carry and which is allowed by law. Owner reserves the right to prescribe the
weight and position of all safes, business machines and mechanical equipment.
Such installations shall be placed and maintained by Tenant, at Tenant's
expense, in setting sufficient, in Owner's judgement, to absorb and prevent
vibration, noise and annoyance.
Subordination:
7. This lease is subject and subordinate to all ground or underlying leases
and to all mortgages which may now or hereafter affect such leases or the real
property of which demised premises are a part and to all renewals,
modifications, consolidations, replacements and extensions of any such
underlying leases and mortgages. This clause shall be self-operative and no
further instrument of subordination shall be required by any ground or
underlying lessor or by any mortgagee, affecting any lease or the real property
of which the demised premises are a part. In confirmation of such subordination,
Tenant shall from time to time execute promptly any certificate that Owner may
request.
Property Loss, Damage Reimbursement Indemnity:
8. Owner or its agents shall not be liable for any damage to property of
Tenant or of others entrusted to employees of the building, nor for loss of or
damage to any property of Tenant by theft or otherwise, nor for any injury or
damage to persons or property resulting from any cause of whatsoever nature,
unless caused by or due to the negligence of Owner, its agents, servants or
employees. Owner or its agents will not be liable for any such damage caused by
other tenants or persons in, upon or about said building or caused by
operations in construction of any private, public or quasi public work. If at
any time any windows of the demised premises are temporarily closed, darkened
or bricked up (or permanently closed, darkened or bricked up, if required by
law) for any reason whatsoever including, but not limited to Owner's own acts.
Owner shall not be liable for any damage tenant may sustain thereby and Tenant
shall not be entitled to any compensation therefor nor abatement or diminution
of rent not shall the same release Tenant from its obligations hereunder nor
constitute an eviction. Tenant shall indemnify and save harmless Owner against
and from all liabilities, obligations, damages, penalties, claims, costs and
expenses for which Owner shall not be reimbursed by insurance, including
reasonable attorneys fees, paid, suffered or incurred as a result of any breach
by Tenant, Tenant's agents, contractors, employees, invitees, or licensees, of
any covenant or condition of this lease, or the carelessness, negligence or
improper conduct of the Tenant, Tenant's agents, contractors, employees,
invitees or licensees. Tenant's liability under this lease extends to the acts
and omissions of any sub-tenant, and any agent, contractor, employee, invitee
or licensee of any sub-tenant. In case any action or proceeding is brought
against Owner by reason of any such claim, Tenant, upon written notice from
Owner, will, at Tenant's expense, resist or defend such action or proceeding by
counsel approved by Owner in writing, such approval not to be unreasonably
withheld.
Destruction, Fire and Other Casualty:
9. (a) If the demised premises or any part thereof shall be damaged by fire
or other casualty, Tenant shall give immediate notice thereof to Owner and this
lease shall continue in full force and effect except as hereinafter set forth.
(b) If the demised premises are partially damaged or rendered partially unusable
by fire or other casualty, the damages thereto shall be repaired by and at the
expense of Owner and the rent and other items of additional rent, until such
repair shall be substantially completed, shall be apportioned from the day
following the casualty according to the part of the premises which is usable.
(c) If the demised premises are totally damaged or rendered wholly unusable by
fire or other casualty, then the rent and other items of additional rent as
hereinafter expressly provided shall be proportionately paid up to the time of
the casualty and thenceforth shall cease until the date when the premises shall
have been repaired and restored by Owner (or sooner reoccupied in part by Tenant
then rent shall be apportioned as provided in subsection (b) above), subject to
Owner's right to elect not to restore the same as hereinafter provided. (d) If
the demised premises are rendered wholly unusable or (whether or not the demised
premises are damaged in whole or in part) if the building shall be so damaged
that Owner shall decide to demolish it or to rebuild it, then, in any of such
events, Owner may elect to terminate this lease by written notice to Tenant,
given within 90 days after such fire or casualty, or 30 days after adjustment of
the insurance claim for such fire or casualty, whichever is sooner, specifying a
date for the expiration of the lease, which date shall not be more than 60 days
after the giving of such notice, and upon the date specified in such notice the
term of this lease shall expire as fully and completely as if such date were the
date set forth above for the termination of this lease and Tenant shall
forthwith quit, surrender and vacate the premises without prejudice however, to
Landlord's rights and remedies against Tenant under the lease provisions in
effect prior to such termination, and any rent owing shall be paid up to such
date and any payments of rent made by Tenant which were on account of any period
subsequent to such date shall be returned to Tenant. Unless Owner shall serve a
termination notice as provided for herein, Owner shall make the repairs and
restorations under the conditions of (b) and (c) hereof, with all reasonable
expedition, subject to delays due to adjustment of insurance claims, labor
troubles and causes beyond Owner's control. After any such casualty, Tenant
shall cooperate with Owner's restoration by removing from the premises as
promptly as reasonably possible, all of Tenant's salvageable inventory and
moveable equipment, furniture, and other property. Tenant's liability for rent
shall resume five (5) days after written notice from Owner that the premises are
substantially ready for Tenant's occupancy, (c) Nothing contained hereinabove
shall relieve Tenant from liability that may exist as a result of damage from
fire or other casualty. Notwithstanding the foregoing, including Owner's
obligation to restore under subparagraph (b) above, each party shall look first
to any insurance in its favor before making any claim against the other party
for recovery for loss or damage resulting from fire or other casualty, and to
the extent that such insurance is in force and collectible and to the extent
permitted by law, Owner and Tenant each hereby releases and waives all right of
recovery with respect to subparagraphs (b), (d), and (e) above, against the
other or any one claiming through or under each of them by way of subrogation or
otherwise. The release and waiver herein referred to shall be deemed to include
any loss or damage to the demised premises and/or to any personal property,
equipment, trade fixtures, goods and merchandise located therein. The foregoing
release and waiver shall be in force only if both releasors' insurance policies
contain a clause providing that such a release or waiver shall not invalidate
the insurance. If, and to the extent, that such waiver can be obtained only by
the payment of additional premiums, then the party benefiting from the waiver
shall pay such premium within ten days after written demand or shall be deemed
to have agreed that the party obtaining insurance coverage shall be free of any
further obligation under the provisions hereof with respect to waiver of
subrogation. Tenant acknowledges that Owner will not carry insurance on Tenant's
furniture and/or furnishings or any fixtures or equipment, improvements, or
appurtenances removable by Tenant and agrees that Owner will not be obligated to
repair any damage thereto or replace the same. (f) Tenant hereby waives the
provisions of Section 227 of the Real Property Law and agrees that the
provisions of this article shall govern and control in lieu thereof.
Eminent Domain:
10. If the whole or any part of the demised premises shall be acquired or
condemned by Eminent Domain for any public or quasi public use or purpose,
then and in that event, the term of this lease shall cease and terminate from
the date of title vesting in such proceeding and Tenant shall have no claim for
the value of any unexpired term of said lease and assigns to Owner, Tenant's
entire interest in any such award. Tenant shall have the right to make an
independent claim to the condemning authority for the value of Tenant's moving
expenses and personal property, trade fixtures and equipment, provided Tenant
is entitled pursuant to the terms of the lease to remove such property, trade
fixture and equipment at the end of the term and provided further such claim
does not reduce Owner's award.
Assignment, Mortgage, Etc.:
11. Tenant, for itself, its heirs, distributees, executors, administrators,
legal representative, successor and assigns, expressly covenants that it shall
not assign, mortgage or encumber this agreement, nor underlet, or suffer or
permit the demised premises or any part thereof to be used by others, without
the prior written consent of Owner in each instance. 11.1 Transfer of the
majority of the stock of a corporate Tenant or the majority partnership
interest of a partnership Tenant shall be deemed an assignment. If this lease
be assigned, or if the demised premises or any part thereof be underlet or
occupied by anybody other than Tenant, Owner may, after default by Tenant,
collect rent from the assignee, under-tenant or occupant, and apply the net
amount collected to the rent herein reserved but no such assignments,
underletting, occupancy or collection shall be deemed a waiver of this
covenant, or the acceptance of the assignee, under-tenant or occupant as
tenant, or a release of Tenant from the further performance by Tenant of
covenants on the part of Tenant herein contained. The consent by Owner to an
assignment or underletting shall not in any wise be construed to relieve Tenant
from obtaining the express consent in writing of Owner to any further
assignment or underletting.
Election Current:
12. Rates and conditions in respect to submetering or rent inclusion, as the
case may be, to be added in RIDER attached hereto. Tenant covenants and agrees
that at all times its use of electric current shall not exceed the capacity of
existing feeders to the building or the risers or wiring installation and
Tenant may not use any electrical equipment which, in Owner's opinion,
reasonably exercised, will overload such installations or interfere with the
use thereof by other tenants of the building. The change at any time of the
character of electric service shall in no wise make Owner liable or responsible
to Tenant, for any loss, damages or expenses which Tenant may sustain.
Access to Premises:
13. Owner or Owner's agents shall have the right (but shall not be obligated)
to enter the demised premises in any emergency at any time, and, at other
reasonable times, to examine the same and to make such repairs, replacements
and improvements as Owner may deem necessary and reasonably desirable to the
demised premises or to any other portion of the building or which Owner may
elect to perform. Tenant shall permit Owner to use and maintain and replace
pipes and conduits in and through the demised premises and to erect new pipes
and conduits therein provided they are concealed within the walls, floor, or
ceiling. Owner may, during the progress of any work in the demised premises,
take all necessary materials and equipment into said premises without the same
constituting an eviction nor shall the Tenant be entitled to any abatement of
rent while such work is in progress nor to any damages by reason of loss or
interruption of business or otherwise. Throughout the term hereof Owner shall
have the right to enter the demised premises at reasonable hours for the
purpose of showing the same to prospective purchasers or mortgagees of the
building, and during the last six months of the term for the purpose of showing
the
<PAGE> 3
same to prospective tenants. If Tenant is not present to open and permit an
entry into the demised premises, Owner or Owner's agents may enter the same
whenever such entry may be necessary or permissible by master key or forcibly
and provided reasonable care is exercised to safeguard Tenant's property, such
entry shall not render Owner or its agents liable therefor, nor in any event
shall the obligations of Tenant hereunder be affected. If during the last month
of the Term Tenant shall have removed all or substantially all of Tenant's
property therefrom Owner may immediately enter, alter, renovate or redecorate
the demised premises without limitation or abatement of rent, or incurring
liability to Tenant for any compensation and such act shall have no effect on
this lease or Tenant's obligations hereunder.
Vault, Vault Space, Area:
14. No Vaults, vault space or area, whether or not enclosed or covered, not
within the property line of the building is leased hereunder, anything contained
in or indicated on any sketch, blue print or plan, or anything contained
elsewhere in this lease to the contrary notwithstanding. Owner makes no
representation as to the location of the property line of the building. All
vaults and vault space and all such areas not within the property line of the
building, which Tenant may be permitted to use and/or occupy, is to be used
and/or occupied under a revocable license, and if any such license be revoked,
or if the amount of such space or area be diminished or required by any federal,
state or municipal authority or public utility, Owner shall not be subject to
any liability nor shall Tenant be entitled to any compensation or diminution or
abatement of rent, nor shall such revocation, diminution or requisition be
deemed constructive or actual eviction. Any tax, fee or charge of municipal
authorities for such vault or area shall be paid by Tenant.
Occupancy:
15. Tenant will not at any time use or occupy the demised premises in
violation of the certificate of occupancy issued for the building of which the
demised premises are a part. Tenant has inspected the premises and accepts them
as is, subject to the riders annexed hereto with respect to Owner's work, if
any. In any event, Owner makes no representation as to the condition of the
premises and Tenant agrees to accept the same subject to violations, whether or
not of record.
Bankruptcy:
16. See paragraph 37C(5) for substitution. Neither Tenant nor any person
claiming through or under Tenant, or by reason of any statute or order of court,
shall thereafter be entitled to possession of the premises demised but shall
forthwith quit and surrender the premises. If this lease shall be assigned in
accordance with its terms, the provisions of this Article 16 shall be applicable
only to the party then owning Tenant's interest in this lease.
(b) It is stipulated and agreed that in the event of the termination of
this lease pursuant to (a) hereof, Owner shall forthwith, notwithstanding any
other provisions of this lease to the contrary, be entitled to recover from
Tenant as and for liquidated damages an amount equal to the difference between
the rent reserved hereunder for the unexpired portion of the term demised and
the fair and reasonable rental value of the demised premises for the period for
which such installment was payable shall be discounted to the date of
termination at the rate of four percent (4%) per annum. If such premises or any
part thereof be re-let by the Owner for the unexpired term of said lease, or
any part thereof, before presentation of proof of such liquidated damages to
any court, commission or tribunal, the amount of rent reserved upon such
re-letting shall be deemed to be the fair and reasonable rental value for the
part or the whole of the premises so re-let during the term of the re-letting.
Nothing herein contained shall limit or prejudice the right of the Owner to
prove for and obtain as liquidated damages by reason of such termination, an
amount equal to the maximum allowed by any statute or rule of law in effect at
the time when, and governing the proceedings in which, such damages are to be
proved, whether or not such amount be greater, equal to, or less than the
amount of the difference referred to above.
Default:
17. (1) If Tenant defaults in fulfilling any of the covenants of this
lease; or if the demised premises become vacant or deserted; or if any execution
or attachment shall be issued against Tenant or any of Tenant's property
whereupon the demised premises shall be taken or occupied by someone other than
Tenant; or if this lease be rejected under
17.1 of Title 11 of the U.S. Code (bankruptcy code); or if Tenant shall
fail to move into or take possession of the premises within thirty (30) days
after the commencement of the term of this lease, then, in any one or more of
such events, upon Owner serving a written fifteen (15) days notice upon Tenant
specifying the nature of said default and upon the expiration of said fifteen
(15) days, if Tenant shall have failed to comply with or remedy such default, or
if the said default or omission complained of shall be of a nature that the same
cannot be completely cured or remedied within said fifteen (15) day period, and
if Tenant shall not have diligently commenced curing such default within such
fifteen (15) day period, and shall not thereafter with reasonable diligence and
in good faith, proceed to remedy or cure such default, then Owner may serve a
written five (5) days' notice of cancellation of this lease upon Tenant, and
upon the expiration of said five (5) days this lease and the term thereunder
shall end and expire as fully and completely as if the expiration of such five
(5) day period were the day herein definitely fixed for the end and expiration
of this lease and the term thereof and Tenant shall then quit and surrender the
demised premises to Owner but Tenant shall remain liable as hereinafter
provided.
(2) If the notice provided for in (1) hereof shall have been given, and
the term shall expire as aforesaid; or if Tenant shall make default in the
payment of the rent reserved herein or any item of additional rent herein
mentioned or any part of either or in making any other payment herein required;
then and in any of such events Owner may without notice, re-enter the demised
premises either by force or otherwise, and dispossess Tenant by summary
proceedings or otherwise, and the legal representative of Tenant or other
occupant of demised premises and remove their effects and hold the premises as
if this lease had not been made, and Tenant hereby waives the service of notice
of intention to re-enter or to institute legal proceedings to that end. If
Tenant shall make default hereunder prior to the date fixed as the commencement
of any renewal or extension of this lease, Owner may cancel and terminate such
renewal or extension agreement by written notice.
Remedies of Owner and Waiver of Redemption:
18. In case of any such default, re-entry, expiration and/or dispossess by
summary proceedings or otherwise, (a) the rent shall become due thereupon and
be paid up to the time of such re-entry, dispossess and/or expiration, (b)
Owner may re-let the premises or any part or parts thereof, either in the name
of Owner or otherwise, for a term or terms, which may at Owner's option be less
than or exceed the period which would otherwise have constituted the balance of
the term of this lease and may grant concessions or free rent or charge a
higher rental than that in this lease, and/or (c) Tenant or the legal
representatives of Tenant shall also pay Owner as liquidated damages for the
failure of Tenant to observe and perform said Tenant's covenants herein
contained, any deficiency between the rent hereby reserved and/or covenanted to
be paid and the net amount, if any, of the rents collected on account of the
lease or leases of the demised premises for each month of the period which
would otherwise have constituted the balance of the term of this lease. The
failure of Owner to re-let the premises or any part or parts thereof shall not
release or affect Tenant's liability for damages. In computing such liquidated
damages there shall be added to the said deficiency such expenses as Owner may
incur in connection with re-letting, such as legal expenses, reasonable
attorneys' fees, brokerage, advertising and for keeping the demised premises in
good order or for preparing the same for re-letting. Any such liquidated
damages shall be paid in monthly installments by Tenant on the rent day
specified in this lease and any suit brought to collect the amount of the
deficiency for any month shall not prejudice in any way the rights of Owner to
collect the deficiency for any subsequent month by a similar proceeding. Owner,
in putting the demised premises in good order or preparing the same for
re-rental may, at Owner's option, make such alterations, repairs, replacements,
and/or decorations in the demised premises as Owner, in Owner's sole judgement,
considers advisable and necessary for the purpose of re-letting the demised
premises, and the making of such alterations, repairs, replacements, and/or
decorations shall not operate or be construed to release Tenant from liability
hereunder as aforesaid. Owner shall in no event be liable in any way whatsoever
for failure to re-let the demised premises, or in the event that the demised
premises are re-let, for failure to collect the rent thereof under such
re-letting, and in no event shall Tenant be entitled to receive any excess, if
any, of such net rents collected over the sums payable by Tenant to Owner
hereunder. In the event of a breach or threatened breach by Tenant of any of
the covenants or provisions hereof, Owner shall have the right of injunction
and the right to invoke any remedy allowed at law or in equity as if re-entry,
summary proceedings and other remedies were not herein provided for. Mention in
this lease of any particular remedy, shall not preclude Owner from any other
remedy, in law or in equity. Tenant hereby expressly waives any and all rights
of redemption granted by or under any present or future laws in the event of
Tenant being evicted or dispossessed for any cause, or in the event of Owner
obtaining possession of demised premises, by reason of the violation by Tenant
of any of the covenants and conditions of this lease, or otherwise.
Fees and Expenses:
19. If Tenant shall default in the observance or performance of any term
or covenant on Tenant's part to be observed or performed under or by virtue of
any of the terms or provisions in any article of this lease, after notice if
required and upon expiration of any applicable grace period if any, (except in
an emergency), then, unless otherwise provided elsewhere in this lease, Owner
may immediately or at any time thereafter and without notice perform the
obligation of Tenant thereunder. If Owner, in connection with the foregoing or
in connection with any default by Tenant in the covenant to pay rent hereunder,
makes any expenditures or incurs any obligations for the payment of money,
including but not limited to reasonable attorneys' fees, in instituting,
prosecuting or defending any action or proceeding, and prevails in any such
action or proceeding then Tenant will reimburse Owner for such sums so paid or
obligations incurred with interest and costs. The foregoing expenses incurred
by reason of Tenant's default shall be deemed to be additional rent hereunder
and shall be paid by Tenant to Owner within ten (10) days of rendition of any
bill or statement to Tenant therefor. If Tenant's lease term shall have expired
at the time of making of such expenditures or incurring of such obligations,
such sums shall be recoverable by Owner, as damages.
Building Alterations and Management:
20. Owner shall have the right at any time without the same constituting
an eviction and without incurring liability to Tenant therefor to change the
arrangement and/or location of public entrances, passageways, doors, doorways,
corridors, elevators, stairs, toilets or other public parts of the building and
to change the name, number or designation by which the building may be known.
There shall be no allowance to Tenant for diminution of rental value and no
liability on the part of Owner by reason of inconvenience, annoyance or injury
to business arising from Owner or other Tenants making any repairs in the
building or any such alterations, additions and improvements. Furthermore,
Tenant shall not have any claim against Owner by reason of Owner's imposition
of such controls of the manner of access to the building by Tenant's social or
business visitors as the Owner may deem necessary for the security of the
building and its occupants.
No Representations by Owner:
21. 21.1 Owner nor Owner's agents have made any representations or
promises with respect to the physical condition of the building, the land upon
which it is erected or the demised premises, the rents, leases, expenses of
operation or any other matter or thing affecting or related to the premises
except as herein expressly set forth and no rights, easements or licenses are
acquired by Tenant by implication or otherwise except as expressly set forth in
the provisions of this lease. Tenant has inspected the building and the demised
premises and is thoroughly acquainted with their condition and agrees to take
the same "as is" and acknowledges that the taking of possession of the demised
premises by Tenant shall be conclusive evidence that the said premises and the
building of which the same form a part were in good and satisfactory condition
at the time such possession was so taken, except as to latent defects. All
understandings and agreements heretofore made between the parties hereto are
merged in this contract, which alone fully and completely expresses the
agreement between Owner and Tenant and any executory agreement
<PAGE> 4
hereafter made shall be ineffective to change, modify, discharge or effect an
abandonment of it in whole or in part, unless such executory agreement is in
writing and signed by the party against whom enforcement of the change,
modification, discharge or abandonment is sought.
End of Term:
22. Upon the expiration or other termination of the term of this lease, Tenant
shall quit and surrender to Owner the demised premises, broom clean, in good
order and condition, ordinary wear
22.1 and damages which Tenant is not required to repair as provided elsewhere in
this lease excepted, and Tenant shall remove all its property. Tenant's
obligation to observe or perform this covenant shall survive the expiration or
other termination of this lease. If the last day of the term of this Lease or
any renewal thereof, falls on Sunday, this lease shall expire at noon on the
preceding Saturday unless it be a legal holiday in which case it shall expire at
noon on the preceding business day.
Quiet Enjoyment:
23. Owner covenants and agrees with Tenant that upon Tenant paying the rent
and additional rent and observing and performing all the terms, covenants and
conditions, on Tenant's part to be observed and performed, Tenant may peaceably
and quietly enjoy the premises hereby demised, subject, nevertheless, to the
terms and conditions of this lease including, but not limited to, Article 31
hereof and to the ground leases, underlying leases and mortgages hereinbefore
mentioned.
Failure to Give Possession:
24. If Owner is unable to give possession of the demised premises on the date
of the commencement of the term hereof, because of the holding-over or
retention of possession of any tenant, undertenant or occupants or if the
demised premises are located in a building being constructed, because such
building has not been sufficiently completed to make the premises ready for
occupancy or because of the fact that a certificate of occupancy has not been
procured or for any other reason, Owner shall not be subject to any liability
for failure to give possession on said date and the validity of the lease shall
not be impaired under such circumstances, nor shall the same be construed in
any wise to extend the term of this lease, but the rent payable hereunder shall
be abated (provided Tenant is not responsible for Owner's inability to obtain
possession or complete construction) until after Owner shall have given Tenant
written notice that the Owner is able to deliver possession in condition
required by this lease. If permission is given to Tenant to enter into the
possession of the demises premises to occupy premises other than the demised
premises prior to the date specified as the commencement of the term of this
lease, Tenant covenants and agrees that such possession and/or occupancy shall
be deemed to be under all the terms, covenants, conditions and provisions of
this lease except the obligation to pay the fixed annual rent set forth in the
preamble to this lease. The provisions of this article are intended to
constitute "an express provision to the contrary" within the meaning of Section
223-a of the New Year Real Property Law.
No Waiver:
25. The failure of Owner to seek redress for violation of, or to insist upon
the strict performance of any covenant or condition of this lease or of any of
the Rules or Regulations, set forth or hereafter adopted by Owner, shall not
prevent a subsequent act which would have originally constituted a violation
from having all the force and effect of an original violation. The receipt by
Owner of rent and/or additional rent with knowledge of the breach of any
covenant of this lease shall not be deemed a waiver of such breach and no
provision of this lease shall be deemed to have been waived by Owner unless
such waiver be in writing signed by Owner. No payment by Tenant or receipt by
Owner of a lesser amount than the monthly rent herein stipulated shall be
deemed to be other than on account of the earliest stipulated rent, nor shall
any endorsement or statement of any check or any letter accompanying any check
or payment as rent be deemed an accord and satisfaction, and Owner may accept
such check or payment without prejudice to Owner's right to recover the balance
of such rent or pursue any other remedy in this lease provided. No act or thing
done by Owner or Owner's agents during the term hereby demised shall be deemed
an acceptance of a surrender of said premises, and no agreement to accept such
surrender shall be valid unless in writing signed by Owner. No employee of
Owner or Owner's agent shall have any power to accept the keys of said premises
prior to the termination of the lease and the delivery of keys to any such
agent or employee shall not operate as a termination of the lease or a
surrender of the premises.
Waiver of Trial by Jury:
26. It is mutually agreed by and between Owner and Tenant that the respective
parties hereto shall and they hereby do waive trial by jury in any action
proceeding or counterclaim brought by either of the parties hereto against the
other (except for personal injury or property damage) on any matters whatsoever
arising out of or in any way connected with this lease, the relationship of
Owner and Tenant, Tenant's use of or occupancy of said premises, and any
emergency statutory or any other statutory remedy. It is further mutually
agreed that in the event Owner commences any proceeding or action for
possession including a summary proceeding for possession of the premises,
Tenant will not interpose any counterclaim of whatever nature or description in
any such proceeding including a counterclaim under Article 4 except for
statutory mandatory counterclaims.
Inability to Perform:
27. This Lease and the obligation of Tenant to pay rent hereunder and perform
all of the other covenants and agreements hereunder on part of Tenant to be
performed shall in no wise be affected, impaired or excused because Owner is
unable to fullfill any of its obligations under this lease or to supply or is
delayed in supplying any service expressly or impliedly to be supplied or is
unable to make, or is delayed in making any repair, additions, alterations or
decorations or is unable to supply or is delayed in supplying any equipment,
fixtures, or other materials if Owner is prevent or delayed from so doing by
reason of strike or labor troubles, government preemption or restrictions or by
reason of any rule, order or regulation of any department or subdivision
thereof of any government agency or by reason of the conditions which have been
or are affected, either directly or indirectly, by war or other emergency -
27.1
Bills and notices:
28. Except as otherwise in this lease provided, a bill, statement, notice or
communication which Owner may desire or be required to give to Tenant, shall be
deemed sufficiently given or rendered if, in writing, delivered to Tenant
personally or sent by registered or certified mail
28.1 addressed to Tenant at the building of which the demised premises form a
part or at the last known residence address or business address of Tenant or
left at any of the aforesaid premises addressed to Tenant, and the time of the
rendition of such bill or statement and of the giving of such notice or
communication shall be deemed to be the time when the same is delivered to
Tenant, mailed, or left at the premises as herein provided. Any notice by Tenant
to Owner must be served by registered mail 28.1 addressed to Owner at the
address first hereinabove given or at such other address as Owner shall
designate by written notice.
Services Provided by Owners:
29. As long as Tenant is not in default under any of the covenants of this
lease beyond the applicable grace period provided in this lease for the curing
of such defaults, Owner shall provide: (a) necessary elevator facilities on
business days from 8 a.m. to 6 p.m. and have one elevator subject to call at all
other times; (b) heat to the demised premises when and as required by law, on
business days from 8 a.m. to 6 p.m.; (c) water for ordinary lavatory
29.1 purposes, but if Tenant uses or consumes water for any other purposes or in
unusual quantities (of which fact Owner shall be the sole judge), Owner may
install a water meter at Tenant's expense which Tenant shall thereafter maintain
at Tenant's expense in good working order and repair to register such water
consumption and Tenant shall pay for water consumed as shown on said meter as
additional rent as and when bills are rendered; (d) cleaning service for the
demised premises on business days at Owner's expense provided that the same are
kept in order by Tenant. If, however, said premises are to be kept clean by
Tenant, it shall be done at Tenant's sole expense, in a manner reasonably
satisfactory to Owner and no one other than persons approved by Owner shall be
permitted to enter said premises or the building of which they are a part for
such purpose. Tenant shall pay Owner the cost of removal of any of Tenant's
refuse and rubbish from the building; (e) If the demised premises are serviced
by Owner's air conditioning/cooling and ventilating system, air
conditioning/cooling will be furnished to tenant from May 15th through September
30th on business days (Mondays through Fridays, holidays excepted) from 8:00
a.m. to 6:00 p.m., and ventilation will be furnished on business days during the
aforesaid hours except when air conditioning/cooling is being furnished as
aforesaid. If Tenant requires air conditioning/cooling or ventilation for more
extended hours or on Saturdays, Sundays or on holidays, as defined under Owner's
contract with Operating Engineers Local 94-94A, Owner will furnish the same at
Tenant's expense. Rider to be added in respect to rates and conditions for such
additional service; (f) Owner reserves the right to stop services of the
heating, elevators, plumbing, air-conditioning, electric, power systems or
cleaning or other services, if any, when necessary by reason of accident of for
repairs, alterations, replacements or improvements necessary or desirable in the
judgement of Owner for as long as may be reasonably required by reason thereof.
If the building of which the demised premises are a part supplies manually
operated elevator service, Owner at any time may substitute automatic control
elevator service and proceed diligently with alterations necessary therefor
without in any wise affecting this lease or the obligation of Tenant hereunder.
Captions:
30. The Captions are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope of this lease nor
the intent of any provisions thereof.
Definitions:
31. The term "office", or "offices", wherever used in this lease, shall not be
construed to mean premises used as a store or stores, for the sale or display,
at any time, of goods, wares or merchandise, of any kind, or as a restaurant,
shop, booth, bootblack or other stand, barber shop, or for other similar
purposes or for manufacturing. The term "Owner" means a landlord or lessor, and
as used in this lease means only the owner, or the mortgagee in possession, for
the time being of the land and building (or the owner of a lease of the
building or of the land and building) of which the demised premises form a
part, so that in the event of any sale or sales of said land and building or of
said lease, or in the event of a lease of said building, or of the land and
building, the said Owner shall be and hereby is entirely freed and relieved of
all covenants and obligations of Owner hereunder, and it shall be deemed and
construed without further agreement between the parties or their successors in
interest, or between the parties and the purchaser, at any such sale, or the
said lessee of the building, or of the land and building, that the purchaser or
the lessee of the building has assumed and agreed to carry out any and all
covenants and obligations of Owner, hereunder. The words "re-enter" and
"re-entry" as used in this lease are not restricted to their technical legal
meaning. The term "business days" as used in this lease shall exclude
Saturdays, Sundays and all days as observed by the State or Federal Government
as legal holidays and those designated as holidays by the applicable building
service union employees service contract or by the applicable Operating
Engineers contract with respect to HVAC service. Wherever it is expressly
provided in this lease that consent shall not be unreasonably withheld, such
consent shall not be unreasonably delayed.
Adjacent Excavation-Shorting:
32. If an excavation shall be made upon land adjacent to the demised premises,
or shall be authorized to be made, Tenant shall afford to the person causing or
authorized to cause such excavation, license to enter upon the demised premises
for the purpose of doing such work as said person shall deem necessary to
preserve the wall or the building of which demised premises form a part from
injury or damage and to support the same by proper foundations without any
claim for damages or indemnity against Owner, or diminution or abatement of
rent.
Rules and Regulations:
33. Tenant and Tenant's servants, employees, agents, visitors, and licensees
shall observe faithfully, and comply strictly with, the Rules and Regulations
33.1 and such other and further reasonable Rules and Regulations as Owner or
Owner's agents may from time to time adopt. Notice of any additional rules or
regulations shall be given in such manners as Owner may elect. In case Tenant
disputes the reasonableness of any additional Rule or Regulation hereafter made
or adopted by Owner or Owner's agents, the parties hereto agree to submit the
question of the reasonableness of such Rule or Regulation for decision
33.2. The right to dispute the reasonableness of any additional Rule or
Regulation upon Tenant's part shall be deemed waived unless the same shall be
asserted by service of a notice, in writing upon Owner within fifteen (15) days
after the giving of notice thereof. Nothing
<PAGE> 5
in this lease contained shall be construed to impose upon Owner any duty or
obligation to enforce the Rules and Regulations or terms, covenants or
conditions in any other lease, as against any other tenant and Owner shall not
be liable to Tenant for violation of the same by any other tenant, its
servants, employees, agents, visitors or licensees.
Estoppel Certificate:
35. Tenant, at any time, and from time to time, upon at least 10 days' prior
notice by Owner, shall execute, acknowledge and deliver to Owner, and/or to any
other person, firm or corporation specified by Owner, a statement certifying
that this Lease is unmodified and in full force and effect (or, if there have
been modifications, that the same is in full force and effect as modified and
stating the modifications), stating the dates to which the rent and additional
rent have been paid, and stating whether or not there exists any default by
Owner under this Lease, and, if so, specifying each such default.
Successors and Assigns:
36. The covenants, conditions and agreements contained in this lease shall
bind and inure to the benefit of Owner and Tenant and their respective
heirs, distributees, executors, administrators, successors, and except as
otherwise provided in this lease, their assigns. Tenant shall look only to
Owner's estate and interest in the land and building, for the satisfaction of
Tenant's remedies for the collection of a judgment (or other judicial process)
against Owner in the event of any default by Owner hereunder, and no other
property or assets of such Owner (or any partner, member, officer or director
thereof, disclosed or undisclosed), shall be subject to levy, execution or other
enforcement procedure for the satisfaction of Tenant's remedies under or with
respect to this lease, the relationship of Owner and Tenant hereunder, or
Tenant's use and occupancy of the demised premises.
See Rider Annexed Hereto and Made a Part Hereof
IN WITNESS WHEREOF, Owner and Tenant have respectively signed and sealed this
lease as of the day and year first above written.
Witness for Owner: TRUSTEES OF THE MASONIC HALL AND ASYLUM
FUND
BY:
- ----------------------------- ---------------------------------------
Witness for Tenant: Organic, Inc.
----------------------------------------
BY: /s/ MARGARET MAXWELL ZAGEL
- ----------------------------- ---------------------------------------
ACKNOWLEDGEMENTS
CORPORATE OWNER
STATE OF NEW YORK, ss.:
County of
On this day of , 19 , before me personally came ,
to me known, who being by me duly sworn, did depose and say that he resides
in ; that he is the of the
corporation described in and which executed the foregoing instrument, as OWNER;
that he knows the seal of said corporation; the seal affixed to said instrument
is such corporate seal; that is was so by order of the Board of Directors of
said corporation, and that he signed his name thereto by like order.
-------------------------------------
INDIVIDUAL OWNER
STATE OF NEW YORK, ss.:
County of
On this day of , 19 , before me personally came ,
to be known and known to me to be the individual described in and who, as
OWNER, executed the foregoing instrument and acknowledged to me that
he executed the same.
-------------------------------------
CORPORATE TENANT
STATE OF NEW YORK, ss.:
County of
On this day of , 19 , before me personally came ,
to me known, who being by me duly sworn, did depose and say that he resides in
; that he is the of the corporation
described in and which executed the foregoing instrument, as TENANT; that he
knows the seal of said corporation; the seal affixed to said instrument is such
corporate seal; that it was so affixed by order of the Board of Directors of
said corporation, and that he signed his name thereto by like order.
-------------------------------------
INDIVIDUAL TENANT
STATE OF NEW YORK, ss.:
County of
On this day of , 19 , before me personally came ,
to be known and known to me to be the individual described in and who, as
TENANT, executed the foregoing instrument and acknowledged to me he executed
the same.
-------------------------------------
<PAGE> 6
(29.3) For overtime air-conditioning, the following rates shall apply:
<TABLE>
<S> <C>
Sundays and holidays from 8:00 a.m. to 4:00 p.m. $150.00 (flat rate)
Saturdays after 1:00 p.m. $ 25.00/hour
</TABLE>
(33.1) hereinafter set forth and annexed hereto and made a part hereof as
Exhibit "C"
(33.2) by informal arbitration pursuant to Article 46 hereof.
Inserts - ii
<PAGE> 7
GUARANTY
FOR VALUE RECEIVED, and in consideration for, and as an inducement to Owner
making the within lease with Tenant, the undersigned guarantees to Owner,
Owner's successors and assigns, the full guaranty performance and observance of
all the covenants, conditions and agreements, therein provided to be performed
and observed by Tenant, including the "Rules and Regulations" as therein
provided, without requiring any notice of non-payment, non-performance, or
non-observance, or proof, or notice, or demand, whereby to charge the
undersigned therefor, all of which the undersigned hereby expressly waives and
expressly agrees that the validity of this agreement and the obligations of the
guarantor hereunder shall in no wise be terminated, affected or impaired by
reason of the assertion by Owner against Tenant of any of the rights or remedies
reserved to Owner pursuant to the provisions of the within lease. The
undersigned further covenants and agrees that this guaranty shall remain and
continue in full force and effect as to any renewal, modification or extension
of this lease and during any period when Tenant is occupying the premises as a
"statutory tenant." As a further inducement to Owner to make this lease and in
consideration thereof, Owner and the undersigned covenant and agree that in any
action or proceeding brought by either Owner or the undersigned against the
other or any matters whatsoever arising out of, under, or by virtue of the terms
of this lease or of this guarantee that Owner and the undersigned shall and do
hereby waive trial by jury.
Dated: ____________________________ 19 __
- -----------------------------------
Guarantor
- -----------------------------------
Witness
- -----------------------------------
Guarantor's Residence
- -----------------------------------
Business Address
- -----------------------------------
Firm Name
STATE OF NEW YORK ) ss.:
COUNTY OF )
On this _____ day of __________, 19__, before me personally came ______________
to me known and known to me to be the individual described in, and who executed
the foregoing Guaranty and acknowledged to me that he executed the same.
------------------------------
Notary
> IMPORTANT - PLEASE READ <
RULES AND REGULATIONS ATTACHED TO AND MADE A PART OF THIS LEASE IN ACCORDANCE
WITH ARTICLE 33.
1. The sidewalks, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or
encumbered by any Tenant or used for any purpose other than for ingress or
egress from the demised premises and for delivery of merchandise and equipment
in a prompt and efficient manner using elevators and passageways designated for
such delivery by Owner. There shall not be used in any space, or in the public
hall of the building, either by any Tenant or by jobbers or others in the
delivery of receipt of merchandise, any hand trucks, except those equipped with
rubber tires and sideguards. If said premises are situated on the ground floor
of the building, Tenant thereof shall further, at Tenant's expense, keep the
sidewalk and curb in front of said premises clean and free from ice, snow, dirt
and rubbish.
2. The water and wash closets and plumbing fixtures shall not be used for any
purposes other than those for which they were designed or constructed and no
sweepings, rubbish, rags, acids or other substances shall be deposited therein,
and the expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose clerks,
agents, employees or visitors, shall have caused it.
3. No carpet, rug or other article shall be hung or shaken out of any window
of the building and no Tenant shall sweep or throw or permit to be swept or
thrown from the demised premises any dirt or other substances into any of the
corridors or halls, elevators, or out of the doors or windows or stairways of
the building and Tenant shall not use, keep or permit to be used or kept any
foul or noxious gas or substance in the demised prmises, or permit or suffer
the demised premises to be occupied or used in a manner offensive or
objectionable to Owner or other occupants of the building by reason of noise,
odors, and/or vibrations, or interfere in any way with other Tenants or those
having business therein, nor shall any bicycles, vehicles, animals, fish, or
birds be kept in or about the building. Smoking or carrying lighted cigars or
cigarettes in the elevators of the building is prohibited.
4. No awnings or other projections shall be attached to the outside walls of
the building without the prior written consent of Owner.
5. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any Tenant on any part of the outside of the
demised premises or the building or on the inside of the demised premises if the
same is visible from the outside of the premises without the prior written
consent of Owner, except that the name of Tenant may appear on the entrance
door of the premises. In the event of the violation of the foregoing by any
Tenant, Owner may remove same without any liability, and may charge the expense
incurred by such removal to Tenant or Tenants violating this rule. Interior
signs on doors and director tablet shall be inscribed, painted or affixed for
each Tenant by Owner at the expense of such Tenant, and shall be of a size,
color and style acceptable to Owner.
6. No Tenant shall mark, paint, drill into, or in any way deface any part of
the demised premises or the building of which they form a part. No boring,
cutting or stringing of wires shall be permitted, except with the prior written
consent of Owner, and as Owner may direct. No Tenant shall lay linoleum, or
other similar floor covering, so that the same shall come in direct contact
with the floor of the demised premises, and, if linoleum or other similar floor
covering is desired to be used an interlining of builder's deadening felt
shall be first affixed to the floor, by a paste or other material, soluble in
water, the use of cement or other similar adhesive material being expressly
prohibited.
7. No additional locks or bolts of any kind shall be placed upon any of the
doors or windows by any Tenant, nor shall any changes be made in existing locks
or mechanism thereof. Each Tenant must, upon the termination of his Tenancy,
restore to Owner all keys of stores, offices and toilet rooms, either furnished
to, or otherwise procured by, such Tenant, and in the event of the loss of any
keys, so furnished, such Tenant shall pay to Owner the cost thereof.
8. Freight, furniture, business equipment, merchandise and bulky matter of
any description shall be delivered to and removed from the premises only on the
freight elevators and through the service entrances and corridors, and only
during hours and in manner approved by Owner. Owner reserves the right to
inspect all freight to be brought into the building and to exclude from the
building all freight which violates any of these Rules and Regulations of the
lease or which these Rules and Regulations are a part.
9. Canvassing, soliciting and peddling in the building is prohibited and each
Tenant shall cooperate to prevent the same.
10. Owner reserves the right to exclude from the building all persons who do
not present a pass to the building signed by Owner. Owner will furnish passes
to persons for whom any Tenant requests same in writing. Each Tenant shall be
responsible for all persons for whom he requests such pass and shall be liable
to Owner for all acts of such persons. Tenant shall not have a claim against
Owner by reason of Owner excluding from the building any person who does not
present such pass.
11. Owner shall have the right to prohibit any advertising by any Tenant which
in Owner's opinion, tends to impair the reputation of the building or its
desirability as a building for offices, and upon written notice from Owner,
Tenant shall refrain from or discontinue such advertising.
12. Tenant shall not bring or permit to be brought or kept in or on the
demised premises, any inflammable, combustible, explosive, or hazardous fluid,
material, chemical or substance, or cause or permit any odors of cooking or
other processes, or any unusual or other objectionable odors to permeate in or
emanate from the demised premises.
13. If the building contains central air conditioning and ventilation, Tenant
agrees to keep all windows closed at all times and to abide by all rules and
regulations issued by Owner with respect to such services. If Tenant requires
air conditioning or ventilation after the usual hours, Tenant shall give notice
in writing to the building superintendent prior to 3:00 p.m. in the case of
services required on week days, and prior to 3:00 p.m. on the day prior in case
of after hours service required on weekends or on holidays. Tenant shall
cooperate with Owner in obtaining maximum effectiveness of the cooling system
by lowering and closing venetian blinds and/or drapes and curtains when the
sun's rays fall directly on the windows of the demised premises.
14. Tenant shall not move any safe, heavy machinery, heavy equipment, bulky
matter, or fixtures into or out of the building without Owner's prior written
consent. If such safe, machinery, equipment, bulky matter or fixtures requires
special handling, all work in connection therewith shall comply with the
Administrative Code of the City of New York and all other laws and regulations
applicable thereto and shall be done during such hours as Owner may designate.
15. Refuse and Trash. (1) Compliance by Tenant. Tenant covenants and agrees,
at its sole cost and expense, to comply with all present and future laws,
orders, and regulations of all state, federal, municipal, and local
governments, departments, commissions and boards regarding the collection,
sorting, separation and recycling of waste products, garbage, refuse and trash.
Tenant shall sort and separate such waste products, garbage, refuse and trash
into such categories as provided by law. Each separately sorted category of
waste products, garbage, refuse and trash shall be placed in separate
receptacles reasonably approved by Owner. Such separate receptacles may, at
Owner's option, be removed from the demised premises in accordance with a
collection schedule prescribed by law. Tenant shall remove, or cause to be
removed by a contractor acceptable to Owner, at Owner's sole discretion, such
items as Owner may expressly designate. (2) Owner's Right in Event of
Noncompliance. Owner has the option to refuse to collect or accept from Tenant
waste products, garbage, refuse or trash (a) that is not separated and sorted
as required by law or (b) which consists of such items as Owner may expressly
designate for Tenant's removal, and to require Tenant to arrange for such
collection at Tenant's sole cost and expense, utilizing a contractor
satisfactory to Owner. Tenant shall pay all costs, expenses, fines, penalties,
or damages that may be imposed on Owner or Tenant by reason of Tenant's failure
to comply with the provisions of this Building Rule 15, and, at Tenant's sole
cost and expense, shall indemnify, defend and hold Owner harmless (including
reasonable legal fees and expenses) from and against any actions, claims and
suits arising from such noncompliance, utilizing counsel reasonably
satisfactory to Owner.
Address
Premises
=============================================
TO
=============================================
STANDARD FORM OF
OFFICE
[LOGO] LEASE [LOGO]
The Real Estate Board of New York, Inc.
(c) Copyright 1994. All rights Reserved.
Reproduction in whole or in
part prohibited.
=============================================
Dated 19
Rent Per Year
Rent Per Month
Term
From
To
Drawn by ..................................
Checked by ................................
Entered by ................................
Approved by ...............................
=============================================
<PAGE> 8
INSERTS TO AGREEMENT OF LEASE BETWEEN TRUSTEES OF THE
MASONIC HALL AND ASYLUM FUND, AS OWNER, AND ORGANIC ONLINE,
INC., AS TENANT, DATED AS OF SEPTEMBER 15, 1999
(3.1) Anything contained in this Article 3 or in Section 37C(3) of this lease
to the contrary notwithstanding, Owner's consent shall not be
unreasonably withheld or delayed with respect to any cosmetic,
networking, telephone, nonstructural Tenant's Changes, provided that (x)
consent for such Tenant's Change is not required by any third party
(such as, by way of example, a mortgagee or ground lessor), and (y) such
Tenant's Change (i) is not visible from the outside of the Building,
(ii) does not affect any part of the Building other than the demised
premises, (iii) does not affect any services required to be furnished by
Owner to any other tenant or occupant of the Building, (iv) does not
affect the proper functioning of any Building Systems (hereinafter
defined), (v) does not impair or diminish the value or utility of the
Building, and (vi) does not affect the certificate of occupancy for the
Building or the demised premises. Owner's consent shall not be required
with respect to those nonstructural Tenant's Changes which are merely
cosmetic or decorative in nature, comply with the provisions of clauses
(i) - (vi) above, and the cost of which are less than twenty thousand
dollars ($20,000), provided, however, that such Tenant's Changes shall
otherwise be performed in accordance with the provisions of this lease.
With respect to mere cosmetic and/or decorative Tenants Changes, Tenant
shall only be required to submit to Owner a reasonably detailed
schematic design or description and such other information AS shall be
reasonably requested BY Owner. The term "Building Systems" shall mean
the mechanical, gas, electrical, sanitary, heating, air-conditioning,
ventilating, elevator, plumbing, life-safety and other service systems
of the Building.
(3.2) or U.C.C. financing statement
(3.3) or otherwise
(3.4) given together with Owners consent to Tenant's alterations (provided,
however, that Tenant's request for consent for such alterations must
specifically state that if Owner does not require removal OF the
alterations when giving its consent thereto, Owner shall have waived its
right to have Tenant remove the same prior to the expiration of the term
of this lease),
(4.1) the
(4.2) Building Systems
(6.1) (collectively, "Requirements")
(6.2) that which would otherwise be in effect.
(9.1) or totally inaccessible
(11.1) , which consent to a sublease or to an assignment shall be governed by
the terms of Article 47 hereof.
(17.1) Section 365
(17.2) for a period in excess of thirty (30) days
(21.1) Except as expressly provided herein, neither
(22.1) and damage by fire or other insurable casualty
(27.1) or by reason of any other cause beyond Owner's reasonable control
(28.1) or by overnight mail or courier service
(29.1) and drinking
(29.2) and on Saturdays from 8:00 a.m. to 1:00 p.m., upon Tenant's prior
request
Inserts - i
<PAGE> 9
RIDER ATTACHED TO AND FORMING PART OF LEASE DATED AS OF SEPTEMBER 15, 1999
BETWEEN TRUSTEES OF THE MASONIC HALL AND ASYLUM FUND, OWNER, AND ORGANIC ONLINE,
INC., TENANT
PREMISES: 71 WEST 23RD STREET
NEW YORK, NEW YORK
PART 7TH FLOOR
37. Application of this Rider
A. Rider Provisions Paramount. If and to the extent that any of the
provisions of this Rider conflict or are otherwise inconsistent with any of the
preceding printed provisions of this lease, or of the Rules and Regulations
attached to this lease as Exhibit "C", whether or not such inconsistency is
expressly noted in this Rider, the provisions of this Rider shall prevail, and
in case of inconsistency with said Rules and Regulations, shall be deemed a
waiver of such Rules and Regulations with respect to Tenant to the extent of
such inconsistency.
B. Additional Definitions. For the purpose of this lease and all
agreements supplemental to this lease, and all communications with respect
thereto, unless the context otherwise requires:
(1) The term "fixed rent" shall mean rent consisting of base rent
at the annual rate of Four Hundred Twenty One Thousand Eight Hundred Forty
Dollars ($421,84.0.00) per annum (i.e., $35,153.33 per month) for the period
commencing on the Commencement Date and ending on the Expiration Date.
Date.
The rentable area of the demised premises is agreed to be 10,546 square feet for
all purposes of this lease.
(2) The term "additional rent" shall mean all sums of money,
other than fixed rent, as shall become due and payable from Tenant to Owner
hereunder, and Owner shall have the same remedies therefor as for a default in
payment of fixed rent.
(3) The terms "rent" and "rents" shall mean and include fixed
rent and/or additional rent and/or escalation rent hereunder.
(4) The term "Commencement Date" shall mean the fifth (5th)
business day next following written notice by Owner to Tenant that the demised
premises have been vacated by the present tenant and is available for occupancy
by Tenant, and the term "Expiration Date" shall mean midnight of the day next
preceding the first annual anniversary of the Commencement Date.
(5) Any provision in this lease that one party or the other or
both shall do or not do or shall cause or permit or not cause or permit a
particular act, condition or circumstance shall be deemed to mean that such
party so covenants or both parties so covenant, as the case may be. Tenant's
obligations hereunder shall be construed in every instance as conditions as well
as covenants. Such provisions shall be deemed to mean that if the performance of
the covenant will involve incurrence of expense such expense shall be borne by
the party responsible for such performance except where this lease expressly
provides otherwise.
(6) The term "Tenant" shall mean Tenant herein named or any
permitted assignee or other successor in interest (immediate or remote) of
Tenant herein named, when Tenant herein named or such assignee or other
successor in interest as the case may be is in possession of the demised
premises as owner of the Tenant's estate and interest granted by this lease, and
also, if Tenant is not an individual or corporation, all of the individuals,
firms and/or corporations or other entities comprising Tenant.
(7) Any transfer by operation of law or otherwise, of Tenant's
interest in this lease or of any subtenant's interest in a sublease hereunder,
or, unless Tenant or the subtenant is an entity the securities of which are
registered under appropriate statutory authority and listed and traded on a
national exchange, of a 50% or greater interest in Tenant, or in a subtenant
<PAGE> 10
hereunder (whether stock, partnership interest or otherwise), in a single
transaction or a related series of transactions, shall be deemed an assignment
of this lease within the meaning of Article 11 or an assignment of the sublease
within the meaning of Article 47, as the case may be.
(8) All references in this lease to numbered Articles and
lettered Exhibits are references to Articles of this lease and Exhibits annexed
to (and thereby made part of) this lease, as the case may be, unless expressly
otherwise designated in the context.
(9) The words "include", "including" and "such as" shall each be
construed as if followed by the phrase "without being limited to". The words
"herein", "hereof", "hereby", "hereunder" and words of similar import shall be
construed to refer to this lease as a whole and not to any particular Article or
subdivision thereof unless expressly so stated. The rule of ejusdem generis
shall not be applicable to limit a general statement following or referable to
an enumeration of specific matters, to matters similar to the matters
specifically mentioned. Words and phrases used in the singular shall be deemed
to include the plural and vice versa and nouns and pronouns used in any
particular gender shall be deemed to include any other gender, as the sense of
the context may permit.
(10) The term "Specialty Alterations" shall mean Tenant's Changes
(hereinafter defined) consisting of kitchens, executive bathrooms, raised
computer floors, computer installations, vaults, libraries, internal staircases,
dumbwaiters, pneumatic tubes, vertical and horizontal transportation systems,
and other Tenant's Changes of a similar character.
(11) The term "Initial Tenant's Changes" shall mean the changes
made by Tenant to initially prepare the demised premises for Tenant's occupancy.
(12) The terms "substantial completion" or "substantially
completed" or words of similar import shall mean that Owner's Work has been
substantially completed, it being agreed that Owner's Work shall be deemed
substantially complete notwithstanding the fact that minor or insubstantial
details of construction or demolition and/or mechanical adjustment and/or
decorative items remain to be performed.
(13) The term "Applicable Rate" shall mean the lesser of (a) two
(2) percentage points above the then current rate of interest publicly announced
from time to time by The Chase Manhattan Bank, or its successor, as its "prime
lending rate" (or such other term as may be used by The Chase Manhattan Bank,
from time to time, for the rate presently referred to as its "prime lending
rate"), and (b) the maximum rate permitted by applicable law.
C. Some Qualifications of Certain Preceding Printed Articles.
(1) Notwithstanding Tenant's agreement to pay the fixed rent in
lawful money which shall be legal tender, Owner shall accept, subject to
collection, and Tenant shall pay all fixed rent and additional rent failing due
under this lease by currently dated, unendorsed check of Tenant, payable to
Owner or its designed agent and drawn on a bank or trust company which is a
member of the New York Clearing House. If Tenant shall default in timely payment
of any rent twice in any period of twenty-four (24) months, and whether or not
such default shall be cured, Owner, may by notice given to Tenant at any time
thereafter, require Tenant to make all further rent payments by currently dated,
unendorsed certified or official bank check payable to Owner on a bank or trust
company that is a member of the New York Clearing House.
(2) The use of the demised premises for the purposes specified in
Article 2 shall not in any event be deemed to include, and Tenant shall not use,
or permit the use of the demised premises or any part thereof for:
a) the conduct of a public auction of any kind or of
any gaming or gambling activities, or of any political or club
activities, whether private or public;
b) the conduct of a school of any kind (other than a
training center for employees of Tenant);
c) the conduct of a cafeteria or restaurant other than
private dining facilities for Tenants officers, employees and business
guests;
2
<PAGE> 11
d) the conduct of any business, occupation or activity
which, in the reasonable judgment of Owner, may (i) create or foster an
unusual risk to the security of the Building or of any of its tenants or
occupants, (ii) impair the reputation of the Building for the highest
class of office and commercial uses, or (iii) interfere with or disturb
the occupancy of other tenants in the Building; or
e) the conduct of meetings, shows or exhibits for the
general public.
In no event shall the demised premises be used or occupied by anyone (as
assignee of this lease or as subtenant or licensee), who shall not have a
financial standing, or shall not be of a character, or shall not be engaged in a
business, or shall not use the demised premises in a manner, which shall be in
keeping with the standards in such respects of the other tenancies in the
Building.
In no event shall Tenant cause or permit, as the result of any
intentional or unintentional act or omission on the part of Tenant, its agents,
employees, tenants, subtenants or other occupants of the demised premises to
release Hazardous Substances (hereinafter defined) in or from any portion of the
demised premises in violation of any Environmental Laws (hereinafter defined).
Tenant shall indemnify, defend and hold harmless Owner and any property
manager(s) engaged by Owner, their successors, assigns, and each of their
affiliated companies, partners, shareholders, agents, directors, officers and
employees (collectively, "Indemnitees") from and against any and all claims,
demands, penalties, fines, liabilities, settlements, suits, damages, losses,
injuries, costs and expenses of whatever kind or nature, known or unknown,
contingent or otherwise, including, without limitations, attorneys' and
consultants' fees and disbursements and investigation and laboratory fees
arising out of, or in any way related to: (i) the presence, disposal, release or
threat of release of any Hazardous Substance as a result of any act or omission
of Tenant, its agents, employees, tenants, subtenants, invitees or other
occupants of the demised premises, in or from or affecting the demised premises;
(ii) any personal injury (including wrongful death) or property damage (real or
personal) arising out of related to any such Hazardous Substance; (iii) any
lawsuit brought or threatened, settlement reached or government order relating
to such Hazardous Substance; and (iv) any violations of any Environmental Laws.
As used herein the term "Hazardous Substance" shall mean solid waste, hazardous
waste, hazardous substance, petroleum product or similar term as used and
defined in the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response, Compensation and Liability Act, the Hazardous Material
Transportation Act, the Federal Water Pollution Control Act, the Superfund
Amendments and Reauthorization Act of 1986, any laws relating to underground
storage tanks, and any similar or successor federal law, state law or local
statutes or ordinances and any rules, regulations and policies promulgated
thereunder, as any of the same may be amended from time to time (collectively,
"Environmental Laws"), Tenant's indemnity hereunder shall survive the expiration
or sooner termination of this lease.
(3) Supplementing Article 3:
a) Tenant shall cause any permitted alterations,
decorations, installations, additions or improvements (herein called "Tenant's
Changes"; Tenant's Changes shall also include Initial Tenant's Changes) in or
about the demised premises, referred to in Article 3, to be performed in
compliance with all applicable Requirements, and in such manner as not to
interfere with, delay, or impose any additional expense upon Owner in the
construction, maintenance or operation of the Building, or interfere with or
disturb the occupancy of other tenants in the Building, and so as to maintain
harmonious labor relations in the Building. Tenant with diligence and dispatch,
shall procure the cancellation or discharge of all notices of violation arising
from or otherwise connected with Tenant's Changes which shall be issued by the
Department of Buildings or any other public authority having or asserting
jurisdiction.
b) Owner shall not unreasonably withhold or delay any
consent or approval required under Article 3 to Tenants contractor for the
construction of the Tenant's Changes, provided that such contractors are
licensed and experienced in the nature of the Tenant's Changes being performed,
and provided further that Owner may require that any and all mechanical,
electrical and air-conditioning work on behalf of Tenant shall be supervised by
Owner's in-house personnel, if appropriate personnel are available or by the
contractors regularly employed by Owner for such work in the Building. Any such
supervision by Owner's personnel shall be reasonable in scope, taking into
account the type of work being done on behalf of Tenant. Owner may require
submission to it of plans and specifications for any proposed Tenant's Changes
and in granting its consent to any Tenant's Changes may impose such conditions
(in
3
<PAGE> 12
addition to those expressly provided in this lease) as to guaranty of completion
and payment and of restoration and otherwise as Owner may consider desirable. In
no event shall Owner be required to consent to any Tenants Changes which could
physically affect any part of the Building outside of the demised premises or
might adversely affect the proper functioning of any of the Building Systems. In
the event that Owner does not have appropriate in-house personnel available,
Owner may require Tenant to reimburse Owner for Owner's reasonable out-of-pocket
costs and expenses to unrelated third parties for (x) review of Tenant's plans
and specifications for such Tenant's Changes, and (y) supervision of compliance
with the requirements of this lease in the performance of such Tenant's Changes.
c) All counters, screens, grilles, railings, suspended
lighting fixtures, panelling, business machines and equipment which are
installed in the demised premises by or for the account of Tenant, and can be
removed without structural damage to or defacement of the Building, and all
furniture, furnishings and other articles of personal property owned by Tenant
and located in the demised premises (all of which are herein called "Tenant's
Property") shall be and remain the property of Tenant and may be removed by it
at any time during the term of this lease. However, if any of Tenants Property
is removed, or upon the removal of Tenant's Changes and/or Specialty
Alterations, Tenant shall repair or pay the cost of repairing any damage to the
Building resulting from such removal. Any items of Tenant's Property which shall
remain in the demised premises after Tenant surrenders the demised premises, at
the option of Owner, may be deemed to have been abandoned, and in such case
either may be retained by Owner as its property or may be disposed of at
Tenant's cost, without accountability, in such manner as Owner may see fit.
d) Within thirty (30) days after the completion of any
Tenant's Changes (including the Initial Tenants Changes), Tenant shall deliver
to Owner a full set of architectural, structural, mechanical and electrical
drawings and specifications showing the demised premises "as built' by the
performance of such Tenants Changes.
(4) Supplementing and modifying Article 13, entry upon the
demised premises pursuant to Article 13 shall be accomplished at such times and
in such manner, and (except in the case of emergency) upon such reasonable
notice, which notice may be oral, as to minimize to the extent practicable
(without the necessity of incurring any additional monetary expense) under the
circumstances interference with Tenants use of the demised premises or
inconvenience to Tenant.
(5) Supplementing Article 16, insert at the beginning thereof in
place of the first sentence thereof, the following:
"If, at or before the date fixed as the Commencement Date
of the term of this lease or if at any time during the term hereby
demised:
i) Tenant shall file a petition commencing a
voluntary case under the Federal Bankruptcy Code (Title 11 of
the United States Code), as now or hereafter in effect, or under
similar law, or file a petition in bankruptcy or for
reorganization or for an arrangement pursuant to any state
bankruptcy law or any similar state law or, if Tenant is then a
banking organization, shall file an application for voluntary
liquidation or dissolution applicable to banking organizations;
or
ii) an involuntary case against Tenant as debtor
is commenced by a petition under the Federal Bankruptcy Code
(Title 11 of the United States Code), as now or hereafter in
effect, or under similar law, or a petition or answer proposing
the adjudication of Tenant as a bankrupt or its reorganization
pursuant to any state bankruptcy law or any similar state law
shall be filed in any court and shall not be dismissed,
discharged or denied within sixty (60) days after the filing
thereof, or if Tenant shall consent or acquiesce in the filing
thereof; or
iii) a custodian, receiver, United States
Trustee, trustee or liquidator of Tenant or of all or
substantially all of Tenant's property or of Tenant's property
in the demised premises shall be appointed in any proceedings
brought by Tenant; or if any such custodian, receiver, United
States Trustee, trustee or liquidator shall be appointed in any
proceedings brought against Tenant and shall
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not be discharged within sixty (60) days after such appointment,
or if Tenant shall consent to or acquiesce in such appointment;
or
iv) if Tenant shall generally not pay Tenant's
debts as such debts become due, or shall make an assignment for
the benefit of creditors, or shall admit in writing its inability
to pay its debts generally as they become due; or
v) if Tenant is then a banking organization, if the
Superintendent of Banks of the State of New York or any other
public officer having like authority and power over Tenant as a
banking organization shall take possession of the business and
property of Tenant at the demised premises;
then, Owner may, at its option, cancel or terminate this lease by giving Tenant
written notice to such effect within a reasonable time after receipt of notice
of the happening of any one or more of such events."
(6) Notwithstanding the specific provisions of Article 17:
a) In case of default in the payment of fixed rent,
additional rent or escalation rent reserved herein, Tenant shall have a
grace period of five (5) days after notice of the existence of such
default from Owner within which to cure such default and if such payment
is not made before the expiration of such five (5) day grace period,
Owner may serve a five (5) day notice of cancellation of this lease as,
and with the effects, provided in Article 17(1).
b) In case of any other default referred to in Article
17(1) the Tenant shall be given ten (10) days (instead of five (5) days)
after notice of the existence of such default from Owner within which to
cure such default, except where failure to cure within a shorter period
may subject Owner to criminal action or penalty, or where such default
can be cured by payment of money, in either of which cases the
provisions of Article 17(1), as written shall govern and except,
further, that where any other such default can be completely cured or
remedied in the exercise of due diligence but not within such grace
period of ten (10) days, such grace period shall be deemed extended to
such period as may be reasonably necessary to do the work or take such
other steps as shall be required to correct such default, provided
Tenant shall have diligently commenced curing such default promptly
after receipt of notice thereof and shall thereafter proceed diligently
to remedy the same completely.
c) Nothing in subparagraph (a) of this paragraph shall be
deemed to require Owner to give the notices provided for therein prior
to the commencement of a summary proceeding for nonpayment of rent or a
plenary action for the recovery of rent on account of any default in the
payment of rent, it being acknowledged and agreed by both parties that
the sole purpose of such notices is to create a conditional limitation
hereunder, and in the event such notices are given by Owner, Tenant
shall become a holdover tenant and this lease shall terminate forthwith
at the expiration of the applicable notice period with the effects
provided in Article 17(1).
(7) Supplementing Articles 17 and 18:
a) Tenant expressly recognizes that Tenant's due and
punctual performance of all its obligations under this lease throughout the term
hereof is of paramount importance to Owner and, without limiting the provisions
of Articles 17 and 37C(7), Tenant agrees that, if Tenant (i) shall fail to pay
for five (5) business days after it becomes due an installment of fixed rent or
additional rent for two (2) consecutive months or for a total of three (3)
months in any period of twelve (12) months, or (ii) shall default in the timely
performance of any other obligation of Tenant under this lease with respect to
which Owner shall have given Tenant notice of default, and such default shall
occur more than two (2) times in any period of twelve (12) months, then
notwithstanding that such failure or other default shall have been cured within
the applicable grace period provided in said Articles, any further similar
default shall be deemed to be deliberate and Owner thereafter may, without
further notice of default, serve a five (5) day notice of cancellation of this
lease as and with the effects provided in subparagraph (1) of Article 17.
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b) Instead of the liquidated damages determined pursuant
to Article 18(c), Owner may, at its election, recover from Tenant as liquidated
damages an amount determined pursuant to Article 16(b).
(8) The parties recognize and agree that the damage to Owner
resulting from Tenant's failure to timely surrender the demised premises to
Owner will be substantial, will exceed the amount of fixed rent, additional rent
and escalation rent theretofore payable hereunder and will be impossible to
accurately measure. Tenant therefore agrees that if possession of the demised
premises is not surrendered to Owner within one (1) day after the Expiration
Date or the sooner expiration of the term of this lease, Tenant shall pay Owner
as liquidated damages for each day during which Tenant holds over in the demised
premises after the Expiration Date or earlier expiration of the term of this
lease, a sum equal to one and one half (1-1/2) times the greater of (a) the then
fair market rental value of the demised premises (on a per diem basis) and (b)
the average fixed rent, additional rent and escalation rent which was payable on
a per diem basis under this lease on the last day of the term thereof. Tenant's
obligations hereunder shall survive the Expiration Date or earlier expiration of
the term of this lease.
(9) Supplementing Article 28, "requests" or "approvals" by Owner
or Tenant under this lease shall be deemed to be notices. All notices shall be
in writing.
(10) If Tenant shall fail to pay any installment of fixed rent or
any amount of additional rent for more than five (5) business days after it
shall have become due and payable, then, whether or not a notice of default has
been given therefor pursuant to the provisions of Section 37C(6)(a), Tenant
shall pay Owner a late charge and as additional rent a sum equal to interest at
the Applicable Rate on the amount unpaid, computed from the date such payment
was due through and including the date of payment. Such late charge shall be
without prejudice to any of Owner's rights and remedies hereunder or at law for
nonpayment or late payment of rent and shall be in addition thereto.
(11) In the event that Tenant and Owner have entered into a
stipulation, whether entered into in court or otherwise, for the repayment of
any of Tenant's rent arrears, any monies received pursuant to said stipulation
shall first be applied to current rent and then any arrears. Further, until such
time as Tenant has fully and completely complied with the terms and provisions
of the stipulation, Tenant shall not be in good standing pursuant to the terms
and provisions of this lease and may not exercise any rights or remedies which
it has, or may have, under or pursuant to this lease.
38. Electricity
A. For purposes of this Article, the following terms shall have the
following meanings:
(1) The term "Owner's Cost", shall mean, the average cost per
kilowatt hour and average cost per kilowatt demand, by time of day, if
applicable, to Owner of purchasing electricity for the building,
including, without limitation, fuel adjustment charges (as determined
for each month of the relevant period and not averaged) rate adjustment
charges, sales tax, and/or any other factors, used by the public utility
company (the "Utility") servicing the building in computing its charges
to Owner applied to the kilowatt hours of energy and kilowatts of demand
purchased by Owner during a given period, and further including
transmission and transformer losses (to be determined by Owner if such
losses are not measured by the Submeter, as defined herein); and
(2) The term "Owner's Statement", shall mean an instrument
containing a computation (or estimate thereof), of Owner's Cost
(hereinabove defined), or any other computation to be made by Owner
pursuant to the provisions of this Article.
B. Subject to the provisions of subdivision 4 of paragraph C hereof,
Tenant agrees that Owner may furnish electricity to Tenant on a "rent inclusion"
basis or on a "submetering" basis. On the Commencement Date, electricity will be
furnished pursuant to subdivision (2).
(1) Submetering. Owner may, at Tenant's sole reasonable cost and
expense, install a meter or meters (collectively, the "Submeter"), at a location
designated by Owner, connections from the risers and/or circuits servicing the
demised premises to the Submeter and
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perform all other work necessary for the furnishing of electric current by Owner
to the demised premises in the manner provided for in this subdivision (1). If
and so long as electric current is supplied by Owner to the demised premises to
service Tenant's office equipment and the machinery and mechanical equipment for
the air conditioning units utilized by Tenant, if any, Tenant will pay Owner or
Owner's designated agent, as additional rent for such service, the amounts, as
determined by the Submeter, for the purpose of measuring Tenant's consumption
and demand. In the event said air conditioning units are used by other tenants
of the Building, the electric charges for such units shall be allocated by Owner
proportionately, on the basis of the respective amount of rentable square feet
occupied by such tenants, including Tenant. The additional rent payable by
Tenant pursuant to this subdivision (1), shall be computed in the same manner as
that for computation of Owner's Cost, as applied to the demised premises, plus a
fee (the "Overhead Charge") equal to twelve (12%) percent of such charge to
Owner, representing administrative/overhead costs to Owner. The amounts computed
from the Submeter together with the Overhead Charge, are herein collectively
called the "Electricity Additional Rent", and such amounts computed from the
Submeter shall be binding and conclusive on Tenant. If the Submeter should fail
to property register or operate at any time during the term of this lease for
any reason whatsoever, Owner may estimate the Electricity Additional Rent, and
when the Submeter is again properly operative, an appropriate reconciliation
shall be made, by Tenant paying any deficiency to Owner within ten (10) days
after demand therefor, or by Owner crediting Tenant with the amount of any
overpayment, as the case may be. Owner, at its option, may from time to time,
increase the Electricity Additional Rent based upon, among other things, any
increase in Owner's Cost. The periods to be used for the aforesaid computation
shall be as Owner, in its sole discretion, reasonably exercised, may from time
to time elect. Where more than one meter measures the electric service to Tenant
(including such electric energy as is consumed in connection with the operation
of the ventilation and air conditioning equipment servicing the demised
premises), the electric service rendered through each meter may be computed and
billed at Owner's option, separately as above set forth, or cumulatively. Bills
for the Electricity Additional Rent ("Bills") shall be rendered to Tenant at
such time as Owner may elect.
Owner and Tenant agree, that the Submeter might be installed subsequent to
the date (the "Initial Occupancy Date") that Tenant, or anyone (including,
without limitation, any contractors or other workmen) claiming under or through
Tenant first enters the demised premises. In such event, Owner, at Owner's sole
option, may either (x) reasonably estimate the Electricity Additional Rent
payable by Tenant for the period commencing on the Initial Occupancy Date and
ending on the Occupancy Reading Date (hereinafter defined), and Tenant shall pay
to Owner, within ten (10) days after demand therefor, the amount set forth on
Owner's estimate and, after rendition of a subsequent Owner's Statement, an
appropriate reconciliation shall be made for any deficiency owed by Tenant, or
any overage paid by Tenant, or (y) render a Owner's Statement to Tenant, after a
reading of the installed Submeter is made (said date upon which the Submeter is
read, being herein called the "Occupancy Reading Date") on or about the date
upon which Tenant shall have completed the Initial Tenant's Changes, if any, and
commenced normal business operations in the demised premises, and the amount
calculated from the Submeter on the Occupancy Reading Date shall be determined
on a per diem basis and then multiplied by the number of days from the Initial
Occupancy Date through the Occupancy Reading Date to arrive at the amount due
for said period, and Tenant shall pay the Electricity Additional Rent on the
basis of such Submeter reading within ten (10) days after rendition of Owner's
Statement detailing such computation.
(2) Rent Inclusion. Tenant acknowledges and agrees that if electric
current is furnished to the demised premises on a rent-inclusion basis, then (i)
the fixed rent set forth in this lease shall be increased by the "Electricity
Rent Inclusion Factor" (hereinafter defined and sometimes called the "ERIF") to
compensate Owner for the electrical wiring and other installations necessary
for, and for its obtaining and making available to Tenant the redistribution of
electric current to the demised premises as additional service, and (ii) the
ERIF shall be subject to periodic adjustments as hereinafter provided. The
Electricity Rent Inclusion Factor shall mean (x) the amount determined by
multiplying Owner's Cost by Tenant's average kilowatt hour and average kilowatt
demand usage (determined by the most recent survey under this subdivision (2),
or (y) if no such survey has yet been made, the average on a per rentable square
foot basis of the charges for electric current to the demised premises pursuant
to subdivision (1) of this Section B (exclusive of the Overhead Charge) for the
twelve (12) full calendar months preceding the month in which the provisions of
this subdivision (2) shall become effective, multiplied by number of square feet
of rentable area of the demised premises, plus twelve (12%) percent of the
resulting total. If the provisions of this subdivision (2) shall be effective
prior to the expiration of a period of twelve (12) full consecutive months
during which Tenant is paying for electric energy to the demised premises
pursuant to said subdivision (1) of this Article (and no survey has yet been
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made under this subdivision (2)), so that the ERIF cannot be determined in the
manner described in the preceding sentence, then the Electricity Rent Inclusion
Factor shall mean the amount determined by multiplying Owner's Cost by Tenant's
average kilowatt hour and average kilowatt demand usage determined by the
estimate of an electrical consultant selected by Owner, plus twelve (12%)
percent of the resulting total. When a survey has been made by the electrical
consultant selected by Owner (the "Consultant"), the parties shall make
adjustment for any deficiency owed by Tenant or any overage paid by Tenant. If
after the first day of any relevant period for which either of the aforesaid
computations is made there is an increase or decrease in Owner's Cost then, the
ERIF for such relevant period shall be recomputed, effective on and after the
change in Owner's Cost, by applying such changed rate and/or charges to the
aforedescribed consumption and demand. Notwithstanding the foregoing, on the
Commencement Date, the ERIF shall be $2.50 per square foot of rentable area in
the demised premises.
The parties agree that the Consultant shall determine (i) the ERIF in
accordance with the provisions of this subdivision (2), and (ii) the changes in
the ERIF due to changes in Owner's Cost. The Consultant may from time to time
make surveys in the demised promises of the electrical equipment and fixtures
and use of current therein, and the ERIF, effective as of the date of the
survey, shall be redetermined by the Consultant in accordance with the survey
results and the provisions of this subdivision (2).
The determination by the Consultant shall be binding and conclusive on
Owner and Tenant from and after the delivery of copies of such determinations to
Owner and Tenant, unless within fifteen (15) days after the delivery of such
copies, Tenant disputes such determinations by having an independent reputable
electrical consultant selected and paid for by Tenant, consult with Owner or its
consultant as to said determinations. If they shall both agree upon the same,
their said agreement shall be binding upon the parties, or if the difference
between them is seven (7%) percent or less of the determinations made by the
Consultant then the determinations made by the Consultant shall be binding upon
the parties. If Owner or the Consultant and Tenant's consultant can not agree
within the said seven (7%) percent of each other, they shall jointly select a
third duly qualified independent, reputable electrical consultant who shall
determine the matter and whose decision shall be binding upon both parties with
the same force and effect as if a non-appealable judgment had been entered by a
court of competent jurisdiction. If Owner or the Consultant and Tenant's
consultant can not agree upon such a third electrical consultant, the matter
shall be submitted to arbitration in accordance with Article 46. Any charges of
such third consultant shall be borne equally by both parties. When the amount of
such increase has been determined, the parties shall execute an agreement
supplementary hereto to reflect such adjustment in the amount of fixed rent
effective from the date determined by such electrical consultant as aforesaid.
Notwithstanding the foregoing, until such final determination, Tenant shall pay
fixed rent to Owner in accordance with the determinations made by the
Consultant. After such final determinations, the parties shall make adjustment
for any deficiency owed by Tenant or any overage paid by Tenant.
C. General Conditions
(1) Owner shall not be liable in any way to Tenant for any failure
or defect in the supply or character of electric service furnished to the
demised premises by reason of any requirement, act or omission of the Utility or
for any other reason not attributable to the gross negligence of Owner, whether
electricity is provided by public or private utility or by any electricity
generation system owned and operated by Owner.
(2) Tenant shall at all times comply with the rules, regulations,
terms and conditions applicable to service, equipment, wiring and requirements
of the Utility. Tenant shall not use any electrical equipment which, in Owner's
reasonable judgment, would exceed the capacity of the existing risers serving
the demised premises (the "Basic Capacity"), or interfere with the electrical
service to other tenants of the Building. Tenant agrees not to connect any
additional electrical equipment to the Building electric distribution system,
other than lamps, personal computers, copiers, typewriters and other small
office machines which consume comparable amounts of electricity, without Owner's
prior consent. In the event that, in Owner's sole judgment, reasonably
exercised, Tenant's electrical requirements require in excess of the Basic
Capacity and necessitate installation of an additional riser, risers or other
proper and necessary equipment, Owner shall so notify Tenant of same. Within
five (5) business days after receipt of such notice, Tenant shall either cease
such use of such additional electricity or shall request that additional
electrical capacity (specifying the amount requested) be made available to
Tenant. Owner, in its
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sole judgment, reasonably exercised, shall determine whether to make available
such additional electrical capacity to Tenant and the amount of such additional
electrical capacity to be made available. If Owner shall agree to make available
additional electrical capacity and the same necessitates installation of an
additional riser, risers or other proper and necessary equipment, including,
without limitation, any switchgear, the same shall be installed by Owner. Any
such installation shall be made at Tenant's sole cost and expense, and shall be
chargeable and collectible as additional rent and paid within ten (10) days
after the rendition of a bill to Tenant therefor. Tenant shall furnish and
install, at its expense, all original and replacement lighting tubes, lamps,
bulbs and ballasts required in the demised premises.
(3) The parties acknowledge that they understand that it is
anticipated that electric rates, charges, etc. may be changed by virtue of
time-of-day rates or other methods of billing, and that the references in the
foregoing subdivisions to changes in methods of or rules on billing are intended
to include any such changes.
(4) If required due to changes in requirements of law or the
Utility, Owner shall have the right at any time, and from time to time, during
the term of this lease, upon forty-five (45) days prior written notice to
Tenant, to change the furnishing of electricity to Tenant from a rent inclusion
basis to a submetering basis, or visa versa. In addition, if Owner shall elect
to terminate furnishing electricity to a majority of the tenants in the Building
then receiving electricity from Owner, Owner shall have the right to terminate
the furnishing of electricity to the demised premises on a rent-inclusion,
submetering, or any other basis at any time, upon forty-five (45) days' written
notice to the Tenant in which event Tenant may make application directly to the
Utility for Tenants entire separate supply of electric current to the demised
premises and Owner shall permit its wires and conduits, to the extent available
and safely capable in Owners sole judgment, reasonably exercised, to be used for
such purpose. Any meters, risers or other equipment or connections necessary to
enable Tenant to obtain electric current directly from the Utility shall be
installed at Tenant's sole cost and expense, subject to the provisions of this
lease. Rigid conduit only will be allowed. Owner, upon the expiration of the
aforesaid forty-five (45) days' written notice to the Tenant may discontinue
furnishing the electric current but this lease shall otherwise remain in full
force and effect. Owner will permit Tenant to continue to receive electricity
from Owner on a redistribution basis for such period of time as is reasonably
required by Tenant to arrange to obtain electricity service directly from the
Utility. Commencing when Tenant receives such direct service and as long as
Tenant shall continue to receive such service, the fixed rent payable under this
lease shall be reduced where electricity rent inclusion is discontinued, by a
sum equal to what the ERIF portion of the fixed rent was at the time of such
discontinuance (the parties acknowledge that in the case of termination of
redistribution by submetering, the fixed rent payable under this lease would not
be affected thereby).
(5) In the event that pursuant to any of the provisions of this
Article, any initial determinations, statements or estimates are made by or on
behalf of Owner (whether such initial determinations, statements or estimates
are subject to dispute or not pursuant to the provisions of this Article),
Tenant shall pay to Owner the amount(s) set forth on such initial
determinations, statements or estimates, as the case may be, until subsequent
determinations, statements or estimates are rendered, at which time, the parties
shall make adjustment for any deficiency owed by Tenant, or any overage paid by
Tenant.
(6) Notwithstanding any provisions of this Article and regardless of
the manner of service of electric current to the demised premises (whether by
rent inclusion or submetering, in no event shall the cost to Tenant for electric
energy to the demised premises be less or more than one hundred twelve (112%)
percent of Owners Cost unless otherwise provided herein.
(7) If any tax is imposed upon Owners receipts from the sale or
resale of electric current to Tenant by any Federal, state or municipal
authority, Tenant agrees that, unless prohibited by law, a portion of such taxes
(based on the amount of the Electricity Additional Rent as applied to the
appropriate tax rate) shall be passed on to, and included in the bill of, and
paid by Tenant to Owner as additional rent.
D. The provisions of this Article are subject to any requirements or
demands imposed by the Utility.
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39. Superior Leases and Mortgages
A. For the purposes of this Article a "Mortgagee" shall mean the holder
of a mortgage affecting the Building and "Lessor" shall mean the holder of a
superior lease affecting the Building.
B. (1) If the date of expiration of any superior lease shall be the
same day as the Expiration Date, the term shall end and expire twelve (12) hours
prior to the expiration of the superior lease. If, in connection with the
financing of the Land, the Building or the interest of the lessee under any
superior lease, or if in connection with the entering into of a superior lease,
any lending institution or Lessor shall request reasonable modifications of this
lease that do not increase Tenants monetary obligations under this lease, or
materially adversely affect or diminish the rights, or materially increase the
other obligations of Tenant under this lease, Tenant shall make such
modifications.
(2) Neither the Mortgagee nor the Lessor, as the case may be, nor
anyone claiming by, through or under such Mortgagee or Lessor, as the case may
be, including a purchaser at a foreclosure sale, shall be:
i) liable for any act or omission of any prior landlord
(including, without limitation, the then defaulting Owner), or
ii) subject to any defense or offsets which Tenant may have
against any prior landlord (including, without limitation, the then
defaulting Owner), or
iii) bound by any payment of rental which Tenant may have made
to any prior landlord (including, without limitation, the then
defaulting Owner) more than thirty (30) days in advance of the date
upon which such payment was due, or
iv) bound by any obligation to make any payment to or on
behalf of Tenant, or
v) bound by any obligation to perform any work or to make
improvements to the demised premises, except for (i) repairs and
maintenance pursuant to the provisions of Article 4 hereof, the need
for which repairs and maintenance first arises after the date upon
which such owner, Lessor, or Mortgagee shall be entitled to
possession of the demised premises, (ii) repairs to the demised
premises or any part thereof as a result of damage by fire or other
casualty pursuant to Article 9 hereof, but only to the extent that
such repairs can be reasonably made from the net proceeds of any
insurance actually made available to such Lessor or Mortgagee, and
(iii) repairs to the demised premises as a result of a partial
condemnation pursuant to Article 10 hereof, but only to the extent
that such repairs can be reasonably made from the net proceeds of
any award made available to such Lessor or Mortgagee, or
vi) bound by any amendment or modification of this lease made
without its consent, or
vii) bound to return Tenant's security deposit, if any, until
such deposit has come into its actual possession and Tenant would be
entitled to such security deposit pursuant to the terms of this
lease.
C. If at any time prior to the expiration of the term, any superior
lease shall terminate or be terminated for any reason or any Mortgagee comes
into possession of the Land or the Building or the estate created by any
superior lease by receiver or otherwise, Tenant agrees, at the election and upon
demand of any owner of the Land or the Building, or of the Lessor, or of any
Mortgagee in possession of the Land or the Building, to attorn, from time to
time, to any such owner, Lessor or Mortgagee or any person acquiring the
interest of Owner as a result of any such termination, or as a result of a
foreclosure of such Mortgage or the granting of a deed in lieu of foreclosure,
upon the then executory terms and conditions of this lease, subject to the
provisions of Section 39B hereof, for the remainder of the term, provided that
such owner, Lessor or, Mortgagee, as the case may be, or receiver caused to be
appointed by any of the foregoing, shall then be entitled to possession of the
demised premises. The provisions of this Section 39C shall enure to the benefit
of any such owner, Lessor or Mortgagee, shall apply notwithstanding that, as
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a matter of law, this lease may terminate upon the termination of any superior
lease, and shall be self-operative upon any such demand, and no further
instrument shall be required to give effect to said provisions. Tenant, however,
upon demand of any such owner, Lessor or Mortgagee, shall execute, at Tenant's
expense, from time to time, instruments, in recordable form, in confirmation of
the foregoing provisions of this Section 39C, satisfactory to any such owner,
Lessor or Mortgagee, acknowledging such attornment and setting forth the terms
and conditions of its tenancy. Nothing contained in this Section 39C shall be
construed to impair any right otherwise exercisable by any such owner, Lessor or
Mortgagee.
D. As long as any superior lease or mortgage shall exist, Tenant shall
not seek to terminate this lease by reason of any act or omission of Owner until
Tenant shall have given written notice of such act or omission to all Lessors
and Mortgagees at their addresses provided to Tenant, and if any such Lessor or
Mortgagee, as the case may be, shall have notified Tenant within ten (10)
business days following receipt of such notice of its intention to remedy such
act or omission, until a reasonable period of time shall have elapsed following
the giving of such notice, during which period such Lessors and Mortgagees shall
have the right, but not the obligation, to remedy such act or omission.
E. Owner represents that, as of the date of this lease, there are no
superior leases or mortgages affecting the Building. Owner agrees that it shall
use reasonable efforts to obtain a non-disturbance and attornment agreement from
any future Mortgagees or Lessors, provided, however, that the failure to obtain
such agreement(s) shall not be deemed a default on the part of Owner.
40. Estoppel Certificate
Each party shall, at any time and from time to time, at the request of
the other party, upon not less than five (5) days' notice, if given in person,
or ten (10) days' notice, if given by mail, execute and deliver to the other a
statement certifying that this lease is unmodified and in full force and effect
[or if there has been any modification, that the same is in full force and
effect as modified and stating the modification(s)], certifying the dates to
which the fixed rent, additional rent and escalation rent have been paid, and
stating whether or not, to the best knowledge of the signer, the other party is
in default in performance of any of its obligations under this lease, and, if
so, specifying each such default of which the signer may have knowledge, it
being intended that any such statement delivered pursuant hereto may be relied
upon by others with whom the party requesting such certificate may be dealing.
41. Indemnification and Liability of Owner
A. Tenant shall indemnify and save harmless Owner against and from (a)
any and all claims (i) arising from (x) the conduct of business in or management
(other than by Owner or any of its employees, agents or contractors) of the
demised premises or (y) any work or thing whatsoever done, or any condition
created (other than by Owner or any of its employees, agents or contractors) in
or about the demised premises during the term of this lease or during the period
of time, if any, prior to the Commencement Date that Tenant may have been given
access to the demised premises pursuant to this lease, or (ii) arising from any
act or omission of Tenant or any of its subtenants or licensees or its or their
employees, agents or contractors, and (b) all costs, expenses and liabilities
incurred in or in connection with each such claim or action or proceeding
brought thereon. Tenant's indemnity hereunder shall survive the expiration or
sooner termination of this lease. In case any action or proceeding be brought
against Owner by reason of any such claim, Tenant, upon notice from Owner, shall
resist and defend such action or proceeding by counsel chosen by Tenant who
shall be reasonably satisfactory to Owner. Tenant or its counsel shall keep
Owner fully apprised at all times of the status of such defense. Counsel for
Tenant's insurer shall be deemed satisfactory to Owner,
B. Tenant shall look only to Owner's estate(s) in the Land and Building
(or the proceeds thereof) for the satisfaction of Tenants remedies for the
collection of any judgment (or other judicial process) requiring the payment of
money by Owner in the event of any default by Owner under this lease, and no
other property or other assets of Owner shall be subject to levy,
<PAGE> 20
execution or other enforcement procedure for the satisfaction of Tenant's
remedies under or with respect to this lease, the relationship of landlord and
tenant hereunder or Tenants use and occupancy of the demised premises.
42. Rent Escalation
A. Real Estate Taxes
(1) In the event that at any time during the term of this lease, the
Owner shall be required to pay real estate taxes levied by the City of New York
against the Building and the Land, the taxes imposed for the first fiscal year
in which such obligation commences (the "Base Tax Year") shall be deemed the
"basic taxes". If during any fiscal year of the City of New York during the term
of this lease subsequent to the Base Tax Year, the real estate taxes levied by
the City of New York against the Land and Building shall be greater then the
basic taxes, Tenant agrees to pay to Owner, as additional rent, the product of
the following: (i) the amount of the excess of such real estate taxes over the
basic taxes; and (ii) a fraction, the numerator of which is the number of
rentable square feet of the demised premises, and the denominator of which is
the number of rentable square feet in the Building subject to real estate taxes.
However, in no event shall Tenant have any obligation under this Section in the
event that real estate taxes for any fiscal year are less than the basic taxes.
(2) a) In the event that as a result of administrative or court
proceedings, the real estate taxes for any fiscal year after the Base Tax Year
shall be reduced, Owner shall make an appropriate payment to the Tenant upon
receiving a refund or a tax bill reflecting such reduction from the City of New
York, so that the aggregate payment from Tenant to Owner with reference to such
fiscal year of the City of New York pursuant to the provisions of this Article
shall be brought to the amount which it would have been if the reduced taxes for
such fiscal year were the original taxes levied upon the Land and Building.
Owner's obligation to make such payments shall survive the end or termination of
the term of this lease.
b) In the event that as a result of administrative or court
proceedings, the real estate taxes for the Base Tax Year shall be reduced,
Tenant shall promptly, upon demand, make appropriate payment(s) to Owner
reflecting such reduction from the City of New York, so that the aggregate
payment from Tenant to Owner with reference to the following fiscal years of the
City of New York pursuant to the provisions of this Article shall be brought to
the amount which it would have been if the reduced taxes for such Base Tax Year
were the original taxes levied upon the Land and Building. Tenant's obligation
to make such payments shall survive the end or termination of the term of this
lease.
(3) If the term of this lease shall end or be terminated (for any reason
other than the Tenant's default) on a day other than the end of a fiscal year of
the City of New York and such end or termination shall be during a fiscal year
of the City of New York as to which a payment is agreed to be made by Tenant
pursuant to the provisions of this Article, then such payment shall be reduced
by the proportion thereof which the number of days elapsed from the end or
termination of the term hereof to the end of the then current fiscal year of the
City of New York bears to 365.
(4) Any sum payable by Tenant in accordance with this Article shall be
paid on or before the last day of the fourth month of the fiscal year of the
City of New York to which such payment is applicable. At least thirty (30) days
prior to such due date, Owner shall furnish Tenant with a certified statement of
such sum and the calculations on which it is based. The obligation to make such
payment shall survive the end or termination of this lease. Tenant shall not be
required to anticipate payment of its proportionate share of any special
Borough-wide assessment levied against the Land and Building unless Owner shall,
in its sole discretion, elect to anticipate payment thereof.
(5) All mention herein of "real estate taxes levied by the City of New
York" shall be deemed to refer to the aggregate of all Borough-wide levies
against the Land and Building, whether called City taxes, City and Borough
assessments or by any other term.
(6) If the attorneys for Owner in any administrative or court
proceedings succeed or shall have succeeded in reducing the assessed valuation
for real estate tax purposes of the real estate known as 71 West 23rd Street,
the Borough of Manhattan, City of New York, for any fiscal year of the City of
New York subsequent to the Base Tax Year, the whole or any part of which
12
<PAGE> 1
EXHIBIT 10.16
THIS LEASE ("Lease") entered into as of the 4th day of November, 1999,
between 233 BROADWAY OWNERS LLC, a New York limited liability company, with an
office c/o The Witkoff Group LLC, 220 East 42nd Street, New York, New York 10017
("Landlord") and ORGANIC INC., a Delaware corporation, with an office at 510
Third Street, 5th Floor, San Francisco, California 94107 ("Tenant").
FUNDAMENTAL LEASE PROVISIONS
Landlord shall lease the Premises (as hereinafter defined) to Tenant,
and Tenant shall let the Premises from Landlord, pursuant to the following
Fundamental Lease Provisions:
Premises: The Premises shall consist of the following areas upon
delivery of such areas to Tenant in accordance with the
provisions of Section 7.1(b):
(i) the entire thirteenth (13th) floor consisting of
27,845 rentable square feet and marked on the
drawing attached hereto as Exhibit A-1;
(ii) the entire fourteenth (14th) floor consisting of
26,976 rentable square feet and marked on the
drawing attached hereto as Exhibit A-2;
(iii) the entire fifteenth (15th) floor consisting of
28,098 rentable square feet and marked on the
drawing attached hereto as Exhibit A-3;
(iv) the entire sixteenth (16th) floor consisting of
28,098 rentable square feet and marked on the
drawing attached hereto as Exhibit A-4;
(v) approximately 4,000 rentable square feet located
on the eighteenth (18th) floor, and
(vi) a portion of the roof shown at a location to be
designated (subject to the reasonable approval of
Landlord and Tenant) sufficient to allow Tenant to
install a satellite antenna.
All of the foregoing located at 233 Broadway, New York,
New York, excluding all vertical penetrations, subject
to expansion pursuant to Article 38.
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Rentable Area
of Premises: On the Lease Commencement Date, 110,017 rentable square
feet, which area is composed of 27,845 rentable square
feet on the thirteenth floor, 26,976 rentable square
feet on the fourteenth floor, 28,098 rentable square
feet on the fifteenth floor, and 28,098 rentable square
feet on the sixteenth floor, subject to expansion
pursuant to the provisions of Article 38. The space
located on the eighteenth floor as long as such space is
used as storage space, shipping, receiving or a
mailroom, and the roof space, shall not be included
within the Rentable Area of the Premises.
Lease Commencement
Date: Subject to the provisions set forth in Article 40, the
first day following the occurrence of the following
events: (i) the date that Landlord and Tenant have both
executed this Lease; (ii) Landlord's lender shall have
approved this Lease; and (iii) Landlord, Landlord's
lender and Tenant have executed a subordination,
nondisturbance and attornment agreement substantially in
the form attached hereto as Exhibit B.
Term: The period of years (or any portion thereof) commencing
on the Base Rent Commencement Date and ending, unless
otherwise terminated in accordance with the terms
hereof, on the Expiration Date, as same may be extended
pursuant to the provisions of Section 2.4 or with
respect to the eighteenth floor, sooner as more
particularly set forth in Article 39.
Base Rent
Commencement Date: The first day following the sixth (6th) month
anniversary of Tenant's completion of Tenant's Work,
provided, however, the Base Rent shall commence no later
than the first day following the ninth (9th) month
anniversary of the Beneficial Occupancy Date. The
aforesaid date shall be extended on the basis of (i) one
day of extension for each day that the Base Rent is
abated under this Lease prior to the Base Rent
Commencement Date for Tenant or (ii) one day of
extension for each day of delay deemed to be a Landlord
Delay.
Base Rent: The Base Rent for the Premises (other than the storage
space and the roof space) shall be as follows:
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(i) For each Lease Year during the period commencing
on the Base Rent Commencement Date through the
fifth (5th) anniversary of the Base Rent
Commencement Date, $30.00 multiplied by the
Rentable Area of the Premises;
(ii) For each Lease Year during the period commencing
on the first day following the fifth (5th)
anniversary of the Base Rent Commencement Date
through the tenth (10th) anniversary of the Base
Rent Commencement Date, $32.50 multiplied by the
Rentable Area of the Premises; and
(iii) For each Lease Year during the period commencing
on the first day following the tenth (10th)
anniversary of the Base Rent Commencement Date
through the fifteenth (15th) anniversary of the
Base Rent Commencement Date, $35.00 multiplied by
the Rentable Area of the Premises.
The Base Rent for the eighteenth floor storage space
shall be as follows:
(i) For each Lease Year during the period commencing
on the Base Rent Commencement Date through April
30, 2003, $15.00 multiplied by the rentable area
of the eighteenth floor storage space.
There shall be no Base Rent due and payable for the roof
space.
The base rent for any storage space leased pursuant to
Section 2.6 shall be fifty percent (50%) of the then
existing Base Rent (adjusted as and when Base Rent is
adjusted under this Lease).
The Base Rent for each Lease Year shall be payable in
twelve (12) equal monthly installments.
The Base Rent for the Renewal Term shall be determined
pursuant to the provisions of Section 2.4.
The aforesaid Base Rent is not applicable to any
expansion space leased pursuant to the provisions of
Article 38. The Base Rent for such expansion space shall
be as set forth in Article 38.
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To the extent that delivery of possession of any such
floor is delayed as a result of a Landlord Delay, with
respect to the particular floor for which possession is
delayed, the Base Rent Commencement Date will be delayed
one additional day for each day of delay (i.e. if
Landlord delays delivery of such space for 30 days, the
rent abatement period shall be 13 months from the
Beneficial Occupancy Date rather than 12 months).
Tenant Improvement
Allowance: The Tenant Improvement Allowance shall equal $40.50
multiplied by the Rentable Area of the Premises.
With respect to the roof and storage space, there shall
be no Tenant Improvement Allowance.
The aforesaid amounts shall be advanced by Landlord to
Tenant in accordance with the provisions of Section 7.6.
Beneficial Occupancy
Date: As defined in Section 7.3(a).
Tenant's Proportionate
Share: 12.22%.
Tenant's Proportionate Share shall be subject to
increase pursuant to the provisions of Article 38 and
decrease pursuant to the provisions of Section 5.11.
Security Deposit: None.
Permitted Use: General and administrative office use, which may include
a cafeteria, telecommunications facilities, data
services, conference center, mail or other commonly used
facilities of Tenant for use for Tenant's employees and
such ancillary uses which are consistent with the Class
A nature of the Building and which are compatible with
general and administrative office use.
Tenant's Notice
Address/Contact: Organic, Inc.
510 Third Avenue, 5th Floor
San Francisco, California
Attention: Colleen Brennan
Telephone: (___) __________
Telecopy: (___) __________
with copies to:
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Organic, Inc.
71 West 23rd Street
New York, New York
Attention: Kate Swan
Telephone: (___) __________
Telecopy: (___) __________
Davis & Gilbert LLP
1740 Broadway
New York, New York 10019
Attention: Chairperson, Real Estate Department
Telephone: (212) 468-4800
Telecopy: (212) 468-4888
and
Omnicom Group Inc.
437 Madison Avenue
New York, New York 10022
Attention: Legal Department
Telephone: (212) 415-3600
Telecopy: (212) 415-3530
Landlord's Notice
Address/Contact: 233 Broadway Owners LLC
c/o The Witkoff Group LLC
220 East 42nd Street
New York, New York 10017
Attention: Mr. Steven C. Witkoff
Telephone: (212) 672-4770
Telecopy: (212) 672-4726
with copies to:
The Witkoff Group LLC
220 East 42nd Street
New York, New York 10017
Attention: James F. Stomber, Jr.
Telephone: (212) 672-4770
Telecopy: (212) 672-3434
1. DEFINITIONS AND BASIC PROVISIONS.
1.1 Fundamental Lease Provisions. The Fundamental Lease Provisions set
forth on pages 1 through 5, inclusive, (the "Fundamental Lease Provisions")
shall be read in conjunction with all other provisions of this Lease applicable
thereto. Each reference
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<PAGE> 6
in this Lease to any of the Fundamental Lease Provisions shall be construed to
incorporate all of the terms provided for under such provisions. If there is any
conflict between any of the Fundamental Lease Provisions and any other
provisions of this Lease, the latter shall control. The listing in the
Fundamental Lease Provisions of monetary amounts payable by Tenant shall not be
construed to be an exhaustive list of all monetary amounts payable by Tenant
under this Lease.
1.2 Definitions. In addition to other terms defined herein, the
following terms shall have the meanings set forth herein unless the context
otherwise requires:
1.2.1 "AAA" shall mean the American Arbitration Association
and its successors.
1.2.2 "Abatement Application" shall mean Abatement Application
as defined in Section 41.8(b).
1.2.3 "Actual LMP Benefits" shall mean Actual LMP Benefits as
defined Section 41.5.
1.2.4 "ADA" shall mean ADA as defined in Section 38.5(a).
1.2.5 "Additional Rent" shall mean Tenant's Tax Payment,
Tenant's Operating Payment and any and all other sums other than Base Rent due
and payable by Tenant to Landlord under this Lease.
1.2.6 "Alterations" shall mean Alterations as defined in
Section 12.1.
1.2.7 "Applicable Laws" shall mean Applicable Laws as defined
in Section 33.2(a).
1.2.8 "Application for Payment" shall mean Application for
Payment as defined in Section 7.6(b).
1.2.9 "Approved Contractors" shall mean those contractors
selected by Tenant and approved by Landlord, such approval not to be
unreasonably withheld, delayed or conditioned.
1.2.10 "Assignment" shall mean Assignment as defined in
Section 19.1.
1.2.11 "Available for Leasing" shall mean Available for
Leasing as defined in Section 43.2(e).
1.2.12 "Available Space" shall mean Available Space as defined
in Section 43.2.
1.2.13 "Available Space Scheduled Date" shall mean Available
Space Scheduled Date as defined in Section 43.2(b).
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1.2.14 "Bankruptcy Code" shall mean the Bankruptcy Code of
1978, as same may be amended.
1.2.15 "Base Operating Expenses" shall mean the Base Operating
Expenses as defined in Section 5.1(a).
1.2.16 "Base Rent" shall mean the Base Rent as set forth in
the Fundamental Lease Provisions.
1.2.17 "Base Rent Commencement Date" shall mean the Base Rent
Commencement Date as defined in the Fundamental Lease Provisions.
1.2.18 "Base Tax Factor" shall mean Base Tax Factor as defined
in Section 5.1(b).
1.2.19 "Beneficial Occupancy Date" shall mean the Beneficial
Occupancy Date as defined in Section 7.3(a).
1.2.20 "Building" shall mean the building located on the Land
and having the street address 233 Broadway, New York, New York.
1.2.21 "Business Hours" shall mean Business Hours as defined
in Section 8.3.
1.2.22 "Calendar Year" shall mean Calendar Year as defined in
Section 5.1(f).
1.2.23 "Class E Life-Safety System" shall mean Class E
Life-Safety System as defined in Section 11.2(a).
1.2.24 "Common Area" or "Common Areas" shall mean those areas
of the Building, whether interior or exterior, open to the public, or all of the
tenants of the Building and not leased to a particular tenant, including, but
not limited to, the lobby of the Building.
1.2.25 "Condenser Water" shall mean Condenser Water as defined
in Section 8.1(f).
1.2.26 "Effective Date" shall mean Effective Date as defined
in Section 43.2(d).
1.2.27 "Election to Lease Notice" shall mean Election to Lease
Notice as defined in Section 43.2(c).
1.2.28 "Electrical Rates" shall mean Electrical Rates as
defined in Section 8.6(d).
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1.2.29 "Escalation Year" shall mean Escalation Year as defined
in Section 5.1(d).
1.2.30 "Event of Default" shall mean an Event of Default as
defined in Section 25.1.
1.2.31 "Existing Lease" shall mean Existing Lease as defined
in Section 2.4.
1.2.32 "Expansion Space Tenant Improvement Allowance" shall
mean Expansion Space Tenant Improvement Allowance as defined in Section 38.5(b).
1.2.33 "Expiration Date" shall mean 11:59 p.m., New York, New
York time on the last day of the month in which the fifteenth (15th) anniversary
of the Base Rent Commencement Date, subject to extension pursuant to the
provisions of Section 2.5.
1.2.34 "External Shafts" shall mean External Shafts as defined
in Section 7.2(b).
1.2.35 "Fair Market Rental Value" shall mean the annual rate
or rates a prospective tenant would pay for rental of premises of comparable
size and quality in similar office buildings in the area of the Building for a
term comparable to the then remaining Term or renewal term, as the case may be,
and otherwise on terms comparable to the terms and provisions of the Lease,
provided that Fair Market Rental Value determined in connection with any renewal
Term shall include the terms and conditions of this Lease for such renewal term,
including brokerage commissions, if any, arising in connection therewith, and
with respect to any expansion space, the other terms and conditions set forth in
Article 38. Fair Market Rental Value shall be determined upon the assumption
that (i) the types or forms of rent which a landlord would be able to obtain in
a new lease made under then-existing market conditions shall be similar to the
forms of Rent provided for in Articles 4 and 5 and consist of a base rentable
rate and additional rent payments based upon a tenant's proportionate share of
real estate taxes, operating expenses and other charges and expenses payable by
Tenant hereunder, (ii) any escalation for operating expenses will be based upon
actual increases in operating costs, and (iii) the prospective tenant will
accept the premises "as is" and will have the benefit of all improvements and
installments which are the property of the Landlord within the Premises.
1.2.36 "First Party" shall mean First Party as defined in
Section 2.5(d).
1.2.37 "Force Majeure" shall mean Force Majeure as defined in
Section 37.7.
1.2.38 "Fundamental Lease Provisions" shall mean the
Fundamental Lease Provisions as defined in Section 1.1.
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1.2.39 "Further Benefits" shall mean Further Benefits as
defined in Section 41.9.
1.2.40 "Further Cooperation" shall mean Further Cooperation as
defined in Section 41.9.
1.2.41 "General Contractor" shall mean any licensed general
contractor retained by Tenant and approved by Landlord, which contractor must be
an Approved Contractor. Tenant shall give Landlord, Landlord's managing agent or
their respective affiliates bona fide opportunities to bid on all of the
Tenant's Work and all Alterations as a potential General Contractor and shall
not discriminate against Landlord, Landlord's managing agent or their respective
affiliates.
1.2.42 "Governmental Authorities" shall mean the United
States, the State of New York, the City of New York and all political
subdivisions thereof, and any agency, department, commission, board, bureau or
instrumentality of any of them, now or hereafter having or claiming jurisdiction
over the Premises.
1.2.43 "Hazardous Materials" shall mean Hazardous Materials as
defined in Section 33.6.
1.2.44 "Holidays" shall mean Holidays as defined in Section
8.3.
1.2.45 "HVAC" shall mean HVAC as defined in Section 8.1(f).
1.2.46 "Index" shall mean the Consumer Price Index as measured
by the U.S. Department of Labor revised Consumer Price Index for urban wage
earners and clerical workers, New York-Northeastern N.J. region, all items
figure, (1982-84 - 100) published by the Bureau of Labor Statistics, or if such
index shall be ceased to be published, such comparable index reasonable selected
by the Landlord and adjusted so as to fairly reflect increases in the cost of
living.
1.2.47 "Insurance Requirements" shall mean Insurance
Requirements as defined in Section 10.1.
1.2.48 "Land" shall mean the parcel of land more particularly
described in Exhibit C annexed hereto.
1.2.49 "Landlord" shall mean 233 Broadway Owners LLC, a New
York limited company, its successors or assigns.
1.2.50 "Landlord's Approval Criteria" shall mean Landlord's
Approval Criteria as defined in Section 7.2(c).
1.2.51 "Landlord Delay" shall mean Landlord Delay as defined
in Section 7.1(c).
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1.2.52 "Landlord's Restoration Work" shall mean Landlord's
Restoration Work as defined in Section 23.2.
1.2.53 "Landlord's Statement" shall mean Landlord's Statement
as defined in Section 5.3(b).
1.2.54 "Landlord's Work" shall mean Landlord's Work as defined
in Section 7.1(a).
1.2.55 "Landlord's Work Modifications" shall mean Landlord's
Work Modifications as defined in Section 7.1(e).
1.2.56 "Lease" shall mean the Lease as defined in the first
paragraph.
1.2.57 "Lease Commencement Date" shall mean the Lease
Commencement Date as defined in the Fundamental Lease Provisions.
1.2.58 "Lease Notice" shall mean Lease Notice as defined in
Section 43.2(c).
1.2.59 "Lease Year" or "Lease Years" shall mean each twelve
(12) month period beginning on the Term Commencement Date and each twelve (12)
month period thereafter beginning on the anniversary of the Term Commencement
Date; provided, however, if the Term Commencement Date is a day other than the
first day of a calendar, the first "Lease Year" shall include the number of days
from the Lease Commencement Date through the last day of the calendar month in
which the Lease Commencement Date occurs.
1.2.60 "Legal Requirements" shall mean Legal Requirements as
defined in Section 10.1.
1.2.61 "LMP Abatement Benefits" shall mean LMP Abatement
Benefits as defined in Section 41.3.
1.2.62 "Lower Manhattan Plan" shall mean Lower Manhattan Plan
as defined in Section 4 1.1.
1.2.63 "Net Profits" shall mean Net Profits as defined in
Section 19.4(c).
1.2.64 "Notice" shall mean a Notice as defined in Section 3
1.1(b).
1.2.65 "Operating Expenses" shall mean Operating Expenses as
defined in Section 5.1(e).
1.2.66 "Permitted Use" shall mean Permitted Use as defined in
the Fundamental Lease Provisions.
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1.2.67 "Premises" shall mean the Premises as defined in the
Fundamental Lease Provisions.
1.2.68 "Prime Rate" shall mean the Prime Rate as defined in
Section 6.1.
1.2.69 "Related Corporation" shall mean any natural person,
corporation, partnership, joint venture, association or other business or legal
entity which directly or indirectly controls, is controlled by, or is under
common control with Tenant or Omnicom Group Inc., but only for such period as
such Related Corporation occupies the portion of the Premises (or the entire
Premises, in the case of an Assignment) for any of the Permitted Uses and such
Related Corporation continues to qualify as a Related Corporation, under the
terms of this Lease. "Control" shall be deemed to mean ownership or control of
not less than twenty-five percent (25%) of all of the outstanding voting stock
of such corporation or not less than twenty-five percent (25%) of all of the
legal and equitable interest in any other entity. For all purposes under this
Lease, Omnicom Group Inc. shall be deemed to be a Related Corporation.
1.2.70 "Rent" shall include Base Rent and all Additional Rent
and other sums required to be paid by Tenant to Landlord under this Lease.
1.2.71 "Rentable Area of the Premises" shall mean the Rentable
Area of the Premises as defined in the Fundamental Lease Provisions.
1.2.72 "Rent Inclusion Date" shall mean Rent Inclusion Date as
defined in Section 8.6(b).
1.2.73 "Right of First Offer" shall mean Right of First Offer
as defined in Section 43.2(a).
1.2.74 "Second Party" shall mean Second Party as defined in
Section 2.5(d).
1.2.75 "Second Period" shall mean Second Period as defined in
the Fundamental Lease Provisions.
1.2.76 "Security Area" shall mean Security Area as defined in
Section 3 5.1.
1.2.77 "Structural Alteration" shall mean an Alteration which
(i) affects a Building system (including, without limitation, utility, life
safety, electrical, plumbing, sewage line and HVAC systems), (ii) affects the
structural integrity of the Building, or (iii) involves a vertical penetration
of the Building, including core drilling or other similar item.
1.2.78 "Substantially Completed" shall mean Substantially
Completed as defined in Section 7.3(b).
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1.2.79 "Successor Landlord" shall mean a Successor Landlord as
defined in Section 20.2.
1.2.80 "Sublease" shall mean a Sublease as defined in Section
19. 1.
1.2.81 "Superior Landlord" shall mean a Superior Landlord as
defined in Section 20.1.
1.2.82 "Superior Lease" shall mean a Superior Lease as defined
in Section 20.1.
1.2.83 "Superior Mortgage" shall mean a Superior Mortgage as
defined in Section 20.1.
1.2.84 "Superior Mortgage" shall mean a Superior Mortgagee as
defined in Section 20.1.
1.2.85 "Taxes" shall mean Taxes as defined in Section 5.1(g).
1.2.86 "Tax Year" shall mean Tax Year as defined in Section
5.1(c).
1.2.87 "Tenant" shall mean the Tenant as defined in Section
2.6.
1.2.88 "Tenant Delay" shall mean Tenant Delay as defined in
Section 7.1(b).
1.2.89 "Tenant Improvement Allowance" shall mean Tenant
Improvement Allowance as defined in the Fundamental Lease Provisions.
1.2.90 "Tenant's Corridor Signs" shall mean Tenant's Corridor
Signs as defined in Section 14.1.
1.2.91 "Tenant's Electric Consumption" shall mean Tenant's
Electric Consumption as defined in Section 8.6(b).
1.2.92 "Tenant's Furnishings" shall mean Tenant's Furnishings
as defined in Section 7.4(b).
1.2.93 "Tenant's Modifications" shall mean Tenant's
Modifications as defined in Section 7.2(c).
1.2.94 "Tenant's Operating Payment" shall mean Tenant's
Operating Payment as defined in Section 5.3(a).
1.2.95 "Tenant's Plans" shall mean the Tenant's Plans as
defined in Section 7.2(c).
1.2.96 "Tenant's Proportionate Share" shall mean a fraction,
expressed as a percentage, the numerator of which is the Rentable Area of the
Premises
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(as same may be increased in accordance with the provisions of this Lease) and
the denominator of which is 900,642. Tenant's Proportionate Share shall be
calculated each time that the Rentable Area of the Premises changes.
1.2.97 "Tenant's Punch List Items" shall mean Tenant's Punch
List Items as defined in Section 7.5.
1.2.98 "Tenant's Restoration Work" shall mean Tenant's
Restoration Work as defined in Section 23.3.
1.2.99 "Tenant's Tax Payment" shall mean Tenant's Tax Payment
as defined in Section 5.2(a).
1.2.100 "Tenant's Work" shall mean Tenant's Work as defined in
Section 7.2(a).
1.2.101 "Term" shall mean the Term as defined in the
Fundamental Lease Provisions.
1.2.102 "Term Commencement Date" shall mean the Term
Commencement Date as defined in the Fundamental Lease Provisions.
1.2.103 "Three Broker Method" shall mean three Broker Method
as defined in Section 2.5(d).
1.2.104 "Year-End Statement" shall mean Year-End Statement as
defined in Section 5.3(c).
2. LANDLORD'S AUTHORITY; PREMISES; TERM, RENEWAL.
2.1 Landlord is the owner of the Land and the Building and Landlord
represents and warrants that it has full right and authority to lease the
Premises to Tenant and to otherwise enter into this Lease on the terms and
conditions set forth herein.
2.2 Landlord leases to Tenant, and Tenant leases from Landlord, the
Premises, together with all improvements and appurtenances attached thereto or
installed therein. All portions of the Premises shall be delivered by Landlord
and Tenant in accordance with Section 7.1(b) herein.
2.3 The term of this Lease shall commence on the Lease Commencement
Date and end, unless otherwise terminated pursuant to the terms hereof, on the
Expiration Date, both dates inclusive.
2.4 (a) Provided no Event of Default under this Lease has occurred
at the time Notice is given or at the expiration of the initial Term and that
Tenant is in occupancy of the Premises at the expiration of the initial Term,
Tenant shall have the right and option, to renew the Term for one (1)
consecutive period of five (5) years. It shall also be a precondition to such
renewal that Omnicom Group Inc. confirm in writing
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that the Guaranty of Lease (to the extent same has not terminated in accordance
with its terms) has been extended to cover the renewal period, to reaffirm all
of the terms and conditions of such Guaranty and to affirm that Omnicom has no
defenses, offsets, or counterclaims to the enforcement of the Guaranty existing
on the date of the reaffirmation. In the event Omnicom does not so reaffirm the
Guaranty (to the extent same has not terminated in accordance with its terms),
Tenant must deliver to Landlord a substitute guarantor, acceptable to Landlord
in its sole discretion, who shall execute a substitute Guaranty of Lease in
substantially the form attached hereto as Exhibit D. Tenant may exercise such
option by giving Notice to Landlord of such exercise not less than thirteen (13)
months prior to the expiration of the initial Term. In such Notice, Tenant shall
specify whether Omnicom shall confirm its guaranty or shall specify the
substitute guarantor (to the extent same has not terminated in accordance with
its terms). If a substitute guarantor is required hereunder and is proposed,
Tenant shall also simultaneously deliver to Landlord sufficient financial
information to enable Landlord to judge the acceptability of such guarantor. The
renewal Term shall commence immediately upon the expiration of the initial Term,
and, upon the giving of such Notice and delivery of such extended guaranty from
Omnicom or such substitute guaranty by a guarantor acceptable to Landlord, as
the case may be, this Lease shall automatically be extended for the five (5)
year period(s) and no instrument of renewal need be executed. At the time Tenant
gives Notice of its election to renew, Tenant shall also specify in such Notice
the full floors of the Premises which Tenant desires to continue its occupancy
and those full floors which Tenant desires to vacate. Tenant's Notice of the
floors it desires to occupy and to vacate, as the case may be, shall be
irrevocable without Landlord's prior approval. Within sixty (60) days after
receipt of Tenant's Notice, Landlord shall give Tenant Notice of the proposed
Base Rent for the portion of the Premises being renewed and if a substitute
guarantor is proposed, the acceptability of such substitute guarantor. In the
event that Tenant fails to give such Notice to Landlord as herein provided or
fails to obtain an extension of the Omnicom guaranty or fails to obtain a
substitute guarantor which is acceptable to Landlord, as the case may be, this
Lease shall automatically terminate at the end of the initial Term and Tenant
shall have no further right or option to extend this Lease. Tenant's right to so
extend the Term is personal to Organic or a Related Corporation and may not be
exercised by any independent assignee (except a permitted assignee of the entire
Premises) or subtenant.
(b) Tenant may exercise such renewal option for less than the
entire Premises, provided, however, if Tenant is renewing this Lease for less
than the entire Premises, Tenant may only renew this Lease:
(i) if Tenant occupies a full floor, for the entire
floor;
(ii) if Tenant occupies more than one full floor, for
contiguous full floors;
(iii) if Tenant occupies contiguous full floors in a
block of space, from the top or from the bottom of such block of space;
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(iv) if Tenant occupies a portion of a floor, for that
portion of such floor; and
(v) if Tenant occupies a full floor and a portion of a
floor, for the entire floor and the portion of such floor so occupied by Tenant.
(c) The renewal Term shall be upon the same covenants,
agreements, provisions, terms and conditions as the original Term, except that
Tenant shall have no further options to renew or extend the Term beyond the
expiration of the renewal term and that annual Base Rent during the first
renewal Term for all space other than the 18th floor storage space shall equal
the Fair Market Rental Value of the Premises as of the commencement date of the
renewal Term. Within thirty (30) days after Landlord delivers to Tenant
Landlord's proposed Base Rent, Tenant shall deliver to Landlord its proposed
Base Rent. If Landlord and Tenant agree on a Base Rent for the renewal Term, the
new Base Rent shall be the rent so agreed upon and same shall be effective as of
the first day of the renewal Term. If Landlord and Tenant cannot agree on the
Fair Market Rental Value, within thirty (30) days after Tenant delivers to
Landlord Notice of its proposed Base Rent, or if Tenant objects to Landlord's
proposed Fair Market Rental Value, Tenant may rescind its Notice to extend the
Term. Such Notice shall be irrevocable and this Lease shall automatically
terminate at the end of the applicable initial Term. If Tenant does not rescind
its Notice as aforesaid, the Fair Market Rental Value shall be determined by the
Three Broker Method.
(d) The "Three Broker Method" used to determine Fair Market
Rental Value shall be applied as follows. Either Landlord or Tenant (the "First
Party") may initiate a determination of the Fair Market Rental Value by giving
Notice to the other (the "Second Party") of the name of a real estate broker who
has at least ten (10) years of experience as a broker for the leasing of office
space in downtown Manhattan and is not related to or affiliated with either
Landlord or Tenant or any affiliate of either of the foregoing parties. Within
ten (10) days after receipt of such Notice, the Second Party shall name a real
estate broker who meets the same criteria by Notice to the First Party. If the
Second Party fails to name such a broker within such ten (10) day period, then
the Fair Market Rental Value established by the broker named by the First Party
shall be the Fair Market Rental Value. If the Second Party does name such a
broker within such ten (10) day period, then within fifteen (15) days after the
Second Party names a broker the two brokers shall together appoint a third
broker who meets the same criteria and within an additional fifteen (15) days
the three brokers shall jointly determine the Fair Market Rental Value. Each
broker shall consider only the components set forth in the definition of Fair
Market Rental Value. The Fair Market Rental Value determined by the brokers
shall not be greater than the Fair Market Rental Value proposed by Landlord, nor
less than the Fair Market Rental Value proposed by Tenant. If the three brokers
cannot agree to a Fair Market Rental Value, the average of the determinations of
the brokers who are the closest to each other shall be binding and conclusive
(or, if the middle broker is exactly midway between the other two, the middle
determination shall be binding and conclusive). Each party shall pay all costs,
fees and expenses of the broker selected by it and the parties shall equally
share the costs, fees and expenses of the third party broker.
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2.5 In the event Tenant shall lease any additional space in the
Building other than pursuant to the expansion options as described in Article
38, such space shall be measured based upon the then prevailing measurement
standards of the New York Real Estate Board, on the basis of a full floor with a
twenty percent (20%) loss factor.
2.6 Tenant shall have the option for a thirty (30) day period
commencing on the date of this Lease to elect to lease up to 10,000 rentable
square feet for storage space within the Building. Such space shall be used only
for storage and shall be at a location designated by Landlord and reasonably
acceptable to Tenant. The Base Rent for such space shall be fifty percent (50%)
of the existing Base Rent, adjusted as and when Base Rent is adjusted under this
Lease. Tenant may exercise this option by delivery to Landlord of a Notice
setting forth the exercise of this option at any time with the aforesaid thirty
(30) day period.
3. RENTABLE AREA.
3.1 For the purposes of this Lease the Building shall consist of
900,642 rentable square feet. The parties have had an opportunity to measure the
Premises and all rentable square footages set forth in this Lease are binding
and conclusive, notwithstanding any subsequent measurement or change in
measurement methodology.
4. BASE RENT.
4.1 During the period beginning on the Base Rent Commencement Dates to
and including the Expiration Date, the Base Rent for the Premises shall be at
the rate set forth in the Fundamental Lease Provisions for the appropriate
period described therein. All payments of Base Rent shall be payable by Tenant,
in United States dollars, in equal monthly installments as set forth in the
Fundamental Lease Provisions, on or before the first day of each month, in
advance, payable to Landlord or Landlord's agent at the address to which Notices
to Landlord are to be sent hereunder, or such other place as Landlord may from
time to time designate by a Notice, without any prior demand therefor and
without any deductions or set-off whatsoever, except as otherwise permitted by
this Lease. If any Base Rent Commencement Date or the Expiration Date occurs on
a day other than the first or last day, respectively, of a calendar month, then
the Base Rent for the month in question shall be pro-rated on a per diem basis
based on the number of days in the month in question.
4.2 Tenant shall commence the payment of Base Rent on the applicable
Base Rent Commencement Dates.
5. ADDITIONAL RENT - ESCALATIONS.
5.1 For the purposes of this Lease, the following terms shall have the
following meanings:
(a) "Base Operating Expenses" shall mean Operating Expenses
for Calendar Year 2000, subject to any increase for additional services as more
particularly set forth in clause (xix) of this Section 5.1(a).
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(b) "Base Tax Factor" shall mean Taxes for the 2000-2001 Tax
Year.
(c) "Tax Year" shall mean the twelve (12) month period
commencing July 1 of each year, or such other period of twelve (12) months as
the fiscal year for real estate tax purposes in the City of New York.
(d) "Escalation Year" shall mean each Calendar Year which
shall include any part of the Term.
(e) "Operating Expenses" shall mean all expenses, costs and
disbursements which Landlord shall pay or become obligated to pay because of, or
in connection with, the ownership, management, operation, repair and maintenance
of the Building or the Land, including, without limitation:
(i) Wages, salaries, disability benefits, pensions,
contributions, hospitalization, retirement plans, all fringe benefits and group
insurance and other indirect expenses respecting employees of Landlord and
Landlord's contractors and agents engaged in the operation, maintenance and
repair of the Building or the Land up to and including the grade of building
manager; uniforms and working clothes for such parties and the cleaning thereof;
expenses imposed upon Landlord pursuant to any requirements of Governmental
Authorities or any collective bargaining agreement with respect to such
employees; worker's compensation insurance, payroll, social security,
unemployment and other similar taxes with respect to such employees;
(ii) All supplies and materials used in the operation,
management, maintenance and repair of the Building;
(iii) Fuel expenses for heating, ventilating and air
conditioning for the Building and any other utility expenses relating to the
Building;
(iv) Water and sewer rents or charges, however termed;
(v) Cost of operation, maintenance, service, repair
and replacement of the Building systems which provide heating, ventilating and
air conditioning to the Building;
(vi) Cost of repairs, maintenance and replacement of
heating, ventilating and air conditioning equipment installed by Landlord and
located inside the on-floor heating, ventilating and air conditioning machinery
rooms excluding therefrom any supplemental heating, ventilating and air
conditioning equipment installed by Tenant servicing the Premises;
(vii) Cost of all maintenance and service for the
Common Areas and the equipment therein, including but not limited to, security,
metal, all Building elevators and elevator cab maintenance (whether or not such
elevator services the Premises), lobby and interior and exterior plaza
maintenance, lobby decoration and display, removal of snow, ice and debris,
cleaning services, trash removal,
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Common Area landscape maintenance and interior and exterior window repairs,
replacements and cleaning;
(viii) Expenditures for capital improvements, which
expenditures under generally accepted accounting principles, consistently
applied, are required to be amortized over the useful life of the capital
improvement, including (w) expenditures for capital improvements for equipment
used in cleaning, maintenance and providing Building services, (x) expenditures
for equipment which reduces any component cost included in Operating Expenses,
(y) expenditures for capital improvements required by Governmental Authorities
for capital improvements required by Governmental Authorities in the future but
not required on the date hereof, and (z) expenditures for equipment or
improvements acquired or made in lieu of repair, maintenance or replacement,
which expenditures reduce any component cost included in Operating Expenses,
provided that the amount included in Operating Expenses in any Calendar Year
shall not exceed the reduction in the component cost of Operating Expenses
resulting from such expenditures in such Calendar Year;
(ix) Fire, extended coverage, special extended
coverage, owner's protective, and other casualty coverage, boiler and machinery,
sprinkler, apparatus, public liability and umbrella liability and property
damage, rent or rental value and plate glass insurance and any other insurance
which Landlord may deem necessary or which is required by any mortgagee of the
Building and/or the Land;
(x) Maintenance of the exterior of the Building
(including interior and exterior window repairs, replacements and cleaning) and
improvements which are appropriate for the continued operation of the Building
as a Class A office building but excluding repairs and general maintenance paid
by the proceeds of insurance or by Tenant or other third parties;
(xi) Rental of equipment used in cleaning and
maintenance;
(xii) Painting and decoration of non-tenant areas;
(xiii) A property management fee not to exceed two
percent (2%) per annum;
(xiv) Cost of maintenance, operation and inspection of
any sprinkler system and alarm system;
(xv) Cost of extermination service administered in the
Building and general office areas of tenants (but not any kitchen, cafeteria or
special food preparation areas) for rodent and pest control;
(xvi) The cost of any additional services not provided
to the Building at the commencement of the Term but thereafter provided by
Landlord in order to comply with Legal Requirements;
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(xvii) Electricity for the operation of elevators,
Building systems and the Building (not otherwise provided directly to or
otherwise chargeable to tenants, but including certain convenience outlets on
each floor of the Building and any voltage loss resulting from the supply of
electricity to any floors in the Building) and for lighting of Common Areas (the
division of electricity between electricity chargeable to tenants and
electricity chargeable to the Building is 70% for Building-wide electric and 30%
for tenants' electric);
(xviii) Sales, excise and other taxes imposed upon the
services, materials or expenses enumerated herein; and
(xix) Subject to the exclusions from Operating
Expenses set forth below, such other expenses, costs and disbursements paid or
incurred by Landlord for services (A) which are initially provided to the
Building after the date of this Lease, provided that the cost of providing such
services during the initial twelve (12) month period that such services are
provided to the Building shall be included with Base Operating Expenses
(thereafter Tenant shall be responsible for its Proportionate Share of any
increase in the cost of such service), and (B) upon Tenant's prior written
consent, for additional services not provided to the Building as of the date of
this Lease.
"Operating Expenses" shall be deemed not to include the
following:
(i) The portion of electric allocable to tenants under
Section 5.1 (e)(vvii) for supplying electric current, ventilating or air
conditioning, or supplying other services, for use within premises occupied by
tenants;
(ii) Real estate brokerage and leasing commissions
incurred by Landlord in connection with the leasing of the Building;
(iii) Wages, salaries or other compensation or
benefits paid to any persons above the grade of building manager,
(iv) Expenditures for capital improvements other than
as set forth in Section 5. 1 (e)(viii), except that Operating Expenses shall
include the cost during the Term, which costs under generally accepted
accounting principles, consistently applied, are required to be amortized over
the useful life of the capital improvement, of (w) expenditures for capital
improvements for equipment used in cleaning, maintenance and providing Building
services, (x) expenditures for equipment which reduces any component cost
included in Operating Expenses, (y) expenditures for capital improvements
required by Governmental Authorities in the future but not required on the date
hereof, and (z) expenditures for equipment or improvements acquired or made in
lieu of repair, maintenance or replacement, which expenditures reduce any
component cost included in Operating Expenses, provided that the amount included
in Operating Expenses in any Calendar Year shall not exceed the reduction in the
component cost of Operating Expenses resulting from such expenditures in such
Calendar Year;
(v) Advertising and promotional expenditures incurred
by Landlord for the Building;
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(vi) Legal fees incurred in disputes with tenants and
other legal and auditing fees (including legal fees incurred for services which
do not generally benefit the tenants of the Building on a Building wide basis),
other than legal and auditing fees incurred (x) in connection with the
maintenance, management and operation of the Land and/or the Building or (y) in
connection with the preparation of statements required pursuant to this Article
5 or (z) in connection with any assessment reduction challenge, appeal or other
contest by Landlord to reduce Taxes or any other component of Operating
Expenses;
(vii) Depreciation and amortization of the Building,
except that Operating Expenses shall include annual depreciation and
amortization of capital improvements for expenditures covered under clause (iv)
above;
(viii) Expenses for preparing, renovating or
redecorating space to be occupied by tenants as part of their demised premises
or for tenants renewing their leases;
(ix) Taxes;
(x) Any rent under any ground or underlying lease;
(xi) Debt service on any mortgage encumbering the Land
or Building;
(xii) Transfer, gains, franchise, inheritance, estate
and income taxes imposed upon Landlord;
(xiii) Costs for which Landlord receives compensation
through the proceeds of insurance or for which Landlord would have been
compensated by insurance had it carried the coverage required under the Lease;
(xiv) Costs incurred with respect to a sale of all or
any portion of the Building or any interest therein or in any person of whatever
tier owning an interest therein;
(xv) Costs of any financing and refinancing of
mortgage loans encumbering the Building;
(xvi) Amounts otherwise includable in Operating
Expenses but reimbursed to Landlord directly by Tenant or other tenants;
(xvii) Lease takeover costs incurred by Landlord in
connection with leases in the Building;
(xviii) To the extent any costs includable in
Operating Expenses are incurred with respect to both the Building and other
properties (including, without limitation, salaries, fringe benefits and other
compensation of Landlord's personnel who provide services to both the Building
and other properties), there shall be
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excluded from Operating Expenses a fair and reasonable percentage thereof which
is properly allocable to such other properties;
(xix) Cost of any judgment, settlement, or arbitration
award resulting from any liability of Landlord (other than a liability for
amounts otherwise includable in Operating Expenses hereunder);
(xx) Cost of providing any service customarily
provided by a managing agent as part of its base or standard management fee;
(xxi) Any profits that Landlord receives on so-called
sundry charges to individual tenants;
(xii) Costs relating to withdrawal liability or
unfunded pension liability under the Multi-Employer Pension Plan Act or similar
law except to the extent that such costs would otherwise be included in fringe
benefits, which are includable as Operating Expenses;
(xxiii) Cost of installing, operating and maintaining
any specialty facility, such as an observatory, broadcasting facilities,
luncheon club, athletic or recreational club, child care or similar facility,
cafeteria or dining facility;
(xxiv) Costs of acquisition of any sculptures,
paintings and other objects of art located within or outside the Building,
provided, however, the costs of maintaining such objects in the public areas of
the Building shall be included in Operating Expenses;
(xxv) Any profits received by Landlord on account of
computations where the aggregate of the proportionate shares for all tenants in
the Building equals a number greater than 100;
(xxvi) Except as otherwise provided in this Lease,
costs of remedying violations of municipal building code requirements or other
Legal Requirements that arise by reason of Landlord's failure to construct,
maintain or operate the Building or any part thereof in compliance with such
building code requirements or other Legal Requirements and regulations (but not
for violations caused by Tenant); and
(xxvii) Costs incurred in connection with making any
additions to, or building additional stories on, the Building or its plazas, or
adding buildings or other structures adjoining the Building (which increase the
square footage of the Building), or connecting the Building to other structures
adjoining the Building.
In computing Operating Expenses, Landlord shall include only
those expenses, costs and disbursements which Landlord has paid, or is required
to amortize pursuant to Section 5.1(e)(viii), because of or in connection with
the ownership, management, operation, repair and maintenance of the Building
and/or the Land, in a manner consistent with the standards of Class A office
buildings, all of which shall be subject to the foregoing exclusions from
Operating Expenses set forth in this
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Section 5.1(e). There shall be credited as a deduction to Operating Expenses all
amounts collected from specific tenants of the Building to the extent the amount
billed to such tenant and subsequently collected were included in Operating
Expenses. Operating Expenses shall be net only and for that purpose shall be
deemed reduced by the amount of all reimbursements, recoupments, payments,
discounts, credits, reductions, allowances or the like actually received by
Landlord in connection with Operating Expenses; provided, however, that Landlord
shall include in Operating Expenses the reasonable costs and expenses, if any,
incurred by Landlord in obtaining such reimbursements, recoupments, payments,
discounts, credits, reductions, allowances or the like; provided, further,
however, Landlord shall use reasonable and customary efforts to take any action
to receive such reimbursement, recoupment, payment, discount, credit, reduction,
allowance or the like. In the event Landlord obtains any services, equipment or
materials from a Related Corporation of Landlord, the cost of such services,
equipment or material shall not exceed the reasonable, fair market value of such
services, equipment or materials as if same was obtained from an independent,
non-affiliated party.
Operating Expenses shall be categorized in the categories set
forth on Exhibit E.
In the event the Building is not ninety five percent (95%)
occupied by tenants during all or any portion of a Calendar Year, then Landlord
shall make appropriate adjustments in the cost of those components of Operating
Expenses which vary with the occupancy level of the Building, to reflect the
Operating Expenses which would have been paid or incurred by Landlord for such
Calendar Year or portion thereof had the Building been ninety-five percent (95%)
occupied by tenants during such Calendar Year or portion thereof.
(f) "Calendar Year" shall mean each calendar year, commencing
with the calendar year in which the Term Commencement Date occurs, and each
subsequent calendar year in which any part of the Term falls, through and
including the calendar year in which the Term expires.
(g) "Taxes" shall mean all real estate taxes and/or payments
in lieu of real estate taxes and assessments, special or otherwise, levied or
assessed upon the Land and/or the Building, including any business improvement
district taxes. Should the City of New York, the State of New York, or any
political subdivision thereof, or any other Governmental Authority having
jurisdiction over the Land and/or the Building (i) impose a tax, assessment,
charge or fee, in substitution (whether in whole or in part) for such real
estate taxes or payments in lieu of real estate taxes, or (ii) impose an income
or franchise tax or a tax on rents in substitution (whether in whole or in part)
for such real estate taxes, all such taxes, assessments, charges or fees shall
be deemed to constitute Taxes hereunder. Taxes shall not include any
inheritance, estate, succession, transfer, gift, franchise, net income or
capital stock tax imposed against Landlord, or any penalties, interest or late
charges incurred in connection therewith. Tenant shall not be responsible for
any increase in Taxes resulting from physical additions or improvements
(excluding any tenant improvements and/or capital expenditures) to the Building
or any sale or refinancing of the Building.
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5.2 (a) If Taxes payable in any Tax Year falling wholly or
partially within the Term shall be in such amount as shall constitute an
increase above the Base Tax Factor, Tenant shall pay as Additional Rent for such
Tax Year a sum ("Tenant's Tax Payment") equal to Tenant's Proportionate Share of
such excess. Tenant's Tax Payment for each Tax Year shall be due and payable in
two semi-annual installments on the first day of July and January during each
Tax Year and shall be set forth in the first instance in a Landlord's Statement
given to Tenant. If a Landlord's Statement is furnished to Tenant after the
commencement of a Tax Year in respect of which such Landlord's Statement is
rendered, Tenant shall, within thirty (30) days thereafter, pay to Landlord an
amount equal to the amount of any underpayment of Tenant's Tax Payment with
respect to such Tax Year and, in the event of any overpayment. Landlord shall
either pay to Tenant, or, at Tenant's election, credit against subsequent
payments of Base Rent and Additional Rent under this Lease the amount of Tenants
overpayment If there shall be any increase in Taxes for any Tax Year, whether
during or after such Tax Year, or if there shall be any decrease in the Taxes
for any Tax Year during such Tax Year, Landlord may furnish a revised Landlord's
Statement for such Tax Year, and Tenant's Tax Payment for such Tax Year shall be
adjusted and paid or credited or refunded, as the case may be, substantially in
the same manner as provided in the preceding sentence. If during the Term, Taxes
are required to be paid (either to the appropriate taxing authorities or as tax
escrow payments to the Superior Landlord or the Superior Mortgagee), in full or
in monthly, quarterly, or other installments (but no more frequently than
monthly) on any other date or dates than as presently required, then Tenant's
Tax Payments shall be correspondingly accelerated or revised so that said
Tenant's Tax Payments are due at least thirty (30) days prior to the date
payments are due to the taxing authorities or the Superior Landlord or the
Superior Mortgagee. If Landlord makes an early payment or prepayment of Taxes
entitling Landlord to a discount and if Tenant shall have paid Tenant's Tax
Payment to Landlord with respect to such discounted Taxes in advance of
Landlord's early payment or prepayment, then Tenant shall be entitled to
Tenant's Proportionate Share of such discount. In addition, if any tax exemption
or abatement relating to all or part of the Land applies generally to real
property located in downtown Manhattan (as opposed to resulting from a specific
exemption or abatement program related to the specific acts of Landlord or of
any tenant), then Tenant shall be entitled to Tenant's Proportionate Share (the
share in effect for the Tax Year in question) of such abatement or exemption.
Otherwise, the benefit of any discount for any early payment or prepayment of
Taxes, as well as any tax exemption or abatement relating to all or any part of
the Land, shall accrue solely to the benefit of Landlord and such discount or
exemption shall not be subtracted from Taxes.
(b) If the real estate tax fiscal year of The City of New York
shall be changed at any time after the date hereof, any Taxes for such fiscal
year, a part of which is included within a particular Tax Year and a part of
which is not so included, shall be apportioned on the basis of the number of
days in such fiscal year included in the particular Tax Year for the purposes of
making the computations under this Section.
(c) If Landlord shall receive a refund of Taxes for any Tax
Year, Landlord shall, at Landlord's election, either credit Tenant's
Proportionate Share (the share in effect for the Tax Year in question) of such
refund against subsequent
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payments of Base and Additional Rent under this Lease, or pay Tenant's
Proportionate Share (the share in effect for the Tax Year in question) of the
refund to Tenant, in either case, after deducting from such refund the costs and
expenses incurred by Landlord in obtaining such refund. Landlord shall be
obligated to use its best efforts to file any application or institute any
proceeding seeking a reduction in Taxes or assessed valuation. Tenant agrees to
cooperate fully with Landlord in prosecuting any such reduction.
(d) Tenant's Tax Payment and any credits with respect thereto
as provided in this Section shall be made as provided in this Section regardless
of the fact that Tenant may be exempt, in whole or in part, from the payment of
any taxes by reasons of Tenant's diplomatic or other tax exempt status or for
any other reason whatsoever.
(e) In the event of a termination of this Lease, any
Additional Rent under this Section shall be paid or adjusted within thirty (30)
days after submission of Landlord's Statement. Except to the extent that
overpayments made by Tenant under this Section 5.2 may be credited against Base
Rent as herein provided, in no event shall Base Rent ever be reduced by
operation of this Section, and the rights and obligations of Landlord and Tenant
under the provisions of this Section with respect to any Additional Rent shall
survive the termination of this Lease; provided however, that Landlord shall be
deemed to have waived any right to Additional Rent pursuant to this Section 5.2
for which Landlord has not submitted a Landlord's Statement within twenty-four
(24) months after the end of the Tax Year which is in effect upon the expiration
or sooner termination of this Lease.
(f) Each Landlord's Statement furnished by Landlord with
respect to Tenant's Tax Payment shall be accompanied by a copy of the real
estate tax bill for the Tax Year referred to therein, but Landlord shall have no
obligation to deliver more than one such copy of the real estate tax bill in
respect of any Tax Year.
5.3 (a) For each Calendar Year during the Term, Tenant shall pay,
as Additional Rent, an operating payment ("Tenant's Operating Payment"), which
payment shall be equal to Tenant's Proportionate Share of the amount by which
Operating Expenses for such Calendar Year exceed Base Operating Expenses
provided, however, that the percentage increase in Tenant's Operating Payment in
any Calendar Year from the prior Calendar Year's payment shall not exceed
seventy-five percent (75%) of the percentage increase in the Index for the prior
Calendar Year, provided further if the percentage increase in Operating Expenses
for the prior Calendar Year exceeded four percent (4%), the percentage increase
in Tenant's Operating Payment shall not be less than four percent (4%).
(b) Landlord shall furnish to Tenant, prior to the
commencement of each Calendar Year, a Landlord's Statement (Landlord's
Statement") setting forth Tenant's Tax Payment and Landlord's estimate of
Tenant's Operating Payment for such Calendar Year, and the method of calculation
of Tenant's Operating Payment for such Calendar Year. Landlord's estimate of
Tenant's Tax Payment and Tenant's Operating Payments set forth in Landlord's
Statement shall not exceed the prior
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year's Tenant's Tax Payment and Tenant's Operating Payments increased by an
amount equal to five percent (5%) of such payments, unless such increase is
otherwise documented. Tenant shall pay to Landlord on the first day of each
month during such Calendar Year an amount equal to one-twelfth (1/12th) of
Landlord's estimate of Tenant's Operating Payment for such Calendar Year. If,
however, Landlord shall furnish any such estimate for a Calendar Year subsequent
to the commencement thereof, then (x) until the first day of the month following
the month in which such estimate is furnished to Tenant, Tenant shall pay to
Landlord on the first day of each month an amount equal to the monthly sum
payable by Tenant to Landlord under this Section in respect of the last month of
the preceding Calendar Year; (y) promptly after such estimate is furnished to
Tenant or together therewith, Landlord shall give notice to Tenant stating
whether the installments of Tenant's Operating Payment previously made for such
Calendar Year were greater or less than the installments of the Tenant's
Operating Payment to be made for such Calendar Year in accordance with such
estimate, and (i) if there shall be a deficiency Tenant shall pay the amount
thereof within thirty (30) days after demand therefor, or (ii) if there shall
have been an overpayment, Landlord shall, at Landlord's option, promptly either
refund to Tenant the amount thereof or credit the amount thereof against
subsequent payments of Base and Additional Rent under this Lease; and (z) on the
first day of the month following the month in which such estimate is furnished
to Tenant, and monthly thereafter throughout the remainder of such Calendar
Year, Tenant shall pay to Landlord an amount equal to one-twelfth (1/12th) of
Tenant's Operating Payment shown on such estimate. Landlord may at any time or
from time to time furnish to Tenant a revised Landlord's Statement of Landlord's
estimate of Tenant's Operating Payment for such Calendar Year; and in such case,
Tenant's Operating Payment for such Calendar Year shall be adjusted and paid or
refunded, as the case may be, substantially in the same manner as provided in
the preceding sentence.
(c) Within one hundred twenty (120) days after the end of each
Calendar Year Landlord shall furnish to Tenant a statement (the "Year-End
Statement") for such Calendar Year of Tenant's Operating Payment then in effect.
Each such Year-End Statement for any Calendar Year in which Tenant's Operating
Payment is due shall be accompanied by a computation of Operating Expenses for
the Building prepared by the Building manager from which Landlord shall make the
computation of Operating Expenses hereunder. If the Landlord's Statement shall
show that the sums paid by Tenant under this Section exceeded Tenant's Operating
Payment for such Calendar Year, Landlord shall, at Landlord's option, either
refund to Tenant the amount of such excess within thirty (30) days after the
furnishing of the Landlord's Statement to Tenant or credit the amount of such
excess against subsequent payments of Base and Additional Rent under this Lease;
and if the Landlord's Statement for such Calendar Year shall show that the sums
so paid by Tenant were less than Tenant's Operating Payment for such Calendar
Year, Tenant shall pay the amount of such deficiency within thirty (30) days
after demand therefor.
(d) In the event of a termination of this Lease, any
Additional Rent under this Section shall be paid or adjusted within thirty (30)
days after submission of Landlord's Statement. Except to the extent that
overpayments made by Tenant under this Section 5.3 may be credited against Base
Rent as herein provided, in no event shall
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Base Rent ever be reduced by operation of this Section and the rights and
obligations of Landlord and Tenant under the provisions of this Section with
respect to any Additional Rent shall survive the termination of this Lease;
provided however, that Landlord shall be deemed to have waived any right to
Additional Rent pursuant to this Section 5.3 for which Landlord has not
submitted a Landlord's Statement within thirty-six (36) months after the end of
the Escalation Year which is in effect upon the expiration or sooner termination
of this Lease.
5.4 If the Commencement Date or the Expiration Date shall occur on a
date other than January 1 or December 31, respectively, any Additional Rent
under this Section for the Escalation Year in which such Commencement Date or
Expiration Date shall occur shall be apportioned in that percentage which the
number of days in the period from the Lease Commencement Date to December 31 or
from January 1 to the Expiration Date, as the case may be, both inclusive, shall
bear to the total number of days in such Escalation Year.
5.5 The computations of Additional Rent under this Article are intended
to constitute a formula for an agreed rental adjustment, may or may not include
all costs and expenses incurred by Landlord with respect to the Building and
accordingly may or may not constitute an actual reimbursement to Landlord for
costs and expenses paid by Landlord with respect to the Building.
5.6 Landlord shall keep, for a period of three (3) years (five years,
if a dispute with respect to such year is pending) after any Year-End Statement
required under this Article 5 is delivered to Tenant, either at the Building or
at Landlord's offices in New York, New York, records in reasonable detail of the
Operating Expenses for the period covered by such statement. After the
expiration of the aforesaid three or five year period, Landlord shall have no
obligation to retain such records.
5.7 Each Year-End Statement shall be conclusive and binding upon Tenant
unless within three hundred sixty-five (365) days after its receipt of any such
statement Tenant shall, by Notice to Landlord, dispute the correctness of said
statement. Landlord shall permit Tenant, at Tenant's expense, within the
aforesaid three hundred sixty five (365) day period (or if a dispute is pending
during the pendency of such dispute), to examine, copy and audit such records
during business hours at reasonable times following reasonable Notice at the
office where Landlord is keeping such records. If Tenant fails to send the
aforesaid Notice within three hundred sixty-five (365) days after its receipt of
the Year-End Statement, Tenant shall be conclusively deemed to have accepted
such Year-End Statement and waived any right to audit such Year-End Statement or
Landlord's records pertaining thereto; provided, however, if Tenant thereafter
properly and timely disputes any such statement, Tenant may audit any statement
issued in the past five years provided Landlord has maintained the records
required under Section 5.6 for the periods set forth in Section 5.6. In the
event Landlord is not required under Section 5.6 to maintain the records, and in
fact has not maintained the records, Tenant shall have no right to dispute the
statement corresponding to such records. Any such Notice shall set forth in
reasonable detail the basis of such dispute. Any such dispute that is not
settled by Landlord and Tenant within twenty (20) days after
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the delivery of such Notice, or such longer period to which they may mutually
agree, may, at the option of either party, be submitted to arbitration in
accordance with Article 34 of this Lease. Pending the determination of any such
dispute by agreement or otherwise, Tenant shall pay Tenant's Tax Payment and
Tenant's Operating Payment in accordance with the applicable Year-End Statement,
and such payment shall be without prejudice to Tenant's position. If it is
determined that Landlord owes Tenant a refund, Landlord shall pay to Tenant any
unpaid amounts within thirty (30) days after the resolution of any dispute
regarding same together with interest on such unpaid amount at the rate set
forth in Section 6.1.
5.8 Landlord shall have the right at any time within fifteen (15)
months from the delivery of any Year-End Statement to Tenant to render revised
Year-End Statements to Tenant reflecting any adjustment in Operating Expenses,
Tenant's Operating Payment and/or Tenant's Tax Payment. Within thirty (30) days
after Tenants receipt of any Year-End Statement, Tenant shall pay Landlord any
deficiency, or receive a credit from Landlord for any excess against any ensuing
payments hereunder, in either case, between the amount due pursuant to the
revised Year-End Statement and the Year-End Statement to which such revised
Year-End Statement pertains. Each such revised Year-End Statement shall be
conclusive and binding upon Tenant unless within ninety (90) days after its
receipt of any such revised statements Tenant shall, by Notice to Landlord,
dispute the correctness of said revised statement. If Tenant fails to send the
aforesaid Notice within ninety (90) days after its receipt of the revised
Year-End Statement, Tenant shall be conclusively deemed to have accepted such
revised Year-End Statement and waived any right to audit such revised Year-End
Statement or Landlord's records pertaining thereto. Any such Notice shall set
forth in reasonable detail the basis of such dispute. Any such dispute that is
not settled by Landlord and Tenant within twenty (20) days after the delivery of
such Notice, or such longer period to which they may mutually agree, may, at the
option of either party, be submitted to arbitration in accordance with Article
34 of this Lease. Pending the determination of any such dispute by agreement or
otherwise, Tenant shall pay Tenant's Tax Payment and Tenant's Operating Payment
in accordance with the applicable revised Year-End Statement, and such payment
shall be without prejudice to Tenant's position. If it is determined that
Landlord owes Tenant a refund, Landlord shall pay to Tenant the amount
determined to be owed to Tenant within thirty (30) days after the resolution of
any dispute regarding same together with interest in such unpaid amount at the
rate set forth in Section 6.1.
5.9 Each and every payment required under this Article 5, as well as
any other amounts which are owed by Tenant to Landlord under this Lease, whether
requiring lump sum payments or constituting projected monthly amounts in
addition to the Base Rent, shall for all purposes be treated and considered as
Additional Rent. The failure of Tenant to pay such Additional Rent as and when
due without demand shall have the same effect as failure to pay any installment
of Base Rent and shall afford Landlord all remedies provided in the Lease
therefor.
5.10 Both Tenant's obligation for payment of Additional Rent for any
period during the Term of the Lease and Landlord's obligation to refund excess
payments on account of Additional Rent for any period during the Term of the
Lease shall survive the
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expiration or any sooner termination of the Lease, subject, however, to the
provisions of Section 5.8 hereof.
5.11 Landlord may convert the Building into a condominium form of
ownership and the Premises may become part of a unit comprising a portion of the
Building. In the event of such a conversion, this Lease shall remain in full
force and effect. Landlord and Tenant agree to recalculate "Tenant's
Proportionate Share' in a fair and equitable manner to reflect such conversion.
When Tenant's Proportionate Share has been recalculated, Landlord and Tenant
shall execute and deliver an agreement setting forth such recalculation and
confirming Tenant's Proportionate Share.
6. LATE CHARGE.
6.1 Any installment of Base Rent or Additional Rent hereunder that is
not paid within five (5) days of the date when due hereunder shall bear interest
from the due date until paid at the rate of two percent (2%) over the then
"Prime Rate" as published in The Wall Street Journal or The New York Times for
ninety (90) day unsecured loans to major corporate borrowers (unless such rate
is usurious as applied to Tenant in which case the highest rate permitted by law
shall apply). In the event the Prime Rate is no longer the reference rate for
ninety (90) day unsecured loans, then the rate for 90 day Treasury bills plus
three percent (3%) shall be used as the replacement or successor reference rate
to the Prime Rate in determining the interest to be paid by Tenant pursuant to
this Section.
7. LANDLORD'S WORK.
7.1 Landlord shall have no obligation to perform any work in, or make
any alterations or improvements to (i) any floor within the Premises in
connection with Tenant's initial occupancy of the Premises other than the work
described in Exhibit F annexed hereto (individually for each floor and
collectively, for all floors, "Landlord's Work") and (ii) any floor acquired in
connection with any one or more of Tenant's expansion options which are set
forth in Article 38 herein, other than as described in Exhibit F.
Notwithstanding the foregoing, Landlord shall install on each floor of the
Premises the HVAC equipment described in Exhibit U attached hereto.
(b) For the purpose of this Lease, the term "Tenant Delay"
shall mean any delay that Landlord actually encounters in the prosecution of
Landlord's Work caused solely by any act, neglect, failure or omission of
Tenant, its agents, employees or contractors, including, without limitation, (i)
any delay in Tenant making a submission or furnishing a response under Sections
7.1 or 7.2, or (ii) any delay due to the implementation of any Landlord's Work
Modification or making any deposit in connection therewith. Any delays in the
completion of Landlord's Work caused by Tenant Delay shall not serve to defer
the applicable Base Rent Commencement Date. For the purpose of this Lease, the
term "Landlord Delay" shall mean any delay that Tenant actually encounters in
the prosecution of Tenant's Work caused solely by any act neglect, failure or
omission of Landlord, its agents, employees or contractors, including without
limitation, (i) any delay in Landlord making a submission or furnishing a
response not caused by a Tenant Delay, (ii) any delay in the prosecution of or
completion
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of Landlord's Work not caused by a Tenant Delay, (iii) any other failure defined
as Landlord Delay under the Lease, and (iv) any delay in Tenant's prosecution of
Tenant's Work caused by the performance of Landlord's Work taking precedence
over the performance of Tenant's Work.
(c) It is understood by Landlord and Tenant that the schedule
for completion of Landlord's Work is contingent upon the absence of change
orders or other modifications or revisions requested by Tenant, other than minor
or a de minimis number of changes. Any change order, revision or other
modification requested by Tenant shall be in writing, shall set forth in detail
the nature of the revision or modification and shall have attached thereto all
appropriate drawings and specifications to illustrate such revision or
modification (collectively, "Landlord's Work Modifications"). In the event
Tenant requests a Landlord's Work Modification, Tenant shall submit such
Landlord's Work Modification to Landlord for Landlord's review and approval.
Within fifteen (15) days after Landlord's receipt of any Landlord's Work
Modification, Landlord shall furnish Tenant with a statement of the cost of the
implementation of Landlord's Work Modification, together with Landlord's
estimate of the period of Tenant Delay which would result on account thereof and
Landlord (i) shall give its approval thereto, or (ii) Landlord shall request
revisions or modifications to such Landlord's Work Modification. Within five (5)
days following Landlord's request, Tenant shall revise the Landlord's Work
Modification and submit such revisions or modifications to Landlord for
Landlord's approval. Within two (2) days following receipt by Landlord of such
revisions or modifications, Landlord shall give its written approval thereto or
shall request further revisions or modifications. The preceding two sentences
shall be implemented repeatedly until Landlord gives its written approval to the
Landlord's Work Modification. Landlord shall not be required to stop or postpone
the performance of Landlord's Work, or any portion thereof, because Landlord has
received from Tenant a Landlord's Work Modification affecting Landlord's Work,
or a portion thereof, unless Tenant delivers to Landlord a Notice with such
Landlord's Work Modification specifically requesting such stoppage or
postponement, in which event such stoppage or postponement shall be deemed to be
Tenant Delay commencing on the date of delivery of such Notice to Landlord and
Tenant shall be responsible for all costs arising therefrom, regardless whether
the Landlord's Work Modification is implemented. Within two (2) business days of
its receipt of the aforesaid approval, Tenant shall instruct Landlord by a
Notice to either (i) proceed with such Landlord's Work Modification or (ii)
withdraw such Landlord's Work Modification. If Tenant shall instruct Landlord to
proceed with such Landlord's Work Modification, the same shall be binding upon
Tenant. Tenant shall pay, as Additional Rent, the net cost, if any, of the
implementation of such Landlord's Work Modification. Landlord may pay the cost
of any Landlord's Work Modification by applying the Tenant Improvement Allowance
to such costs. Landlord may require Tenant, as a condition of the approval of
such Landlord's Work Modification, to deposit up to ten percent (10%) of the
cost of the Landlord's Work Modification, with Landlord prior to Landlord
implementing such Landlord's Work Modification. Otherwise, Tenant shall pay the
cost of the Landlord's Work Modification within thirty (30) days of receipt of
an invoice therefor.
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(d) To the extent there is any conflict between Landlord's
Work described in Exhibit F and the body of this Lease, Landlord's Work shall
control, provided, however, in the event and to the extent the Lease provides
for Landlord's approval or consent, Tenant shall obtain such approval or
consent. Notwithstanding the foregoing, to the extent that any plans and
specifications are approved by Landlord, such plans and specifications shall
govern.
(e) In the event Tenant exercises the option to terminate this
Lease pursuant to Section 40.1, Tenant shall, within thirty (30) days of receipt
of an invoice therefor, reimburse Landlord for all reasonable fees and actual
expenses incurred by Landlord in regard to the Lease, including any real estate
commissions paid by Landlord.
7.2 (a) For the purposes of this Lease, the term "Tenant's Work"
shall mean the work, installations, improvements and equipment described in
Tenant's Plans. Tenant, at Tenant's sole cost and expense, shall perform, or
cause to be performed, Tenant's Work subject to the provisions of this Article 7
and substantially in accordance with Tenant's Plans, as modified by Change
Orders approved by Landlord pursuant to Article 7.
(b) Except as otherwise set forth in Tenant's Plans, Tenant
may not connect into any portion of the Building located outside of the Premises
or to any pipes, shafts or conduits outside of the Premises (collectively, the
"External Shafts") without Landlord's prior written consent, which consent shall
not be unreasonably withheld or delayed.
(c) From time to time, Tenant, at its expense, shall prepare
and submit to Landlord complete drawings (including sprinkler, HVAC, electrical,
plumbing, telephone, reflected ceiling and partition plans) for Tenant's Work
("Tenant's Plans"). Tenant's Plans shall consist of six (6) copies, including
one (1) sepia. Tenant may submit to Landlord Tenant's Plans in stages determined
by Tenant. In the event Tenant submits Tenant's Plans in stages and Landlord
reasonably requires a stage which has not been submitted in order to approve the
earlier submission, Landlord may defer such approval until Landlord receives the
necessary submissions and such delay shall not be deemed to be a Landlord Delay.
Within thirty (30) days of submission, Landlord (i) shall give its approval on
an applicable floor by floor basis thereto or (ii) if Landlord reasonably
believes that Tenant's Plans may adversely affect the structure or systems of
the Building or do not comply with all Legal Requirements, Insurance
Requirements or any provision of this Lease (the "Landlord's Approval
Criteria"), Landlord shall request revisions or modifications ("Tenant's
Modifications") to Tenant's Plans in order that same shall comply with
Landlord's Approval Criteria. Tenant shall revise the Tenant's Plans and submit
Tenant's Modifications to Landlord for Landlord's approval. Landlord shall
approve or request revisions or modifications to such revised plans within five
(5) business days of receipt of such revised plans. The preceding procedure
shall be implemented repeatedly until Landlord gives its written approval to the
Tenant's Modifications. Within seven (7) days after Landlord has given its
written approval of Tenant's Plans, as modified by Tenant's Modifications,
Tenant shall transmit to Landlord five (5) copies of final Tenant's Plans which
incorporate Tenant's Modifications.
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(d) Tenant shall retain the General Contractor to construct
Tenant's Work in a good and workmanlike manner. In the event Landlord determines
that the employment of the General Contractor shall, or during the course of
Tenant's prosecution of Tenant's Work does, interfere with construction
performed by, or cause any conflict or labor dispute with, any other contractor,
subcontractor or other party engaged in the construction, maintenance or
operation of the Building or the Premises, Landlord shall have the right to
require the replacement of the General Contractor with another contractor
selected by Tenant and approved by Landlord. Landlord may disapprove any
contractors and subcontractors for cause or if such contractors or
subcontractors are or become known to be a probable cause of a labor dispute
relating to the Building or the Premises or in the event any such Approved
Contractor changes its nature or method of operation to an extent which is
reasonably deemed by Landlord to be inconsistent with the then standards of the
Building.
7.3 (a) Possession of the Premises shall be delivered to Tenant
when Landlord's Work is Substantially Completed. All of the floors of the
Premises shall be delivered to Tenant at one time by Landlord. For the purposes
of this Lease, the term "Beneficial Occupancy Date" shall be deemed to mean the
date upon which Landlord's Work in the Premises (not including the payment of
the Tenant Improvement Allowance) is Substantially Completed and Landlord shall
have delivered to Tenant Notice setting forth that Landlord's Work in the
Premises (not including the payment of the Tenant Improvement Allowance) is
Substantially Completed. Landlord shall give not less than ten (10) business
days Notice of the date of expected Substantial Completion of Landlord's Work in
the Premises (not including the payment of the Tenant Improvement Allowance).
Promptly after the occurrence of any Beneficial Occupancy Date, Landlord and
Tenant shall execute an agreement in the form annexed hereto as Exhibit G
confirming such Beneficial Occupancy Date and specifying that Landlord's Work
(not including payment of the Tenant Improvement Allowance) has been
Substantially Completed, but the failure of the parties to execute such an
agreement shall not defer the applicable Beneficial Occupancy Date, the Term
Commencement Date or the Base Rent Commencement Date, or otherwise affect or
invalidate this Lease.
(b) Landlord's Work shall be deemed "Substantially Completed"
when all of the following have occurred, and such shall be certified in writing
to Tenant by Landlord and Tenant's architect (Tenant represents that Tenant's
architect has agreed to so certify the completion of Landlord's Work, when and
to the extent appropriate):
(i) Landlord's Work within the Premises (not including
the payment of any Tenant Improvement Allowance) shall have been substantially
completed, the completion or non-completion of which does not delay or
materially interfere with Tenant's ability to construct Tenant's Work, and
(ii) reasonable means of access to the Premises
(taking into account that portions of Landlord's Work may still be continuing)
shall exist.
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7.4 (a) Prior to the applicable Beneficial Occupancy Date, Tenant
may inspect the progress of Landlord's Work upon reasonable prior Notice to
Landlord. Tenant shall be accompanied by a representative of Landlord during
such inspection. Tenant shall give Notice to Landlord of any defects in
Landlord's Work which Tenant receives knowledge thereof during such inspection
within five (5) days after Tenant receives such knowledge. Landlord shall
promptly correct such defects.
(b) Commencing on the applicable Beneficial Occupancy Date and
provided Tenant has complied with the provisions of Section 7.2, Tenant shall be
permitted to enter upon the Premises and commence construction of Tenant's Work
and may bring and install into the Premises installations, furniture and
equipment necessary for Tenant's occupancy of the Premises ("Tenant's
Furnishings"). Unless Tenant has reserved access to the Building with Landlord,
Tenant shall have access on a "first-come, first-serve" basis in common with
Landlord and other tenants in the Building. Tenant shall access the Premises for
the delivery and installation of Tenant's Work and Tenant's Furnishings by way
of the Building freight elevators only, and Tenant shall not be permitted to use
the passenger elevators for the delivery to or removal from the Premises of any
Tenant's Furnishings or for any material or supplies necessary to construct
Tenant's Work. During Business Hours, Tenant's use of the freight elevators
shall be on a non-exclusive basis. During Non-Business Hours, Tenant may reserve
the use of the freight elevator and Tenant shall pay for Landlord's providing
such freight elevator service within thirty (30) days after Tenant's receipt of
an invoice therefor at the rate charged to all of the tenants of the Building.
Landlord shall provide Tenant one weekend of elevator service for Tenant's
initial move-in at no cost to Tenant. Use of the freight elevators may be
reserved by Tenant only upon twenty-four (24) hours Notice to Landlord (Landlord
shall not unreasonably withhold its approval to Tenant reserving an elevator on
less than twenty-four hours Notice, provided an operator is available and the
elevator has not been reserved by any other party eligible to reserve such
elevator). Use of the freight elevators may not be reserved more than fourteen
(14) days in advance of its intended use, unless otherwise consented to by
Landlord. Landlord reserves the right to reasonably restrict and regulate the
types and amounts of equipment and installations which may be transported to and
from the Premises by means of the freight elevators to the extent any such
equipment or installation exceeds the load requirements of the freight elevators
as established by Landlord. Any such equipment or installations which exceeds
the manufacturer's specifications for such freight elevators shall not be
transported by means of the freight elevators but shall be delivered to and
removed from the Premises by Tenant at Tenant's expense by a material hoist or
hoists maintained by Tenant in accordance with all Legal Requirements and
Insurance Requirements.
7.5 Upon the delivery of the applicable portion of the Premises to
Tenant it shall be presumed that all applicable Landlord's Work (except the
payment of the Tenant Improvement Allowance) has been satisfactorily performed
in accordance with the requirements of Sections 7.1 and 7.2, except with respect
to latent defects or to the extent that specific deficiencies in such work are
listed on a punch list ("Tenant's Punch List Items") which shall be prepared by
Tenant and furnished to Landlord within thirty (30) days after the applicable
Beneficial Occupancy Date. Tenant waives any claims as to any deficiencies in
the completion of Landlord's Work not specified in Tenant's Punch List
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Items, except for latent defects. As quickly as reasonably possible, after its
receipt of Tenant's Punch List Items, Landlord shall substantially complete all
such items listed thereon.
7.6 (a) Tenant shall qualify for the Tenant Improvement Allowance
for the Premises on the Beneficial Occupancy Date. The Tenant Improvement
Allowance shall be distributed as follows: (i) twenty-five percent (25%) of the
total allowance applicable to the Premises on the thirty-first (31st) day
following the Beneficial Occupancy Date; (ii) twenty-five percent (25%) of the
total allowance applicable to the Premises on the sixty-first (61st) day
following the Beneficial Occupancy Date; (iii) twenty-five percent (25%) of the
total allowance applicable to the Premises on the ninety-first (91st) day
following the Beneficial Occupancy Date; (iv) fifteen percent (15%) of the total
allowance applicable to the Premises on the one hundred twenty-first (121st) day
following the Beneficial Occupancy Date and (v) ten percent (10%) of the total
allowance applicable to the Premises within thirty (30) days after the
satisfaction of the requirements set forth in Section 7.6(b). At the time Tenant
makes any payments to any contractors performing Tenant's Work, Tenant shall
obtain from such contractors and any subcontractors of such contractors,
mechanic's lien waivers and/or releases of lien satisfactory to Landlord and
shall submit same to Landlord within thirty (30) days of receipt.
Notwithstanding the foregoing, Landlord will not unreasonably withhold its
consent, upon the written request of Tenant, to issuing payment directly to a
reasonable number of contractors, provided Tenant complies with Landlord's
reasonable conditions in regard thereto.
(b) Upon final completion of the Tenant's Work with respect to
the Premises and Tenant's occupancy of the Premises for the Permitted Use,
Landlord shall not advance the final portion of the Tenant Improvement Allowance
applicable to the Premises (i.e. the 10% set forth in clause (v) of Section
7.6(a)) until Tenant submits a final application for payment ("Application for
Payment"), in the form attached hereto as Exhibit H along with (1) final
releases of lien or final waiver of liens, (2) delivery of building department
filing documents, permits and approvals and other evidence reasonably
satisfactory to Landlord that the work is in compliance with all laws, orders
and regulations of all Federal, State, municipal and local governments,
departments, commissions and boards and the orders, rules and regulations of the
National Board of Fire Underwriters, and (3) the completion of an inspection by
Landlord confirming that the work set forth in Tenant's Plans has been completed
in accordance with Tenant's Plans and in strict accordance with the provisions
of this Lease. In the event of any dispute between a contractor and Tenant that
does not allow Tenant to deliver to Landlord final lien releases or waivers of
lien (or such other documentation required by Landlord for such final payment)
and the amount in dispute is less than $50,000, Landlord will advance to Tenant
the remaining portion of the Tenant Improvement Allowance. Notwithstanding the
foregoing, at the option of Tenant, Landlord shall, in lieu of advancing to
Tenant any remaining portion of the Tenant Improvement Allowance, credit this
unadvanced portion of the Tenant Improvement Allowance to the next payments of
Base Rent or Additional Rent due under this Lease. Tenant may request, and
Landlord agrees to make, advances of the Tenant Improvement Allowance directly
to contractors upon receipt of specific directions from Tenant.
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7.7 Any dispute arising out of or in connection with this Article shall
be determined by arbitration in accordance with the provisions of Article 34.
8. LANDLORD'S OBLIGATIONS - UTILITIES AND SERVICES.
8.1 Landlord shall furnish the following services commencing on the
Term Commencement Date while Tenant is occupying the Premises:
(a) Cleaning services for the Premises (including bathrooms),
including the exterior and interior of the windows thereof (subject to Tenant
maintaining unrestricted access to such windows), but excusing any portions of
the Premises used for the storage, preparation, service or consumption of food
or beverages (other than pantries normally found in office uses), substantially
in accordance with the cleaning specifications annexed hereto as Exhibit I;
(b) Sewer service and an adequate quantity of hot and cold
water for cleaning and drinking purposes supplied to the lavatories and pantries
on the floors on which the Premises are located;
(c) Maintenance service to the Building and the Land, so that
the same shall be kept in good order and repair and shall be kept reasonably
free from debris, snow and ice;
(d) Passenger elevator service to the Premises during Business
Hours consistent with the first class standards of the Building (Landlord has
advised Tenant that Landlord is remodeling the elevators and at various times
more than one elevator may be out of service to complete such remodeling and
same shall not constitute a breach of this Lease), provided during non-Business
Hours, at least one (1) elevator shall serve the Premises and Landlord shall
provide at least one (1) passenger elevator which shall connect all of the
floors of the Premises;
(e) Freight elevator service in common with other tenants of
the Building during Business Hours and available upon request during
non-Business Hours in accordance with the provisions of Sections 8.5 and 7.4(b);
(f) Through the Building heating, air conditioning and
ventilation system, for distribution through Tenant's duct work system, heated,
conditioned and outside air, at such temperatures and pressures and in such
volumes and velocities as are set forth in Exhibit J annexed hereto
(collectively, "HVAC"). Tenant acknowledges that Landlord's sole obligation
hereunder shall be to bring air to the air distribution source(s) for the
Premises. Tenant shall be responsible for the distribution of such air
throughout the Premises by means of the duct work system installed by Tenant as
part of Tenant's Work. There shall be no charge for non-Business Hours HVAC, nor
any tonnage charges. Landlord and Tenant further agree to operate the HVAC
equipment in accordance with its design criteria unless a recognized energy
conservation law, program, guideline, regulation or recommendation promulgated
by any Governmental Authority shall provide for any reduction in operations
below such design criteria in which case such HVAC equipment shall be operated
so as to provide reduced service in
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accordance with such law, program, guideline, regulation or recommendation.
Landlord represents that, to its knowledge, the Building currently is in
compliance with applicable Legal Requirements relating to air quality and
Landlord shall be responsible during the Term for the compliance by the Building
with applicable Legal Requirements relating to air quality. Notwithstanding the
foregoing, however, Landlord shall not be responsible for compliance with Legal
Requirements relating to air quality to the extent such compliance requires
modifications to any Alterations installed by Tenant (including, without
limitation, any installations, air conditioning systems or duct work installed
by Tenant as part of Tenant's Work), nor shall Landlord be responsible therefor
to the extent that Tenant's use, manner of use of the Premises or the actions or
inactions of Tenant or its agents, representatives or contractors causes the
Premises or the Building not be in compliance with applicable Legal Requirements
relating to air quality;
(g) Lighting and electricity to the Common Areas; and
(h) A security program with respect to ingress to and egress
from the Building. Notwithstanding anything to the contrary herein, during the
period of construction of Landlord's Work and Tenant's Work and until Tenant
occupies the Premises for the conduct of Tenant's business, Landlord shall only
be required to provide minimal security in order to protect the Premises from
damage and vandalism. Landlord shall have no obligation to provide additional
security to protect Tenant's property and installations and Tenant shall procure
from Landlord, and Landlord shall supply to Tenant, any additional security
Tenant deems necessary or appropriate at Tenant's sole cost and expense. Tenant
agrees to pay Landlord, as Additional Rent, for such security within thirty (30)
days after Tenant's receipt of an invoice therefore.
8.2 In addition to the services to be furnished or caused to be
furnished by Landlord in accordance with Section 8.1, Landlord, at Tenant's
expense, shall furnish or cause to be furnished the following additional
services while Tenant is occupying the Premises:
(a) Cleaning services for the kitchen (other than pantries
normally found in office uses), cafeteria and other areas not customarily found
in office uses located in the Premises therein in accordance with the cleaning
specifications annexed hereto as Exhibit I;
(b) Removal of trash and other debris from kitchen (other than
pantries normally found in office uses), cafeteria and other areas not
customarily found in office uses of the Premises at the end of Business Hours;
(c) Refrigerated storage of such kitchen and cafeteria trash
and debris. Tenant covenants all kitchen or cafeteria trash and debris collected
during Business Hours shall be stored by Tenant within the Premises in
refrigerated storage areas;
(d) Extermination service administered to any kitchen,
cafeteria or special food preparation areas on a regular basis, as reasonably
determined by
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Landlord, for rodent and pest control or, in the event of infestation caused by
or resulting from such areas, as the same may be required, as reasonably
determined by Landlord, to eliminate such infestation;
(e) Relamping of lighting fixtures within the Premises and
replacement of bulbs and ballasts; and
(f) Installation and/or replacement of locks within the
Premises and the supplying of keys therefor.
Landlord shall provide Tenant with the appropriate contracts or other
documentation evidencing the cost to Landlord of providing the services
described in sub-paragraphs (a), (b), (d) and (e) above. Tenant shall be billed
for the services described in subparagraph (c) based upon a cubic foot cost to
be reasonably determined by Landlord. Tenant shall be billed for the services
described in sub-paragraphs (a), (b), and (c) above based on invoices delivered
by Landlord to Tenant on not less than a monthly basis and Tenant shall pay, as
Additional Rent, the amount stated in such invoices within thirty (30) days
after its receipt thereof. All services supplied by Landlord shall be reasonably
and competitively priced, which prices shall be competitive with the cost of
similar services supplied to tenants in similar buildings in the general
vicinity of the Building. Notwithstanding anything to the contrary herein,
Landlord shall have no obligation to provide the services described in
sub-paragraphs (d), (e) and (f) above unless Landlord receives a request, either
written or oral, for such service or services from Tenant; provided, however, in
the event the Premises contain any kitchen, cafeteria or special food
preparation areas, Landlord may require Tenant to retain Landlord to provide the
services contained in sub-paragraph (d) above. In the event Landlord receives
such request, either written or oral, from Tenant and provides such service or
services, Tenant shall pay, as Additional Rent, for Landlord's furnishing of
such service or services within thirty (30) days after its receipt of an invoice
therefor.
8.3 Business Hours shall be from 8 a.m. to 6 p.m. Monday through
Friday, in all cases, excluding Holidays. "Holidays" shall mean those days
designated from time to time as holidays by the union holiday schedule covering
the majority of employees at the Building, those days designated from time to
time as holidays pursuant to the laws of the State of New York. Except as
otherwise expressly provided herein, Landlord shall have no obligation to
provide any services on Sundays.
8.4 Landlord shall provide Tenant and its contractors and employees
access to the Premises, and the services referred to in Section 8.1(b), Section
8.1(d), Section 8.1(f), Section 8.1(g) and Section 8.1(h), 24 hours a day, 365
(or 366) days a year.
8.5 If Tenant shall desire freight elevator service at any time other
than during Business Hours, such service or services shall be supplied to Tenant
only at the request of Tenant, which request shall be made, not later than 2:00
p.m. on the preceding business day, not later than 6:00 P.M. on the business day
preceding such required extra usage (or before 12:00 P.M. on Friday for weekend
overtime service), and Tenant shall pay to Landlord, as Additional Rent, the
charges set forth below for the furnishing of such
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service or services within thirty (30) days after receipt of an invoice
therefor. If Tenant gives such Notice after 2:00 P.M., Landlord shall endeavor
(at no additional cost to Landlord) to provide such non-Business Hours services
to Tenant. As of the date of this Lease, the hourly charge for freight elevator
service during non-Business Hours is $52.50. The foregoing charges shall on the
first day of the fourth year following the initial three (3) year period, and
the first day of every fourth year thereafter through the Term of this Lease, be
adjusted by Landlord by the percentage increase in the Index between the month
in which the Base Rent Commencement Date occurs and the calendar month
immediately preceding the commencement of each such fourth year.
8.6 (a) Electric current will be supplied to the Premises by
Landlord so long as legally permissible in the Building to service the Premises
for the uses herein permitted and Tenant covenants and agrees to purchase the
same from Landlord and to pay for the same as Additional Rent. Tenant's
electrical demand and consumption in the Premises shall be determined by a
meter(s) or submeter(s) installed for the purpose of measuring the same and
shall measure the electric current supplied to the Premises only. There shall be
at least one (1) meter per floor for Tenant's use, which meter shall be
installed by Landlord at Landlord's sole cost and expense. If Tenant requires
additional meters, Tenant shall install same at its cost. The charge to Tenant
for such supply of electric current to the Premises shall be the sum of: (i) the
amount obtained by applying to Tenant's measured electrical consumption an
amount equal to the total of Landlord's actual electric cost for each kilowatt
hour usage for the Building for the period in question divided by the total
number of kilowatt hours of electricity consumed in the Building for such
period, (ii) the amount obtained by applying to Tenant's measured electrical
demand the actual public utility rate schedule then applicable to Landlord for
the purchase of electricity for the Building, (iii) any surcharges or charges
incurred or taxes payable by Landlord in connection with such electricity
consumption or increase or decrease thereof by reason of fuel adjustment or any
substitutions for the public utility electric rates then applicable to Landlord
or additions thereto and (iv) a service charge equal to five percent (5%) of the
amounts set forth in clauses (i), (ii) and (iii) of this Section 8.6(a). All
such additional meters or submeters or other related equipment shall be
installed by Landlord at Tenant's sole cost and expense, and Tenant shall pay
such costs and expenses as Additional Rent within thirty (30) days after receipt
of an invoice therefor. Bills shall be rendered monthly, commencing with the
first full month following the Term Commencement Date, the amounts computed from
such meter readings shall be Additional Rent and shall be due and payable,
without set-off or deduction, thirty (30) days after the rendition of such
bills. If any tax is imposed upon Landlord's receipts for the sale or resale of
electrical energy to Tenant, the pro rata share allocable to the electrical
energy service received by Tenant shall be passed on to Tenant to the extent
permitted by law. In the event any portion of the Premises cannot be metered,
Tenants consumption of electricity shall be determined based upon an electrical
survey as more particularly described in Section 8.6(b).
(b) Only if required by any Legal Requirement and it is not
possible to supply electricity by metering as set forth in Section 8.6(a),
electricity may be provided to Tenant on a so-called "rent inclusion" basis. In
such event, Tenant agrees that Section 8.6(a) shall no longer be applicable, and
the Base Rent shall be increased to
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compensate Landlord for supplying Tenant with electric current as an additional
service as provided in this Section 8.6(b). In the event that Landlord shall
provide electricity on a rent inclusion basis, Tenant agrees that the Base Rent
shall be increased to compensate Landlord for supplying Tenant with electric
current in the Premises as an additional service based upon the submetered
charges for Tenant's usage for the immediately preceding twelve (12) month
period (or if less than twelve (12) months of the Term shall have elapsed as of
the Rent Inclusion Date (as defined below), such shorter period extrapolated to
an annual amount) commencing on the date on which Landlord is no longer
permitted to supply electricity to the Premises on a submetered basis (such date
being herein referred to as the "Rent Inclusion Date") and continuing until such
time as such sum may be increased as hereinafter provided. Landlord will furnish
electricity to Tenant through presently installed electrical facilities for
Tenant's use of such lighting, electrical appliances, air conditioning systems
and equipment as presently exist or as Tenant may be permitted to install in the
Premises (Tenant shall be permitted without Landlord's prior approval or consent
to install equipment ordinarily and customarily found in an office setting),
subject to Landlord's consent which will not be unreasonably withheld or
delayed, except as expressly otherwise provided in this Article. Tenant agrees
that an electrical engineer or utility consultant, selected by Landlord, may,
from time to time during the Term (but not more often than annually unless
Tenant adds equipment significantly beyond the immediately prior load
requirements or Tenant changes the use of the applicable portion of the
Premises), make a survey of the electric lighting and power load by metering or
otherwise to determine Tenant's average monthly electrical energy consumption in
the Premises ("Tenants Electric Consumption") based upon (i) the connected load
rating of each item consuming electric energy, (ii) Tenant's usage which shall
be determined by multiplying the connected load rating of each item by the hours
of usage as determined by the consultant, and (iii) the actual Electric Rates
charged to Landlord by Consolidated Edison Company of New York, Inc. or any
successor thereto applicable to Landlord, inclusive of all surcharges or taxes
thereon including any sales tax as a result of the resale of such energy to
Tenant. The findings of such engineers or consultant as to the proper Base Rent
adjustment based on Tenant's Electric Consumption shall be conclusive and
binding upon the parties and shall be retroactively applied to the period after
the date of the survey and any adjustment in Base Rent shall be included in the
Base Rent payable monthly on the first day of each and every month in advance
for each month from the Rent Inclusion Date (except that if the amount of such
fixed rent increase shall not have been determined on the Rent Inclusion Date,
then, upon such subsequent determination, Tenant shall pay for the period from
the Rent Inclusion Date to the date of such determination, the uncollected
amount of such increase in Base Rent).
(c) If the Electric Rates on which the initial determination
of said consultant shall be increased or decreased, then the sum included in
Base Rent by reason of this Section shall be increased or decreased by the same
percentage as such change in the Electric Rates, retroactive to the date of such
increase or decrease in such Electric Rates, and the amount payable from the
effective date of such increase to the last day of the month in which Tenant
shall be billed therefor shall be paid within thirty (30) days after Landlord
furnishes Tenant with a statement thereof.
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(d) The term "Electric Rates" shall be deemed to mean the
rates at which Landlord purchases electrical energy from the public utility
supplying electrical service to the Building, including any surcharges or
charges incurred or taxes payable by Landlord in connection therewith or in
connection with the furnishing of electrical energy by Landlord on a
rent-inclusion basis or increase or decrease thereof by reason of fuel
adjustment or any substitutions for such Electric Rates or otherwise.
(e) In the event Tenant shall dispute any findings under this
Section of the engineer or consultant designated by Landlord, Tenant may, within
ninety (90) days after receiving Notice of such findings, designate by Notice to
Landlord an independent engineer or utility consultant to make, at Tenant's sole
cost and expense, another determination of the increased average monthly
electrical consumption or the value to Tenant of the potential additional energy
to be made available to Tenant, as the case may be. If the electrical engineer
or utility consultant selected by Tenant shall determine that such increased
consumption or value, as the case may be, of such electrical energy is less than
as determined by Landlord's engineer or consultant and the two engineers or
consultants are unable to adjust such difference within twenty (20) days after
the determination made by Tenant's engineer or consultant is delivered to
Landlord, the dispute shall be determined by arbitration in accordance with the
provisions of Article 34 of this Lease. Pending a final determination pursuant
to such arbitration however, Tenant shall pay to Landlord for such electrical
energy based on the determination of Landlord's engineer or consultants; and if
it is determined that Tenant has overpaid, Landlord shall reimburse Tenant for
any overpayment at the conclusion of such arbitration. If Tenant shall not
dispute the findings as provided in this Section, the determination by
Landlord's engineer or consultants shall be deemed final and conclusive.
(f) In the event that electricity is included on a rent
inclusion basis pursuant to Section 8.6(b) and Landlord elects to purchase
capital equipment or make other capital expenditures to reduce Landlord's cost
of electricity, Landlord shall receive the full benefit of such capital
expenditure, and Tenant shall continue to pay Base Rent for electricity, and
such Base Rent shall be calculated as hereinabove described, without regard to
the fact that Landlord has reduced its cost of electricity by virtue of such
capital expenditure, unless such capital expenditure is included in Operating
Expenses and Tenant pays Landlord for Tenant's Proportionate Share of such
capital expenditure pursuant to Section 5.3 hereof, in which event the Base Rent
allocable to the furnishing of electricity by Landlord on a rent inclusion basis
shall be equitably decreased to reflect such reduced cost of electricity to
Landlord.
(g) Tenant's use of electrical energy in the Premises shall
never exceed that portion of the capacity allocable to Tenant of (i) the
existing feeders to the Building or the electricity available to Tenant through
then existing risers or wiring installations to the Premises or (ii) any of the
electrical conductors, machinery and equipment in or otherwise serving the
Premises (in any event, giving due consideration to the needs of existing and
potential tenants using the same risers, wiring installations or other
equipment, as well as to Landlord's electrical needs in connection with the
operating of the Building and the provision of emergency services). Landlord
represents
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that such facilities shall be capable of providing up to six (6) watts per
usable square foot (connected load) of electricity to the Premises exclusive of
HVAC and shall be available at the electrical closet on the applicable floor. No
additional riser or risers or other equipment to supply Tenant's electrical
requirements shall be installed without Landlord's prior approval, which may be
withheld in Landlord's sole and absolute discretion. Only conduit complying with
Legal Requirements will be allowed. In order to insure that the electrical
capacity of the Building facilities is not exceeded and to avert possible
adverse effect upon the Building's electrical system, Tenant shall not, without
the prior consent of Landlord, make or perform or permit any alteration to
wiring installations or other electrical facilities in or serving the Premises.
Any additional risers, feeders, or other equipment proper or necessary to supply
Tenant's electrical requirements, upon written request of Tenant, will be
installed by Landlord at the sole cost and expense of Tenant if, in Landlord's
reasonable judgment, such increase in capacity will not interfere with
Landlord's present or anticipated future electrical needs with respect to the
Building and/or existing or future tenants of the Building or cause permanent
damage or injury to the Building or entail excessive or unreasonable alterations
or interfere with or disturb other tenants. Landlord, its agents and engineers
and consultants may survey the electrical fixtures, appliances and equipment in
the Premises and Tenant's use of electrical energy therein from time to time to
determine whether Tenant is complying with its obligations under this Section.
If Tenant is in substantial compliance with its obligations under this Lease,
the cost of such survey shall be borne by Landlord. If Tenant is not in
substantial compliance with its obligations, the cost of such surveys shall be
made at the sole cost and expense of Tenant. Each increase in the Base Rent
under this Section shall be effective on the date such additional electrical
energy is made available to Tenant.
(h) Landlord reserves the right to terminate the furnishing of
electrical energy to Tenant at any time upon ninety (90) days' prior Notice to
Tenant unless such Notice is not possible under the circumstances, in which
event Landlord will give Tenant such reasonable notice as is possible and only
if Landlord also shall terminate or have terminated the furnishing of electrical
energy to at least seventy-five (75%) percent of the office tenants of the
Building and if such termination required by any Legal Requirement. If Landlord
shall so discontinue the furnishing of electrical energy, (i) Tenant shall
arrange to obtain electrical energy directly from the public utility company
furnishing electrical energy to the Building, (ii) Landlord shall permit the
existing feeders, risers, wiring and other electrical facilities servicing the
Premises to be used by Tenant for such purpose to the extent that they are
available, suitable and legally permissible, (iii) from and after the effective
date of such discontinuance, Landlord shall not be obligated to furnish
electrical energy to Tenant and, if electricity is then being provided on a
rent-inclusion basis, the Base Rent payable under this Lease shall be reduced to
the amount which would have been then payable as Base Rent, as of such date but
for the adjustments for electrical energy under Section 8.6(b) above, (iv) this
Lease shall otherwise remain in full force and effect and such discontinuance
shall be without liability of Landlord to Tenant, and (v) if Landlord shall
discontinue the furnishing of electrical energy as hereinabove provided Landlord
shall, at Landlord's expense, install at locations in the Building selected by
Landlord and maintain any and all necessary electrical meter equipment, panel
boards, feeders, risers, wiring and other conductors and
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equipment which may be required to obtain electrical energy directly from the
public utility supplying the same.
(i) Except as set forth in Section 18.2, Landlord shall incur
no liability whatsoever and it shall not constitute a termination of this Lease
or an eviction (constructive or otherwise) hereunder should electricity or any
other utility become unavailable from the public utility company furnishing
electrical energy to the Building, or any public authority or any other person,
firm or corporation, including Landlord, supplying such utility or due to Force
Majeure.
8.7 Landlord shall cause the Building to be managed as a Class A office
building, consistent with the standards of other Class A office buildings
similar in size and quality in New York, New York.
8.8 Landlord agrees that any service which Landlord performs under this
Lease and which Tenant is obligated to reimburse Landlord therefor shall be
charged on a reasonable and competitive basis and shall not exceed the amount
charged in similar Class A Buildings for similar services.
8.9 Tenant shall have the right to select any telecommunication
provider to the Premises so long as such telecommunication provider does not and
is not reasonably likely to cause a Conflict and Landlord agrees to provide
reasonable cooperation to Tenant in granting access to the Building to such
telecommunication provider; provided, that, any repairs, work or alterations
being performed in the Building by Landlord shall at all times [(EXCEPT IN THE
CASE OF AN EMERGENCY)] take precedence over any work being performed in the
Building by Tenant's telecommunications provider.
9. USE.
9.1 The Premises shall be used solely for the Permitted Use set forth
in the Fundamental Lease Provisions and for no other purposes. Tenant shall not
offer, sell or market any real estate services or real estate related services
to other tenants in the Building other than to Related Corporations, which
services are in competition with services offered by Landlord to tenants in the
Building and Tenant shall not offer telecommunication services utilizing the
Building, Building Equipment or any conduits, or shafts, whether located within
the Premises or outside the Premises, to other tenants in the Building.
9.2 Tenant shall not use, occupy, suffer or permit the Premises, the
Building or any part of either to be used in any manner, or suffer or permit
anything to be brought into or kept therein, which would (a) make unobtainable
at standard rates from any reputable insurance company authorized to do business
in the State of New York, any fire insurance with extended coverage or
liability, elevator, boiler, umbrella or other insurance, (b) cause, or be
likely to cause, injury or damage to the Building or to any equipment contained
therein or on the Premises, (e) constitute a public or private nuisance, (d)
violate any certificate of occupancy for the Building, provided, however, that
Landlord shall not modify or alter such certificate to conflict with Tenant's
Permitted
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Use, (e) emit objectionable noise, fumes, vibrations, heat, chilled air, vapors
or odors into or from the Building, except through exhausts vented to the
outside of the Building at locations approved by Landlord, or the equipment
contained therein, (f) impair or interfere with any of the Building services,
including the furnishing of electrical energy, or the proper and economical
cleaning, heating, ventilating, air conditioning or other services of the
Building, the equipment contained therein or the Premises or (g) violate any
Legal Requirement or Insurance Requirement. The restrictions imposed by this
Section, and the application thereof, shall not be limited or modified by the
terms of any other provision of this Lease.
9.3 Tenant or Tenant's assignees, subtenants, employees, agents,
contractors, invitees or licensees shall not do or permit anything to be done in
or about the Premises which will in any way obstruct or interfere with the
rights of other tenants or occupants of the Building or injure them or use or
allow the Premises to be used for any purpose which is unlawful, nor shall
Tenant cause, maintain or permit any nuisance in, on or about the Premises.
9.4 Tenant has requested the right to install a kitchen within the
Premises at a location to be determined. Landlord shall not unreasonably
withhold or delay in its consent to an installation of a kitchen subject to such
reasonable restrictions as Landlord may impose, including, but not limited to,
Tenant, at its sole cost and expense, obtaining all permits and approvals,
determination of adequate exhaust through an acceptable route through the
Building, determination of adequate utilities and Tenant shall be responsible
for any unusual or significant increase in the use of utilities and compliance
with all other provisions of this Lease. If Tenant does install a kitchen,
Tenant shall retain Landlord to provide the services listed in Section 8.2(a),
(b), (c) and (d).
10. COMPLIANCE WITH LAWS.
10.1 (a) Tenant at its sole cost and expense, shall comply with all
requirements of Governmental Authorities ("Legal Requirements") and all
requirements of insurance companies providing coverage for the Building and/or
the Premises or recommendations of the National Board of Fire Underwriters
("Insurance Requirements") and give Landlord prompt notice of any lack of
compliance, except that Tenant shall have no obligation to pay the costs of any
structural alteration of the Premises or the Building required solely by reason
of a Permitted Use unless and to the extent said alteration (i) is necessitated
by a condition which has been otherwise created by, or at the instance of,
Tenant any subtenants or any other occupant of the Premises, including, but not
limited to, the installation of Tenant's Work, (ii) is attributable to the use,
other than a Permitted Use, to which Tenant, any subtenants or any other
occupant of the Premises puts the Premises or any part thereof, or Tenant's, any
subtenant's or any other occupant's of the Premises manner of use of the
Premises, (iii) is required by reason of a breach of Tenant's obligations
hereunder, (iv) is occasioned, in whole or in part, by any act, omission or
negligence of Tenant or any person claiming by, through or under Tenant, or any
of their assignees, subtenants, employees, agents, contractors, invitees or
licensees, or (v) with respect to the Premises only, is necessitated by reason
of the failure of Tenant or the Tenant's Plans to comply with any Legal
Requirement, including,
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without limitation, the Americans with Disabilities Act of 1990. Any such
structural alteration of the Premises or the Building required as a result of
clause (i), (ii), (iii), (iv) or (v) of the immediately preceding sentence shall
be performed by Landlord, at Tenant's expense, and Tenant shall pay for the
same, as Additional Rent, within thirty (30) days of its receipt of an invoice
therefor. Tenant shall pay all costs, expenses, fines, penalties and damages
which may be imposed upon Landlord and/or any mortgagee of the Land and/or the
Building by reason of or arising out of Tenant's failure fully and promptly to
comply with the provisions of this Section.
(b) Landlord, at its sole cost and expense, shall comply with
all Legal Requirements and all Insurance Requirements except to the extent
Tenant is obligated to comply with same pursuant to Section 10.1 (a), and
Landlord shall give Tenant prompt Notice of any lack of compliance by Tenant.
Landlord shall have no obligation to comply with Legal Requirements or Insurance
Requirements regarding Tenant's Work. This Section shall not in any manner
relieve Tenant from its obligations to comply with Legal Requirements or
Insurance Requirement as set forth in Section 10.1(a) or prevent Landlord from
seeking reimbursement for such compliance to the extent Tenant is obligated to
pay same.
10.2 Tenant, at its sole cost and expense, after Notice to Landlord, by
appropriate proceedings prosecuted diligently and in good faith, may contest the
validity or applicability of any Legal Requirement or Insurance Requirement
provided that: (a) Landlord shall not be subject to civil fines, quasi-criminal
violations, criminal penalty or prosecution for a crime, nor shall the Building
or the Land, or any part thereof, be subject to being condemned or vacated, by
reason of non-compliance or otherwise by reason of such contest; (b) such
non-compliance or contest shall not constitute or result in any violation of the
terms of any mortgage encumbering the Land and/or the Building, or if any such
mortgage shall condition such non-compliance or contest upon the taking of
action or furnishing of security by Landlord or affirmative title insurance
coverage preserving the priority of such mortgage notwithstanding the
determination of such noncompliance or contest, such action shall be taken and
such security or such affirmative title insurance coverage shall be furnished at
the expense of Tenant; (c) such non-compliance or contest shall not result in
the termination, suspension, cancellation, lapse or waiver of any insurance
policies or coverages maintained by Landlord or required to be maintained by
Tenant under this Lease; (d) such non-compliance or contest shall not result in
the termination, suspension, cancellation, lapse or waiver of any certificate of
occupancy for the Building or any portion thereof; and (e) Tenant shall keep
Landlord regularly advised in writing as to the status of such proceedings and
shall provide Landlord with copies of all submissions and documents delivered or
received by Tenant in connection therewith.
10.3 Any improvements or Alterations made or work performed by or on
behalf of Tenant or any person claiming through or under Tenant pursuant to this
Article shall be made in conformity with and subject to the provisions of this
Lease, including, without limitation, Article 12.
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11. REPAIRS.
11.1 Tenant, at its sole cost and expense, shall take good care of, and
make all interior non-structural repairs to, the Premises, all repairs to
Tenant's equipment, and all repairs to the HVAC system(s) installed by Tenant.
Tenant shall make and be responsible for (or, at Landlord's election, Landlord
shall make at Tenant's expense) all repairs, inside the Premises, ordinary or
extraordinary, as and when needed to preserve the Premises in working order and
condition and to keep the Premises in compliance with all Legal Requirements and
Insurance Requirements and to prevent any disruption of, or adverse effect on,
the Building, the Building systems, the quiet enjoyment of other tenants or to
prevent any damage to the personal property of other tenants, except that Tenant
shall not be responsible for the costs of any structural repairs or repairs to
Building systems unless the need therefor arises out of (i) the performance of
or existence of improvements made by Tenant, any subtenants or any other
occupant of the Premises or their contractors, (ii) the installation, use or
operation of equipment therein by Tenant, any subtenant or any other occupant of
the Premises, (iii) the moving of any such equipment in or out of the Building
or the Premises, (iv) the acts, omissions, negligence or misuse of or by Tenant,
any subtenants or any of its or their employees, agents, contractors, occupants,
licensees or invitees or their use or occupancy of the Premises (except fire or
other casualty caused by Tenant's negligence, if the fire or other casualty
insurance policies insuring Landlord are not invalidated and the rights of
Landlord are not adversely affected by this provision), or (v) Legal
Requirements or Insurance Requirements to the extent set forth in Section
10.1(a) or as otherwise provided in Section 11.1. Any such structural alteration
of the Premises required as a result of clause (i), (ii), (iii), (iv) or (v) of
the immediately preceding sentence shall be performed by Landlord, at Tenant's
expense, and Tenant shall pay for the same, as Additional Rent, within thirty
(30) days after its receipt of an invoice therefor. Tenant, at its sole cost and
expense, shall promptly replace or repair scratched, damaged or broken doors and
glass which are visible from outside the Premises, which damage and repair is
caused solely by any act, omission, negligence or misuse by Tenant or any of its
subtenants, or any of its or their agents, employees, contractors, occupants,
licensees or invitees and Tenant shall be responsible for all repairs of damaged
wall and floor coverings, which are visible from outside the Premises
(including, without limitation, where Tenant shall lease an entire floor, the
walls, elevator doors and floor coverings in the elevator lobby and the walls,
wall coverings, title and fixtures in the lavatories) where such damage is
caused solely by any act, omission, negligence or misuse or by Tenant or any of
its subtenants, or any of its or their agents, employees, contractors,
occupants, licensees or invitees. If any damage is caused by parties other than
Tenant or any of its subtenants, or any of its or their agents, employees,
contractors, occupants, licensees or invitees, Landlord, at its sole cost and
expense, shall be responsible for repairing same. Any broken window glass caused
solely by any act, omission, negligence or misuse or by Tenant or any of its
subtenants, or any of its or their agents, employees, contractors, occupants,
licensees or invitees shall be repaired by Landlord at Tenant's expense, and
Tenant shall pay for the same, as Additional Rent, within thirty (30) days after
its receipt of an invoice therefor. Tenant promptly and at its sole cost and
expense, shall make all non-structural repairs in or to the Premises for which
it is responsible. In the event Tenant fails to promptly make any repair or
alteration required by Tenant to be performed under this Section 11.1,
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Landlord, at Tenant's sole cost and expense, shall have the right to make such
repairs or alterations and Tenant shall pay for such repairs or alterations, as
Additional Rent, within thirty (30) days after its receipt of an invoice
therefor. All repairs made by or on behalf of Tenant shall be made in conformity
with the provisions of Article 12, including the use of Approved Contractors,
and shall be at least equal to the standards found in Class A office buildings
similar in size and quality to the Building in New York, New York.
11.2 (a) Landlord shall make all necessary repairs to the roof and
all structural repairs to the Building. Any such structural or roof repairs
occasioned by the acts, omissions, negligence or misuse of or by Tenant or any
of its subtenants or any of its or their employees, agents, contractors,
occupants, licensees or invitees or their use or occupancy of the Premises shall
be made by Landlord at Tenant's expense. Landlord's repair obligations under
this Section 11.2(a) shall exclude, however, (i) repairs (A) of Tenant's
personal property or improvements made by or at the request of Tenant
(including, without limitation, any Alterations), (B) not occasioned by
Landlord's or Landlord's agents', employees' and on-site contractors' wrongful
acts or negligence or (C) caused by Tenant or any of its subtenants or any of
its or their employees, agents, contractors, occupants, licensees or invitees,
and (ii) repairs which Tenant is obligated to make pursuant to Section 11.1 and
the other provisions of this Lease. Landlord shall perform all maintenance of,
and promptly after the receipt of a Notice from Tenant of the necessity of
repair, make all necessary repairs to, the air distribution source(s) for the
Premises and any security and life safety systems or devices which may be
installed in the Premises by Landlord. Any repairs to the air distribution
source(s) for the Premises and any security and life safety systems or devices
occasioned by the acts or omissions or negligence of Tenant or any of its
subtenants, or, its or their employees, agents, contractors, licensees or
invitees, shall be performed by Landlord at Tenant's expense and Tenant shall
pay for the same, as Additional Rent, within thirty (30) days after its receipt
of an invoice therefor. Except for the foregoing repair obligation, Landlord
shall have no liability for the failure of any such Building system, provided,
however, Landlord shall during the term of this Lease maintain a Class E
life-safety system (or its equivalent) ("Class E Life Safety System") in the
Building. Tenant shall be permitted to connect into such Class E Life-Safety
System. The cost of all repairs and maintenance by Landlord hereunder shall be
included in Operating Expenses except to the extent Landlord is reimbursed for
such cost by Tenant or as may be specifically excluded by Article 5 hereof.
(b) Tenant, at its sole expense, shall operate or cause to be
operated in a first-class manner any air conditioning system and any life safety
or security system within the Premises to prevent any adverse effect on any
Building system(s). Any maintenance or repair of such air conditioning system
and any life safety or security system shall be performed by Landlord upon
Tenants request and at Tenant's expense and Tenant shall pay for such
maintenance and repair, as Additional Rent, within thirty (30) days after
Tenant's receipt of an invoice therefor. Landlord reserves the right (i) to make
emergency repairs to any such Tenant's system without Notice, at Tenant's
expense, and (ii) to require changes to be made by Tenant to any such Tenant's
system if the operation thereof adversely affects, in Landlord's reasonable
opinion, the Building's
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systems. Tenant shall have no access to Building systems unless Landlord shall
consent thereto.
(c) Except as may be specifically set forth in this Lease, no
liability of Landlord to Tenant shall accrue under this Section unless and until
Tenant has given Notice to Landlord of the necessity of any specific repair for
which Landlord has agreed to be responsible under this Lease, and a sufficient
time has elapsed in which to make such repair with same not being performed. In
no event shall any failure by Landlord to make any such repairs give to Tenant
any right to make such repairs or withhold payment of Base Rent or Additional
Rent or to offset any costs incurred by Tenant against any payment of Base Rent
or Additional Rent.
12. ALTERATIONS BY TENANT.
12.1 Tenant shall not make or perform or permit the making or
performance of any alterations, additions, installations or improvements to or
removals from (collectively, "Alterations") the Premises without Landlord's
prior written consent, except that Tenant may, without Landlord's prior consent,
make or perform or permit the making or performance of any nonstructural
Alteration that has a cost less than $100,000 a per occurrence basis, which
amount shall be adjusted each Lease Year by the percentage increase in the Index
between the month in which the Term Commencement Date occurs and the calendar
month immediately preceding the first month of the applicable Lease Year.
Landlord agrees not to unreasonably withhold its consent to non-structural
Alterations provided the same, in Landlord's reasonable opinion, do not
adversely affect Building systems (including, without limitation, utility, life
safety, electrical, plumbing and sewage lines and HVAC systems) and will not
result in any increase in Operating Expenses beyond a de minimis degree (unless
Tenant agrees in writing to pay for any such increase). Tenant shall furnish
Landlord with plans and specifications for any non-structural Alterations prior
to Tenant's commencement of the construction or installation of the same. Any
Structural Alterations requested by Tenant and approved by Landlord shall be
performed by Landlord, at Tenant's expense, provided the same does not adversely
affect beyond a de minimis degree Building systems (including, without
limitation, utility, life safety, electrical, plumbing and sewage lines and HVAC
systems) and will not result in any increase in Operating Expenses (unless
Tenant agrees in writing to pay for any such increase). Tenant shall request in
writing Landlord's written consent not less than thirty (30) days prior to the
proposed commencement of the construction of such Structural Alterations, which
written request shall be accompanied by plans and specifications (prepared by a
licensed structural engineer reasonably acceptable to Landlord) for such
Structural Alterations, which plans and specifications shall be subject to the
approval of Landlord, which approval shall not be unreasonably withheld or
delayed. Landlord's granting of consent to Structural Alterations may be
conditioned on a requirement that Tenant (x) deposit with Landlord, prior to
Landlord's commencement of installation of any such Structural Alterations, an
amount not in excess of ten percent (10%) of the cost of such installation, as
determined by Landlord, and (y) on or prior to the Expiration Date or earlier
termination of this Lease, arrange with Landlord for the removal, at Tenant's
expense, of all vertical penetrations throughout the Premises in excess of three
(3) penetrations and the
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restoration of such penetrations to their condition prior to the construction of
such penetrations. Tenant shall pay, as Additional Rent the reasonable
out-of-pocket costs for the installation of such Structural Alteration, together
with costs incurred by Landlord in its review of the plans and specifications
therefor, within thirty (30) days after its receipt of an invoice therefor.
12.2 In the event that in connection with any Alteration (whether
structural or non-structural), installation of any wires, conduits, pipes or
mechanical equipment outside the Premises is required, Tenant shall request
Landlord's consent therefor not less than twenty (20) days prior to the
commencement of the construction of such Alterations, which consent shall be
accompanied by plans and specifications to be reviewed and approved by Landlord
showing the location of such wires, conduits, pipes or mechanical equipment.
Landlord's granting of consent to the installation of any such wires, conduits,
pipes or mechanical equipment may be conditioned on a requirement that Tenant
deposit with Landlord, prior to Landlord's commencement of such installation,
the cost, or a portion thereof, of such installation as determined by Landlord.
Without limiting the reasons for the granting or withholding of consent by
Landlord, Landlord may withhold such consent if in Landlord's opinion,
reasonably exercised, such installation will adversely affect Building systems
or will cause or create a hazardous condition or interfere with or disturb other
tenants following the completion of the Alteration. The installation of such
wires, conduits, pipes or mechanical equipment shall be performed (a) by
Landlord at Tenant's expense, and Tenant shall pay for the same, as Additional
Rent, along with costs incurred by Landlord in its review of the plans and
specifications therefor, within thirty (30) days after its receipt of an invoice
therefor; (b) in a manner consistent with the terms of this Lease or those of
another tenant's lease, to the extent such installation is outside of the
Premises and requires entry into another tenant's premises; (c) during
non-Business Hours and weekends, to the extent possible; (d) upon five (5) days
Notice to Landlord prior to such installation; (e) by Approved Contractors. Any
damage arising from such installation shall be repaired by Landlord, at Tenant's
sole cost and expense.
12.3 All non-structural Alterations performed by or on behalf of Tenant
pursuant to Section 12.1 shall be done in a good and workmanlike manner by the
Approved Contractors and in accordance with all Legal Requirements and Insurance
Requirements. The Approved Contractors are hereby deemed approved by Landlord
for the performance of non-structural Alterations, provided, however, that in
the event Landlord determines that the employment of any Approved Contractor,
during the course of its prosecution of a non-structural Alteration or any other
work for or on behalf of Tenant (including, without limitation, Tenant's Work),
interferes with construction performed by, or causes any conflict or labor
dispute with, any other contractor, subcontractor or other party engaged in the
construction, maintenance or operation of the Building, Tenant shall select
another Approved Contractor and shall cause the Approved Contractor being
replaced to promptly remove its equipment and personnel from the Building.
Landlord hereby expressly reserves the right to require the deletion of
contractors and subcontractors from the list of Approved Contractors for cause
or if such contractors or subcontractors are or become known to be a probable
cause of a labor dispute relating to the Building or the Premises or in the
event any such Approved
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Contractor changes its nature or method of operation to an extent which is
reasonably deemed by Landlord to be inconsistent with the then standards of the
Building. Subject to the two immediately preceding sentences, Tenant may add
contractors and subcontractors to the list of Approved Contractors with
Landlord's prior written consent, which consent shall not be unreasonably
withheld or delayed. Tenant shall, at Tenant's expense, before making any
Alterations, obtain all permits, approvals and certificates required by any
Governmental Authority and (upon completion thereof) certificates of occupancy
and any other certificates of final approval thereof and shall promptly deliver
copies of such permits, approvals and certificates to Landlord. In addition,
Tenant or Tenant's contractors or sub-contractors shall provide Landlord, prior
to the commencement of any Alterations, with certificates evidencing appropriate
builder's risk, liability and worker's compensation insurance coverage during
the prosecution of any such Alterations in amounts set forth in the Building
Guidelines regarding Tenant's Work reasonably deemed appropriate by Landlord.
Landlord shall, upon Tenant's request and at Tenant's expense, furnish or
execute promptly any documents, information, consents or other materials which
are necessary or desirable in connection with Tenant's efforts to obtain any
license or permit for the making of any Alterations.
12.4 Any and all Alterations made by or on behalf of Tenant in, to or
upon the Premises as well as any fixtures installed on the Premises by Tenant,
shall, upon such installation, become the property of Landlord and shall remain
upon and be surrendered with the Premises except with respect to vertical
penetrations in excess of three (3) as set forth in Section 12. 1. Nothing in
this Section 12.4 shall be construed to give Landlord title to or to prevent
Tenant's removal of trade fixtures or moveable office furniture or equipment,
but upon removal of any of the same from the Premises, Tenant shall immediately
and at its expense repair any damage to the Building or the Premises caused by
such removal, except structural damage, which shall be repaired by Landlord at
Landlord's expense. All Alterations permitted or required to be removed by
Tenant remaining in the Premises after the end of the Term shall be deemed
abandoned and may, at the election of Landlord, either be retained as Landlord's
property or removed from the Premises by Landlord. If the Alterations remaining
after the end of the Term of the Lease are Alterations that Tenant was required
to remove, Landlord may remove such Alterations at Tenant's sole cost and
expense, which expense shall be fair and reasonable.
12.5 Tenant, at its expense and with reasonable diligence and dispatch,
shall procure the cancellation or discharge of all notices of violation or lien
arising from or in connection with any Alterations, or any other work, labor,
services or materials done for or supplied to Tenant, or any person claiming by,
through or under Tenant, which shall not be the result of any act, omission or
negligence of Landlord or its agents, servants, employees or contractors. Tenant
shall promptly provide Landlord with copies of cancellation, discharge, release
or satisfaction of any such notices of violations or liens. Tenant shall have no
authority to create any liens for labor or materials on or against the Land, the
Building or the Premises. Tenant may contest the validity of any lien filed
against Landlord, the Land, the Building or the Premises for any work, labor,
services or materials claimed to have been performed for or furnished to Tenant
or any person or entity holding the Premises or any portion thereof by, through
or under Tenant, provided Tenant, prior to instituting such contest, (x) causes
any such lien to be discharged,
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bonded or removed by deposit or otherwise within thirty (30) days after Tenant
receives Notice from Landlord of the filing of the same, (y) delivers to
Landlord a copy of the bond or other evidence of the discharge or removal and
(z) if required by Landlord, delivers to Landlord an endorsement to the title
insurance coverage under the title insurance policies insuring Landlord and its
mortgagee evidencing the discharge, removal or bonding of such lien, together
with evidence of payment by Tenant for such coverage.
12.6 The performance of any Alterations, whether structural or
nonstructural, by or on behalf of Tenant shall be subject to the provisions of
Section 18.3.
12.7 Tenant's obligations under this Article shall survive the
expiration or earlier termination of this Lease.
13. INSPECTIONS.
13.1 Landlord may enter the Premises from time to time upon twenty four
(24) hours verbal notice to Tenant to inspect the Premises to insure compliance
with the provisions of this Lease. Landlord shall exercise its rights under this
Section in a reasonable manner as to not unreasonably interfere with Tenant's
occupancy of the Premises. In the event Landlord reasonably determines that
Tenant is not in compliance with any provision of this Lease, Landlord shall
give Tenant Notice of such noncompliance and Tenant shall, at Tenants sole cost
and expense, promptly comply with the provisions of this Lease. In the event
Tenant fails to promptly comply with such Notice, Landlord, at Tenant's sole
cost and expense, shall have right, but not the obligation, to take such steps
as reasonably necessary to cause the Premises to comply with this Lease and
Tenant shall pay the costs of compliance, as Additional Rent, within thirty (30)
days after its receipt of a invoice therefor.
13.2 In no event shall the failure of Landlord to take steps to cause
compliance give way to any liability on the part of Landlord. Tenant shall be
solely responsible for any liability arising by reason of Tenant's failure to
comply with the provisions of this Lease.
14. SIGNS.
14.1 Tenant (including Related Corporations), at Tenant's sole cost and
expense, shall have the right to install or erect such interior signs as Tenant
deems necessary or appropriate in or on the Premises provided that the same are
in keeping with first-class office signage and that in locations where Tenant
does not occupy a full floor within the Premises, such signage shall be subject
to the reasonable approval of Landlord. Tenant (including Related Corporations)
and any subtenants or assignees of Tenant shall also have the right to install
in the public corridor of the floors on which the Premises are located, signs
("Tenant's Corridor Sign") bearing Tenant's name and/or logo. The location,
specifications and design of Tenant's Corridor Signs in locations where Tenant
does not occupy a full floor within the Premises shall be subject to the prior
written approval of Landlord, which approval shall not be unreasonably withheld
or delayed, and
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which shall be compatible with any other tenant signs in the public corridor of
the floors on which the Premises are located.
14.2 Any signs installed or erected by or for Tenant shall remain
Tenant's property, shall be maintained by Tenant at Tenant's expense and shall
be removed by Tenant at the expiration or earlier termination of this Lease, and
Tenant shall repair any damage caused by such removal. Tenant shall procure and
pay for all governmental permits required for the installation of any sign in or
on the Premises and provide Landlord with copies of all such permits promptly
upon Tenant's receipt of the same.
14.3 Tenant's installation, maintenance and removal of Tenant's
Corridor Signs shall be subject to the provisions of Section 18.3.
15. BUILDING DIRECTORY.
15.1 Landlord shall install and maintain a directory board selected by
Landlord in the ground floor lobby of the Building containing the names of
tenants. Landlord, at Landlord's option, may elect to install a computerized
directory in lieu of a directory board. In the event a computerized directory is
installed, Tenant shall have the right, at no cost to Tenant, to use the number
of spaces or slots necessary for Tenant to inscribe the names of Tenant and the
names of Tenant's officers and/or employees located in the Building. In the
event a directory board is installed, Tenant shall have the right to use the
number of spaces or slots equal to the product of (x) Tenants Proportionate
Share at any given time, multiplied by (y) the total number of spaces or slots
on said directory board. In the spaces or slots so allocated on the directory
board to Tenant, Tenant may inscribe Tenant's name and the names of Tenant's
and/or officers located in the Building provided that such listings do not
exceed the number of spaces or slots allocated to Tenant pursuant to the
immediately preceding sentence. Tenant may propose directory board designs for
boards listing Tenant's names. The proposed board shall be subject to Landlord's
approval, which approval shall not be unreasonably withheld, and the approval of
New York City Landmarks Commission.
15.2 Tenant shall be permitted to install at the entrance to the
Building a sign with Tenant's name thereon, provided such sign is consistent
with signage of any other tenant at such location, the design and size of same
have been approved by Landlord in its reasonable discretion, and Tenant at its
sole cost and expense shall obtain any approvals required by Legal Requirements,
including the approval of New York City Landmarks Commission.
16. INSURANCE: WAIVER OF SUBROGATION.
16.1 Landlord shall keep the Building (excluding any Tenant's Work or
Tenant owned or installed property) and Landlord's property therein insured for
the replacement value (without deducting depreciation) thereof (exclusive of the
costs of foundations, excavations and footings) against loss or damage by perils
customarily included under standard "all-risk" (including boiler and machinery)
policies and shall maintain liability insurance in amounts consistent with those
of similar Class A Buildings.
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16.2 Tenant shall maintain, and shall cause any of its subtenants to
maintain, for the benefit of, and name as an additional insured, Landlord, any
mortgagee of Landlord, the Building management entity, and Tenant, as their
interests may appear, (a) commercial general liability insurance, including
contractual liability insurance or self-insurance covering Tenant's indemnity
obligations hereunder, against claims for bodily injury or death, personal
injury and property damage, occurring upon, in or about the Premises; with
limits of liability with respect to bodily injury or death, personal injury, and
property damage of $1,000,000 per occurrence and a $2,000,000 general aggregate;
(b) business automobile coverage with limits of liability of $1,000,000 combined
single limit per accident for bodily injury and property damage; (c) umbrella
liability of not less than $5,000,000 per occurrence and general aggregate; (d)
insurance against loss or damage by such risks as are insurable under an "all
risk" insurance policy, to Tenant's Work, any Alterations installed by Tenant,
Tenant's Furnishings and Tenant's other personal property, for the full
replacement cost thereof; (e) during such time as Tenant shall be constructing
any Alterations, builder's risk insurance, completed value form, covering all
physical loss and other costs and expenses (including, without limitation,
architectural and engineering costs, general contractor overhead, project
management expenses and legal fees) incurred in connection therewith, in an
amount reasonably satisfactory to Landlord. If the aforesaid commercial general
liability and/or umbrella policy is written for multiple locations, the policy
must have an amendment that will ensure that the aggregate limit of insurance
will apply separately to each location. Certificates of insurance, showing that
such insurance is in force and will not be cancelled without thirty (30) days'
prior written notice to Landlord shall be furnished to Landlord prior to
Tenant's entering the Premises for the purpose of installing Tenant Work or
Tenant's Furnishings. Thereafter, certificates showing renewal of, or
substitution for, policies which expire shall be furnished not less than thirty
(30) days prior to the expiration of each policy. Tenant's coverage may be
effected by blanket policies covering the Premises and other properties of
Tenant, or by self-insurance provided the requirements of Section 16.8 are
satisfied.
16.3 All insurance required to be maintained by Tenant hereunder shall
be written in form and substance satisfactory to Landlord by an insurance
company with an A.M. Best's rating of at least A licensed to do business in the
State of New York, which shall be reasonably satisfactory to Landlord. Upon
failure of Tenant to procure, maintain and pay all premiums therefor, Landlord
may, at its option, do so, and Tenant agrees to pay the cost thereof to
Landlord, as Additional Rent within thirty (30) days after Tenant's receipt of
an invoice therefor.
16.4 Landlord and Tenant each waive all rights of recovery against the
other and against the officers, employees, agents, and representatives of the
other, on account of loss by or damage to the waiving party or its property or
the property of others under its control, to the extent that such loss or damage
is insured be obtainable without additional charge, the insured party shall so
notify the other party promptly and, if the other party shall pay the insurer's
additional charge therefor, such waiver or agreement shall included in the
policy against under any policy which either may have in force at the time of
loss or damage against under any policy which either may have in force at the
time of loss or damage.
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16.5 Except to the extent expressly provided in Section 16.5, nothing
contained in this Lease shall relieve Tenant of any liability to Landlord or to
its insurance carriers or any other party which Tenant may have under law or
pursuant to the provisions of this Lease, by reason of any damage to the
Premises or the Building by fire or other casualty.
17. TENANT'S EQUIPMENT.
17.1 Tenant shall not install any equipment of any kind or nature
whatsoever in the Premises which will or may necessitate any changes,
replacements or additions to, or in the electrical capacity or existing capacity
of, the water system, heating system, plumbing system, air conditioning system,
life safety system or any other system of the Premises and/or the Building
without first obtaining the prior written consent of Landlord, which consent may
be subject to, among other things Tenant's compliance with the provisions of
Section 8.6 and Articles 11 and 12 of this Lease. If Tenant installs business
machines and/or mechanical equipment which cause unreasonable levels of noise or
vibration in the Building or which, in Landlord's reasonable judgment, exceed
the floor loads set forth in Exhibit M, then Tenant, at Tenant's expense, shall
promptly install and maintain noise or vibration eliminators or other devices
sufficient to eliminate such noise and vibration. Landlord reserves the right to
inspect the Premises to insure compliance with this Section.
17.2 Landlord shall have the right to approve the weight and position
of safes and other heavy equipment or fixtures, which shall, if reasonably
considered necessary by the Landlord, stand on weight distribution platforms or
like devices approved in advance by Landlord. Landlord's approval under the
preceding sentence shall not be unreasonably withheld or delayed provided any
such safes and other heavy equipment or fixtures will not exceed the maximum
floor load of the floor in question which is set forth in Exhibit M after such
weight distribution platform or like device is installed. Any and all
non-structural damage or injury to the Premises caused by moving the property of
Tenant into or out of the Premises, or due to the same being on the Premises,
shall be repaired by, and at the sole cost of, Tenant. All structural damage or
injury to the Premises caused by moving such property into or out of the
Premises, or due to the same being on the Premises, shall be repaired by
Landlord, at Tenant's expense, and Tenant shall pay for the same, as Additional
Rent, within thirty (30) days after its receipt of an invoice therefor.
17.3 No furniture, equipment or other bulky matter of any description
will be received into the Premises or carried in the passenger elevators except
as approved by Landlord, and all such furniture, equipment, and other bulky
matter shall be delivered only by way of the freight elevators. Except as set
forth in Section 7.4(b), in the event Tenant requests overtime service in
accordance with the provisions of this Lease, such overtime service shall be at
Tenant's sole cost and expense in accordance with the provisions of this Lease.
All movement of furniture, equipment and other materials outside the Premises
shall be at Tenant's expense and under the supervision of Landlord who shall,
however, not be responsible for any damage to or charges for moving the same.
Tenant shall pay for Landlord's supervision, as Additional Rent, within thirty
(30) days after its receipt of an invoice therefor. The charges for such
supervision shall be
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applied uniformly to all tenants of the Building. Tenant shall promptly remove
from the sidewalks adjacent to the Building any of the Tenant's furniture,
equipment or other material there delivered or deposited.
18. NON-LIABILITY AND INDEMNIFICATION.
18.1 Neither Landlord nor Landlord's agents, employees, officers,
directors, shareholders, members, partners, partners of such partners or
principals (disclosed or undisclosed) nor its mortgagees shall be liable to
Tenant for, and Tenant shall save and hold Landlord and its agents, employees,
contractors, officers, directors, shareholders, members, partners, partners of
such partners and principals (disclosed or undisclosed) and their mortgagees
harmless from and shall defend and indemnify such parties against, any loss,
liability, claim, damage, expense (including reasonable attorneys' fees and
disbursements), penalty or fine incurred in connection with or arising from the
Premises or by reason of Tenant's or any other occupant's use of the Premises
including, without limitation, any injury to Tenant, Tenant's agents, employees,
contractors, invitees or licensees or any other occupant of the Premises, or to
any other person or for any damage to, or loss (by theft or otherwise) of any of
Tenant's property or of the property of any other person, irrespective of the
cause of such injury, damage or loss unless due to the intentional acts or
negligence of Landlord or Landlord's agents, its employees, contractors,
invitees or licensees.
18.2 Neither any (a) performance by Landlord, Tenant or others of any
repairs or improvements in or to the Land, Building or Premises, (b) failure of
Landlord or others to make any such repairs or improvements, (c) damage to the
Building equipment, Premises or Tenant's personal property, (d) injury to any
persons, caused by other tenants or persons in the Building, or by operations in
the construction of any private, public or quasi-public work, or by any other
cause, (e) latent defect in the Building, Building equipment or Premises, (f)
temporary covering or bricking up of any windows of the Premises for any reason
whatsoever including, without limitation, Landlord's own acts, any Legal
Requirement or any Insurance Requirement, nor (g) inconvenience or annoyance to
Tenant or injury to or interruption of Tenant's business by reason of any of the
events or occurrences referred to in the foregoing subdivisions (a) through (f)
shall impose any liability on Landlord to Tenant, any occupant or any third
party claiming by, through or under Tenant. Landlord, in making any repairs,
alterations or improvements hereunder, shall prosecute the same utilizing such
reasonable methods in order to minimize any disruption to Tenant's use of the
Premises or the conduct of its business therein. Without limiting the foregoing,
to the extent that any disruption of Building service is caused by parties other
than Tenant or Tenant's agents, employees, contractors, invitees or licensees,
and such disruption results in the cessation of any or all services to the
Premises or a portion thereof, and Tenant is unable to conduct its business
within the Premises or the portion thereof so affected for three (3) consecutive
business days or more, Tenant shall be entitled to an abatement of Base Rent and
Additional Rent for the portion of the Premises so affected commencing on the
fourth (4th) business day following such cessation of services and continuing
until such services are restored. In no event, however, shall Landlord be liable
for injury or damage to Tenant or its property unless such injury or damage is
caused by the intentional acts or negligence of Landlord
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or Landlord's agents, its employees, contractors, invitees or licensees. No
representation is made that the communications or security systems, devices or
procedures of the Building will be effective to prevent injury to Tenant or any
other person or damage to, or loss (by theft or otherwise) of any of Tenant's
personal property or the property of any other person and in no event shall
Landlord be liable to Tenant for any failure of Tenant's computer,
telecommunications or data base systems. Landlord reserves the right to
discontinue or modify such communications or security systems or procedures
without liability so long as Landlord shall continue to maintain communications
or security systems comparable to those of Class A office buildings in The City
of New York.
18.3 Tenant hereby indemnifies Landlord and its agents, employees,
contractors, officers, directors, shareholders, members, partners, partners of
such partners, and principals (disclosed or undisclosed) and their respective
mortgagees, successors and assigns against liability or expense (including
reasonable attorneys' fees and disbursements) in connection with or arising from
(i) (a) any default by Tenant in the performance of any provisions of this
Lease, and/or (b) the use or occupancy or manner of use or occupancy of the
Premises by Tenant or any person claiming by, through or under Tenant, and/or
(c) claims for death, personal injury or property damage arising out of the
acts, omissions or negligence of Tenant, or the contractors, agents, employees,
invitees or licensees of Tenant in connection with the performance of any
Alterations or any other work, labor, services or materials done for or supplied
to Tenant, including, without limitation, the installation, maintenance (or
failure to maintain) or removal of Tenant's Corridor Signs, and/or (d) any acts,
omissions or negligence of Tenant or any such person, or the contractors,
agents, employees, invitees or licensees of Tenant or any such person, in or
about the Premises or the Building either prior to, during or after the
expiration of the Term, provided, however, that such indemnity applies only to
the extent that any of the foregoing are not covered by Tenant's insurance and
did not result subject to the provisions of Section 18.5, from Landlord's or any
of Landlord's agents, employees' or contractors' negligence, willful misconduct
or intentional acts, and (ii) claims arising from any notices of violation or
mechanic's liens arising from or in connection with the performance of any
Alterations or any other work, labor, services or materials done for or supplied
to Tenant, including, without limitation, the installation, maintenance (or
failure to maintain) or removal of Tenant's Corridor Signs. If any action, suit
or proceeding arising from any of the foregoing is brought against Landlord,
Tenant will resist and defend such action, suit or proceeding or cause the same
to be resisted and defended by counsel designated by Tenant (which counsel shall
be reasonably satisfactory to Landlord), unless, due to a conflict of interest
or Landlord's negligence or wrongful acts, Landlord requires such action, suit
or proceeding to be resisted and defended by counsel of its own selection and is
represented by such counsel reasonably satisfactory to Landlord (in which case
Tenant shall be liable for the payment of Landlord's attorney's fees), provided
that prior to the occurrence and continuance of an Event of Default, Landlord
shall not settle or release any claim without the written consent of Tenant,
which consent shall not be unreasonably withheld or delayed. Notwithstanding the
foregoing, if Tenant has a duty to defend Landlord in any action, suit or
proceeding described in the immediately proceeding sentence, and Tenant's
insurer assumes Tenant's duty to defend Landlord, the counsel that the insurer
shall designate shall be deemed to be acceptable to Lender, provided such
counsel regularly represents
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insurance companies in similar types of actions, suits or proceedings. If and to
the extent that the foregoing provisions of this Section 18.3 may be
unenforceable for any reason, Tenant hereby agrees to make the maximum
contribution to payment and satisfaction of each of the indemnified liabilities
which is permissible under applicable law.
18.4 Tenant shall pay to Landlord, as Additional Rent, within thirty
(30) days after written demand therefor, sums equal to all losses and other
liabilities referred to in Section 18.3. The obligations of Tenant under this
Article 18 shall survive the expiration or earlier termination of this Lease.
18.5 Notwithstanding anything contained in this Lease to the contrary,
when the claim is caused by the joint negligence or willful misconduct of (a)
Tenant and Landlord, (b) Tenant and a third party unrelated to Tenant, except
Tenant's agents, employees, or invitees or (c) Landlord and a third party
unrelated to Landlord, except Landlord's agents or employees, as the case may
be, Tenant's or Landlord's duty, as the case may be, to defend, indemnify and
hold the other party harmless shall be in proportion to Tenant's or Landlord's,
as the case may be, allocable shares of the joint negligence or willful
misconduct.
19. ASSIGNMENT AND SUBLETTING.
19.1 Neither this Lease nor any part hereof, nor the interest of Tenant
thereunder, shall, by operation of law or otherwise, be assigned, mortgaged,
pledged, encumbered, sublet or otherwise transferred by Tenant, Tenant's legal
representatives or successors in interest, and neither the Premises nor any part
thereof shall be encumbered in any manner by reason of any act or omission on
the part of Tenant, or anyone claiming under or through Tenant (all of which are
collectively referred to herein as an "Assignment"), or shall be sublet or be
used, occupied, or utilized for desk space (except independent contractors
retained by Tenant on a short term basis in furtherance of Tenant's normal
business) or for mailing privileges by anyone other than Tenant (all of which
are collectively referred to herein as a "Sublease"), without the prior written
consent of Landlord in each instance, which consent shall not be unreasonably
withheld or delayed, except as expressly otherwise provided in this Article.
Except for a sale or other transfer of stock to a Related Corporation or the
sale of stock of Tenant or a Related Corporation whose stock is listed and
traded on a nationally recognized stock exchange, a transfer of twenty-five
percent (25%) or more in interest of Tenant (whether a partnership interest or
membership in a limited liability company) or a transfer of twenty-five percent
(25%) or more in interest in the controlling general partner, any partner or
member holding a majority interest in Tenant or majority stockholder of Tenant
(whether such transfers are through a single transaction or a series of
transactions and whether stock, partnership interest, or otherwise) by any
party(s) in interest shall be deemed an Assignment of this Lease.
19.2 If this Lease be assigned, whether or not in violation of the
terms of this Lease, Landlord may collect rent from the assignee. If the
Premises or any part thereof be sublet or be used or occupied by anybody other
than Tenant, whether or not in violation of this Lease, Landlord may, after
default by Tenant and expiration of Tenant's time to
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cure such default, if any, collect rent from the subtenant or occupant. In
either event Landlord may apply the net amount collected to the rent herein
reserved, but no Assignment, Sublease, occupancy, or collection or application
of rent shall be deemed a waiver of any of the provisions of Section 19.1, or
the acceptance of the assignee, subtenant, or occupant as a tenant, or be deemed
to relieve, impair, release, or discharge Tenant of its obligations fully to
perform the terms of this Lease on Tenants part to be performed. The consent by
Landlord to an Assignment, Sublease, transfer or encumbering pursuant to any
provision of this Lease shall not in any way be deemed consent to, or be deemed
to relieve Tenant from obtaining Landlord's written consent to, any other or
further Assignment, Sublease, transfer or encumbering. References in this Lease
to use or occupancy by anyone other than Tenant shall include, without
limitation, subtenants, licensees and others claiming under Tenant or under any
subtenant, immediately or remotely. The listing of any name other than that of
Tenant, or a Related Corporation, on any door of the Premises or on any
directory or in any elevator in the Building, or otherwise, shall not operate to
vest in the person so named any right or interest in this Lease or the Premises,
or be deemed to constitute, or serve as a substitute for, any consent of
Landlord required under this Article, and it is understood that any such listing
shall constitute a privilege extended by Landlord, revocable at Landlord's will
by Notice to Tenant. Tenant agrees to pay, as Additional Rent, within thirty
(30) days after Tenant's receipt of an invoice therefor, Landlord's reasonable
attorneys' fees and disbursements incurred by Landlord in connection with any
proposed Assignment or Sublease, including the costs of making investigations as
to the acceptability of a proposed subtenant or assignee.
19.3 Tenant may sublet all or part of the Premises to, or permit all or
part of the Premises to be used or occupied by, a Related Corporation for any of
the Permitted Uses without any requirement of obtaining Landlord's consent, but
only for such period as such Related Corporation occupies the portion of the
Premises sublet for any of the Permitted Uses and such Related Corporation
continues to qualify as a Related Corporation, as the case may be, under the
terms of this Lease, subject, however, to compliance with Tenant's obligations
under this Lease. At such time as a Related Corporation does not meet the
foregoing requirement, such Related Corporation and Tenant must comply with the
provisions of Sections 19.1 and 19.2. Prior to the date that a Related
Corporation occupies any portion of the Premises, whether pursuant to a sublease
or not, Tenant shall deliver a Notice to Landlord setting forth the name of the
Related Corporation occupying such space and a description of the space so
occupied and a contact party at the Related Corporation.
19.4 (a) Tenant may sublet the Premises, or portions thereof,
subject to Landlord's consent, which consent shall not be unreasonably withheld
or delayed, and subject to the following conditions:
(i) The nature of the proposed subtenant's business
and its reputations is in keeping with the character of the Building as a Class
A office building and its tenancies and such proposed subtenant shall not be a
governmental agency or charitable organization or a corporation or other
organization whose operations are or would be subject to any environmental
restrictions;
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(ii) The purposes for which the proposed subtenant
intends to use the applicable portion of the Premises are uses expressly
permitted by this Lease;
(iii) Any such subletting will result in there being
no more than four (4) subtenants on a floor excluding Related Corporations;
(iv) The proposed sublease shall prohibit any
assignment or further subletting, except in compliance with this Sections 19.3
and 19.4;
(v) No Event of Default shall have occurred and be
continuing hereunder;
(vi) During the first three (3) Lease Years following
the Base Rent Commencement Date, the proposed subtenant (unless such subtenant
during such three year period was a Related Corporation) shall not then be a
tenant in the Building unless such proposed subtenant occupies contiguous space
to the space being sublet or has not, within one hundred eighty (180) days
preceding the date Landlord's consent was sought for subleasing to such tenant,
submitted to Landlord, or to which Landlord has submitted, a bona fide written
proposal for the rental of comparable space in the Building (meaning space
equivalent in size, location and length of term to the proposed sublease);
(vii) No subletting shall be for a term ending later
than one (1) day prior to the expiration of the Term;
(viii) Each sublease shall provide that it is subject
and subordinate to this Lease and to the matters to which this Lease is or shall
be subordinate;
(ix) Each sublease shall provide that, if by reason of
a default on the part of Tenant under this Lease, this Lease or the leasehold
estate created hereunder is terminated, then such subtenant shall, at the option
of Landlord, which shall be exercised in the sole and absolute discretion of the
Landlord, attorn to Landlord on the terms and conditions set forth in the
sublease, and will recognize Landlord as such subtenant's Landlord under such
sublease, provided that Landlord accepts such attornment, having no obligation
to do so;
(x) Tenant shall not have the right to publicly
advertise the rental rate of space for subletting to anyone other than brokers;
and
(xi) Tenant shall give Landlord a Notice containing:
(a) the material terms of the proposed sublease, (b) information relevant to
subparagraphs (i) and (ii) above, (e) a certification that the remaining
requirements of this Section 19.4(a) have been met, and (d) a copy of the term
sheet and if same has been prepared, a copy of the proposed sublease.
(b) Landlord shall, within, twenty (20) days after receiving
the information under Section 19.4(a), give Notice to Tenant to permit or deny
the proposed
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sublease. If Landlord does not give Notice within the aforesaid twenty (20) day
period, then Tenant may sublease part or all of the Premises upon the terms
Tenant gave in the information under Section 19.4(a)(xi). No sublease of this
Lease by Tenant shall be valid unless, within five (5) days after execution
thereof, Tenant shall deliver to Landlord an executed copy of such sublease in
form and substance reasonably satisfactory to Landlord, duly executed by Tenant
and by the sublessee.
(c) In the event Tenant sublets all or any part of the
Premises to anyone (other than a Related Corporation) for rents which for any
period shall exceed the Base Rent, Tenants Tax Payment and Tenant's Operating
Payments payable for the subleased space under this Lease for the same period,
Tenant shall pay Landlord, as Additional. Rent, fifty percent (50%) of any Net
Profits that Tenant actually receives from such subletting. The term "Net
Profits" shall mean (x) the excess of such rents under any sublease for the
Premises over the Base Rent, Tenant's Tax Payment and Tenant's Operating
Payment, payable for the subleased space under this Lease, less (i) brokerage
commissions actually paid by Tenant in connection incurred by Tenant in
connection with such subletting, (ii) reasonable attorneys' fees actually
incurred by Tenant in connection with such subletting, (iii) reasonable
advertising fees actually incurred by Tenant in connection with such subletting,
(iv) the cost of any reasonable alterations and reasonable rent concession
period for the benefit of such subtenant, (v) any actual vacancy period
commencing on the date that Tenant, a Related Corporation vacates such vacant
space, provided, however, such vacancy period shall not extend beyond six (6)
months and (vi) all other reasonable out-of-pocket expenses paid by Tenant
directly in connection with such subletting. Landlord's portion of Net Profits
shall be paid to Landlord by Tenant after Tenant has been paid the costs set
forth in this Section 19.4(c) within thirty (30) days after Tenant receives
same. If in connection with any such subletting Tenant is to receive an amount
from the subtenant for the sale of Tenant's Work or any Alterations, Tenant
shall pay Landlord, as Additional Rent, within thirty (30) days of Tenant's
receipt of same, fifty percent (50%) of such amount, after deduction of any net
amortized or undepreciated cost of such Tenant's Work or Alterations.
Notwithstanding anything contained to the contrary in this Section 19.4, if
Tenant subleases any option space leased by Tenant pursuant to Article 38 within
twelve (12) months of the Beneficial Occupancy Date for such space, Landlord
shall be entitled to one hundred percent (100%) of the Net Profits from such
sublease and Tenant shall not be entitled to any portion of such Net Profits.
19.5 (a) Notwithstanding anything contained in the Article, in the
event that at any time during the Term Tenant desires to assign its entire
interest in this Lease, Tenant:
(i) shall submit to Landlord a Notice setting forth
the name and address of the proposed assignee and a detailed description of such
person's business, character and financial references (including its most recent
balance sheet and income statements certified by its chief financial officer or
a certified public accountant), and any other information reasonably requested
by Landlord, which information shall be kept confidential by Landlord unless the
disclosure thereof is required by Legal Requirements, or judicial order,
provided however, Landlord may disclose such
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information to any direct (or indirect) partner, member or shareholder of
Landlord and to any party who has provided or is providing financing to
Landlord; and
(ii) shall submit to Landlord (a) the material terms
of the proposed assignment, (b) an agreement by Tenant to indemnify Landlord
against liability resulting from any claims that in connection with the proposed
assignment may be made against Landlord by any brokers or other persons claiming
a commission or similar compensation and (c) a copy of the term sheet for such
assignment and if same has been prepared, a copy of the proposed assignment.
(b) Tenant may at any time during the Term assign this Lease,
subject to Landlord's consent, which consent shall not be unreasonably withheld
or delayed, provided, however, Landlord's consent shall not be required if
Tenant's assignment is to a Related Corporation and provided further that under
no circumstances shall any such assignment relieve Tenant from the performance
of any of the obligations of Tenant under this Lease and subject to the
following conditions:
(i) The nature of the proposed assignee's business and
its reputation is in keeping with the character of the Building as a Class A
office building and its tenancies and such assignee shall not be a governmental
agency, charitable organization or a corporation or other organization whose
operations are or would be subject to environmental restrictions;
(ii) The purposes for which the proposed assignee
intends to use the Premises are uses expressly permitted by this Lease;
(iii) No Event of Default shall have occurred and be
continuing hereunder; and
(iv) No assignment of this Lease by Tenant shall be
valid unless, within five (5) days after the execution thereof, Tenant shall
deliver to Landlord an executed copy of such assignment in form and substance
reasonably satisfactory, duly executed by Tenant and by the assignee.
(c) Landlord shall, within twenty (20) days after receiving
all of the information under Section 19.5(a) and Section 19.5(b)(i) and (ii)
which information must be full and complete, give Notice to Tenant to permit or
deny the proposed assignment. If Landlord denies consent, it must explain the
reasons for the denial. If Landlord does not give Notice within the aforesaid
twenty (20) day period, then Tenant may assign the entire Premises upon the
terms Tenant gave in the information under Sections 19.5(a)(i) and (ii) and
Sections 19.5(b)(i) and (ii).
(d) In the event that Tenant fails to execute and deliver any
assignment within ninety (90) days after Tenant shall have delivered the Notice
described in Section 19.5(a), then Tenant shall again comply with all the
provisions and conditions of this Section 19.5 before assigning this Lease.
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(e) No assignment of part of this Lease (other than to a
successor or Related Corporation) shall be permitted. No assignment of this
Lease by Tenant shall be valid unless, within thirty (30) days after execution
thereof, Tenant shall deliver to Landlord a duplicate original instrument of
assignment and assumption in form and substance reasonably satisfactory to
Landlord, duly executed by Tenant and by the assignee, in which such assignee
shall assume performance of all of the provisions of this Lease and evidence
reasonably satisfactory to Landlord that the provisions of this Section 19.5(a)
have been satisfied. No assignment of this Lease shall serve to relieve Tenant
of its obligations hereunder, including, without limitation, the obligations to
pay Base Rent and Additional Rent.
(f) Notwithstanding anything to the contrary contained herein,
if Tenant shall actually receive any consideration from its assignee (other than
a successor or Related Corporation) in connection with the assignment of this
Lease, Tenant shall pay over to Landlord fifty percent (50%) of the
consideration actually received within ten (10) days after such consideration is
received by Tenant (including, without limitation, sums paid for sale of Tenants
Work or any Alterations) reduced by (i) the net unamortized or undepreciated
cost of Tenants Work in excess of the Tenant Improvement Allowance or
Alterations, determined on the basis of an amortization or depreciation period
for the then remaining Term; (ii) reasonable brokerage commissions actually paid
by Tenant in connection with such assignment, (iii) reasonable attorneys' fees
actually incurred by Tenant in connection with such assignment, (iv) reasonable
advertising fees, (v) the cost of reasonable alterations and reasonable rent
concession period for the benefit of such assignee, (vi) any actual vacancy
period commencing on the date that Tenant or a Related Corporation vacates such
space, provided, however, such vacancy period shall not extend beyond six (6)
months and (vii) all other reasonable out-of-pocket expenses paid by Tenant
directly in connection with such assignment. Notwithstanding anything contained
to the contrary in this Section 19.5, if Tenant assigns any portion of the
option space leased by Tenant pursuant to Article 38 within twelve (12) months
of the Beneficial Occupancy Date of such space, Landlord shall be entitled to
one hundred percent (100%) of the consideration received from such assignment
and Tenant shall not be entitled to any portion of such consideration.
20. SUBORDINATION AND ATTORNMENT.
20.1 This Lease and all rights of Tenant hereunder are subject and
subordinate in all respects to (a) all present and future ground leases,
operating leases, superior leases, overriding leases and underlying leases and
grants of term of the Land and the Building or any portion thereof
(collectively, including the applicable items set forth in subdivision (d) of
this Section 20. 1, the "Superior Lease") whether or not the Superior Lease
shall also cover other lands or buildings, (b) all mortgages and building loan
agreements, including leasehold mortgages and spreader and consolidation
agreements, which may now or hereafter affect the Land or the Building
(collectively, including the applicable items set forth in subdivisions (c) and
(d) of this Section 20. 1, the "Superior Mortgage"), whether or not the Superior
Mortgage shall also cover other lands or buildings or leases, (c) each advance
made or to be made under the Superior Mortgage, and (d) all renewals,
modifications, replacements, substitutions and extensions of the Superior Lease
and the
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Superior Mortgage. The provisions of this Section shall be self-operative and no
further instrument of subordination shall be required. In confirmation of such
subordination, Tenant shall promptly execute and deliver, at its own cost and
expense, any instrument, in recordable form, that Landlord, the landlord under
any Superior Lease (the "Superior Landlord") or the holder of any Superior
Mortgage (the "Superior Mortgage") may reasonably request to evidence such
subordination. If Tenant fails to execute, acknowledge and deliver any such
instrument of subordination within thirty (30) days after request therefor,
Tenant hereby irrevocably constitutes and appoints Landlord as Tenant's
attorney-in-fact, coupled with an interest, to execute, acknowledge and deliver
any such instruments for and on behalf of Tenant. Tenant agrees to subordinate
this Lease to all future Superior Mortgages and all renewals, modifications,
replacements, substitutions of such Superior Mortgage, provided such Superior
Mortgagee delivers to the Tenant a subordination, nondisturbance and attornment
agreement substantially in the form attached hereto as Exhibit B. Any Superior
Mortgagee may elect that this Lease shall have priority over such Superior
Mortgage and, upon notification thereof by such Superior Mortgagee to Tenant,
this Lease shall be deemed to have priority over such Superior Mortgage, whether
this Lease is dated prior to or subsequent to the date of such Superior
Mortgage. If, in connection with the obtaining, continuing or renewing of
financing for which the Building or the Land represents collateral, in whole or
in part, any bank, insurance company, pension fund or other lending institution
shall request reasonable modifications of this Lease as a condition of its
granting such financing, Tenant will not unreasonably withhold its consent
thereto, provided that such modifications do not increase the Base Rent or
Additional Rent payable by Tenant hereunder or increases the obligations of
Tenant hereunder or materially affects beyond a de minimis degree Tenant's
rights hereunder.
20.2 For purposes of this Section 20.2, the term "Successor Landlord"
shall mean and include (i) any person, including but not limited to any Superior
Landlord or Superior Mortgagee, who, prior to the termination of this Lease,
acquires or succeeds to the interest of Landlord under this Lease through
summary proceedings, foreclosure action, assignment, deed in lieu of foreclosure
or otherwise, and (ii) the successors and assigns of any person referred to in
clause (i) of this sentence. Upon any Successor Landlord's so acquiring, or so
succeeding to, the interest of Landlord under this Lease, Tenant shall, at the
election and upon the request of the Successor Landlord, and without further
instruments of attornment, fully attorn to and recognize such Successor Landlord
as Tenant's landlord under this Lease upon the then executory terms of this
Lease. No Successor Landlord shall be bound by any prepayment of rent or
additional rent for more than one month in advance or any amendment or
modification of this Lease made without the consent of such Successor Landlord,
which consent shall not be unreasonably withheld or delayed. Tenant waives the
provisions of any statute or rule of law now or hereafter in effect which may
give or purport to give Tenant any right of election to terminate this Lease or
to surrender possession of the Premises in the event any Superior Lease is
terminated. The foregoing provisions of this Section shall inure to the benefit
of any such Successor Landlord, shall be self-operative, and no further
instrument shall be required to give effect to said provisions. Upon demand of
any such Successor Landlord, Tenant agrees to execute instruments to evidence
and confirm the foregoing provisions of this Section reasonably satisfactory to
any such Successor Landlord. Tenant hereby
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irrevocably constitutes and appoints Landlord attorney-in-fact for Tenant to
execute any such instrument for and on behalf of Tenant, such appointment being
coupled with an interest. Nothing contained in this Section shall be construed
to impair any right otherwise exercisable by any such owner, holder or lessee.
20.3 Simultaneously with the mutual execution and delivery of this
Lease by Landlord to Tenant, Landlord agrees to deliver to Tenant a
subordination, non-disturbance and attornment agreement in the form attached
hereto as Exhibit B.
21. ACCESS, CHANGE IN FACILITIES.
21.1 All parts (except non-glass surfaces facing the interior of the
Premises) of all walls, windows and doors bounding the Premises, all balconies,
stairs, landings and roofs adjacent to the Premises, all space in or adjacent to
the Premises presently being used as of the date of this Lease for columns,
shafts, stacks, stairways, risers, elevator shafts and machinery, conduits, air
conditioning rooms, telephone rooms, fan rooms, heating, ventilating, air
conditioning, plumbing, electrical and other mechanical facilities, service
closets and other Building equipment, and the use thereof, as well as access
thereto through the Premises for the purposes of operation, decoration,
cleaning, maintenance, safety, security, alteration and repair, are hereby
exclusively reserved to Landlord, except to the extent otherwise specifically
provided in this Lease. Landlord reserves the right, at any time, without
incurring any liability to Tenant therefor, to make such changes in or to the
Building and the Building equipment, as well as in the entrances, doors,
lobbies, interior and exterior plaza areas, corridors, elevators (provided,
however, Landlord shall during Business Hours and subject to maintenance and
repairs, maintain two (2) passenger elevators to service the Premises), Building
stairs, landings, toilets and other public parts of the Building, as it may deem
necessary or desirable, provided any such change (a) does not unreasonably
deprive Tenant of access to the Premises, (b) does not materially and adversely
interfere with the use of the Premises or the services furnished to the Premises
for an unreasonable length of time or (c) does not materially reduce the size,
or materially and dramatically change the size or nature, of the lobby of the
Building. Notwithstanding the foregoing Tenant shall have the right, at its
discretion, to laminate over any elevator banks within the Premises which are
not servicing the applicable floor in the Premises, provided, (i) such
lamination is permitted by, and Tenant complies with, all Legal Requirements and
Insurance Requirements, (ii) Tenant obtains all necessary permits required to
construct and maintain such lamination and (iii) at the end of the Term and
prior to Tenant vacating the floor on which such lamination exists, Tenant
removes such lamination and restores, at Tenant's sole cost and expense, the
area to the condition existing prior to such lamination. If Landlord shall make
material changes to the lobby, Landlord will advise Tenant of the changes and
seek Tenant's advice and input.
21.2 Landlord may install, use, control and maintain pipes, fans,
ducts, wires and conduits within or through the Premises, or through the walls,
columns and ceilings therein, provided that the installation work and resulting
construction will not unreasonably interfere with Tenant's use and occupancy of
the Premises nor diminish, beyond a de minimis degree, the rentable square
footage or wall area and all such pipes,
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fans, ducts, wires and conduits are concealed. Tenant hereby grants Landlord
access through the Premises in connection with Landlord's installation, use,
control and maintenance of such pipes, fans, ducts, wires and conduits. Where
access doors are required by Landlord in or adjacent to the Premises for
mechanical trades, Landlord shall furnish them and have all keys to such access
doors. Tenant shall cooperate with Landlord in the location of Landlord's access
doors for such facilities.
21.3 Landlord shall have the right to take all reasonable measures as
Landlord may deem advisable for the security of the Building and its occupants,
including, without limitation, the search of all persons entering or leaving the
Building, the evacuation of the Building for cause, suspected cause or for drill
purposes.
21.4 Landlord and Landlord's agents shall have the right to enter the
Premises at all reasonable times, upon reasonable prior notice, whether or not
during Business Hours, for any of the purposes specified in this Article and (a)
to examine the Premises or for the purpose of performing any obligation of
Landlord or exercising any right reserved to Landlord in this Lease (or to the
Superior Landlord in any Superior Lease); (b) to exhibit the Premises to
prospective mortgagees or purchasers of the Building; (c) to exhibit the
Premises to prospective tenants, but only within the last twenty-four (24)
months of the initial Term or the last twelve (12) months of the renewal Term;
(d) to make or cause to be made such repairs or improvements, or to perform such
maintenance, including the maintenance of Building equipment, as Landlord may
deem necessary or desirable or required by any Governmental Authority, Legal
Requirement or Insurance Requirement; and (e) to take into and temporarily
store, during the course of such repairs, improvements or maintenance, upon the
Premises all materials that may be required in connection therewith. If Tenant,
its agents or employees, after reasonable prior notice has been afforded Tenant
shall not be present or shall not permit an entry into the Premises at any time
when such entry shall be permissible, Landlord may use a master key or forcibly
enter the Premises without any liability therefor.
21.5 The exercise of any rights retained by Landlord pursuant to this
Article 21 shall be without liability to Tenant or any person claiming through
Tenant for damage or injury to property, person or business and without
effecting an eviction, constructive or actual, or disturbance of Tenant's use of
possession or giving rise to any claim for set off or abatement of Base Rent or
Additional Rent.
22. RULES AND REGULATIONS.
22.1 Tenant and Tenant's agents, employees, licensees and invitees will
fully and promptly comply with all requirements of the rules and regulations of
the Building and related facilities which are attached hereto as Exhibit N.
Landlord shall at all times have the right to change such rules and regulations
and/or Building services or to promulgate other reasonable rules and regulations
and/or Building services in such manner as may be deemed reasonably advisable
for safety, care, or cleanliness of the Building and related facilities or
premises, and for preservation of good order therein, all of which rules and
regulations and/or Building services, changes and amendments will be forwarded
to Tenant in writing and shall be carried out and observed by Tenant. Tenant
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shall further be responsible for the compliance with such rules and regulations
and/or Building services by the employees, servants, agents, visitors, licensees
and invitees of Tenant. In the event of any conflict between the provisions of
this Lease and the provisions of the rules and regulations, then the provisions
of this Lease shall control. Landlord shall enforce such rules and regulations
in a nondiscriminatory manner throughout the Building.
23. DAMAGE OR DESTRUCTION.
23.1 If the Premises or any part thereof shall be damaged or rendered
untenantable by fire or other casualty and if Tenant gives prompt Notice thereof
to Landlord and this Lease is not terminated pursuant to any provision of this
Article, Landlord, at Landlord's expense, shall perform Landlord's Restoration
Work, subject to Legal Requirements then in effect, and Tenant, at Tenant's
expense, shall perform Tenant's Restoration Work, with reasonable dispatch and
continuity. The Base Rent and Additional Rent shall be equitably abated to the
extent that the Premises shall have been rendered untenantable, such abatement
shall commence on the date of such damage, provided Tenant has given prompt
Notice of such damage to Landlord, and shall continue until 20 days following
the date the Premises shall no longer be untenantable or, in the event of Tenant
Delay or any delay in Tenant's performance of Tenant's Restoration Work, until
the date the Premises would have been tenantable but for such Tenant Delay or
other delay in Tenant's performance of Tenant's Restoration Work; provided,
however, should Tenant occupy a portion of the Premises for the conduct of its
business during the period the repair work is taking place and prior to the date
the Premises are no longer untenantable, the Base Rent and Additional Rent
allocable to such occupied portion, based upon the proportion which the occupied
portion of the Premises bears to the total area of the Premises, shall be
payable by Tenant from the date of such occupancy.
23.2 "Landlords Restoration Work" shall include all of the work
necessary to repair, restore, replace and rebuild Landlord's Work to
substantially the same condition as that in which it was immediately prior to
the occurrence of the fire or other casualty; provided, however, that Landlord's
Restoration Work shall not include the repair, restoration, replacement or the
rebuilding of (i) Tenants Work or Tenant's Furnishings, (ii) any Alteration made
or installed by or on behalf of Tenant pursuant to Article 12 hereof or (iii)
any part of the furniture, business equipment or other personal property which
may have been placed by Tenant within the Premises.
23.3 "Tenant's Restoration Work" shall include all of the work (other
than Landlords Work) necessary to repair, restore, replace and rebuild the
Premises (including Tenant's Work) to substantially the same condition as that
in which it was in immediately prior to the occurrence of the fire or other
casualty.
23.4 If the Premises shall be totally damaged or rendered wholly
untenantable by fire or other casualty, Landlord has not terminated this Lease
pursuant to Section 23.5 and Landlord has not substantially completed Landlords
Restoration Work within twelve (12) months (subject to (i) Tenant Delay or (ii)
delays in Tenant's performance of
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Tenants Restoration Work which result in delays in the performance of Landlord's
Restoration Work or (iii) Force Majeure) from the date Landlord receives (i)
final adjustment of all insurance claims relating to the casualty, (ii) all
permits and approvals necessary to perform Landlord's Restoration Work, and all
such permits and approvals are final and non-appealable (or the time for appeal
has expired), and (iii) written confirmation from the Superior Mortgagee that
the Superior Mortgagee has agreed to advance insurance proceeds to Landlord for
the performance of Landlord's Restoration Work, Tenant may serve Notice on
Landlord of its intention to terminate this Lease, and if within fortyfive (45)
days after Landlord's receipt of such Notice, subject to (i) Tenant Delay or
(ii) delays in Tenant's performance of Tenant's Restoration Work which result in
delays in the performance of Landlord's Work or (iii) Force Majeure, Landlord
shall not have completed Landlord's Restoration Work, this Lease shall terminate
on the expiration of such forty-five (45) day period as if such termination date
were the Expiration Date, without prejudice to Landlord's and Tenant's rights
under this Lease in effect prior to such termination. Upon Landlord's completion
of Landlord's Restoration Work, Tenant shall have no further right to terminate
this Lease pursuant to this Section 23.4.
23.5 If the Premises shall be totally damaged or rendered wholly
untenantable by fire or other casualty or if the Building shall be so damaged by
fire or other casualty that alteration or reconstruction of more than thirty
percent (30%) of the rentable area of the Building, in Landlord's architect's
reasonable opinion, shall be required (whether or not the Premises shall have
been so damaged), then (a) Landlord, at its option, may terminate this Lease, by
giving Tenant thirty (30) days' Notice of such termination, within ninety (90)
days after the date of such fire or other casualty or (b) and such damage occurs
in the final three (3) years of the Term, including any renewal Term, Tenant, at
its option, may terminate this Lease, by giving Landlord thirty (30) days'
Notice of such termination, within ninety (90) days after the date of such fire
or other casualty. In the event that such Notice of termination shall be given,
this Lease shall terminate as of the date provided in such notice of termination
with the same effect as if that date were the Expiration Date, without prejudice
to Landlord's and Tenants rights under this Lease in effect prior to such
termination.
23.6 Landlord shall not be liable for any inconvenience to Tenant or
injury to the business of Tenant resulting in any way from any such damage by
fire or other casualty, or the repair thereof. Landlord will not carry insurance
of any kind on Tenant's Work, any Alterations or any personal property of
Tenant, and Landlord shall not be obligated to repair any damage thereto, or
replace the same, or bear any of the risk of loss with respect thereto.
23.7 The provisions of this Article shall be considered an express
agreement governing any case of damage to or destruction of the Building or the
Premises or any part of either by fire or other casualty, and Tenant hereby
waives the provisions of Section 227 of the Real Property Law and agrees that
the provisions of this Article shall govern and control in lieu thereof
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24. EMINENT DOMAIN.
24.1 In the event that all of the Land, the Building or the Premises
shall be acquired or condemned by eminent domain, this Lease shall terminate as
of the date of the vesting of title in the condemning authority as if said date
were the Expiration Date. If only a part of the Premises shall be so acquired or
condemned then, except as otherwise provided in this Article, this Lease shall
continue in full force and effect, but from and after the date of the vesting of
title, the Base Rent shall be reduced by an amount equal to the product obtained
by multiplying (i) the Base Rent in effect immediately prior to such
condemnation by (ii) a fraction, the numerator of which is the number of
rentable square feet of the Premises taken and the denominator of which is the
number of rentable square feet of the Premises immediately prior to the
condemnation. Tenant's Proportionate Share shall also be reduced to equal a
fraction, the numerator of which is the number of rentable square feet of the
Premises after the taking and the denominator of which is the number of rentable
square feet of the Building after the taking. The aforesaid calculations shall
be reasonably determined by Landlord, whose calculations shall be conclusive
absent manifest error.
24.2 If more than twenty-five percent (25%) of the Land or the Building
shall be so acquired or condemned so that continued operation of the remaining
portion of the Building shall be impracticable or uneconomical as determined by
Landlord, then (i) whether or not the Premises shall be affected, Landlord may,
within ninety (90) days following the date of vesting of title, give Tenant
thirty (30) days' Notice of termination of this Lease or (ii) if more than
twenty-five percent (25%) of the total area of the then Premises is acquired or
condemned, and the taking of such portion of the Premises renders the balance of
the Premises impracticable or uneconomical as determined by Tenant for the
Permitted Use, Tenant may, within ninety (90) days following the date upon which
Tenant shall have received Notice of vesting of title, give to Landlord thirty
(30) days' Notice of termination of this Lease. In the event any such thirty
(30) day Notice of termination is given by Landlord or Tenant, this Lease shall
terminate upon the expiration of said thirty (30) days with the same effect as
if that date were the Expiration Date, without prejudice to Landlord's or
Tenant's rights under this Lease in effect prior to such termination, and Rent
shall be apportioned as of such date or sooner termination.
24.3 In the event of any such acquisition or condemnation of all or any
part of the Land or the Building, Landlord shall receive the entire award for
any such acquisition or condemnation. Tenant shall have no claim against
Landlord or the condemning authority for the value of any unexpired portion of
the Term and agrees not to join in any claim made by Landlord and to execute all
further documents that may be required in order to facilitate the collection of
the award by Landlord. Tenant hereby appoints Landlord as attorney-in-fact for
Tenant, which appointment, being coupled with an interest is irrevocable, to
sign such further documentation on behalf of Tenant. Tenant shall, however,
retain the right to make a separate claim for (i) the value of any personal
property taken or Tenant's Work so taken, and (ii) its moving expenses, provided
same does not diminish or delay the award otherwise obtainable by Landlord.
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24.4 Upon Landlord's receipt of the condemnation award referred to in
Section 24.3, and provided that this Lease has not been terminated pursuant to
the provisions of Section 24.1 or Section 24.2, Landlord shall promptly perform
Landlord's Restoration Work to the extent such condemnation award is sufficient
for such purpose, the Superior Mortgagee has agreed in writing to advance the
condemnation award to Landlord for the performance of Landlords Restoration Work
and provided Landlord receives all permits and approvals necessary to perform
Landlord's Restoration Work and all such permits and approvals are final and
non-appealable (or the time for appeal has expired). Tenant shall perform
Tenant's Restoration Work whether or not Tenant's award is sufficient for such
purpose.
24.5 If the temporary use or occupancy of all or part of the Premises
shall be condemned or taken, this Lease shall remain unaffected by such
condemnation or taking and Tenant shall continue to be responsible for all of
its obligations hereunder (except to the extent prevented from so doing by
reason of such condemnation or taking) and it shall continue to pay the Base
Rent and Additional Rent as provided hereunder. Tenant shall have the right to
claim, prove and receive so much of any award for such condemnation or taking
for temporary use or occupancy as represents compensation for the use and
occupancy of the Premises and, if so awarded, for the loss of value or utility
of Tenant's personal property, Tenant's Work and any Alterations and Tenant's
moving expenses, up to and including the Expiration Date or the date of
termination of the condemnation or taking for temporary use or occupancy,
whichever is earlier, and Landlord shall be entitled to claim, prove and receive
the balance of any such award. Notwithstanding the foregoing, however, the
rights and interests of Landlord and Tenant to any award received or receivable
with respect to a condemnation or taking for temporary use or occupancy shall be
in all other respects governed by the applicable provisions of the Superior
Lease and/or the Superior Mortgage.
24.6 If the grade of any street upon which the Land is situated or
abuts shall be changed, this Lease shall nevertheless continue in full force and
effect, and Landlord shall be entitled to collect and keep the entire award that
may be made. Tenant hereby assigns to Landlord all of its right in and to every
such award or any part thereof.
24.7 The terms "condemnation" and "acquisition" as used herein shall
include any agreement in lieu of or in anticipation of the exercise of the power
of eminent domain between Landlord and any Governmental Authority authorized to
exercise the power of eminent domain.
25. CONDITIONS OF LIMITATION.
25.1 This Lease and the Term and estate hereby granted are subject to
the limitations that:
(a) if Tenant shall file a voluntary petition in bankruptcy or
insolvency, or commence an action under the Bankruptcy Code, or shall be
adjudicated a debtor, or insolvent, or shall file any petition or answer seeking
any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under
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the Bankruptcy Code or any other present or any future federal bankruptcy act or
any other present or future applicable federal, state or other statute or law
(foreign or domestic), or shall make an assignment for the benefit of creditors
or shall seek or consent or acquiesce in the appointment of any trustee,
receiver or liquidator of Tenant or of all or any part of Tenant's property; or
(b) if, within ninety (90) days after the commencement of any
proceeding and/or action against Tenant, whether by the filing of a petition or
otherwise, seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under the Bankruptcy Code or any
other present or future federal bankruptcy act or any other present or future
applicable federal, state or other statute or law (foreign or domestic), such
proceeding shall not have been dismissed, or if, within ninety (90) days after
the appointment of any trustee, custodian, receiver or liquidator of Tenant or
of all or any part of Tenant's property, without the consent or acquiescence of
Tenant, such appointment shall not have been vacated or otherwise discharged, or
if any execution or attachment shall be issued against Tenant or any of Tenant's
property pursuant to which the Premises shall be taken or occupied or attempted
to be taken or occupied; or
(c) if Tenant shall default in the payment when due of any
Base Rent or Additional Rent and such default continues for a period of five (5)
days after the date such payment was due; or
(d) if Tenant shall default in the performance of any term of
this Lease on Tenant's part to be performed (other than the payment of Base Rent
and Additional Rent) and Tenant shall fail to remedy such default within thirty
(30) days after Notice of such default, or if such default is of such a nature
that it cannot be completely remedied within said period of thirty (30) days if
Tenant shall not (x) promptly upon the giving by Landlord of such Notice, advise
Landlord of Tenants intention to institute all steps necessary to remedy such
situation, (y) promptly institute and thereafter diligently prosecute to
completion all steps necessary to remedy the same, and (z) complete such remedy
within a reasonable time after the date of the giving of said Notice by Landlord
and in any event prior to such time as would either (i) subject Landlord,
Landlord's agents, any Superior Landlord or Superior Mortgagee to criminal
prosecution or civil liability, including, without limitation, the imposition or
threatened imposition of an order to vacate or revocation or suspension of the
certificate of occupancy for the Building or the Premises, or (ii) cause a
default under any Superior Lease or any Superior Mortgage; or
(e) if Tenant shall default in the making of any payment under
the Existing Lease as set forth in Section 2.4 above after any notice and grace
period set forth in such Lease;
(f) then in any of said events an event of default ("Event of
Default") shall be deemed to exist.
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26. REMEDIES.
If an Event of Default shall exist, the following provisions shall
apply and Landlord shall have the rights and remedies set forth therein which
rights and remedies may be exercised upon or at any time following the
occurrence of an Event of Default:
26.1 (a) By Notice to Tenant, Landlord shall have the right to
accelerate all Base Rent and any other sums due hereunder and otherwise payable
in installments over the remainder of the Term, and, at Landlord's option, any
other Additional Rent to the extent that such Additional Rent can be determined
and calculated to a fixed sum; and the amount of accelerated rent, without
further Notice or demand for payment, shall be due and payable by Tenant within
five (5) days after Landlord has so notified Tenant. Additional Rent which has
not been included, in whole or in part, in accelerated rent shall be due and
payable by Tenant during the remainder of the Term, in the amounts and at the
times otherwise provided for in this Lease.
(b) Notwithstanding the foregoing or the application of any
rule of law based on election of remedies or otherwise, if Tenant fails to pay
the accelerated rent in full when due, Landlord thereafter shall have the right
by Notice to Tenant, (i) to terminate Tenant's further right to possession of
the Premises, or (ii) to terminate this Lease under Section 26.2 below, and to
recover by an action at law all Base Rent and Additional Rent; and if Tenant
shall have paid part but not all of the accelerated rent, the portion thereof
attributable to the period equivalent to the part of the Term remaining after
Landlord's termination of possession or termination of this Lease shall be
applied by Landlord against Tenant's obligations owing to Landlord as determined
by the applicable provisions of Sections 26.3 and 26.4 below.
26.2 (a) By Notice to Tenant, Landlord shall have the right to
terminate the Lease as of a date specified in the Notice of termination and in
such case, Tenant's rights, including any based on any option to renew, and to
the possession and use of the Premises shall end absolutely as of the
termination date; and this Lease shall also terminate in all respects except for
the provisions hereof regarding Landlord's damages and Tenant's liabilities
arising prior to, out of and following the Event of Default and the ensuing
termination, including the payment of Base Rent and Additional Rent.
(b) Following such termination (as well as upon any other
termination of this Lease by expiration of the Term or otherwise) Landlord
immediately shall have the right to recover possession of the Premises; and to
that end, Landlord may enter the Premises and take possession, with the giving
of Notice to Tenant and no further Notice to quit or any other further Notice
shall be necessary, with or without legal process or proceedings, and in so
doing Landlord may remove Tenant's property (including any Alterations to the
Premises made by Tenant), as well as the property of others as may be in the
Premises, and make disposition thereof in such a manner as Landlord may deem to
be commercially reasonable and necessary under the circumstances.
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26.3 (a) Unless and until Landlord shall have terminated this Lease
under Section 26.2 above, Tenant shall remain fully liable and responsible to
perform all of the covenants and to observe all the conditions of this Lease
throughout the remainder of the Term; and, in addition, Tenant shall pay to
Landlord, upon demand and as Additional Rent, the total sum of all costs, losses
and expenses, including reasonable counsel fees, as Landlord incurs, directly or
indirectly, because of any Event of Default having occurred. The termination of
this Lease shall not relieve Tenant of its obligations to pay any Base Rent or
Additional Rent which may be due, included any accelerated Base Rent or
Additional Rent.
(b) If Landlord either terminates Tenant's right to possession
without terminating this Lease or terminates this Lease and Tenant's leasehold
estate as above provided, Landlord shall have the unrestricted right to relet
the Premises or any part(s) thereof to such tenant(s) on such terms and for such
period(s) as Landlord may deem appropriate. The failure of Landlord to relet the
Premises or any part(s) thereof shall not release or affect Tenant's liability
for damages hereunder. Landlord shall in no event be liable in any way
whatsoever for failure to relet the Premises, or in the event the Premises are
relet, for failure to collect the rent thereof under such reletting, and in no
event shall Tenant be entitled to receive the excess, if any, of the net rents
collected by Landlord over the sums payable by Tenant hereunder.
26.4 (a) The damages which Landlord shall be entitled to recover
from Tenant shall be the sum of
(1) all Base Rent and Additional Rent accrued and
unpaid as of the termination date; and
(2) all costs and expenses incurred by Landlord in
recovering possession of the Premises, including counsel fees and the cost of
removal and storage of Tenant's property, improvements and Alterations
therefrom, (ii) the costs and expenses of restoring the Premises to the
condition in which the same were to have been surrendered by Tenant as of the
expiration of the Term, and (iii) the costs of reletting (exclusive of those
covered by the foregoing (ii)) including broker-age fees and counsel fees; and
(3) all Base Rent and Additional Rent (to the extent
that the amount(s) of Additional Rent has been then determined) otherwise
payable by Tenant over the remainder of the Term,
Less (deducting from the total determined under sub-paragraphs (1)(2)
and (3)) all rent and all other additional rent to the extent determinable as
aforesaid (to the extent that like charges would have been payable by Tenant)
which Landlord receives from other tenant(s) by reason of the reletting of the
Premises or any part thereof during or attributable to any period falling within
the otherwise remainder of the Term.
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(b) The damage sums payable by Tenant under the preceding
provisions of this Section 26.4 shall be payable on demand from time to time as
the amounts are determined.
26.5 Landlord shall have all rights and remedies now or hereafter
existing at law with respect to the enforcement of Tenant's obligations
hereunder and the recovery of the Premises. No right or remedy herein conferred
upon or reserved to Landlord or Tenant shall be exclusive of any other right or
remedy, but shall be cumulative and in addition to all other rights and remedies
given hereunder or now or hereafter existing at law. Landlord and Tenant shall
be entitled to injunctive relief in case of the violation, or attempted or
threatened violation, of any covenant, agreement, condition or provision of this
Lease, or to a decree compelling performance of any covenant, agreement,
condition or provision of this Lease.
26.6 Nothing herein contained shall limit or prejudice the right of
Landlord to exercise any or all rights and remedies available to Landlord by
reason of default or to prove for and obtain in proceedings under any bankruptcy
or insolvency laws, an amount equal to the maximum allowed by any law in effect
at the time when, and governing the proceedings in which, the damages are to be
proved, whether or not the amount be greater, equal to or less than the amount
of the loss or damage referred to above.
26.7 No delay or forbearance by Landlord in exercising any right or
remedy hereunder, or Landlord's undertaking or performing any act or matter
which is not expressly required to be undertaken by Landlord shall be construed,
respectively, to be a waiver of Landlord's rights or to represent any agreement
by Landlord to undertake or perform such act or matter thereafter. Waiver by
Landlord of any breach by Tenant of any covenant or condition herein contained
(which waiver shall be effective only if so expressed in writing by Landlord) or
failure by the Landlord to exercise any right or remedy in respect of any such
breach shall not constitute a waiver or relinquishment for the future of
Landlord's right to have any such covenant or condition duly performed or
observed by Tenant or of Landlords rights arising because of any subsequent
breach of any such covenant or condition nor bar any right or remedy of Landlord
in respect of such breach or any subsequent breach. Landlord's receipt and
acceptance of any payment from Tenant which is tendered not in conformity with
the provisions of this Lease or following an Event of Default (regardless of any
endorsement or notation on any check or any statement in any letter accompanying
any payment) shall not operate as an accord and satisfaction or a waiver of the
right of Landlord to recover any payments then owing by Tenant which are not
paid in full, or act as a bar to the termination of the Lease and the recovery
of the Premises because of Tenant's previous default.
27. SURRENDER OF PREMISES.
27.1 No act or thing done by Landlord or its agents during the Term
shall be deemed an acceptance of a surrender of the Premises, and no agreement
to accept a surrender of the Premises shall be valid unless the same be made in
writing and signed by Landlord.
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27.2 On the Expiration Date or upon the sooner termination of this
Lease or upon any re-entry by Landlord upon the Premises, Tenant shall, at its
sole cost and expense, quit, surrender, vacate and deliver the Premises to
Landlord "broom clean" and in working order, condition and repair except for
ordinary wear, tear and damage by fire or other insured casualty, together with
all improvements which have been made upon the Premises (except as otherwise
provided for in this Lease and subject to the provisions of Articles 11 and 12).
Tenant shall remove from the Premises and the Building all of Tenant's personal
property and personal effects of all persons claiming through or under Tenant,
and shall promptly pay Landlord the cost to repair all damage to the Premises
and the Building occasioned by such removal within thirty (30) days of the
Expiration Date, unless Landlord intends to demolish the Premises to allow the
next tenant to construct its tenant improvements and the damage caused by Tenant
will be eliminated or repaired as a result of such new construction.
27.3 If the Expiration Date or the date of sooner termination of this
Lease shall fall on a day which is not a business day, then Tenant's obligations
under Section 27.2 shall be performed on or prior to the immediately preceding
business day.
27.4 Any Alterations or any personal property of Tenant which shall
remain in the Premises after the termination of this Lease shall be deemed to
have been abandoned and either may be retained by Landlord as its property or
may be disposed of, at Tenant's expense, in such manner as Landlord may
determine.
27.5 If the Premises are not surrendered upon the termination of this
Lease, with respect to only such portion not surrendered, Tenant hereby
indemnifies Landlord and holds it harmless against any loss, cost, expense
and/or liability (including attorney's fees), excluding consequential damages,
resulting from or incurred by Landlord in connection with any delay by Tenant in
so surrendering the Premises.
27.6 In the event Tenant remains in possession of tile Premises after
the termination of this Lease without the consent of Landlord, Tenant, at the
option of Landlord and without waiving the liability of Tenant, shall be deemed
to be occupying the Premises as a tenant from month-to-month, at a monthly
rental equal to the Base Rent and Additional Rent payable during the last month
of the Term for the first thirty (30) days of such holdover and 1.5 times the
Base Rent and Additional Rent payable thereafter, subject to all of the other
terms of this Lease, insofar as the same are applicable to a month-to-month
tenancy.
27.7 Tenant's obligations under this Article shall survive the
expiration or earlier termination of this Lease.
28. BROKERAGE.
28.1 Each party warrants that it has had no dealings with any broker or
agent in connection with the negotiation or execution of this Lease except for
Insignia/ESG Inc. (on behalf of Landlord) and WF Realty LLC (on behalf of
Tenant). Landlord shall be solely responsible for any potential claims of which
it has knowledge. Landlord shall be
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responsible for paying any commissions to said brokers pursuant to a separate
agreement(s) with them. Landlord shall have no liability for any brokerage
commission arising from a sublease or assignment by Tenant. The provisions of
this Article shall survive the expiration or sooner termination of this Lease.
29. TENANT ESTOPPEL CERTIFICATES.
29.1 Tenant agrees to execute and return within ten (10) business days
after request by Landlord or the holder of any Superior Mortgage, a certificate
prepared by Landlord and signed by Tenant (i) substantially in the form annexed
hereto as Exhibit O, which certificate may also set forth such further
information with respect to the Lease or the Premises as Landlord or any
Superior Mortgagee may reasonably request. Any such certificate delivered by
Tenant pursuant hereto shall be binding upon Tenant and may be relied upon by
Landlord, any Superior Mortgagee or prospective mortgagee, or any prospective
purchaser of the Land and/or the Building or any part thereof or any interest
therein. Tenant shall, as soon as possible but in any event within ten (10)
business days following receipt of said proposed certificate from Landlord,
return a fully executed, dated and notarized copy of said certificate to
Landlord. In the event Tenant shall fail to return a fully executed copy of such
certificate (or a fully executed copy of a modified certificate acceptable to
Landlord) to Landlord within the foregoing ten (10) business day period, then an
Event of Default shall exist under this Lease.
30. LANDLORD ESTOPPEL CERTIFICATES.
30.1 Landlord agrees to furnish within ten (10) business days after
request by Tenant a certificate signed by Landlord stating the date to which
Base Rent and Additional Rent has been paid by Tenant and confirming the absence
or existence of defaults hereunder of which Landlord has knowledge.
31. NOTICES.
31.1 Each provision of this Lease, or of any applicable governmental
laws, ordinances, regulations, and other requirements with reference to the
sending, mailing or delivery of any notice, or with reference to the making of
any payment by Tenant to Landlord, shall be deemed to be complied with when and
if the following steps are taken:
(a) All Base Rent, Additional Rent and other payments required
to be made by Tenant to Landlord hereunder shall be payable to Landlord at the
address set forth in the Fundamental Lease Provisions or at such other address
as Landlord may specify from time to time by written notice delivered in
accordance herewith.
(b) All notices, requests, demands or other communications
(each, a "Notice") with respect to this Lease, whether or not herein expressly
provided for, shall be in writing and shall be given by a receipted hand
delivery or by United States certified or registered mail, postage prepaid,
return receipt requested, or by receipted express mail or receipted overnight
courier, or by telecopier (with a requirement of electronic confirmation of
receipt if a Notice is sent by telecopier) to the parties
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(including the parties entitled to receive a copy of such Notice as set forth in
the Fundamental Lease Provisions) at their respective addresses or telecopy
numbers as set forth in the Fundamental Lease Provisions. Any such addresses for
the giving of Notice may be changed by either party by giving Notice thereof to
the other. Notices shall be deemed given when so mailed, except for any Notice
of default, which shall be deemed given when received and except for Notices
sent by telecopier, which shall be deemed given when sent.
32. PERSONAL MATTERS.
32.1 The liability of Landlord to Tenant for any default by Landlord
under the terms of this Lease shall be limited to the interest of Landlord in
the Building, including any rental income, insurance proceeds, condemnation
awards or sales or refinancing proceeds then being held by Landlord and not
previously distributed to its members and any future rental income, insurance
proceeds, condemnation awards or sales or refinancing proceeds to the extent
levied upon by Tenant and in no event shall Tenant make any claim against the
members, shareholders, officers, directors, individuals, partners or joint
venturers of Landlord, or any partners of such partners or joint venturers, for
any deficiency nor shall any such members, shareholders, officers, directors,
individuals, partners or joint venturers, or any partners of such partners or
joint venturers, have or be subject to any personal liability and the assets of
such parties shall not be subject to levy, attachment or other enforcement of a
remedy sought by Tenant or anyone claiming by, through or under Tenant for any
breach or claim hereunder. This clause shall not be deemed to limit or deny any
remedies which Tenant may have in the event of default by Landlord hereunder
which do not involve the personal liability of Landlord.
33. ENVIRONMENTAL MATTERS.
33.1 Tenant shall not engage in operations at the Premises which
involve the generation, manufacture, refining, transportation, treatment,
storage, handling or disposal of Hazardous Materials. Tenant further covenants
that it will not cause or permit to exist, as a result of an intentional or
unintentional action or omission on Tenants part, the releasing, spilling,
leaking, pumping, pouring, emitting, emptying or dumping from, on or about the
Premises of any Hazardous Materials.
33.2 (a) Tenant its agents, employees, on-site contractors, and
invitees, shall be in compliance with all applicable state, federal, and local
environmental and safety laws and regulations, shall obtain and maintain all
permits, licenses, and authorizations required for Tenant's business, equipment,
and operations on and in connection with the Premises, shall comply with all
terms and conditions of such permits, licenses, and authorizations, and shall
comply with all applicable laws, statutes, rules, regulations, requirements,
orders, and directives of Governmental Authorities including, without
limitation, the Resource Conservation and Recovery Act (42 U.S.C., Section 6901
et seq.); the Comprehensive Environmental Response, Compensation and Liability
Act (42 U.S.C., Section 9601 et seq.); the New York Environmental Conservation
Law; all applicable fire and municipal building codes, and any amendments
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thereto and any applicable guidelines or regulations promulgated thereunder
(collectively, the "Applicable Laws").
(b) Tenant shall certify to Landlord, on request, that (i)
Tenant, its agents, employees, on-site contractors, and invitees, are in
compliance with the requirements of all Applicable Laws, (ii) no disposal of
Hazardous Materials has occurred on, in, under or about the Premises for which
Tenant is responsible, and (iii) no release of Hazardous Materials has occurred
on, in, under or about the Premises for which Tenant is responsible.
(c) Tenant shall indemnify, defend, and hold Landlord harmless
from and against any and all claims, judgments, damages, penalties, fines,
liabilities, losses, and costs and expenses (including attorney's fees and court
costs) which arise at any time during or after the Term as a result of or in
connection with (i) Tenant's breach of any prohibition or requirements set forth
in this Section, and (ii) any Hazardous Materials present or occurring in the
Premises as a result of Tenant's, its agents', employees', on-site contractors',
or invitees' activities or omissions on or in connection with the Premises. This
obligation by Tenant to indemnify, defend, and hold harmless Landlord includes,
without limitation, costs incurred in connection with any investigation of site
conditions, preparation of any remedial or cleanup plan, or any cleanup,
remedial, removal, or restoration work required by Landlord or any Governmental
Authority because of any Hazardous Materials occurring or present in, on, under,
or about the Premises, diminution in value of the Premises, damages for the loss
or amenity of the Premises, and sums paid in settlement of claims, penalties,
attorneys' fees, court costs, consultant and laboratory fees, and expert's fees
as a result of Tenant's, its agents', employees', on-site contractors, or
invitees' activities or omissions on or in connection with the Premises. Without
limiting the foregoing, if any Hazardous Materials attributable to Tenant, its
agents', employees', on-site contractors' or invitees' activities of any of
them, are found on, under or about the Premises, Tenant shall promptly take all
actions, at its sole expense, necessary to return the Premises to the condition
existing prior to the introduction of Hazardous Materials to the Premises in
accordance with Applicable Laws; provided (i) that, except in emergency
situations (in which case Notice shall be given to Landlord as soon as
practicable), Landlord's approval of such actions shall first be obtained, which
approval shall not be unreasonably withheld or delayed, and (ii) if it is
impossible to return the Premises to such condition, as determined by Landlord
in its reasonable judgment, then Tenant may substitute an alternative action
which will achieve and maintain the safe condition of the Premises, if such
alternative is acceptable to Landlord in its sole reasonable discretion.
33.3 In the event of Tenant's failure to comply in full with this
Article 33, Landlord may, at Landlord's option, perform any and all of Tenant's
obligations as aforesaid and all costs and expenses incurred by Landlord in the
exercise of this right shall be deemed to be Additional Rent payable on demand
and with interest until payment at the rate provided in Section 6.1.
33.4 (a) Landlord shall not engage in operations at the Premises
which involve the generation, manufacture, refining, transportation, treatment,
storage,
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handling or disposal of Hazardous Materials. Landlord further covenants that it
will not cause or permit to exist, as a result of an intentional or
unintentional action or omission on Landlord's part, the releasing, spilling,
leaking, pumping, pouring, emitting, emptying or dumping from, on or about the
Premises of any Hazardous Materials.
(b) Landlord shall indemnify, defend, and hold Tenant harmless
from and against any and all claims, judgments, damages, penalties, fines,
liabilities, losses, and costs and expenses (including attorney's fees and court
costs) which arise at any time during or after the Term as a result of or in
connection with (i) Landlord's breach of any prohibition or requirements set
forth in this Section, and (ii) any Hazardous Materials present or occurring in
the Premises as a result of Landlord's, its agents', employees' or on-site
contractors' activities or omissions on or in connection with the Premises. This
obligation by Landlord to indemnify, defend, and hold harmless Tenant includes,
without limitation, costs incurred in connection with any investigation of site
conditions, preparation of any remedial or cleanup plan, or any cleanup,
remedial, removal, or restoration work required by any Governmental Authority
because of any Hazardous Materials occurring or present in, on, under, or about
the Premises, damages for the loss or amenity of the Premises, and sums paid in
settlement of claims, penalties, attorneys' fees, court costs, consultant and
laboratory fees, and expert's fees as a result of Landlord's, its agents',
employees' or on-site contractors' activities or omissions on or in connection
with the Premises. Without limiting the foregoing, if any Hazardous Materials
attributable to Landlord, its agents', employees' or on-site contractors'
activities of any of them, are found on, under or about the Premises, Landlord
shall promptly take all actions, at its sole expense, necessary to return the
Premises to the condition existing prior to the introduction of Hazardous
Materials to the Premises in accordance with Applicable Laws; provided (i) that,
except in emergency situations (in which case Notice shall be given to Tenant as
soon as practicable), Tenant's approval of such actions shall first be obtained,
which approval shall not be unreasonably withheld or delayed, and (ii) if it is
impossible to return the Premises to such condition, as determined by Tenant in
its reasonable judgment, then Landlord may substitute an alternative action
which will achieve and maintain the safe condition of the Premises, if such
alternative is acceptable to Tenant in its reasonable discretion.
33.5 Landlord, its agents, employees, and on-site contractors shall be
in compliance with all Applicable Laws, shall obtain and maintain all permits,
licenses, and authorizations required for Landlord's business, equipment, and
operations on and in connection with the Premises, shall comply with all terms
and conditions of such permits, licenses, and authorizations, and shall comply
with all Applicable Laws.
33.6 As used herein, the term "Hazardous Materials" means any
hazardous, toxic, flammable, or explosive substance, material, or waste which is
or becomes regulated by any Governmental Authority. The term Hazardous Materials
includes, without limitation, any material or substance which is (i) petroleum,
(ii) asbestos, (iii) designated as a "hazardous substance" pursuant to Section
311 of the Federal Water Pollution Control Act (33 U.S.C., Section 1317), (iv)
defined as "hazardous waste" pursuant to Section 1004 of the Federal Resource
Conservation and Recovery Act, 42 U.S.C., Section 6901 et seq., (v) defined as a
"hazardous substance" pursuant to
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Section 101 of the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C., Section 9601 et seq., (vi) defined as a "hazardous
substance" or "hazardous waste" under the New York Environmental Conservation
Law, or (vii) defined as a "hazardous" or "toxic" substance in any law similar
to or in any amendment of any of the foregoing laws. Hazardous Materials shall
not include any materials stored on or used at the Premises in quantities which
do not violate Applicable Law and which materials are used in the ordinary
conduct of Landlord's or Tenant's, as the case may be, business at the Premises.
33.7 This Article 33 shall survive the expiration or sooner termination
of this Lease.
34. ARBITRATION.
34.1 Any controversy or claim between Tenant and Landlord arising out
of or relating to this Lease and specifically made subject to this Article 34
shall be determined by arbitration in New York, New York in accordance with the
Commercial Arbitration Rules then pertaining of the AAA, subject, however, to
the following provisions:
(a) The AAA shall provide the parties with an identical list
of names of persons selected from its panel of arbitrators having not less than
ten (10) years experience in the area of the dispute from which a single neutral
arbitrator mutually acceptable to the parties will be appointed within ten (10)
days of receipt of such list;
(b) If the AAA shall be unable to appoint an arbitrator
mutually acceptable to the parties, or if the parties cannot agree upon an
acceptable arbitrator within the ten (10) days of the receipt of a list of the
arbitrators, it shall appoint a single neutral arbitrator having not less than
ten (10) years experience in the area of the dispute;
(c) The hearings shall occur on consecutive weekdays and shall
commence not later than thirty (30) days after the appointment of the
arbitrator, unless the parties shall agree otherwise in writing;
(d) All fees and expenses of the arbitrator and the AAA shall
be borne equally by Landlord and Tenant; and
(e) Within thirty (30) days after the close of hearings, the
arbitrator shall render a written decision on each issue presented, setting
forth specifically the reasons therefor.
35. SECURITY AREA.
35.1 Notwithstanding anything to the contrary contained in this Lease,
in the event that at any time during the Term Tenant shall give a Notice to
Landlord designating an area of the Premises which is used by Tenant for the
storage of money, securities or valuable or confidential documents as the
"Security Area", then from and after the date designated in such Notice, which
shall be not less than five (5) days after the date of
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Landlord's receipt of Tenant's Notice, except in the event of an emergency
Landlord and its agents shall not exercise any right to enter the Security Area,
unless Landlord is accompanied by an employee of Tenant, provided that Tenant
shall make an employee available to accompany Landlord or its agents during such
entry at any time during Business Hours. The location, installation and
maintenance of the Security Area by Tenant shall comply with all requirements of
Article 12, Insurance Requirements and Legal Requirements.
36. NO RECORDING.
36.1 Neither party shall have the right to record this Lease and same
shall not be recorded. Any recording or attempted recording of this Lease by
Tenant shall constitute an Event of Default; provided, however, either party may
request that a memorandum of lease in the form attached hereto as Exhibit P be
recorded.
37. MISCELLANEOUS.
37.1 Neither Landlord nor Landlord's agents or brokers have made any
representations or promises with respect to the Premises or the Building except
as herein expressly set forth and no rights, easements or licenses are acquired
by Tenant by implication or otherwise except as expressly set forth in the
provisions of this Lease.
37.2 The submission of this Lease to Tenant shall not be construed as
an offer, nor shall Tenant have any rights with respect thereto unless and until
Landlord and Tenant shall execute a copy of this Lease and Landlord delivers a
fully executed copy to Tenant and Landlord delivers to Tenant evidence of the
written approval of the Landlord's mortgagee to this Lease (which evidence shall
be in the form of a subordination, nondisturbance and attornment in the form
attached as Exhibit B executed by Lehman Brothers).
37.3 Any approval by Landlord or Landlord's architects and/or engineers
of any of Tenant's drawings, plans and specifications which are prepared in
connection with Tenant's Work, any Alterations or construction of other
improvements in the Premises shall not in any way be construed or operate to
bind Landlord or to constitute a representation or warranty of Landlord as to
the adequacy or sufficiency of such drawings, plans and specifications, or the
improvements to which they relate, for any use, purpose, or condition, but such
approval shall merely be the consent of Landlord as may be required hereunder in
connection with Tenant's Work, any Alterations or the construction of other
improvements in the Premises in accordance with such drawings, plans and
specifications.
37.4 If Tenant signs as a corporation, each of the persons executing
this Lease on behalf of Tenant does hereby covenant and warrant that Tenant is a
duly authorized and existing corporation, qualified to do business in New York,
that the corporation has full right and authority to enter into this Lease, and
that each of the persons signing on behalf of the corporation were authorized to
do so.
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37.5 The liability of Tenant to Landlord for any default by Tenant
under this Lease shall be limited to the assets of Tenant and in no event shall
Landlord make any claim against the members, shareholders, officers or directors
of Tenant for any deficiency, nor shall any such members, shareholders, officers
or directors of Tenant be subject to any personal liability or the assets of
such parties be subject to levy, attachment or other enforcement of a remedy
sought by Landlord or anyone claiming by, through or under Landlord for any such
a claim hereunder. This clause shall not be deemed to limit or deny any remedies
which Landlord may have in the event of default by Tenant hereunder which do not
involve the personal liability of Tenant.
37.6 Although this Lease was drawn by Landlord, both Landlord and
Tenant have had significant comment with respect to the terms and provisions
contained therein. Accordingly, this Lease shall not be construed either for or
against Landlord or Tenant, but shall be construed simply according to its fair
meaning.
37.7 Whenever a period of time is herein prescribed for action to be
taken by a party, such party shall not be liable or responsible for, and there
shall be excluded from the computation for any such period of time, any delays
caused by or attributable to acts of God, unusual weather conditions, strikes,
lockouts, labor disputes, inability to obtain an adequate supply of materials,
fuel, water, electricity, or other supplies, casualty, governmental action,
accidents, breakage, repairs or any other causes of any kind whatsoever which
are beyond the reasonable control of such party (collectively, "Force Majeure").
37.8 If any clause or provision of this Lease is illegal, invalid, or
unenforceable under present or future laws effective during the Term, then and
in that event, the remainder of this Lease shall not be affected thereby. In
lieu of each clause or provision of this Lease that is illegal, invalid or
unenforceable, there shall be added as a part of this Lease a clause or
provision as similar in terms to such illegal, invalid or unenforceable clause
or provision as may be possible and legal, valid and enforceable.
37.9 This Lease may not be altered, changed or amended, except by
instrument in writing signed by both parties hereto. No provision of this Lease
shall be deemed to have been waived by Landlord unless such waiver be in writing
signed by Landlord and addressed to Tenant, nor shall any custom or practice
which may evolve between the parties in the administration of the terms hereof
be construed to waive or lessen the right of Landlord to insist upon the
performance by Tenant in strict accordance with the terms hereof.
37.10 Provided Tenant has performed all of the terms and conditions of
this Lease, including the payment of Base Rent and Additional Rent, to be
performed by Tenant, Tenant shall peaceably and quietly hold and enjoy the
Premises for the Term, without hindrance from Landlord or anyone claiming
through Landlord, subject to the terms and conditions of this Lease.
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37.11 Words of any gender used in this Lease shall be held and
construed to include any other gender, and words in the singular number shall be
held to include the plural, unless the context otherwise requires.
37.12 The captions contained in this Lease are for the convenience of
reference only, and in no way limit or enlarge the terms and conditions of this
Lease.
37.13 Nothing contained in this Lease shall be deemed or construed to
create a partnership or joint venture of or between Landlord and Tenant, or to
create any other relationship between the parties hereto other than that of
Landlord and Tenant.
37.14 The term "Landlord" as used in this Lease shall mean only the
owner, or the mortgagee in possession, for the time being, of the Building, or
the owner of a lease of the Building, so that in the event Landlord shall sell
or convey the Building to any party, and such party shall have assumed in
writing the obligations of Landlord arising from and after the date of such
sale, all liabilities and obligations on the part of the Landlord under this
Lease accruing thereafter shall terminate, and thereupon all such liabilities,
and obligations shall be binding on the new landlord, and it shall be so deemed
and construed without further agreement between Landlord and its successors in
interest.
37.15 The provisions of this Lease shall be binding upon, and shall
inure to the benefit of, the parties hereto with respect to the matters set
forth herein and to the extent permitted under this Lease to each of their
respective representatives, successors and assigns.
37.16 This Lease, together with the Exhibits attached hereto, contains
and embodies the entire agreement of the parties hereto, and no representations,
inducements or agreements, oral or otherwise, between the parties not contained
in this Lease, and the Exhibits annexed hereto, shall be of any force or effect.
37.17 This Lease and the rights and obligations of both parties hereto
hereunder shall be governed by the laws of the State of New York.
37.18 If the Base Rent or any Additional Rent shall be or become
uncollectible by virtue of any law, governmental order or regulation, or
direction of any public officer or body, Tenant shall enter into such agreement
or agreements and take such other action (without additional expense to Tenant)
as Landlord may request, and as may be legally permissible, to permit Landlord
to collect the maximum Base Rent and Additional Rent which may, from time to
time during the continuance of such legal rent restriction be legally
permissible, but not in excess of the amounts of Base Rent and Additional Rent
payable under this Lease. Upon the termination of such legal rent restriction,
(A) the Base Rent and Additional Rent, after such termination, shall become
payable under this Lease in the amount of the Base Rent and Additional Rent set
forth in this Lease for the period following such termination, and (B) Tenant
shall pay to Landlord, if legally permissible, an amount equal to (i) the Base
Rent and Additional Rent which would have been paid pursuant to this Lease, but
for such rent restriction, less (ii) the Base Rent and Additional Rent paid by
Tenant to Landlord during the period that such rent restriction was in effect.
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37.19 To the extent either Landlord's or Tenant's approval, or consent
is required under the terms of this Lease, such consent, unless otherwise
specifically set forth in this Lease, shall not be unreasonably withheld or
delayed by the party whose consent is requested.
37.20 In any instance in this Lease where amounts, Tenant's
Proportionate Share, rentable or usable square footage, dates, or any other such
information or data changes are required, Landlord shall prepare, and Tenant and
Landlord shall mutually execute, an agreement confirming such information or
data, and amend the Memorandum of Lease and Subordination, Non-Disturbance and
Attornment Agreement accordingly.
37.21 Landlord has advised Tenant that Landlord may condominiumize
portions of the Building and operate such portions as single independent units,
subject to the terms of this Lease, for financing or other purposes. If Landlord
shall so change the ownership structure of the Building, for purposes of this
Lease, Tenant's Proportionate Share shall be proportionately adjusted to reflect
the reduced rentable square footage of the Building comprising the unit in which
the Premises are located (the "Premises Unit"). In such event, Taxes will only
include the Taxes assessed against the Premises Unit, and will not include Taxes
assessed against any other portions of the Building, and Operating Expenses
shall only include those Operating Expenses properly allocable to the Premises
Unit. Notwithstanding any provisions of this Section 37.21 to the contrary, in
no event shall any such change in the structure of the Building reduce any of
Tenant's rights or increase any of Tenant's obligations under this Lease.
38. EXPANSION OPTION.
38.1 Tenant shall have the right to expand the Premises in accordance
with the terms of this Article. Unless waived by Landlord, it shall be a
condition precedent to the exercise of each option set forth below that no Event
of Default exists on the date Notice of the exercise of the expansion option is
given by Tenant and on the effective date on which the applicable space is added
to the Premises. Except as set forth in this Article, all of the space leased by
Tenant under this Article shall be part of the Premises and subject to all of
the other provisions of this Lease. All options granted under this Section 38.1
are personal to Tenant and the applicable Related Corporation and may not be
exercised by any assignee or subtenant.
38.2 Tenant shall have the following additional expansion options, any
one or more of which may be exercised by Tenant:
(a) The entire seventeenth (17th) floor of the Building
composed of 28,098 rentable square feet marked on the drawing attached hereto as
Exhibit Q. Tenant must give Notice of the exercise of its option with respect to
this space by no later than August 31, 2000 or Landlord shall have the right to
lease such space for a term not to exceed ten (10) years.
(b) The entire nineteenth (19th) floor of the Building
composed of 28,098 rentable square feet marked on the drawing attached hereto as
Exhibit R,
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provided Tenant exercises the option set forth in Section 38.2(a) by not later
than February 28, 2000. Prior to February 28, 2000, Landlord shall not actively
market such space. Tenant must give Notice of the exercise of its option with
respect to this space by no later than August 31, 2000 or the option shall
expire.
(c) The entire twelfth (12th) floor of the Building composed
of 27,845 rentable square feet marked on the drawing attached hereto as Exhibit
S. Tenant must give Notice of the exercise of its option with respect to this
space by no later than the first day of the thirteenth (13th) month prior to the
ten (10) year anniversary of the Base Rent Commencement Date or the option shall
expire.
(d) The entire eighteenth (18th) floor of the Building
composed of 28,098 rentable square feet marked on the drawing attached hereto as
Exhibit T. Tenant must give Notice of the exercise of its option with respect to
this space by no later than July 30, 2002 or the option shall expire.
Notwithstanding anything contained in this Lease to the contrary, if Tenant has
elected, prior to the exercise of this option, to exercise the option set forth
in Section 39.2 to convert the storage space to office use, Tenant shall only be
entitled to receive concessions with regard to the portion of the eighteenth
floor not previously leased by Tenant.
38.3 Time is of the essence with respect to each of Tenant's Notice
deadlines set forth in Section 38.2.
38.4 In the event that Tenant properly exercises an expansion option as
set forth in Section 38.2, any area leased within the first three (3) years from
the Beneficial Occupancy Date, the applicable area will be leased to Tenant
effective as of the day that Landlord Substantially Completes Landlord's Work
within the applicable area. Upon delivery of any space to Tenant, Tenant's
Proportionate Share shall be adjusted accordingly. In the event Tenant exercises
any option prior to the third (3rd) anniversary of the Beneficial Occupancy
Date, the Base Rent shall be the then existing Base Rent and the concessions
shall be the same as the initial concessions (i.e., six months free rent from
completion of work but not more than nine months free rent from delivery of such
space to Tenant, tenant improvement allowance of $40.50 per rentable square
foot). In the event Tenant exercises any option after the third anniversary of
the Beneficial Occupancy Date, the Base Rent shall be the Fair Market Value of
such space (with such value being determined in accordance with Section 2.4(c)).
38.5 Except as otherwise specifically provided in this Article 38, any
failure by Tenant to exercise any option under this Article 38 shall not
adversely affect or diminish the rights of Tenant under this Article 38 or under
Article 43 of the Lease.
39. EIGHTEENTH FLOOR STORAGE SPACE.
39.1 On the execution of this Lease, Tenant has leased approximately
4,000 rentable square feet in the eighteenth floor of the Building as storage,
shipping, receiving or mailroom space, in its as-is condition. The location of
such space shall be designated by Landlord by not later than thirty (30) days
after the date of this Lease and the location
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of same shall be reasonably acceptable to Tenant. The expiration date for
Tenant's use of such space shall be April 30, 2003 unless Tenant exercises the
option set forth in Section 38.2.
39.2 At any time prior to April 30, 2003, Tenant on not less than
thirty (30) days prior Notice to Landlord may convert the use of such space from
storage, shipping, receiving or mailroom space to general office use. Upon the
date of conversation, the Base Rent shall be the then existing Base Rent,
Tenant's Proportionate Share shall be adjusted accordingly and Tenant shall be
entitled to receive the initial concessions (i.e., six months free rent from
completion of work but not more than nine months free rent from delivery of such
space to Tenant, tenant improvement allowance of $40.50 per rentable square
foot) granted to Tenant, prorated accordingly.
40. TERMINATION RIGHT OF TENANT
40.1 Tenant has the option, which may be exercised by Tenant in its
sole and absolute discretion, to terminate this Lease in the event the City of
New York does not, within sixty (60) days of the date of this Lease, grant to
Tenant an economic incentive program acceptable to Tenant. Tenant shall
terminate this Lease by delivering a Notice to Landlord within five (5) days of
the end of such sixty (60) day period. Notwithstanding the foregoing, Landlord
shall commence performing Landlord's Work on the execution of this Lease, and
Tenant shall reimburse Landlord for any costs Landlord incurs regarding
Landlord's Work commencing on the date of the Lease. Said costs shall be
reimbursed to Landlord within ten (10) days of the delivery of an invoice to
Tenant.
41. THE LOWER MANHATTAN PLAN.
41.1 For purposes of this Article 41, unless otherwise defined in this
Lease, all terms used herein shall have the meanings ascribed to them in Title 4
of Article 4 of the New York Real Property Tax Law (the "Lower Manhattan Plan").
Landlord represents the Building qualifies for the benefits of the Lower
Manhattan Plan. Landlord makes no representations as to whether Tenant qualifies
for such benefits. It shall be Tenant's responsibility to determine whether it
qualifies for such benefits.
41.2 For purposes of the Lower Manhattan Plan, Tenant's Percentage
Share shall mean Tenant's Proportionate Share.
41.3 Provided Tenant is eligible for the real estate tax abatement of
the Lower Manhattan Plan (the "LMP Abatement Benefits") with respect to the
Premises, Landlord agrees to comply with the provisions and requirements of the
Lower Manhattan Plan and the rules promulgated thereunder as the same relate to
the Premises and to Landlord (in connection with Tenant's eligibility for the
LMP Abatement Benefits); provided, however, that Tenant shall promptly pay to
Landlord, as Additional Rent hereunder, within twenty (20) days after Tenant's
receipt of an invoice therefor, the amount of any reasonable out-of-pocket costs
incurred by Landlord in connection with such compliance, including, without
limitation the amount of any administrative charges or fees (generally
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filing fees of a de minimis amount) imposed by the New York City Department of
Finance (the "Department") in connection with such compliance.
41.4 Tenant shall indemnify and hold harmless Landlord from and against
any and all claims arising from or in connection with Tenant's failure to comply
with the provisions and requirements of the Lower Manhattan Plan and the rules
promulgated thereunder as the same relate to the Premises, together with all
costs, expenses and liabilities incurred in connection with each such claim or
action or proceeding brought thereon, including, without limitation, all
attorneys' fees and expenses.
41.5 In accordance with the Lower Manhattan Plan and notwithstanding
anything to the contrary contained in this Lease, Landlord agrees to allow
Tenant a credit against the Base Rent and Additional Rent payable by Tenant
hereunder in an amount that, in the aggregate, equals the full amount of any
abatement of Taxes granted for the Premises pursuant to the Lower Manhattan Plan
and actually received by Landlord (the "Actual LMP Benefits"). Landlord shall,
within thirty (30) days after its receipt of the Actual LMP Benefits, credit the
full amount thereof against the next installment(s) of Base Rent and or
Additional Rent becoming due hereunder.
41.6 In accordance with Section 499-c(5) of the Lower Manhattan Plan,
Landlord agrees and informs Tenant that:
(1) the rent, including amounts payable by Tenant for
Taxes, provided Tenant qualifies for the benefit of the Lower Manhattan Plan
will accurately reflect any abatement of Taxes granted pursuant to Title 4 of
Article 4 of the New York Property Tax Law for the Premises.
(2) at least thirty-five dollars ($35.00) per square
foot must be spent on improvements to the Premises.
(3) all abatements granted with respect to the
Premises pursuant to Title 4 of Article 4 of the New York Real Property Law will
be revoked if, during the Benefit Period, real estate taxes or water or sewer
charges or other lienable charges are unpaid for more than one year, unless such
delinquent amounts are paid as provided in subdivision four of section four
hundred ninety-nine of Title 4 of the New York Real Property Law. In the event
the aforesaid abatement is revoked because Landlord failed to pay the aforesaid
charges, Landlord shall indemnify Tenant from any loss of benefits which Tenant
incurs, including any retroactive revocation of benefits.
41.7 Nothing contained herein shall be construed to impose any
obligation on Landlord to perform any improvements to the Premises and/or the
common areas to establish Tenant's eligibility for the LMP Abatement Benefits.
Landlord represents that it has performed all of the obligations imposed upon
Landlord for the Building to be eligible for LMP Abatement Benefits which can be
performed as of the date of execution of this Lease.
41.8 (a) Landlord, upon not less than thirty (30) business days
advance written notice from Tenant, agrees to cooperate with Tenant to execute,
deliver
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and file, together with the Abatement Application, the affidavit required by
Section 499-C(7) of the Lower Manhattan Plan.
(b) Landlord, upon not less than thirty (30) business days
advance written notice from Tenant, agrees to cooperate with Tenant to execute,
deliver and file, within sixty (60) days after receipt of such notice, an
application (the "Abatement Application") for a certificate of abatement in
accordance with Section 499-D of the Lower Manhattan Plan. Landlord further
agrees to provide all other information required by the Department pursuant to
Section 499-D of the Lower Manhattan Plan and to otherwise comply with the
provisions of said Section 499-D.
(c) For so long as Tenant continues to be eligible for the LMP
Abatement Benefits with respect to the Premises, Landlord, upon not less than
thirty (30) business days advance written notice from Tenant, agrees to
cooperate with Tenant to annually execute, deliver and file a certificate of
continuing eligibility in accordance with Section 499-F of the Lower Manhattan
Plan.
(d) Tenant shall promptly pay to Landlord, as Additional Rent,
within twenty (20) days after Tenant's receipt of an invoice therefor, the
amount of any reasonable out-of-pocket costs incurred by Landlord in connection
with the performance of Landlord's obligations pursuant to this Section,
including, without limitation, the amount of any administrative charges or fees
imposed by the Department in connection with such compliance.
41.9 Landlord agrees to provide Tenant with such further cooperation
("Further Cooperation") as may reasonably be requested by Tenant to assist
Tenant in obtaining any incentives, subsidies, refunds or payments ("Further
Benefits") made available to Tenant by (i) any modification to or amendment of
the Lower Manhattan Plan, (ii) any program of the New York City Industrial
Development Agency or any other governmental agency or (iii) any public utility;
provided, and on condition that:
(a) such Further Cooperation shall be at no cost to Landlord;
and
(b) Tenant shall indemnify and hold harmless Landlord from and
against any and all claims arising from or in connection with such Further
Cooperation and the receipt by Tenant of such Further Benefits together with all
costs, expenses and liabilities incurred in connection with each such claim or
action or proceeding brought thereof, including, without limitation, all
attorneys' fees and expenses.
42. GUARANTEE, SECURITY DEPOSIT.
42.1 In order to induce Landlord to execute and deliver this Lease,
Tenant shall procure and deliver to Landlord a guarantee in the form attached
hereto as Exhibit D duly executed by Omnicom Group Inc.
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42.2 The obligations under this Lease imposed upon Tenant shall be the
joint and several obligations of Tenant and Omnicom. Landlord need not first
proceed against Tenant before proceeding against such guarantor nor shall any
such guarantor be released from its guaranty for any reason whatsoever,
including, without limitation, in case of any amendments hereto or waivers
hereof. Any guarantee shall be a guarantee of payment and not a guarantee of
collection.
42.3 At any time during the Term and until the conditions set forth in
Section 23 of the Guaranty have been satisfied, Tenant may substitute a letter
of credit in the amount of the obligations still outstanding under the Guaranty.
In the event Tenant so substitutes the letter of credit, the provisions of
Section 42.4 shall be applicable.
42.4 The letter of credit and the issuer bank must be in all respects
acceptable to Landlord and the letter of credit must provide for partial draws
and that the same may be drawn upon by Landlord pursuant to the provisions of
this Section. In the event Tenant defaults in respect of any of the terms,
provisions and conditions of this Lease, including, but not limited to, the
payment of Base Rent or Additional Rent or if Tenant does not deliver to
Landlord a replacement letter of credit not later than thirty (30) days before
the expiration of the letter of credit, Landlord may apply or retain the whole
or any part of the security deposit so deposited to the extent required for the
payment of any Base Rent and Additional Rent or any other sum as to which Tenant
is in default or for any sum which Landlord may expend or may be required to
expend by reason of Tenant's default in respect of any of the terms, covenants
and conditions of this Lease. If Landlord applies or retains any part of the
security deposit so deposited, Tenant, upon demand, shall deposit with Landlord
the amount so applied or retained so that Landlord shall have the full security
deposit on hand at all times during the Term. If Tenant shall fully and
faithfully comply with all of the terms, provisions, covenants and conditions of
this Lease, the security shall be returned to Tenant after the Expiration Date
and after delivery of the entire possession of the Premises to Landlord. In the
event of a sale of the Building, Landlord shall have the right to transfer the
security deposit to the vendee or lessee and Landlord shall whereupon be
released by Tenant from all liability for the return of the security deposit;
and Tenant agrees to look solely to the new landlord for the return of the
security deposit; and it is agreed that the provisions hereof shall apply to
every transfer or assignment made of the security deposit to a new landlord.
Tenant further covenants that it will not assign or encumber or attempt to
assign or encumber the security deposit and that neither Landlord nor its
successors or assigns shall be bound by any such assignment, encumbrance,
attempted assignment or attempted encumbrance.
43. RIGHT OF FIRST REFUSAL.
43.1 Provided no Event of Default shall have occurred and be continuing
and Tenant has not exercised its expansion options set forth in Section 38.2(a)
or (b), as the case may be, then Tenant shall have the right to exercise the
rights set forth in this Article 43.
43.2 (a) In the event any of the following space (the "Available
Space") becomes Available For Leasing, Tenant shall have the right ("Right of
First
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Offer") to have Landlord submit written Notice (the "Lease Notice") to Tenant of
Landlord's desire to lease the Available Space, which Lease Notice shall be
deemed an offer to Tenant to lease the Available Space:
(i) the nineteenth (19th) floor if Tenant does not
exercise the options set forth in Section 38.2(b), provided, however, prior to
February 28, 2001, Tenant shall only be required to exercise this option if
Landlord has negotiated and is prepared to enter into a lease with a third party
for such space; or
(ii) commencing in the fourth (4th) Lease year,
following the Base Rent Commencement Date, any portion of the twelfth (12th)
floor, at any time prior to the date Tenant must exercise the option set forth
in Section 38.2(c).
(b) The Lease Notice shall set forth, (i) the date on which
Landlord anticipates the Available Space being available for occupancy (the
"Available Space Scheduled Date") and (ii) such other matters as Landlord may
deem appropriate for such Lease, provided, however, all Available Space shall
have expiration dates co-terminus with the Lease, including the Expiration Date.
(c) Tenant shall have ten (10) days following Tenant's receipt
of the Lease Notice to deliver to Landlord written Notice (the "Election to
Lease Notice") of Tenant's desire to lease from Landlord the particular
Available Space being offered to Tenant (Tenant shall not be permitted to rent a
portion of the Available Space then being offered to Tenant, but must lease all
of the space being offered). Time shall be of the essence with respect to said
ten (10) day period and the failure or refusal of Tenant for any reason
whatsoever to deliver to Landlord the Election to Lease Notice in the time and
manner herein prescribed shall be deemed an irrevocable waiver of Tenant's Right
of First Offer, whereupon Tenant's Right of First Offer shall lapse, and be of
no further force or effect as to such Available Space (or any portion thereof)
for the remainder of the Term of the Lease.
(d) If Tenant shall timely and in the manner herein prescribed
deliver its Election to Lease Notice to Landlord, then, on the date on which
Landlord delivers vacant possession of the Available Space to Tenant (the
"Effective Date"), such Available Space shall become, and be deemed to comprise,
part of the Premises as if originally included in the demise hereunder, upon the
terms, covenants and provisions set forth in this Lease, except that (i) the
Base Rent for the Available Space shall be the Fair Market Value of such space,
as determined i accordance with Section 1.2.35 and Section 2.4(d) (taking into
account the work to be performed by Landlord), multiplied by the rentable square
feet of the Available Space (as determined by Landlord in Landlord's reasonable
discretion) and such amount will be added to the Base Rent otherwise payable
under the terms of this Lease and (ii) Tenant's Proportionate Share shall be
adjusted accordingly. The Available Space shall be delivered fully demolished.
(e) The Available Space shall be deemed "Available for
Leasing" if
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(i) the current lease for the Available Space has
expired (after any extension or renewal thereof) prior to the Expiration Date,
and
(ii) the Available Space (or any portion thereof) is
not subject to an expansion option, right of first refusal, right of first offer
or other right or obligation to lease such space granted by Landlord prior to
the date of this lease to any other tenant in the Building. As of the date of
execution of this Lease, there are no options, rights of first refusal, rights
of first offer or other rights or obligations covering the space on either of
the 19th or 12th floors.
(f) If, for any reason, Landlord is unable to deliver
possession of the Available Space to Tenant on or prior to the Available Space
Scheduled Date, then this Lease and the obligations of Tenant hereunder,
including, without limitation, any obligation of Tenant hereunder to lease the
Available Space, shall not be impaired under such circumstances and Landlord
shall not be subject to any liability on account of such failure. Landlord shall
use its best efforts to dispossess any holdover tenant, including the
enforcement of any holdover terms and commencement and prosecution of a
dispossess action. In the event Landlord does not deliver the Available Premises
within six (6) months of the Available Space Scheduled Date, regardless of
fault, Tenant may cancel the option set forth in this Section as to the
undelivered Available Space, and neither Landlord or Tenant shall have any
liability to each other.
44. SURRENDER SPACE.
44.1 Tenant shall have the right, which right may be exercised once
during the Term of this Lease, to reduce the space constituting the Premises by
surrendering one floor of the Premises, provided the following conditions are
complied with by Tenant:
(a) at the time of the exercise of the option provided in this
Article, no Event of Default has occurred and is continuing;
(b) Tenant shall give Landlord Notice of the exercise of this
right at any time after a date which is five (5) years after the Base Rent
Commencement Date, and the date for surrendering such space shall be not earlier
than twelve (12) months from the date that the aforesaid Notice is delivered to
Landlord;
(c) The space surrendered shall be (i) one full floor or (ii)
located on the uppermost or lowest floors occupied by Tenant;
(d) Tenant shall pay to Landlord within twenty (20) days after
Landlord delivers to Tenant an invoice, a cancellation fee equal to (i) three
(3) months Base Rent on the space to be surrendered and (ii) the unamortized or
undepreciated costs associated with such space determined on the basis of an
amortization or depreciation period for the then remaining Term, which cost
shall include, but not be limited to, the following costs which Landlord has
incurred with respect to such space: free rent, the Tenant Improvement
Allowance, brokerage commissions (both to ESG/Insignia and WF Realty LLC) and
the cost of any reasonable alterations required to separate the surrendered
space from the remaining portions of the Premises and to make the
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surrendered space tenantable and rentable. If Tenant fails to timely pay such
fee, the surrender right set forth in this Section shall become null and void
and Tenant shall have no further right to surrender any space. After Tenant pays
to Landlord such fee, Landlord and Tenant shall execute and deliver to each
other an agreement setting forth (i) a description of the portion of the
Premises so surrendered, (ii) the effective date of such surrender, and (iii)
the reduction in Base Rent and in Tenant's Proportionate Share resulting from
such surrender. The parties shall also execute and deliver to each other and
record an amendment to the Memorandum of Lease setting forth a description of
the portion of the Premises so surrendered and the effective date of such
surrender.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of
the day and year first above written.
LANDLORD:
233 BROADWAY OWNERS LLC,
a New York limited liability company
By: /s/ James F. Stomber, Jr.
-------------------------------
, Manager
TENANT:
ORGANIC, INC, a Delaware corporation
By: /s/ Margaret Maxwell Zagel
-------------------------------
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Exhibit A-1
Location Map of Thirteenth Floor Premises
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Exhibit A-2
Location Map of Fourteenth Floor Premises
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Exhibit A-3
Location Map of Fifteenth Floor Premises
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Exhibit A-4
Location Map of Sixteenth Floor Premises
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Exhibit A-5
Location Map of Eighteenth Floor Premises
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Exhibit B
Subordination, Nondisturbance and Attornment Agreement
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SUBORDINATION,
NON-DISTURBANCE AND ATTORNMENT AGREEMENT
233 BROADWAY OWNERS LLC,
LANDLORD
ORGANIC,
TENANT
LEHMAN BROTHERS HOLDINGS INC.
LENDER
Premises:
a portion of the building located at
233 Broadway
New York, New York
Record and Return to:
Jill D. Block, Esq.
Shapiro, Shapses, Block LLP
315 Park Avenue South
19th Floor
New York, New York 10010
<PAGE> 97
SUBORDINATION, NON-DISTURBANCE AND
ATTORNMENT AGREEMENT
This SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT dated this
____ day of ________, 1999 among 233 BROADWAY OWNERS LLC, with an address at c/o
The Witkoff Group LLC ("Landlord"), ORGANIC, a New York corporation with an
address at __________, New York, New York _________ ("Tenant"), and LEHMAN
BROTHERS HOLDINGS INC., a Delaware corporation with an address at 3 World
Financial Center, New York, New York 10285 ("Lender").
W I T N E S S E T H:
WHEREAS, on December 4, 1998 Lender made (i) a loan to Landlord in the
principal amount of $105,000,000.00 of which the principal sum of $105,000,000
is now outstanding (the "Senior Loan") secured by a first mortgage lien and
security interest (the "Senior Mortgage") encumbering the real property and
improvements known as and located at 233 Broadway Owners LLC, New York, New York
and more particularly described on Exhibit A hereto (the "Mortgaged Property"),
and (ii) a certain subordinate loan to Landlord in the principal amount of
$56,135,706.41 (the "Subordinate Loan") secured by a subordinate mortgage lien
and security interest (the "Subordinate Mortgage") encumbering the Mortgaged
Property;
WHEREAS, Landlord and Tenant are parties to that certain Lease
affecting a portion of the Mortgaged Property (such portion, the "Premises")
dated ________, 1999 (the "Lease").
WHEREAS, as security for its obligations in respect of the Loan
Landlord has assigned to Lender all of Landlord's right, title and interest in
and to all existing and future leases affecting the Mortgaged Property,
including the Lease, and the rents payable thereunder;
WHEREAS, the Lease is subject and subordinate to the Senior Mortgage
and the Subordinate Mortgage, and Tenant's right, title and interest in, to and
under the Lease are subject and subordinate to Lender's right, title and
interest in, to and under the Senior Mortgage and the Subordinate Mortgage:
WHEREAS, Tenant has requested that Lender give certain assurances that,
subject to the terms and conditions of this Agreement, Tenant's possession of
the Premises will not be disturbed by reason of foreclosure of the lien of
either the Senior Mortgage or the Subordinate Mortgage, or both, as the case may
be;
WHEREAS, Lender is only willing to provide such assurances to Tenant
upon and subject to the express terms and conditions of this Agreement; and
WHEREAS, Landlord and Tenant have agreed to execute and deliver this
Agreement to Lender.
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NOW, THEREFORE, in consideration of the mutual premises herein
contained, and for other good and valuable consideration, the receipt and legal
sufficiency of which are hereby acknowledged, the parties hereto do mutually
covenant and agree as follows:
1. The Lease is and at all times hereafter shall be subject
and subordinate in all respects to the Senior Mortgage and the Subordinate
Mortgage and to all renewals, modifications, substitutions, consolidations and
extensions thereof, and to all other future mortgages affecting the Mortgaged
Property held by Lender.
2. Any provision in the Lease to the contrary notwithstanding,
a notice by Tenant to Landlord of a default under the Lease by Landlord, which
default is of such a nature as to give Tenant a right to terminate the Lease, to
reduce the rent payable under the Lease or to credit or offset against future
rents, shall be effective only if: (a) such notice is also given to Lender; and
(b) Lender shall not have cured or remedied such default by the later to occur
of: (i) thirty (30) days after Lenders receipt of such notice; or (ii) thirty
(30) days after the expiration of any applicable notice or grace period under
the Lease; provided, however, that if: (A) such default is not reasonably
capable of being cured within the applicable period; and (B) Lender shall
diligently proceed with its efforts to cure, Lender shall have a reasonable
additional period to cure such default. Lender shall have the right, but not the
obligation, to remedy or cure any such default.
3. So long as Tenant is not in default in the payment of rent,
additional rent or other charges, or in the performance of any of the terms,
covenants or conditions of the Lease, such default continuing beyond any
applicable notice or grace period, Tenant's occupancy of the Premises during the
original or any renewal term of the Lease or any extension thereof shall not be
disturbed by Lender by reason of foreclosure of the Senior Mortgage or the
Subordinate Mortgage, or both, as the case may be, the acceptance by Lender or
its designee of a deed in lieu of foreclosure, or the exercise of any remedy
available at law, in equity or under the Senior Mortgage or the Subordinate
Mortgage.
4. Lenders receipt of the rents payable by Tenant under the
Lease, pursuant to the Senior Mortgage and the Subordinate Mortgage or any
assignment of the Lease, shall not obligate Lender to perform Landlord's
obligations under the Lease. Tenant shall make all payments under the Lease to
Lender or its designee upon receipt of written notice that such right has
accrued, and Tenant agrees not to prepay any sums payable by Tenant under the
Lease. Lender's receipt of such rent shall not relieve Landlord of its
obligations under the Lease, and Tenant shall continue to look solely to
Landlord for performance of such obligations.
5. Upon Lender's succession to the rights of Landlord under
the Lease, whether through possession, termination or cancellation of the Lease,
surrender, assignment, judicial action, subletting, foreclosure, delivery of a
deed in lieu of foreclosure or otherwise, Tenant will attorn to and recognize
Lender as the landlord under the Lease, and Lender will accept such attornment
and recognize Tenant's rights of possession and use of the Premises in
accordance with the terms of the Lease. Without
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further evidence of such attornment and acceptance, Tenant shall be bound by,
and shall comply with, each and every term, provision, covenant and obligation
contained in the Lease on Tenants part to be performed. Nothing contained in
this Agreement, or in any other instrument including, without limitation, the
Lease, shall impose upon Lender an obligation to complete or renovate the
Premises for the benefit of Tenant. Tenant's agreement to attorn shall not be
construed as amending Landlord's obligations under the Lease.
6. Lender shall not in any way or to any extent be:
(a) liable for any act or omission of any prior
landlord (including Landlord) in contravention of any provision of the Lease;
(b) subject to any offset, claim or defense which
Tenant might have against any prior landlord (including Landlord), unless Lender
has been given notice and an opportunity to cure the condition giving rise to
such offset, claim or defense as provided in Section 2 hereof;
(c) bound by any rent or additional rent which Tenant
might have paid more than thirty (30) days in advance to any prior landlord
(including Landlord);
(d) bound by any agreement or modification of the
Lease or of any Lease guaranty made without Lenders prior written consent; or
(e) in any way responsible for any security or other
deposit which was delivered to Landlord, and not forfeited by Tenant, but which
was not subsequently delivered to Lender.
7. If Lender or its designee acquires title to the Mortgaged
Property as a result of foreclosure of the Senior Mortgage or Subordinate
Mortgage, acceptance of a deed in lieu of foreclosure, or by obtaining control
of the Premises pursuant to the remedies available to Lender at law, in equity,
under the Senior Mortgage or Subordinate Mortgage, or otherwise, Tenant shall
have no recourse to any assets of Lender or such designee and, except for any
right that might exist as set forth in Section 6(b) hereof, Tenants sole remedy
for any act or omission of Lender or such designee in contravention of any
provision of the Lease shall be to terminate the Lease without recourse. Lenders
acquisition of title to or control of the Mortgaged Property, or the performance
by Lender of any of the obligations of Landlord under the Lease, shall in no
event be construed as an assumption of the Lease by Lender. Upon Lender's or its
designee's acquisition of title to the Mortgaged Property, the Lease shall be
deemed automatically modified to include the provisions contained herein
notwithstanding any other provisions of the Lease.
8. Tenant shall execute such other documents as Lender, in its
sole discretion, may deem necessary or appropriate to evidence the subordination
of the Lease to the Senior Mortgage and Subordinate Mortgage; provided, however,
that such
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documents shall not materially adversely affect the parties' rights or
obligations under the Lease.
9. Any notice, demand, statement, request or consent given or
made hereunder shall be in writing and shall be deemed given on the next
business day if sent by Federal Express or other reputable overnight courier and
designated for next business day delivery, or on the third day following the day
such notice is deposited with the United States postal service first class
certified mail, return receipt requested, addressed to the address, as set forth
above, of the party to whom such notice is to be given, or to such other address
or additional party as Landlord, Tenant or Lender, as the case may be, shall in
like manner designate in writing. A copy of each notice, demand statement,
request or consent given or made hereunder shall be delivered in the manner
herein provided for the giving of notice to the following address:
Copies of notices to Landlord to:
James F. Stomber, Jr., Esq.
233 Broadway Owners LLC
c/o The Witkoff Group LLC
220 East 42nd Street
New York, New York 10017
Copies of notices to Tenant to:
Davis & Gilbert LLP
1740 Broadway
New York, New York 10019
Attention: Chairperson, Real Estate Division
Copies of notices to Lender to:
Jill D. Block, Esq.
Shapiro, Shapses, Block LLP
315 Park Avenue South, 19th Fl.
New York, New York 10010
10. This Agreement shall be binding upon and shall inure to
the parties, their respective heirs, successors and assigns.
11. This Agreement shall be governed by, and construed in
accordance with, the laws of the State in which the Mortgaged Property is
located, without giving effect to conflict of laws principles or otherwise.
12. This Agreement may be executed in any number of
counterparts and each such duplicate original shall be deemed to be an original.
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13. This Agreement may not be changed, amended or modified in
any manner other than by an agreement in writing specifically referring to this
Agreement and executed by the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
LEHMAN BROTHERS HOLDINGS INC.
By:
------------------------------------
Name:
Title:
233 BROADWAY OWNERS LLC
By:
------------------------------------
Name:
Title:
ORGANIC
By:
------------------------------------
Name:
Title:
5
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EXHIBIT A
Legal Description
<PAGE> 103
Exhibit C
Legal Description of the Land
ALL that certain plot, piece or parcel of land, situate, lying and
being in the Borough of Manhattan, County of New York, City and State of New
York, bounded and described as follows:
<PAGE> 104
SCHEDULE A
AS TO PARCEL A (BLOCK 123 LOT 3)
ALL that certain lot, piece or parcel of land, situate, lying and being in the
Borough of Manhattan, City, County and State of New York, bounded and described
as follows:
BEGINNING at a point on the northerly side of Barclay Street, distant one
hundred ninety-two feet six and one-half inches Westerly from the corner formed
by the intersection of the said northerly side of Barclay Street and the
westerly side of Broadway, which point is opposite the center line of a party
wall;
RUNNING THENCE Northerly on a line forming an angle of 90 degrees 23 minutes 30
seconds on its westerly side with the northerly side of Barclay Street and
through the center line of said party wall seventy-five feet one and three
eighths inches to the median line of the block;
THENCE Westerly along said median line of the block and running through the
southerly wall of the one story brick building on the premises adjoining on the
North twenty-six feet and one-eighth of an inch to a point opposite the center
line of a twelve inch party wall of the one story building on premises described
herein and one story building on premises adjoining on the west;
THENCE Southerly on a line forming an angle of 89 degrees 53 minutes 40 seconds
on its easterly side with the last described line and through the center line of
said party wall seventy-four feet eleven and three-quarters inches to the
northerly side of Barclay Street; and
RUNNING THENCE Easterly along the northerly side of Barclay Street twenty-five
feet to the point or place of BEGINNING.
<PAGE> 105
Exhibit D
GUARANTY OF LEASE
THIS GUARANTY OF LEASE (the "Guaranty") made this ____ day of
__________ 1999, by OMNICOM GROUP INC. ("Guarantor"), a New York corporation
with an office at 437 Madison Avenue, New York, New York 10022, to and for the
benefit of 233 BROADWAY OWNERS LLC ("Landlord"), a New York limited liability
company.
W I T N E S S E T H:
WHEREAS, by lease dated of even date herewith (the "Lease") between
Landlord, as landlord, and Organic ("Tenant"), as tenant, Landlord leases to
Tenant, and Tenant leases from Landlord, the Premises under and as defined in
the Lease;
WHEREAS, Guarantor will benefit from Tenant's entering Into the Lease;
WHEREAS, Guarantor is executing and delivering this Guaranty as a
material inducement to Landlord entering into the Lease; and
WHEREAS, Landlord is unwilling to enter into the Lease unless Guarantor
executes and delivers this Guaranty to Landlord,
NOW, THEREFORE, in consideration of the execution and delivery of the
Lease by Landlord and in order to induce Landlord to accept the Lease and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, Guarantor, for itself, its successors and assigns, hereby
agrees with Landlord for the benefit of Landlord, its successors and assigns, as
follows:
1. Definitions. Terms not otherwise defined herein shall have the
meaning described to them in the Lease.
2. Guaranty. Guarantor hereby guarantees to Landlord, within five (5)
days of receipt of written notice from Landlord to Guarantor, the full and
prompt payment, when due, of the Base Rent and Additional Rent and all other
sums and charges, however characterized, payable by Tenant under the Lease, and
further hereby guarantees the full and timely performance and observance of all
covenants, terms, conditions and agreements therein provided to be performed and
observed by Tenant subject to and in accordance with the provisions of the
Lease, and Guarantor hereby covenants and agrees to and with Landlord that if
Tenant, its successor or assigns should default at any time in the payment of
rent or any other sum or default at any time In the, payment of rent or any
other sum or charge payable under the Lease, or if Tenant, its successors or
assigns should default In the performance and observance of any of the
covenants, terms,
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conditions or agreements contained in the Lease, Guarantor will, upon expiration
of any grace period provided Tenant under the Lease, forthwith upon demand
therefor pay such rent and other sums and charges, and any arrears thereof, to
Landlord, subject to any defense or right of set-off or counterclaim permitted
pursuant to the provisions of the Lease that Tenant may assert, and will
forthwith faithfully perform and fulfill all such terms, covenants, conditions
and agreements on demand, and will pay to Landlord all damages, costs and
expenses that may result from any default by Tenant, its successors or assigns,
under the Lease, including without limitation, all costs or expenses, including
reasonable attorneys' fees and disbursements, incurred by Landlord or caused by
any such default and/or in any way relating to the enforcement or protection of
the rights of Landlord under this Guaranty or under the Lease, successive
recoveries may be had under this Guaranty. (All of the obligations guaranteed or
undertaken by Guarantor in this Section are hereinafter referred to as the
"Obligations").
3. Absolute Guaranty. Subject to the terms of the Lease and any
defenses, counterclaims or offsets which Tenant may have against Landlord which
are permitted pursuant to the terms of this Lease, this Guaranty is an
irrevocable, absolute and unconditional guaranty of payment and of performance.
It shall be enforceable against Guarantor Without the necessity of any suit or
proceeding on Landlord's part of any kind or nature whatsoever against Tenant,
its successors or assigns, and without the necessity of nonpayment,
nonperformance or non-observance or any notice of acceptance of this Guaranty
and without need for demand for payment under this Guaranty or of any other
notice or demand to which Guarantor might otherwise be entitled, all of which
Guarantor hereby expressly waives.
4. No Discharge. This Guaranty shall be a continuing guaranty and
Guarantor expressly agrees that the liability of Guarantor hereunder shall in no
way be terminated, affected, modified, released, impaired or diminished by
reason of:
(a) any assignment or subletting of the Premises or any part
thereof in accordance with the terms of the Lease;
(b) the amendment, modification or supplement of, or change
in, any of the terms, covenants, conditions or provisions of the Lease or this
Guaranty;
(c) any extension of time that may be granted by Landlord to
Tenant, Guarantor or their respective successors or assigns for (i) the payment
of any sum owing or payable under, or arising out of or on account of the Lease
or this Guaranty, or (ii) the performance of any obligation under the Lease or
this Guaranty;
(d) a changed or different use of the Premises, (provided that
no such change may be made unless consented to by Landlord pursuant to the
applicable provisions of the Lease), or by reason of any dealings or
transactions or matters occurring between Landlord and Tenant, and their
respective successors or assigns, whether or not notice thereof is given to
Guarantor;
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(e) any enforcement, assertion or exercise or any failure,
omission or delay on the part of the Landlord to enforce, assert or exercise
against Tenant, its successors or assigns, any right, power or remedy conferred
on or available to Landlord in or by the Lease or this Guaranty or allowed at
law or in equity, or any action on the part of Landlord granting indulgence or
extension in any form whatsoever;
(f) the waiver by Landlord of the performance or observance by
Tenant or Guarantor of any of the agreements, covenants, terms or conditions
contained in the Lease or this Guaranty;
(g) the doing or the omission of any of the acts referred to
in the Lease or this Guaranty (including, without limitation, the giving of any
consent) provided such act or omission does not constitute a default by Landlord
under the Lease and same does not continue beyond any grace period set forth in
the Lease for such default;
(h) (i) the voluntary or involuntary liquidation,
dissolution, sale of all or substantially all of the assets, marshalling of
assets and liabilities, receivership, conservatorship, insolvency, bankruptcy,
assignment for the benefit of creditors, reorganization, arrangement,
composition or readjustment of, or other similar proceeding affecting, Tenant or
any of its assets (collectively "Bankruptcy Proceedings"); (ii) the release or
discharge of Tenant in any Bankruptcy Proceedings; (iii) the impairment,
limitation or modification of the liability of Tenant, or the estate of Tenant
in bankruptcy, or of any remedy for the enforcement of Tenants liability under
the Lease, resulting from any Bankruptcy Proceedings, by operation of any
current or future law or court decision with respect to bankruptcy or creditor's
rights; or (iv) the rejection of disaffirmance of the Lease in any Bankruptcy
Proceedings;
(i) the release of Tenant or Guarantor from the performance or
observance of any of the agreements, covenants, terms or conditions contained in
the Lease or this Guaranty by operation of law;
(j) the surrender by the holder thereof of any security for
the performance or observance of any of the agreements, covenants, terms or
conditions contained in the Lease;
(k) the inability or failure of Landlord to enforce any
provision of the Lease, or any remedies contained in the Lease, for any reason;
or
(l) the disposition by Guarantor of part or all of the
outstanding stock of Tenant.
5. Assignment and Subletting. Landlord's consent to any assignment or
subletting of or any portion of the Premises by any party by Tenant or Tenant's
successors or assigns made either with or without notice to Guarantor, shall in
no manner whatsoever release Guarantor from any liability hereunder.
6. Bankruptcy. In the event of the rejection or disaffirmance of the
Lease by Tenant or Tenant's trustee in bankruptcy pursuant to the bankruptcy
laws or any other
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law affecting creditors' rights or in any Bankruptcy Proceeding, Guarantor will,
and does hereby (Without the necessity of any further agreement or act), assume
all obligations and liabilities of Tenant under the Lease, to the same extent as
if (a) it were originally named Tenant under the Lease, and (b) there had been
no such rejection or disaffirmance; and Guarantor will confirm such assumption
in writing, at the request of Landlord, upon or after such rejection or
disaffirmance; and Guarantor shall upon such assumption (to the extent permitted
by law) have all of the obligations and liabilities of Tenant under the Lease.
7. Right of Separate Actions. Landlord may bring and prosecute a
separate action against Guarantor to enforce its liabilities hereunder, whether
or not any action is brought against Tenant or any other person and whether or
not Tenant or any other person is joined in any such action or actions. Nothing
shall prohibit Landlord from exercising its rights against Guarantor, Tenant,
any security for the Obligations, and any other person simultaneously, jointly
and/or severally. Guarantor shall be bound by each and every ruling, order and
judgment obtained by Landlord against Tenant in respect of the Obligations,
whether or not Guarantor is a party to the action or proceeding in which such
ruling, order to judgment Is Issued or rendered.
8. Waiver of Rights of Subrogation. Guarantor hereby irrevocably waives
any rights to be subrogated to the rights of Landlord with respect to the
Obligations until such time as the Obligations are satisfied. Guarantor hereby
agrees that it will not institute or take any action seeking reimbursement
against Tenant until such time as Landlord shall have received payment in full
in cash in satisfaction of all of the Obligations. No failure on the part of
Landlord to exercise, and no delay in exercising, any right remedy or power
hereunder under shall operate as a waiver thereof, nor shall any single or
partial exercise by Landlord of any right, remedy or power hereunder preclude
any other or future exercise of any other right, remedy or power.
9. Waiver of Notice, Consent, Etc. (a) This Guaranty shall be construed
as a continuing, absolute and unconditional guarantee of payment and
performance.
(b) Guarantor hereby waives notice of acceptance of this
Guaranty by Landlord and of presentment, demand, protest, notice of protest and
of dishonor and all other notices relative to this Guaranty of every kind and
description now or hereafter provided by any agreement between Tenant and
Landlord or any statute or rule of law.
(c) Guarantor waives any and all notice of the creation or
accrual of any of the Obligations or of the reliance by Landlord upon this
Guaranty. Said Obligations, and each of them, shall conclusively be deemed to
have been created, contracted, or incurred in reliance upon this Guaranty and
all dealings between Tenant and Landlord shall likewise be conclusively presumed
to have been made or consummated in reliance upon this Guaranty.
(d) Guarantor hereby agrees that any term, covenant, and
provision contained in the Lease may be altered, modified, waived, released or
cancelled by Landlord, all without any further consent of Guarantor, and
Guarantor agrees that this
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Guaranty and its liability hereunder shall be in no way affected, diminished or
released by any such alteration, modification, release, waiver or cancellation.
10. Waiver of Election of Remedies. Guarantor waives any right to
require or compel Landlord to (a) proceed against Tenant or any other guarantor;
(b) proceed against or exhaust any security for the Obligations; or (c) pursue
any other remedy in Landlord's power whatsoever, and the failure of Landlord to
do any of the foregoing shall not exonerate, release or discharge Guarantor from
its absolute, unconditional and independent liabilities to Landlord hereunder.
Guarantor hereby waives any and all legal requirements that Landlord shall or
may institute, any action or proceedings at law or in equity against Tenant, or
anyone else, in respect of the Lease or resort to or seek to realize upon the
security held by Landlord, as a condition precedent to bringing an action
against Guarantor upon this Guaranty.
11. Continuing Guaranty. Until all Obligations are satisfied, Guarantor
shall not be released by any act or thing which might, but for this provisions,
be deemed a legal or equitable discharge of a surety, or by reason of any
waiver, extension, modification, forbearance or delay or other act or omission
of Landlord or its failure to proceed promptly or otherwise, or by reason of any
action taken or omitted or circumstance which may or might vary the risk or
affect the rights or remedies of Guarantor or by reason of any further dealings
between Tenant and Landlord, whether relating to the Lease or not, and Guarantor
hereby expressly waives and surrenders any defenses to its liability hereunder
based upon any of the foregoing acts, omissions, things or agreements or waivers
of Landlord; it being the purpose and intent of the parties hereto that the
obligations of Guarantor hereunder are absolute and unconditional under any and
all circumstances.
12. Remedies Cumulative. Guarantor hereby Waives notice of acceptance
of this Guaranty, notice of any obligations or liabilities contracted or
incurred by Tenant, and extensions of time granted to Tenant under the Lease.
13. Joinder of Actions. All of Landlord's rights and remedies under the
Lease and this Guaranty are intended to be distinct, separate and cumulative,
and no such right and remedy therein or herein mentioned, whether exercised by
Landlord or not, is intended to be an exclusion of or a waiver of any of the
others. The obligation of Guarantor hereunder shall not be released by
Landlord's receipt, application or release of any security given for the
performance and observance or covenants and conditions required to be performed
or observed by Tenant under the Lease, nor shall Guarantor be released by the
maintenance of or execution upon any lien which Landlord may have or assert
against Tenant and/or Tenant's assets.
14. Notices. All notices, demands, Instructions and other
communications required or permitted to be given to or made upon either party
hereto or any other person shall be in writing and shall be either personally
delivered or sent by registered or certified mail, postage prepaid, return
receipt requested or by prepaid courier, and shall be deemed to be given for
purpose of this Guaranty in regard to registered or certified mail, three (3)
days after mailing, and in regard to personal delivery or prepaid courier,
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on the day that such writing is delivered. Unless otherwise specified by notice
in accordance with the foregoing provisions of this Section, notices, demands,
instructions and other communications in writing shall be given to or made upon
the following persons at their respective addresses. indicated, below:
If to Guarantor:
Omnicom Group Inc.
437 Madison Avenue
New York, New York 10022
Attention: Legal Department
Telephone: 212-415-3600
Telecopy: 212-415-3530
with a courtesy copy to:
Davis & Gilbert LLP
1740 Broadway
New York, New York 10019
Attention: Chairperson, Real Estate Department
Telephone: 212-468-4800
Telecopy: 212-468-4888
If to Landlord,
233 Broadway Owners LLC
c/o The Witkoff Group LLC
220 East 42nd Street
New York, New York 10017
Attention: Mr. Steven C. Witkoff
Telephone: 212-672-4700
Telecopy: 212-672-4726
with a courtesy copy to:
The Witkoff Group LLC
220 East 42 nd Street
New York, New York 10017
Attention: James F. Stomber, Jr., Esq.
Telephone: 212-672-4770
Telecopy: 212-672-3434
or at such other address as any of the parties may from time to time designate
by written notice given as herein required. Rejection or refusal to accept or
inability to deliver because of changed addresses or because no notice of
changed address was given shall be deemed a receipt of such notice.
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15. Entire Agreement. This Guaranty represents the entire agreement
between Guarantor and Landlord with respect to the matters referred to herein
and therein and no waiver or modification hereof or thereof shall be effective
unless in writing and signed by Landlord and Guarantor.
16. GOVERNING LAW. THIS GUARANTEE AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE CONSTRUED, ENFORCED, AND INTERPRETED ACCORDING TO THE
LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE IN AND PERFORMED IN
THE STATE OF NEW YORK.
17. Successors and Assigns. This Guaranty shall be binding upon
Guarantor and upon its successors and assigns and shall inure to the benefit of
Landlord and its endorsees, successors and assigns.
18. Construction. Each and every provision of this guaranty has been
mutually negotiated, prepared and drafted; each party has been represented by
counsel; and in connection with the construction of any provision hereby or
deletions herefrom, no consideration shall be given to the issue of which party
actually prepared, drafted, requested or negotiated any provision or deletion.
19. Representations of Guarantor. Guarantor hereby represents, warrants
and covenants as follows:
(a) This Guaranty has been duly executed and delivered and
constitute the valid and binding obligation of Guarantor and is enforceable
against Guarantor in accordance with its terms subject, as to enforcement only,
to bankruptcy, insolvency, moratorium and other similar laws at the time in
effect affecting the enforceability of the rights of creditors generally and to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
(b) Guarantor is not insolvent (as such term is defined in
Section 101(29) of the Bankruptcy Code of 1978, as amended) and will not be
rendered insolvent (as such term is defined in Section 101(29) of the Bankruptcy
Code of 1978, as amended) by execution of this Guaranty or by the consummation
of the transaction contemplated thereby.
(c) The consummation of the transactions contemplated hereby
and the performance by Guarantor of its Obligations under this Guaranty will not
result in any breach of, give rise to a lien under, or constitute a default
under, any mortgage, deed of trust, lease, bank loan or credit agreement,
partnership agreement, corporate charter, by-laws or other agreement or
instrument to which Guarantor is a party or by which it may be bound or
affected.
(d) Guarantor is deriving or expects to derive a financial or
other advantage from each any every Obligation.
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20. Time of the Essence. Time shall be of the essence with regard to
the performance by Guarantor of its Obligations under this Guaranty.
21. Severability of Provisions. Any provision of this Guaranty which is
guaranty which is prohibited or unenforced shall be ineffective to the extent of
such prohibition or unenforceability without affecting the validity or
unenforceability provision.
22. Maximum Liability. Notwithstanding any other provision of this
Guaranty, the maximum liability of Guarantor under this Guaranty, whether for
any claim or in the aggregate for all claims, shall not exceed $4,500,000.
23. Reduction of Guaranty. The liability of Guarantor under this
Guaranty shall be reduced from $4,500,000 to $2,250,000 at such time as the net
income of Tenant for each of two (2) consecutive fiscal years equal or exceeds
Four Million Dollars ($4,000,000) and the net worth of Tenant for each of such
years is greater than Fifty Million Dollars ($50,000,000). The net income and
net worth shall be determined in accordance with generally accepted accounting
principles, consistently applied and shall be certified to Landlord during the
term of this Guaranty by the Chief Financial Officer of Tenant.
24. Termination of Guaranty. This Guaranty shall terminate only after
this Guaranty has been reduced in accordance with Section 23 upon the earlier to
occur of (i) Guarantor making payment to Landlord of the maximum liability of
Guarantor under this Guaranty as set forth in Section 22 of this Guaranty or
(ii) for each of two (2) consecutive fiscal years, the net income of Tenant
equals or exceeds Four Million Dollars ($4,000,000) and the net worth of Tenant
in each of such years shall equal or exceed Fifty Million Dollars ($50,000,000).
The net income and net worth shall be determined in accordance with generally
accepted accounting principles, consistently applied and shall be certified to
Landlord during the term of this Guaranty by the Chief Financial Officer of
Tenant.
IN WITNESS WHEREOF, the undersigned has executed this Guaranty the day
and year first above written.
OMNICOM GROUP INC.
By:
------------------------------------
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Exhibit E
Operating Expenses
EXPENSES
Payroll
Cleaning
Utilities
Electrical
HVAC
Elevator
Security
General Building Repairs
Trash Removal
Fire Safety Equipment & Maintenance
Management Fee
Administrative Expenses
Insurance
TOTAL OPERATING EXPENSES
Electric Income
Tenant Services Income
NET OPERATING EXPENSES
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Exhibit F
Landlords Work
105
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BUILDING EVALUATION: ARCHITECTURAL
WOOLWORTH BUILDING
233 Broadway, New York Date September 30, 1999
Project: Floors 13 through 16 Rev. October 26, 1999
Project 3448
ADA - Code Compliance The Landlord agrees to provide an ADA
entrance into the building, extending access
to the tenants' floors. The Landlord agrees
to upgrade the #26 car to be ADA compliant
and to upgrade the call buttons on the
Tenant's floors to comply with ADA
requirements. All ADA upgrades to existing
base building toilets shall be done by
Landlord. The Landlord agrees to upgrade and
modify the building class "E" system to
comply with ADA. The Tenant agrees to provide
speaker/strobes and fire pull stations within
the leased spaces.
Asbestos/Lead Hazard - The Landlord agrees to provide a fully
Code Compliance demolished tenant space clean of any existing
debris, asbestos containing materials. The
Landlord agrees to provide ACP-5's.
Convectors The Landlord agrees to replace or repair the
existing convector units, respective wiring,
switches and plumbing as required. Convectors
to be made operational.
Building Accessibility The Landlord agrees to provide the Tenant,
elevator accessibility from the lobby to all
floors being leased now by the Tenant without
Interruption or change of elevator banks.
Building/Tenant Signage The Landlord agrees to allow the Tenant to
install exterior signage, as well as interior
signage within the lobby(s) provided that all
such work has Landmark Preservation and
Landlord approval, not to be unreasonably
withheld. The Landlord agrees to provide
Tenants name in main lobby directory.
Existing Utilities/Structures Tenants Landlord agrees to mark out and
to Other identify any utilities to remain that are
traversing tenants space, that currently
serve adjacent Tenant spaces.
<PAGE> 116
BUILDING EVALUATION: ARCHITECTURAL
WOOLWORTH BUILDING
233 Broadway, New York Date September 30, 1999
Project: Floors 13 through 16 Rev. October 26, 1999
Project 3448
Architectural Issues for The Landlord agrees to demolish all of the
Landlord Guidelines following:
- Floors down to the existing base building
Demolition/Patching floor slab inclusive of but not limited to
the removal of all VAT/VCT carpet, wood
and tile flooring.
- Ceilings, down to base building ceiling
slab inclusive of but not limited to all
black iron, all suspended ceiling systems,
all hangers, straps and GWB ceiling, all
HVAC ducts, all abandoned
electrical/telephone wiring and conduits,
chandeliers and other ceiling mounted
devices and accessories rendered useless
to tenant.
- Walls and column enclosures except those
that are required to remain to enclose
existing plumbing, mechanical and
electrical chases and to maintain required
fire ratings.
Additionally;
- The Landlord agrees to fireproof all
existing exposed structural steel upon his
demolition and extend all corewalls,
column enclosures and fire rated wells to
underside of slab above where missing or
defective.
- The Landlord also agrees to patch the
floor slab flush at areas to existing
holes, divers and/or tripping hazards
prior to tenant reconstruction work.
- The Landlord agrees to provide existing
fire stopping at all rated walls and
floor/shaft openings and at all existing
beam penetrations.
- The Landlord agrees to allow the tenants
contractors to use larger capacity
steel-wheeled containers for rubbish
removal during non-business hours.
- The Landlord agrees to remove all
abandoned electrical telephone/data
wiring, devices and fixtures within the
proposed tenant spaces, back to the
existing electrical closet or telephone
closets.
- The Landlord agrees to clean and repair
all perimeter F.C./convector units to
fully function condition.
- The Landlord agrees to permit tenant to
trench and puncture the floor slab to the
extent that it does not effect the
structural integrity of the slab; as
reasonably determined and approved by the
Landlord.
Ceilings/Lighting The Landlord agrees to allow the Tenant to
design all lighting and ceilings on all
single tenant leased floors including
elevator and corridor routes.
<PAGE> 117
BUILDING EVALUATION: ARCHITECTURAL
WOOLWORTH BUILDING
233 Broadway, New York Date September 30, 1999
Project: Floors 13 through 16 Rev. October 26, 1999
Project 3448
Lease Issues The Landlord agrees to remove the existing
mechanical rooms/equipment on all Tenant
leased floors and relocate to a new
mechanical room, as reasonably approved by
Landlord and Tenant. The Landlord shall
provide a fire rated room including doors,
frames and all required dampers.
The Landlord agrees to remove all abandoned
HVAC equipment, piping and ductwork from the
Tenant's leased floors.
The Landlord agrees to allow the Tenant to
obtain a proposal, but not limited the Tenant
to the use of, the Landlord's security
vendor.
The Landlord agrees to allow the Tenant to
obtain a proposal, but not limited the Tenant
to the use of the Landlord's building
department expeditor.
The Landlord agrees to allow the Tenant to
obtain a proposal, but not limited to the
Tenant to the use of the Landlord's General
Contractors and Subcontractors.
The Landlord agrees to provide their
signature on the Landlord's department filing
applications with the first submission plan
review within five (5) business days after
Landlord's receipt of documents. No
construction work shall proceed without both
Building Department approval and Landlord
approval.
The Landlord agrees to allow the Tenant to
make modifications to the existing single
Tenant common corridor and lobbies.
<PAGE> 118
BUILDING EVALUATION: ELECTRICAL
WOOLWORTH BUILDING
233 Broadway, New York Date September 30, 1999
Project: Floors 13 through 16 Rev. October 26, 1999
Project 3448
Code Compliance Prior to turning the space over to the
Tenant, the Landlord has to correct any
violations cited by Now York City with
respect to electric and telephone closets in
a combined room in connection with the New
York City electrical and building codes
(NYCEC & BYCBC).
Fire Alarm The Landlord agrees to provide all
existing re-entry floors occupied by Tenant
with suitable electrified hardware and fire
alarm Interface.
Prior to turning the space over to the
Tenant, the Landlord shall completely upgrade
the Class "E" fire alarm system as per code
and comply with ADA requirements (lower
mounting height of fire pull stations, warden
stations and installed strobe lights in
toilets).
The Landlord agrees to provide on all floors
occupied by the Tenant an existing base
building fire alarm system that is adequate
to support the Tenants' fit out, including
security system interface. The system shall
be adequate to support bass building spaces
and functions.
The Landlord agrees to provide data gathering
panels on every other Tenant occupied floor
with sufficient alarm input points to support
the proposed occupancy. In conjunction with
the building's fire alarm vendor, the
Tenant's contractor shall provide the number
of connecting points required.
Electrical System The Landlord agrees to provide 200 amps of
Capacity and metering additional electrical capacity for the
Tenants' use to support a computer data
center and supplemental mechanical equipment
of area (i.e. computer room, data center)
requiring additional power.
The Landlord agrees to provide sub-metering
for each floor. Supplemental power to be
sub-metered at the Tenant's expense.
The Landlord agrees to provide base building
feeders adequate to support voltage drop as
defined by NYC electrical code.
<PAGE> 119
BUILDING EVALUATION: ELECTRICAL
WOOLWORTH BUILDING
233 Broadway, New York Date September 30, 1999
Project: Floors 13 through 16 Rev. October 26, 1999
Project 3448
Distribution For each Tenant's occupied floor the Landlord
agrees to provide the followings,
o One new electrical closet per floor.
o Landlord to provide 400 Amp to feed the 2
panelboards on each floor, (2) 42-pole
circuit breaker panel boards.
Demolition The Landlord agrees to remove all abandoned
wires and cables and existing conduits
(Tel./Elec./Data.).
The Landlord agrees to remove and/or relocate
abandoned wires and conduits in Tenant
occupied floors serving other Tenants on
floors above or below.
The Landlord agrees to cut back to the floor
wall or ceiling and remove wires and conduits
made obsolete In the Tenant's occupied space
and existing electrical closets. In addition,
all obsolete lighting and receptacle
panelboards shall be removed.
Emergency Power NO GENERATOR.
Access and Poke through The Landlord agrees to permit access to the
ceiling of floors below Tenant's space to
allow the Installation of poke-through
devices subject to approval by the Landlord,
at the Tenant's sole cost and expense, and
provided it does not compromise the
structural Integrity of the building.
Landlord agrees to permit the installation of
poke-through devices in Tenant occupied
floors, at the Tenant's sole cost and
expense, and provided it does not compromise
the structural integrity of the building.
Tel./Comm. and Data For each occupied floor, the Landlord agrees
to provide a base building telephone riser.
Landlord agrees to allowed space on
non-Tenant floors as required to permit
vertical system Infrastructure cabling (i.e.
telecommunications) between Tenant floors and
between Tenant space and base building
service entry locations (i.e. telephone)
subject to Landlord's approval, which may not
be unreasonably withheld or delayed
<PAGE> 120
BUILDING EVALUATION: ELECTRICAL
WOOLWORTH BUILDING
233 Broadway, New York Date September 30, 1999
Project: Floors 13 through 16 Rev. October 26, 1999
Project 3448
Cable Television The Landlord agrees to provide cable
television service to each Tenant floor.
Miscellaneous The Landlord agrees to fire stop all existing
slab penetrations; notably those located in
electric and telephone closets.
The Landlord agrees to allow the use of
Greenfield for electrical power wiring and
voice data applications in all partitions.
EMT will be utilized in all open spaces and
within suspended ceiling cavities.
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BUILDING EVALUATION: PLUMBING/FIRE PROTECTION
WOOLWORTH BUILDING
233 Broadway, New York Date September 30, 1999
Project: Floors 13 through 16 Rev. October 26, 1999
Project 3448
General The Landlord agrees to identify wet columns
(water, drain and vents) on each floor for
Tenant's use.
The Landlord agrees to deliver all toilets
and janitors closets on Tenant floors, fully
functional.
The Landlord agrees to allow sanitary drains
to run below Tenant's floor when required, at
Tenant's sole expense, provided it does not
compromise structural integrity of the
building.
The Landlord agrees to demolish and remove
all abandoned previous Tenant plumbing
systems/equipment back to risers. The Tenant
reserves the right to keep existing systems
and/or equipment within the Tenants space
provided no additional cost to Landlord.
The Landlord agrees to provide all plumbing
services (water, floor drains, etc) to
Janitor's closets.
Fire Protection The Landlord agrees to provide a complete and
to code, NYC compliant fire standpipe and
sprinkler system. The Landlord agrees to
provide sprinkler control valve(s) on each
floor for sprinkler loop connection and
distribution by Tenant. The Landlord shall
provide all tamper switches, flow switches
and wiring to building system.
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BUILDING EVALUATION: ARCHITECTURAL
WOOLWORTH BUILDING
233 Broadway, New York Date September 30, 1999
Project: Floors 13 through 16 Rev. October 26, 1999
Project 3448
Final Overview The Landlord agrees to provide the tenant
with all available base building
Architectural, Structural, Mechanical,
Plumbing and Electrical drawings and related
data.
The Landlord agrees to provide tenant with a
structurally sound space, free of any
structural deficiencies, and all existing
structural deficiencies discovered shall be
remedied in an expeditious manner, by
Landlord.
The Landlord stated that the building's
floors are designed to a 50 psf or greater.
The Landlord agrees to allow tenant to modify
floor/ceiling structure, as required to
accommodate any additional loading imposed by
tenant modifications.
The Landlord agrees to continue all facade
upgrade on the entire existing building, and
to repair any water penetration problems
along windows, walls and roofs.
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BUILDING EVALUATION: MECHANICAL
WOOLWORTH BUILDING
233 Broadway, New York Date September 30, 1999
Project: Floors 13 through 16 Rev. October 26, 1999
Project 3448
Lease Issues The Landlord agrees to demolish and remove
all abandoned existing previous tenant
mechanical systems/equipment back to base
Landlord system, excluding perimeter fan
coils.
See HVAC Specs Lease Exhibit
Per the NYC Electrical Code, The Landlord
agrees to provide fire/smoke dampers, as
required at all fire rated base building
mechanical room enclosures.
The Landlord agrees to supply an additional
of 10 Tons of condenser water for Tenant's
supplemental AC system requirements.
The Tenant agrees to Install air-cooled
condensers utilizing existing louvers on the
West Facade or install new louvers on
Interior courtyard facade. The Tenant shall
provide and install landmark approved louvers
as required. The Landlord shall assist with
the Landmark approval.
The Landlord agrees to provide air and water
reports at building core. This report shall
include supply and return air volumes and
temperatures, total static pressures and
outside air quantity.
The Landlord agrees to allow the Tenant
Install a kitchen exhaust duct riser subject
to Identifying a usable existing shaft. The
Landlord agrees to allow the Tenant space on
non-Tenant floors to construct a duct riser
within an existing shaft and terminating
kitchen exhausts on roof set backs, if deep
enough and pending mutually agreed locations
by the Landlord and Tenant, and subject to
Landmarks approval.
<PAGE> 124
Exhibit G
Confirmation of Beneficial Occupancy Date Agreement
AGREEMENT made this _____ day of _______________,199_ between 233
BROADWAY OWNERS LLC, a New York limited liability company, having an office c/o
The Witkoff Group LLC, 220 East 42nd Street, New York, New York 10017
("Landlord") and ORGANIC, a ________________ corporation, having an office at
__________________________________ ("Tenant").
WITNESSETH:
1. Landlord and Tenant have heretofore entered into a Lease dated as of
_______________, 199__ (hereinafter referred to as the "Lease") for the leasing
by Landlord to Tenant certain premises, all as in the Lease more particularly
described (collectively, the "Premises"), in the building known as 233 Broadway,
New York, New York.
2. Pursuant to Section 7.3(a) of the Lease, Landlord and Tenant agree
that the Beneficial Occupancy Date for the ______ floor portion of the Premises
was _______________, 199__.
IN WITNESS WHEREOF, Landlord and Tenant have respectively executed this
Confirmation of Beneficial Occupancy Date Agreement as of the day and year first
above written.
Landlord:
233 BROADWAY OWNERS LLC
By:
------------------------------------
Its:
-----------------------------------
Tenant:
ORGANIC
By:
------------------------------------
Its:
-----------------------------------
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Exhibit H
Form of Application for Payment
To be mutually agreed upon by Landlord and Tenant.
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Exhibit I
Cleaning Specifications for the Premises
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CLEANING SPECIFICATIONS
OBJECTIVES:
This Agreement is based upon the stated objectives and maintaining a program of
cleaning, sanitation and preservation of the premises on a level consistent with
the status and quality of the company to provide promptly and efficiently all
services listed In the specifications and to perform these services as indicated
at a cost that is feasible and appropriate.
AREAS TO BE COVERED:
The Contractor shall perform the following services throughout the premises, all
office areas, entrance lobbies. stairways, sidewalks, driveway, loading docks,
stairwell, lavatories, passageways and elevators. Services utility and
mechanical area shall be convered at the discretion of the Property Manager. The
areas stated above are to receive complete general cleaning maintenance
according to the specifications listed below.
The Contractor shag prepare a work assignment plan and develop schedules to
provide all coverage in all areas stated. This plan must be approved by the
Property Manager.
1. GENERAL OFFICE AREAS AND EMPLOYEE LOUNGE
A. NIGHTLY:
WASTEPAPER, RECYCLING AND TRASH CONTAINERS
1. All wastepaper, trash containers and recycling containers shall be
emptied, wiped clean and returned to original location. All wet
waste containers "shall be supplied with plastic bags (at
Contractors cost), which shall be changed as needed.
DESK AND CHAIRS:
2. Hand dust and wipe clean with damp or chemically treated cloth all
furniture, file cabinets, fixtures. Desk shall be dusted
thoroughly on all surfaces. including tops, sides and legs,
provided that tops are cleared of all paper.
WATER FOUNTAINS:
3. To ensure clean, health conditions at the water fountains, the
dispensing area and bowls shall be washed clean and polished. The
metal housing and all bright metal fixture units shell also be
washed clean and polished.
4. Damp wipe vinyl seating. Wash all composition and vinyl tile
flooring. Vacuum where required. Clean all wood surfaces and clean
under serving counters.
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VINYL RESILIENT TILE FLOORS:
5. Remove all gum and foreign matter on sight. Spot clean resilient
floor as necessary. The vinyl tile floor in the service elevator
shall be swept and spray buffed nightly. All resilient tile floors
shall be mopped with a chemically treated dust mop. All spills and
adherents must be removed the same day of occurrence, especially
vending machine areas.
RECEIVING AND STORAGE AREAS.
6. All concrete floor shall be swept nightly using an oil base
sweeping compound. An sweeping compound shall be removed from
entire floor after work is finished.
B. PERIODICALLY/WEEKLY
1. Hand Dust Clean the following using a treated dust cloth:
Window sills
Pictures and frames
Counters
Fan Coil Cover, Thermostat Covers
Ledges and shelves under six (6) feet
Coat Racks and Trees
Baseboards and Moldings
Telephones, all types including office
Panel Boxes, Fire Extinguisher, Cabinets
Fire Hose Cabinet and Lamp Shades
Fire Warden Frames
2. Remove dirt smudges and marks with suitable cleaning agent from
the following:
Walls
Door, jambs and stops
Pushplates and kickplates
3. Clean all interior window metal and other unpainted interior metal
surfaces of the perimeter walls once per year using a metal
cleaning product.
4. Clean all interior window blinds using ultrasonic tanks or other
approved methods.
CARPETS:
5. Vacuum all rugs end carpeted areas throughout (three days per
week). All spills, spots and adherents must be removed the same
day of occurrence. Sweep all private stairways and vacuum if
carpeted.
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II. LAVATORY CLEANING (WOMEN AND MEN'S ROOM):
A. NIGHTLY:
COMMODES & URINALS:
1. Commodes and urinals shall be washed and dried inside and outside
including under the lip of each bowl and urinal. All seats shall
be washed and disinfected and dried top and bottom.
WASH BASINS & GENERAL:
2. Wash basins shall be washed and dried inside and outside. All
bright metal fixture units and plumbing shall be polished. This
work shall be performed using an acceptable, nonpungent germicidal
disinfectant solution.
Wash all mirrors and powder shelves. Empty paper towel receptacles
and remove paper to designated area. Fill toilet holders. Tissue
and Towels furnished by the Owner. Fill soap and paper towel
dispensers. Clean and wash waste receptacle and dispensers. Empty
and wash clean sanitary disposal receptacle. Remove fingermarks
from painted surfaces. Remove all graffiti. All sanitary napkin
dispensers to be supplied and maintained by the Owner. Containers
are to be filled daily and money collected shall be retained and
controlled by the Owner.
TILE FLOORS:
3. Damp map all floors with a germicidal disinfectant to kill all
bacteria.
STALL PARTITIONS:
4. All stall partitions shall be damp wiped and dried. The two
stabilizing bars shall be free of dust and lint at all times.
NOTE: Report all mechanical deficiencies (i.e. dripping faucets, etc.) to a
Building Management representation.
B. PERIODIC/BI-MONTHLY:
WALLS, FLOORS AND CEILINGS:
1. Wash all stall partitions, door and ceramic walls, using a
germicidal disinfectant solution with a pH high enough to kill all
bacteria that may be present.
2. Wash all walls, entrance and egress doors, jambs stops and frames.
3. Scrub and wash all floors with a germicidal disinfectant to kill
all bacteria.
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C. EVERY THREE MONTHS:
1. Vacuum, wash and dry all wall and ceiling grills.
2. Clean all light fixtures, ceiling diffusers and exhaust grills,
remove lens, if necessary.
II. MAIN ENTRANCE - GROUND FLOOR-REAR VESTIBULE-HALLWAYS-LOADING DOCKS
The entrance lobby is to be kept neat and clean at all times, the
following minimum cleaning operations shall be maintained to
attain this effect.
A. NIGHTLY:
1. Sweep all floors, stairs and ramps with chemically treated dust
mop.
2. Wash all stout floors, with a mild detergent and rinse properly
and buff to assure the floor remains with a high luster. All
floors, shall be mopped nightly, scrubbed and spray buffed or
refinished as required.
3. Empty and damp wipe and dry all metal ashtrays.
4. Damp wipe the Lobby console.
5. Damp wipe all ledges.
6. Damp wipe elevator starter panels and lobby call buttons.
7. Clean all metal doors, hand rails, and all revolving doors and
rums of revolving door interior and exterior. Clean and buff
elevator doors.
V. STAIRSTEPS AND LANDINGS:
A. WEEKLY:
1. All stairsteps and landings shall be swept. All handrails, side
panels and risen shall be damp wiped. Remove all fingermarks and
other smudges from walls, both sides of fire doors on each floor
and all spills and other adherents from all steps and landings.
2. All tile or concrete floors shall be mopped nightly, scrubbed
weekly. Spot clean soil and fingermarks from painted or washable
surfaces once per week.
VI. SIDEWALKS AND PLAZAS:
A. GENERAL:
1. Remove all gum and foreign matter on sight.
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2. Scrub clean and/or spray clean entrance stairs, sidewalks and
driveways as often as necessary.
3. Clean white marble garden planters as needed.
4. Sweep stain and sidewalks daily.
5. Scrub clean exterior sidewalk terrazzo with power scrubbing
machine, a portion of the side walk (1/5) per night (April 1st to
October 31st).
VII. PASSENGER ELEVATORS:
A. NIGHTLY:
1. Vacuum rugs of all elevators and remove gum marks. Shampoo monthly
or as needed.
2. Wipe down panels of elevator cabs and remove any graffiti. Polish
same.
3. Wipe down all metal in cab. Indicators and elevator doors shall be
wiped down nightly using an approved cleaner.
4. Elevator threshold saddle vacuumed nightly to eliminate any
debris.
5. Remove foreign matter from top of light fixtures in elevator cab.
B. WEEKLY:
1. Clean all ceiling diffusers and lights in each car weekly.
2. Clean and polish door saddles and frames on all floors once a week
and vacuum tracks.
C. MONTHLY:
1. Shampoo carpets once per month.
VIII. BUILDING AREAS:
A. NIGHTLY:
1. All ramps, loading docks, truck arms, garbage storage room and
street to be kept in a neat and clean condition at all times.
2. Keep wastepaper, cardboard and rubbish stored in approved
receptacles or assigned rooms,
3. Hose down loading dock
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B. MONTHLY:
1. Clean ramps, loading dock, trucking area, compactor area and
garbage storage room floors.
2. Clean all mechanical equipment areas. Floors to be washed, spray
buffed, stripped and washed, as directed by the Property Manager.
GENERAL CLEANING NOTES:
1. Stop sinks are to be cleaned after use. Mops, rags and equipment
am to be cleaned and stored. Electric, telephone closets and
storerooms are to be kept free from debris and other material.
Report storage of extraneous material and equipment to Building
Management. Maintain entire building exterior so that there is
uniformity of color, brightness and cleanliness at all times.
2. Adjust venetian blinds to uniform standard. Wipe clean all vending
machines, empty and clean all vending waste receptacles.
3. Upon completion of nightly chores, lights are to be extinguished,
doors closed and locked where possible and offices left in a neat
and orderly fashion.
ROOFS:
1. The Contractor shall familiarize himself with all roof details.
These areas shall be kept clean of debris at all times.
SNOW REMOVAL:
Promptly remove all snow and ice from all sidewalks, entrances and plazas upon
commencement of snowfall, and continuously thereafter using snowblowers as well
as shovels.
TRAINING:
1. All on-cite supervision must speak English. All personnel must be
instructed on a regular basis in the following areas:
a) Emergency evacuation procedures.
b) OSHA Right to Know Compliance (MSDS)
c) OSHA Bloodborne Pathogens Standard (1910.1030)
d) OSHA Personnel Protection Equipment Standards (1910.132, 133, 135,
136, 138)
e) Comprehensive Work-Safety Program relating to proper signage for
wet floors, electrical equipment, use in occupied areas, chemical
safety, etc.
f) All other regulatory agency requirements.
g) Train janitorial staff in techniques that focus on Indoor Air
Quality.
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CLEANING MATERIALS:
1. Materials-Safety Data Sheets will be provided to the Property
Manger for all cleaning materials used at the facility and any
additional information on emission characteristics.
2. Use "Environmentally Preferable Products" such as low-toxicity
cleaners, polishes, waxes, shampoos and oils.
3. Dilute and apply chemicals properly, these techniques must be
outlined in a written document, copy of which will be supplied to
Building Management.
4. Use recommend type vacuum cleaner with a motor greater than six
(6) amperes with a least 5-micron sealed, dual bag, filtration
system.
QUALITY ASSURANCE$:
1. Monthly quality assurance inspections will be conducted by the
Contractors Senior Management personnel not directly assigned to
the site, The Property Manager will be notified in advance of said
inspections and may chose, at his/her discretion, to conduct the
inspection jointly.
IX. DUTIES OF DAY PORTERS:
A. DAILY:
1. Sweep lobby two times a day, five days a week, using an approved
chemically treated cloth.
2. Clean all windows inside and out in the lobby once a day.
3. Empty and strain all exterior cigarette urns.
4. If carpeted, elevator cab floors to be vacuumed cleaned two times
a day more often if necessary.
5. Wipe clean and remove fingermarks from all metal and bright work
throughout interior of lobby up to hand reach daily, five times a
week
6. Sweep sidewalks, ramps, loading dock trucking area, etc., daily
and scrub and clean when necessary.
7. Lay down and remove lobby runners as necessary.
8. Police all men's lavatories twice each day, more often if needed.
9. Fill all dispensers as required. Tissue and paper towels to be
furnished by Owner.
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10. Police all lobby plants throughout.
11. Perform work assigned by the Building Management Office.
X. EXTERMINATION
1. The Contractor shall finish expert technicians equipped with the latest
and most modern equipment and chemicals at minimum protection for Post Control
Service of the entire building and keep the building five of insects, roaches,
waterbugs, ants, silverfish and/or rodent pests. The fees stated in this
contract shall include all labor and material any emergency or additional
services that may be required except Glue Boards shall be charged extra when
used.
Services will be rendered to all public areas, lobbies, ladies' and men's rooms,
ground floor areas, slop sink closets, elevator pits, cafeteria and loading dock
as well as all areas on all floors, mechanical areas and roof.
Should emergency service be necessary, such service and material will be
supplied at no additional cost. Service will be rendered once each week.
Scheduling for any special service and requests for routine service treatment
shall be coordinated with the Company's Building Management Office.
All areas shall be treated after 4:00 p.m. in order to achieve optimum results
and to cause on conflict with the Company's normal routines.
2. PEST CONTROL LOG.
Provide a Pest Control Log which will contain the following records and current
data:
a) An outline of the Pest Control Programming and frequency of same.
b) A current list of material (chemical and non-chemical) used in your
Pest Control Program. Material Safety Data Sheets (MSDS) for all
chemicals used at Building.
c) Exterminating service reports completed and logged after each.
d) Problem reporting form for recording and documenting problems which
might rise between services.
Interim roach control treatment will be instituted utilizing the application of
residual and non-residual insecticides.
An effective Rodent Control Program shall be instituted and maintained by the
use of rodenticide baits, dust, mechanical devices and glue boards.
XI. FLOOR MAINTENANCE:
Floor maintenance shall be performed for all Company space and additional
designated areas throughout the building and shall include carpet care,
stripping, scrubbing and
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refinishing all vinyl tile floors and granite floors. The cleaning Contractor
shall prepare a work assignment plan, develop work schedule and flow charts to
provide full coverage of these areas. According to the following specifications:
ALL VINYL TILE FLOORS (AVAILABLE FROM CLEANING CONTRACTOR AT ADDITIONAL COST).
a) Stripped, scrubbed and refinished as required, but not less than once
per month.
b) Spray buffed once per week.
c) Spot cleaned as required.
- - WEEKLY
Clean interior/exterior glass doors.
- - FOUR (4) TIMES PER YEAR:
- Clean window interior and exterior (4 times per year)
- Clean all interior partition glass (Available from cleaning Contractor
at additional cost).
XIII. KITCHEN (AVAILABLE FROM CLEANING CONTRACTOR AT ADDITIONAL COST):
1. Damp wipe entire ceiling in kitchen and dishwashing area (2 times
per year). 2. Wash all ceramic tile walls throughout third floor
(2 times per year).
3. Wax wood surfaces as required.
4. Strip and re-wax composition tile floors monthly.
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Exhibit J
HVAC Specifications
The heating, air conditioning an ventilation systems of the Building
are designed to meet the following criteria:
<TABLE>
<S> <C>
-----------------------------------------------------------------------
Summer
-----------------------------------------------------------------------
Indoor 76(degree)FDB, 50%RH-/+10%
-----------------------------------------------------------------------
Outdoor 92(degree)FDB, 78(degree)WB
-----------------------------------------------------------------------
Winter
-----------------------------------------------------------------------
Indoor 68(degree)FDB, no RH Control
-----------------------------------------------------------------------
Outdoor 11(degree)FDB
-----------------------------------------------------------------------
Design Population 100 usable Sq. Ft./Person
-----------------------------------------------------------------------
Interior Zones Variable Volume
-----------------------------------------------------------------------
Perimeter Zones Constant Volume
-----------------------------------------------------------------------
HVAC Allowance Lights (Watt/Sq. Ft.) 1 - 1.5 Watts/usable Sq. Ft.
-----------------------------------------------------------------------
Equipment 1.3 - 1.8 Watts/usable Sq. Ft.
-----------------------------------------------------------------------
Total 3.2 Watts/usable Sq. Ft.
-----------------------------------------------------------------------
Average Interior Air Circulation .92 CFM/usable Sq. Ft.
-----------------------------------------------------------------------
</TABLE>
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Exhibit K
INTENTIONALLY DELETED
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Exhibit L
INTENTIONALLY DELETED
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Exhibit M
Floor Loads
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Floor Live Load Lbs. Per Square Foot
- -------------------------------------------------------------------------------
<S> <C>
13 50
- -------------------------------------------------------------------------------
14 50
- -------------------------------------------------------------------------------
15 50
- -------------------------------------------------------------------------------
16 50
- -------------------------------------------------------------------------------
17 50
- -------------------------------------------------------------------------------
18 50
- -------------------------------------------------------------------------------
19 50
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
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Exhibit N
Rules and Regulations
1. The sidewalks, driveways, entrances, passages, courts, lobbies,
esplanade areas, atrium, plazas, elevators, escalators, stairways, vestibules,
corridors, halls and other public portions of the Building ("Public Areas")
shall not be obstructed or encumbered by any tenant or used for any purpose
other than ingress and egress to and from the Premises, and no tenant shall
permit any of its employees, agents, licensees or invitees to congregate or
loiter in any of the Public Areas. No tenant shall invite to, or permit to
visit, its premises persons in such numbers or under such conditions as may
interfere with the use and enjoyment by others of the Public Areas. Fire exists
and stairways are for emergency use only, and they shall not be used for any
other purposes by any tenant, or the employees, agents, licensees or invitees of
any tenant. Landlord reserves the right to control and operate, and to restrict
and regulate the use of, the Public Areas and the public facilities, as well as
facilities furnished for the common use of the tenants, in such manner as it
deems best for the benefit of the tenants generally, including the right to
allocate certain elevators for delivery service, and the right to designate
which Building entrances shall be used by persons making deliveries in the
Building. No doormat of any kind whatsoever shall be placed or left in any
public hall or outside any entry door of the Premises.
2. No awnings or other projections shall be attached to the outside
walls of the Building. No curtains, blinds, shades or screens shall be attached
to or hung in, or used in connection with, any window or door of the Premises,
without the consent of Landlord. Such curtains, blinds, shades or screens must
be of a quality, type, design and color, and attached in the manner, approved by
Landlord. In order that the Building can and will maintain a uniform appearance
to those persons outside of the Building, each tenant occupying the perimeter
areas of the Building shall (a) use only building standard lighting in areas
where lighting is visible from the outside of the Building and (b) use only
building standard blinds in window areas which are visible from the outside of
the Building.
3. No sign, insignia, advertisement lettering, notice or other object
shall be exhibited, inscribed, painted or affixed by any tenant on any part of
the outside or inside of the Premises or the Building or on corridor
walls-without the prior consent of Landlord. Signs on each entrance door of the
Premises shall conform to building standard signs, samples of which are on
display in Landlord's rental office. Such signs shall, at the expense of Tenant
be inscribed, painted or affixed by signmakers approved by Landlord. In the
event of the violation of the foregoing by any tenant, Landlord may remove the
same without any liability, and may charge the expense incurred in such removal
to the tenant or tenants violating this rule. Interior signs, elevator cab
designations, if any, and lettering on doors and, subject to the Lease to which
these Rules and Regulations are attached (the "Lease"), the Building directory
shall, if and when approved by Landlord, be inscribed, painted or affixed for
each tenant by Landlord, at the expense of such
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tenant, and shall be of a size, color and style acceptable to Landlord. Only
Tenant named in the Lease shall be entitled to appear on the directory tablet.
Additional names may be added in Landlord's sole discretion under such terms and
conditions as the Landlord may approve.
4. Neither the sashes, sash doors, skylights or windows that reflect or
admit light and air into the halls, passageways or other public places in the
Building nor the heating, ventilating and air conditioning vents and doors shall
be covered or obstructed by any tenant, nor shall any bottles, parcels or other
articles be placed on the window sills or on the peripheral heating enclosures.
Tenant shall have no right to remove or change shades, blinds or other window
coverings within the Premises without Landlord's consent. Tenant acknowledges
that although the windows are not hermetically sealed Tenant is not permitted to
open such windows.
5. No showcases or other articles shall be put by Tenant in front of or
affixed to any part of the exterior of the Building, nor placed in the Public
Areas.
6. No acids, vapors or other harmful materials shall be discharged, or
permitted to be discharged, into the waster lines, vents or flues of the
Building. The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were designed and
constructed, and no sweepings, rubbish, rags, acids or other foreign substances
shall be thrown or deposited therein. Nothing shall be swept or thrown into the
Public Areas or other areas of the Building, or into or upon any heating or
ventilating vents or registers or plumbing apparatus in the Building, or upon
adjoining buildings or land or the street. The cost of repairing any damage
resulting from any misuse of such fixtures, vents, registers and apparatus and
the cost of repairing any damage to the Building, or to any facilities of the
Building, or to any adjoining building or property, caused by any tenant, or the
employees, agents, licensees or invitees of such tenant, shall be paid by such
tenant. Any cuspidors or similar containers or receptacles shall be emptied,
cared for and cleaned by and at the expense of such tenant.
7. Except as otherwise permitted in the Lease; Tenant shall not mark,
paint, drill into, or in any way deface, any part of the Premises of the
Building; no boring, cutting or stringing of wires shall be permitted, except
with the prior written consent of, and as directed by, Landlord; no telephone,
telegraph or other wires or instruments shall be introduced into the Building by
any tenant except in a manner approved by Landlord; Tenant shall not lay
linoleum, or other similar floor covering, so that the same shall come in direct
contact with the floor of its premises, and, if linoleum or other similar floor
covering is desired to be used, an interlining of builder's deadening felt shall
be first affixed to the floor, by a paste or other material, soluble in water,
the use of cement or other similar adhesive material being expressly prohibited.
8. No vehicles, fish or birds of any kind shall be brought into, or
kept in or about, the Premises.
9. No noise, including, but not limited to music, the playing of
musical instruments, recordings, radio or television, which, in the judgment of
Landlord, might
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disturb other tenants in the Building, shall be made or permitted by any tenant.
Nothing shall be done or permitted by any tenant which would impair or interfere
with the use or enjoyment by any other tenant of any other space in the
Building.
10. Nothing shall be done or permitted in the Premises, and nothing
shall be brought into, or kept in or about the Premises, which would impair or
interfere with any of the Building Equipment or the services of the Building or
the proper and economic heating, ventilating, air conditioning, cleaning or
other services of the Building or the Premises, nor shall there be installed by
any tenant any ventilating, air conditioning, electric or other equipment of any
kind which, in the judgment of Landlord, might cause any such impairment or
interference. No tenant, nor the employees, agents, licensees or invitees of any
tenant, shall at any time bring or keep upon its premises any inflammable,
combustible or explosive fluid, chemical or substance.
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 locks or
the mechanism thereof. Duplicate keys for the Premises and toilet rooms shall be
procured only from Landlord, and Landlord may make a reasonable charge therefor
based upon Landlord's actual cost. Each tenant shall, upon the expiration or
sooner termination of the Lease of which these Rules and Regulations are a part,
turn over to Landlord all keys to stores, offices and toilet rooms, either
furnished to, or otherwise procured by, such tenant, and in the event of the
loss of any keys furnished by Landlord, such tenant shall pay to Landlord the
cost of replacement locks. Notwithstanding the foregoing, Tenant may, wit
Landlord's prior consent, install a security system in the Premises which uses
master codes or cards instead of keys provided that Tenant shall provide
Landlord with the master code or card for such system.
12. All removals, or the carrying in or out of any safes, freight,
furniture, packages, boxes, crates or any other object or matter of any
description shall take place only during such hours and in such elevators as
Landlord may from time to time reasonably determine, which may involve overtime
work for Landlord's employees. Tenant shall reimburse Landlord for extra costs
reasonably incurred by Landlord including but not limited to the cost of such
overtime work. Landlord reserves the right to inspect all objects and matter to
be brought into the Building and to exclude from the Building all objects and
matter which violate any of these Rules and Regulations or the Lease of which
these Rules and Regulations are apart. Landlord may require any person leaving
the Building with any package or other object or matter to submit a pass,
listing such package or object or matter, from the tenant from whose premises
the package or object or matter is being removed, but the establishment or
enforcement of such requirement shall not impose any responsibility on Landlord
for the protection of any tenant against the removal of property from the
premises of such tenant. Landlord shall in no way be liable to any tenant for
damages or loss arising from the admission, exclusion or rejection of any person
to or from the Premises or the Building under the provisions of Rule 12 or of
Rule 15 hereof.
13. No tenant shall use or occupy, or permit any portion of its
premises to be used or occupied, as an office for a public stenographer or
public typist, or for the
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possession, storage, manufacture or sale of narcotics or dope or as a barber,
beauty or manicure shop, telephone or telegraph agency, telephone or secretarial
service, messenger service, travel or tourist agency, retail, wholesale or
discount shop for sale of merchandise, retail service shop, labor union,
classroom, company engaged in the business of renting office or desk space, or
for a public finance (personal loan) business, or as a hiring employment agency,
or as a stock brokerage board room. No tenant shall engage or pay any employee
in its premises, except those actually working for such tenant on its premises,
nor advertise for laborers giving an address at the Building. No tenant shall
use its premises or any part thereof, or permit the Premises or any part thereof
to be used, as a restaurant, shop, booth or other stand, or for the conduct of
any business or occupation which predominantly involves direct patronage of the
general public, or for manufacturing, or for the sale at retail or auction of
merchandise, goods or property of any kind.
14. Landlord shall have the right to prohibit any advertising or
identifying sign by any tenant which, in the judgment of Landlord, tends to
impair the appearance or reputation of the Building or the desirability of the
Building as a building for offices, and upon written notice from Landlord, such
tenant shall refrain from and discontinue such advertising or identifying sign.
15. Landlord reserves the right to exclude from the Building all
employees of any tenant who does not present a pas to the Building signed by
such tenant. Landlord or its agent will furnish passes to persons for whom any
tenant requests same in writing. Landlord reserves the right to require all
other persons entering the Building to sign a register, to be announced to the
tenant such person is visiting, and to be accepted as a visitor by such tenant
or to be otherwise properly identified (and, if not so accepted or identified,
reserves the right to exclude such persons from the Building) and to require
persons leaving the Building to sign a register or to surrender a pass given to
such person by the tenant visited. Each tenant shall be responsible for all
persons for whom it requests any such pass or any person whom such tenant so
accepts, and such tenant shall be liable to Landlord for all acts or omissions
of such persons. Any person whose presence in the Building at any time shall, in
the judgment of Landlord, be prejudicial to the safety, character, security,
reputation or interests of the Building or the tenants of the Building may be
denied access to the Building or may be ejected from the building. In the event
of invasion, riot, public excitement or other commotion, Landlord may prevent
all access to the Building during the continuance of the same by closing the
doors or otherwise, for the safety of tenants and the protection of property in
the Building.
16. Unless Landlord shall otherwise request, each tenant, before
closing and leaving its premises at any time, shall see that all lights are
turned out. All entrance doors in the Premises shall be kept locked by each
tenant when its premises are not in use. Entrance doors shall not be left open
at any time.
17. Each tenant shall, at the expense of such tenant, provide light,
power and water for the employees of Landlord, and the agents, contractors and
employees of Landlord, while doing janitor service or other cleaning in the
premises demised to such tenant and while making repairs or alterations in its
premises.
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18. The premises shall not be used for lodging or sleeping or for any
immoral or illegal purpose.
19. The requirements of tenants 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.
20. Canvassing, soliciting and peddling in the Building are prohibited
and each tenant shall cooperate to prevent the same.
21. The employees, agents, licensees and invitees of any tenant shall
not loiter around the Public Areas or the front, roof or any part of the
Building used in common by other occupants of the Building.
22. There shall not be used in any space, or in the Public Areas,
either by any tenant or by others, in the moving or delivery or receipt of
safes, freight, furniture, packages, boxes, crates, paper, office material or
any other matter or thing, any hand trucks except those equipped with rubber
tires, side guards and such other safeguards as Landlord shall require. No hand
trucks shall be used in passenger elevators.
23. No tenant shall cause or permit any odors of cooking or other
processes, or any unusual or objectionable odors, to emanate from its premises
which would annoy other tenants or create a public or private nuisance. No
cooking shall be done in the Premises except as is expressly permitted in the
Lease of which these Rules and Regulations are a part, except that Tenant shall
be permitted to use microwave ovens in any breakroom or lunch room located in
the Premises.
24. All paneling, doors, trim or other wood products not considered
furniture shall be of fire-retardant materials. Before installation of any such
materials, certification of the materials' fire-retardant characteristics shall
be submitted to and approved by Landlord, and installed in a manner approved by
Landlord.
25. Landlord reserves the right to rescind, alter, waive or add, as to
one or more or all tenants, any rule or regulation at any time prescribed for
all tenants of the Building generally when, in the reasonable judgment of
Landlord, Landlord deems it necessary or desirable for the reputation, safety,
character, security, care, appearance or interests of the Building, or the
preservation of good order therein, or the operation or maintenance of the
Building, or the equipment thereof, or the comfort of tenants or others in the
Building. No rescission, alteration, waiver or addition of any rule or
regulation in respect of one tenant shall operate as a rescission, alteration or
waiver in respect of any other tenant.
26. In the event of any conflict or inconsistency between-the
provisions of this Exhibit N and the Lease, the provisions of the Lease shall
prevail.
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Exhibit O
Form of Tenant Estoppel Certificate
TENANT ESTOPPEL CERTIFICATE AND AGREEMENT
(PREMISES: 233 BROADWAY, NEW YORK CITY)
THIS IS TO CERTIFY THAT:
1. The undersigned is the Lessee (the "Tenant") under that certain lease
(the "Lease") dated as specified in 6(a) below, by and between 233
Broadway Owners LLC, as Lessor (the "Landlord"), and the undersigned or
the person specified in 6(b) below, as Lessee, covering those certain
premises commonly known and designated as the floors or portions
thereof specified in 6(c) below (the "Premises"), at 233 Broadway, in
the Borough of Manhattan, City, County and State of New York.
2. The Lease (i) constitutes the entire agreement between the undersigned
and the Landlord with respect to the Premises, (ii) has not been
modified, changed, altered, or amended in any respect (except as
indicated in 6(h) below), and (iii) is the only Lease between the
undersigned and the Landlord affecting the Premises.
3. The undersigned has accepted and now occupies the entire premises
covered by the Lease, and all improvements required by the terms of the
Lease to be made by the Landlord have been completed to the
satisfaction of the undersigned.
4. (i) No party to the Lease is in default, (ii) the Lease is in full
force and effect, (iii) full rental is accruing thereunder and (iv) as
of the date hereof the undersigned has no charge, lien or claim of
offset (and no claim for any credit or deduction) under the Lease or
otherwise, against rents or other charges due or to become due
thereunder or on account of any prepayment of rent more than 30 days in
advance of its due date.
5. Since the date of the Lease, there has been no material adverse change
in the financial condition of the undersigned, and there are no
actions, whether voluntary or otherwise, pending against the
undersigned under the bankruptcy, reorganization, arrangement,
moratorium, or similar laws of the United States, any state thereof, or
any other jurisdiction.
6. (a) The date of the Lease is
(b) The original Lessee of the Lease, if different from the
undersigned, was __________.
(c) The premises covered by the Lease are Suite ___, ___ floor.
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(d) The term of the Lease began (or is scheduled to begin) on and the
expiration date is ___________.
(e) The fixed rent and additional rent for the Premises has been paid
to and including ____________.
(f) The monthly fixed rent currently being paid pursuant to the Lease
is $________ which includes $________ for electricity and
$________ for the Additional Rent Escalation. Tenant has paid ____
for the Real Estate Tax Escalation for the period _______ through
_______.
(g) The Landlord is holding a security deposit for the Tenant in the
amount of ________.
(h) The following are exceptions to the statements in 2(ii):
7. There are no tenant allowances, tenant improvement contributions,
settlement amounts, rebates or other obligations owing from Landlord to
Tenant except: _______
8. A true and correct copy of the Lease and all amendments thereto is
attached to this letter.
9. This estoppel certificate may be relied upon by 233 Broadway Owners LLC
and _______________________________________________.
Dated: ______________________________
By: _________________________________
Title: ______________________________
Signed On: __________________________
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Exhibit P
Memorandum of Lease
THIS MEMORANDUM OF LEASE (hereinafter referred to as the "Memorandum of
Lease") is made and entered into as of the ____ day of November, 1999 by and
between 233 BROADWAY OWNERS LLC, a New York limited liability company, with an
office c/o The Witkoff Group LLC, with an office at 220 East 42nd Street, New
York, New York 10017 (hereinafter referred to as "Landlord"), and ORGANIC INC.,
a Delaware corporation, with an office at 5 10 Third Street, 5th Floor, San
Francisco, California 94107 (hereinafter referred to as "Tenant").
W I T N E S S E T H:
For and in consideration of the sum of One Dollar ($1.00) and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and the further consideration of the covenants and undertakings
hereinafter set forth, as well as each and every covenant, agreement and
undertaking set forth in that certain Lease between Landlord and Tenant dated as
of the date hereof (hereinafter referred to as the "Lease"), an executed copy
whereof is in the possession of each party hereto and all of which terms and
conditions are by reference made a part hereof as fully and completely as if
herein specifically set out in full, Landlord and Tenant do hereby covenant and
agree as follows:
1. LEASED PREMISES. Subject in all respects to the terms, provisions
and conditions of the Lease, by virtue of the Lease, Landlord has leased to
Tenant a leasehold estate and Tenant has leased from Landlord on the date of
execution of the Lease: (i) the thirteenth (13th), fourteenth (14th), fifteenth
(15th) and sixteenth (16th) floors, in accordance with the terms of the Lease
(collectively, "the Premises"), in that certain building (the "Building")
located at 233 Broadway, New York, New York more particularly described on
Schedule A annexed hereto (the "Land").
2. TERM. Subject in all respects to the terms, provisions and
conditions of the Lease, the original term of the Lease shall commence on the
date hereof (the "Term Commencement Date") and, unless sooner terminated
pursuant to law or pursuant to any of the terms of the Lease, shall end on the
last day of the month in which the fifteenth anniversary of the Base Rent
Commencement Date occurs (the "Expiration Date"). In addition, subject to the
terms, provisions and conditions of the Lease, Tenant shall have the option to
extend the term of the Lease beyond the Expiration Date for up to one (1) period
of five (5) years.
3. EXPANSION AND REDUCTION OF PREMISES. Subject in all respects to the
terms, provisions, conditions and expansion options set forth in the Lease,
Tenant may elect to expand the Premises to include the floors in the Building
set forth below:
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(a) The twelfth (12th) floor compromised of 27,845 rentable square
feet.
(b) The seventeenth (17th) floor comprised of 28,098 rentable square
feet.
(c) The eighteenth (18th) floor comprised of 28,098 rentable square
feet.
(d) The nineteenth (19th) floor comprised of 28,098 rentable square
feet.
4. USE. Subject in all respects to the terms, provisions and conditions
of the Lease, Tenant shall use the Premises for general and administrative
office use, which may include a cafeteria, telecommunication facilities, data
services, conference center mail or other commonly used facilities of Tenant for
use for Tenant's employees and such ancillary uses which are consistent with the
Class A nature of the Building.
5. CONFLICTING PROVISIONS. In the event that any conflict exists
between the terms and provisions of this Memorandum of Lease and the terms and
provisions of the Lease, the terms and provisions of the Lease shall be deemed
controlling in all respects.
6. EFFECT OF MEMORANDUM OF LEASE. Landlord and Tenant have executed,
delivered and shall record this Memorandum of Lease for the purpose of giving
notice to third persons of the existence and effect of the Lease without
recording the entire Lease itself. It is acknowledged that the complete,
detailed terms, covenants and conditions of the Lease appear in the Lease
itself, copies of which are in the possession of the parties hereto. Nothing
contained herein is intended to or does change, modify or affect any of the
terms or provisions of the Lease or the rights, duties, obligations, conditions
and agreements created thereby, all of which remain in fall force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Memorandum of
Lease as of the day and year first above written.
LANDLORD:
233 Broadway Owners LLC
By:
------------------------------------
TENANT:
Organic, Inc.
By:
------------------------------------
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Exhibit Q
Location Map of Seventeenth Floor Option Space
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Exhibit R
Location Map of Nineteenth Floor Option Space
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Exhibit S
Location Map of Twelfth Floor Option Space
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Exhibit T
Location Map of Eighteenth Floor Option Space
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Exhibit U
Landlord's HVAC Equipment
The Landlord agrees to provide two (2) new 40 Ton DX AHU's to serve the
flow. AHU's shall be equipped with variable speed drives, DX Coils, hot water
heating coils and full capacity economizer coils with a condenser entering water
temperature of 53(degree) F. Landlord shall bear all costs of operating and
maintaining building provided heating and cooling systems.
AHU's to provide discharge air of sufficient quantity and temperature
to maintain a space temperature of 20(degree)F year round . Outside air shall be
supplied at a rate of twenty CFM per person based on occupancy of one person per
100 square foot. Power and lighting allowable heat gains shall be 6 watts per
square foot.
The Landlord agrees to provide complete mechanical systems including
mechanical equipment rooms, condenser waterpiping, return air boots, supply air
ductwork extending outside of MER for Tenants connection, outside air
connection, and all related louvers, plenums, dampers, fire dampers, controls,
etc. Sound levels outside MER shall not exceed NC-45.
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SUBORDINATION,
NON-DISTURBANCE AND ATTORNMENT AGREEMENT
233 BROADWAY OWNERS LLC,
LANDLORD
ORGANIC,
TENANT
LEHMAN BROTHERS HOLDINGS INC.
LENDER
PREMISES:
A PORTION OF THE BUILDING LOCATED AT
233 BROADWAY
NEW YORK, NEW YORK
RECORD AND RETURN TO:
JILL D. BLOCK, ESQ.
SHAPIRO, SHAPSES, BLOCK LLP
315 PARK AVENUE SOUTH
19TH FLOOR
NEW YORK, NEW YORK 10010
<PAGE> 155
SUBORDINATION, NON-DISTURBANCE AND
ATTORNMENT AGREEMENT
This SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT dated this
_______ day of __________, 1999 among 233 BROADWAY OWNERS LLC, with an address
at c/o The Witkoff Group LLC ("Landlord"), ORGANIC, a New York corporation with
an address at ______________, New York, New York ______ ("Tenant"). and LEHMAN
BROTHERS HOLDINGS INC., a Delaware corporation with an address at 3 World
Financial Center, New York, New York 10285 ("Lender").
W I T N E S S E T H:
WHEREAS, on December 4, 1998 Lender made (i) a loan to Landlord in the
principal amount of $105,000,000.00 of which the principal sum of $105,000,000
is now outstanding (the "Senior Loan") secured by a first mortgage lien and
security interest (the "Senior Mortgage") encumbering the real property and
improvements known as and located at 233 Broadway Owners LLC, New York, New York
and more particularly described on Exhibit A hereto (the "Mortgaged Property"),
and (ii) a certain subordinate loan to Landlord in the principal amount of
$56,135,706.41 (the "Subordinate Loan") secured by a subordinate mortgage lien
and security interest (the "Subordinate Mortgage") encumbering the Mortgaged
Property;
WHEREAS, Landlord and Tenant are parties to that certain Lease
affecting a portion of the Mortgaged Property (such portion, the "Premises")
dated __________, 1999 (the "Lease").
WHEREAS, as security for its obligations in respect of the Loan
Landlord has assigned to Lender all of Landlord's right, title and interest in
and to all existing and future leases affecting the Mortgaged Property,
including the Lease, and the rents payable thereunder;
WHEREAS, the Lease is subject and subordinate to the Senior Mortgage
and the Subordinate Mortgage, and Tenant's right, title and interest in, to and
under the Lease are subject and subordinate to Lender's right, title and
interest in, to and under the Senior Mortgage and the Subordinate Mortgage;
WHEREAS, Tenant has requested that Lender give certain assurances that,
subject to the terms and conditions of this Agreement, Tenants possession of the
Premises will not be disturbed by reason of foreclosure of the lien of either
the Senior Mortgage or the Subordinate Mortgage, or both, as the case may be;
WHEREAS, Lender is only willing to provide such assurances to Tenant
upon and subject to the express terms and conditions of this Agreement; and
WHEREAS, Landlord and Tenant have agreed to execute and deliver this
Agreement to Lender.
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NOW, THEREFORE, in consideration of the mutual premises herein
contained, and for other good and valuable consideration, the receipt and legal
sufficiency of which are hereby acknowledged, the parties hereto do mutually
covenant and agree as follows:
1. The Lease is and at all times hereafter shall be subject and
subordinate in all respects to the Senior Mortgage and the Subordinate Mortgage
and to all renewals, modifications, substitutions, consolidations and extensions
thereof, and to all other future mortgages affecting the Mortgaged Property held
by Lender.
2. Any provision in the Lease to the contrary notwithstanding, a notice
by Tenant to Landlord of a default under the Lease by Landlord, which default is
of such a nature as to give Tenant a right to terminate the Lease, to reduce the
rent payable under the Lease or to credit or offset against future rents, shall
be effective only if: (a) such notice is also given to Lender; and (b) Lender
shall not have cured or remedied such default by the later to occur of: (i)
thirty (30) days after Lenders receipt of such notice; or (ii) thirty (30) days
after the expiration of any applicable notice or grace period under the Lease;
provided, however, that if: (A) such default is not reasonably capable of being
cured within the applicable period; and (B) Lender shall diligently proceed with
its efforts to cure, Lender shall have a reasonable additional period to cure
such default. Lender shall have the right, but not the obligation, to remedy or
cure any such default.
3. So long as Tenant Is not In default in the payment of rent,
additional rent or other charges, or in the performance of any of the terms,
covenants or conditions of the Lease, such default continuing beyond any
applicable notice or grace period, Tenants occupancy of the Premises during the
original or any renewal term of the Lease or any extension thereof shall not be
disturbed by Lender by reason of foreclosure of the Senior Mortgage or the
Subordinate Mortgage, or both, as the case may be, the acceptance by Lender or
Its designee of a deed in lieu of foreclosure, or the exercise of any remedy
available at law, in equity or under the Senior Mortgage or the Subordinate
Mortgage.
4. Lender's receipt of the rents payable by Tenant under the Lease,
pursuant to the Senior Mortgage and the Subordinate Mortgage or any assignment
of the Lease, shall not obligate Lender to perform Landlord's obligations under
the Lease. Tenant shall make all payments under the Lease to Lender or its
designee upon receipt of written notice that such right has accrued, and Tenant
agrees not to prepay any sums payable by Tenant under the Lease. Lenders receipt
of such rent shall not relieve Landlord of its obligations under the Lease, and
Tenant shall continue to look solely to Landlord for performance of such
obligations.
5. Upon Lender's succession to the rights of Landlord under the Lease,
whether through possession, termination or cancellation of the Lease, surrender,
assignment, judicial action, subletting, foreclosure, delivery of a deed in lieu
of foreclosure or otherwise, Tenant will attorn to and recognize Lender as the
landlord under the Lease, and Lender will accept such attornment and recognize
Tenant's rights of possession and use of the Premises in accordance with the
terms of the Lease. Without further evidence of such attornment and acceptance,
Tenant shall be bound by, and shall comply with, each and every term, provision,
covenant and obligation contained in the
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Lease on Tenant's part to be performed. Nothing contained in this Agreement, or
in any other instrument including, without limitation, the Lease, shall impose
upon Lender an obligation to complete or renovate the Premises for the benefit
of Tenant. Tenant's agreement to attorn shall not be construed as amending
Landlord's obligations under the Lease.
6. Lender shall not in any way or to any extent be:
(a) viable for any act or omission of any prior landlord
(including Landlord) in contravention of any provision of the Lease;
(b) Subject to any offset, claim or defense which Tenant might
have against any prior landlord (including Landlord), unless Lender has been
given notice and an opportunity to cure the condition giving rise to such
offset, claim or defense as provided in Section 2 hereof;
(c) bound by any rent or additional rent which Tenant might
have paid more than thirty (30) days in advance to any prior landlord (including
Landlord);
(d) bound by any agreement or modification of the Lease or of
any Lease guaranty made Without Lenders prior written consent; or
(e) in any way responsible for any security or other deposit
which was delivered to Landlord, and not forfeited by Tenant, but which was not
subsequently delivered to Lender.
7. If Lender or its designee acquires title to the Mortgaged Property
as a result of foreclosure of the Senior Mortgage or Subordinate Mortgage,
acceptance of a deed in lieu of foreclosure, or by obtaining control of the
Premises pursuant to the remedies available to Lender at law, in equity, under
the Senior Mortgage or Subordinate Mortgage, or otherwise, Tenant shall have no
recourse to any assets of Lender or such designee and, except for any right that
might exist as set forth in Section 6(b) hereof, Tenant's sole remedy for any
act or omission of Lender or such designee in contravention of any provision of
the Lease shall be to terminate the Lease without recourse. Lenders acquisition
of title to or control of the Mortgaged Property, or the performance by Lender
of any of the obligations of Landlord under the Lease, shall in no event be
construed as an assumption of the Lease by Lender. Upon Lenders or its
designee's acquisition of title to the Mortgaged Property, the Lease shall be
deemed automatically modified to include the provisions contained herein
notwithstanding any other provisions of the Lease.
8. Tenant shall execute such other documents as Lender, in its sole
discretion, may deem necessary or appropriate to evidence the subordination of
the Lease to the Senior Mortgage and Subordinate Mortgage; provided, however,
that such documents shall not materially adversely affect the parties' rights or
obligations under the Lease.
9. Any notice, demand, statement, request or consent given or made
hereunder shall be in writing and shall be deemed given on the next business day
if sent
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by Federal Express or other reputable overnight courier and designated for next
business day delivery, or on the third day following the day such notice is
deposited with the United States postal service first class certified mail,
return receipt requested, addressed to the address, as set forth above, of the
party to whom such notice is to be given, or to such other address or additional
party as Landlord, Tenant or Lender, as the case may be, shall in like manner
designate in writing.
A copy of each notice, demand statement, request or consent given or
made hereunder shall be delivered in the manner herein provided for the giving
of notice to the following address:
Copies of notices to Landlord to:
James F. Stomber, Jr., Esq.
233 Broadway Owners LLC
c/o The Witkoff Group LLC
220 East 42nd Street
New York, New York 10017
Copies of notices to Tenant to:
Davis & Gilbert LLP
1740 Broadway
New York, New York 10019
Attention: Chairperson, Real Estate Division
Copies of notices to Lender to:
Jill D. Block, Esq.
Shapiro, Shapses, Block LLP
315 Park Avenue South, 19th Fl.
New York, New York 10010
10. This Agreement shall be binding upon and shall inure to the
parties, their respective heirs, successors and assigns.
11. This Agreement shall be governed by, and construed in accordance
with, the laws of the State in which the Mortgaged Property is located, without
giving effect to conflict of laws principles or otherwise.
12. This Agreement may be executed in any number of counterparts and
each such duplicate original shall be deemed to be an original.
13. This Agreement may not be changed, amended or modified in any
manner other than by an agreement in writing specifically referring to this
Agreement and executed by the parties hereto.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
LEHMAN BROTHERS HOLDINGS INC.
By:
------------------------------------
Name:
Title:
233 BROADWAY OWNERS LLC
By:
------------------------------------
Name:
Title:
ORGANIC
By:
------------------------------------
Name:
Title:
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<PAGE> 160
STATE OF NEW YORK )
:ss.:
COUNTY OF NEW YORK )
On this ___ day of ______________, in the year 1999, before me
personally appeared, to me known, who, being by me duly sworn, did depose and
say that he resides at _____________________; that he is an Authorized Signatory
of LEHMAN BROTHERS HOLDINGS INC., the corporation described in and which
executed the foregoing instrument; and that he signed his name thereto by
authority of the board of directors of said corporation.
----------------------------------------
Notary Public
STATE OF _________________ )
:ss.:
COUNTY OF ________________ )
On the ____ day of _____________ in the year 1999 before me, the
undersigned, personally appeared __________________ personally known to me or
proved to me on the basis of satisfactory evidence to be the individual(s) whose
name(s) is (are) subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their capacity(ies), and that by
his/her/their signature(s) on the instrument, the individual(s), or the person
upon behalf of which the individual(s) acted, executed the instrument.
----------------------------------------
Notary Public
STATE OF _________________ )
:ss.:
COUNTY OF ________________ )
On the ___ day of ___________, 1999, before me personally came _________________
to me known, who, being by me duly sworn, did depose and say that he resides at
No. _____________________________________ that he is the ________________ of
ORGANIC, the corporation described in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that t was so affixed by order of the
board of directors of said corporation, and that he signed his name thereto by
like order.
----------------------------------------
Notary Public
<PAGE> 161
EXHIBIT A
Legal Description
<PAGE> 162
Memorandum of Lease
THIS MEMORANDUM OF LEASE (hereinafter referred to as the "Memorandum of
Lease") is made and entered into as of the __________ day of November, 1999 by
and between 233 BROADWAY OWNERS LLC, a New York limited liability company, with
an office c/o The Witkoff Group LLC, with an office at 220 East 42d Street, New
York, New York 10017 (hereinafter referred to as "Landlord"), and ORGANIC INC.,
a Delaware corporation, with an office at 510 Third Street, 5th Floor, San
Francisco, California 94107 (hereinafter referred to as "Tenant").
WITNESSETH:
For and in consideration of the sum of One Dollar ($1.00) and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and the further consideration of the covenants and undertakings
hereinafter set forth, as well as each and every covenant, agreement and
undertaking set forth in that certain Lease between Landlord and Tenant dated as
of the date hereof (hereinafter referred to as the "Lease"), an executed copy
whereof is in the possession of each party hereto and all of which terms and
conditions are by reference made a part hereof as fully and completely as if
herein specifically set out in full, Landlord and Tenant do hereby covenant and
agree as follows:
1. LEASED PREMISES. Subject in all respects to the terms, provisions
and conditions of the Lease, by virtue of the Lease, Landlord has leased to
Tenant a leasehold estate and Tenant has leased from Landlord on the date of
execution of the Lease: (i) the thirteenth (13th), fourteenth (14th), fifteenth
(15th) and sixteenth (16th) floors, in accordance with the terms of the Lease
(collectively, "the Premises"), in that certain building (the "Building")
located at 233 Broadway, New York, New York more particularly described on
Schedule A annexed hereto (the "Land").
2. TERM. Subject in all respects to the terms, provisions and
conditions of the Lease, the original term of the Lease shall commence on the
date hereof (the "Term Commencement Date") and, unless sooner terminated
pursuant to law or pursuant to any of the terms of the Lease, shall end on the
last day of the month in which the fifteenth anniversary of the Base Rent
Commencement Date occurs (the "Expiration Date"). In addition, subject to the
terms, provisions and conditions of the Lease, Tenant shall, have the option to
extend the term of the Lease beyond the Expiration Date for up to one (1) period
of five (5) years.
3. EXPANSION AND REDUCTION OF PREMISES. Subject in all respects to the
terms, provisions, conditions and expansion options set forth in the Lease,
Tenant may elect to expand the Premises to include the floors in the Building
set forth below:
(a) The twelfth (12th) floor compromised of 27,845 rentable
square feet.
<PAGE> 163
(b) The seventeenth (17th) floor comprised of 28,098 rentable
square feet.
(c) The eighteenth (18th) floor comprised of 28,098 rentable
square feet.
(d) The nineteenth (19th) floor comprised of 28,098 rentable
square feet.
4. USE. Subject in all respects to the terms, provisions and conditions
of the Lease, Tenant shall use the Premises for general and administrative
office use, which may include a cafeteria, telecommunication facilities, data
services, conference center mail or other commonly used facilities of Tenant for
use for Tenant's employees and such ancillary uses which are consistent with the
Class A nature of the Building.
5. CONFLICTING PROVISIONS. In the event that any conflict exists
between the terms and provisions of this Memorandum of Lease and the terms and
provisions of the Lease, the terms and provisions of the Lease shall be deemed
controlling in all respects.
6. EFFECT OF MEMORANDUM OF LEASE. Landlord and Tenant have executed,
delivered and shall record this Memorandum of Lease for the purpose of giving
notice to third persons of the existence and effect of the Lease without
recording the entire Lease itself. It is acknowledged that the complete,
detailed terms, covenants and conditions of the Lease appear in the Lease
itself, copies of which are in the possession of the parties hereto. Nothing
contained herein is intended to or does change, modify or affect any of the
terms or provisions of the Lease or the rights, duties, obligations, conditions
and agreements created thereby, all of which remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Memorandum of
Lease as of the day and year first above written.
LANDLORD:
233 Broadway Owners LLC
By:
------------------------------------
<PAGE> 164
TENANT:
Organic, Inc.
By:
------------------------------------
<PAGE> 165
LEASE
233 BROADWAY OWNERS LLC,
a New York
limited liability company (LANDLORD)
and
ORGANIC, INC.
a Delaware corporation (TENANT)
233 BROADWAY
NEW YORK, NEW YORK
<PAGE> 166
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. DEFINITIONS AND BASIC PROVISIONS...........................................5
2. LANDLORD'S AUTHORITY; PREMISES; TERM, RENEWAL.............................13
3. RENTABLE AREA.............................................................16
4. BASE RENT.................................................................16
5. ADDITIONAL RENT - ESCALATIONS.............................................16
6. LATE CHARGE...............................................................28
7. LANDLORD'S WORK...........................................................28
8. LANDLORD'S OBLIGATIONS - UTILITIES AND SERVICES...........................34
9. USE.......................................................................41
10. COMPLIANCE WITH LAWS.....................................................42
11. REPAIRS..................................................................44
12. ALTERATIONS BY TENANT....................................................46
13. INSPECTIONS..............................................................49
14. SIGNS....................................................................49
15. BUILDING DIRECTORY.......................................................50
16. INSURANCE: WAIVER OF SUBROGATION.........................................50
17. TENANT'S EQUIPMENT.......................................................52
18. NON-LIABILITY AND INDEMNIFICATION........................................53
19. ASSIGNMENT AND SUBLETTING................................................55
20. SUBORDINATION AND ATTORNMENT.............................................60
21. ACCESS, CHANGE IN FACILITIES.............................................62
</TABLE>
<PAGE> 167
<TABLE>
<S> <C>
22. RULES AND REGULATIONS....................................................64
23. DAMAGE OR DESTRUCTION....................................................64
24. EMINENT DOMAIN...........................................................66
25. CONDITIONS OF LIMITATION.................................................68
26. REMEDIES.................................................................69
27. SURRENDER OF PREMISES....................................................72
28. BROKERAGE................................................................73
29. TENANT ESTOPPEL CERTIFICATES.............................................73
30. LANDLORD ESTOPPEL CERTIFICATES...........................................73
31. NOTICES..................................................................73
32. PERSONAL MATTERS.........................................................74
33. ENVIRONMENTAL MATTERS....................................................74
34. ARBITRATION..............................................................77
35. SECURITY AREA............................................................78
36. NO RECORDING.............................................................78
37. MISCELLANEOUS............................................................78
38. EXPANSION OPTION.........................................................81
39. EIGHTEENTH FLOOR STORAGE SPACE...........................................83
40. TERMINATION RIGHT OF TENANT..............................................83
41. THE LOWER MANHATTAN PLAN.................................................83
42. GUARANTEE, SECURITY DEPOSIT..............................................86
43. RIGHT OF FIRST REFUSAL...................................................87
44. SURRENDER SPACE..........................................................88
</TABLE>
<PAGE> 168
EXHIBITS
Exhibit A-1 Location Map of Thirteenth Floor Premises
Exhibit A-2 Location Map of Fourteenth Floor Premises
Exhibit A-3 Location Map of Fifteenth Floor Premises
Exhibit A-4 Location Map of Sixteenth Floor Premises
Exhibit B Form of Subordination, Nondisturbance and Attornment Agreement
Exhibit C Legal Description of the Land
Exhibit D Form of Guaranty of Lease
Exhibit E Operating Expenses
Exhibit F Landlord's Work
Exhibit G Confirmation of Beneficial Occupancy Date Agreement
Exhibit H Form of Application for Payment
Exhibit I Cleaning Specifications for the Premises
Exhibit J HVAC Specifications
Exhibit K INTENTIONALLY DELETED
Exhibit L INTENTIONALLY DELETED
Exhibit M Floor Loads
Exhibit N Rules and Regulations
Exhibit 0 Form of Tenant Estoppel Certificate
Exhibit P Memorandum of Lease
Exhibit Q Location Map of Seventeenth Option Space
Exhibit R Location Map of Nineteenth Floor Option Space
Exhibit S Location Map of Twelfth Floor Option Space
<PAGE> 169
Exhibit T Location Map of Eighteenth Floor Option Space
Exhibit U Landlord's HVAC Equipment
<PAGE> 1
EXHIBIT 10.18
SUBLEASE
THIS SUBLEASE is dated for references purposes as of January 14, 2000,
and is entered by and between LOOKSMART, LTD., a Delaware corporation
("Sublessor"), and ORGANIC, INC., a Delaware corporation ("Sublessee").
Sublessor and Sublessee hereby agree as follows:
1. Recitals: This Sublease is made with reference to the fact that
Rosenberg SOMA Investments III, LLC ("Master Lessor"), as Landlord, and
Sublessor, as Tenant, entered into that certain Office Lease, dated as of May 5,
1999 ("Master Lease") with respect to that certain four-story building
("Building") commonly known as 625 Second Street, San Francisco, California
94107, as more particularly described in the Master Lease ("Premises"). A true
and complete copy of the Master Lease is attached hereto as Exhibit A and
incorporated by reference herein.
2. Premises: Sublessor hereby leases to Sublessee, and Sublessee hereby
leases from Sublessor, a portion of the Premises consisting of approximately
thirty thousand (30,000) rentable square feet (including all existing network
cabling) ("Subleased Premises"), located on the ground floor of the Building.
The Subleased Premises and the Building are more particularly described on
Exhibit B attached hereto and incorporated by reference herein.
3. Term:
A. Term. The term of this Sublease ("Term") shall be for that
period commencing on the later of (i) the date on which Sublessor delivers the
Subleased Premises to Sublessee in the condition required by this Sublease, and
(ii) the date on which Sublessor has received Landlord's written consent to this
Sublease ("Commencement Date"), and ending on December 31, 2000 ("Expiration
Date"), unless this Sublease is sooner terminated pursuant to its terms or the
Master Lease is sooner terminated pursuant to its terms.
B. No Option to Extend. The parties acknowledge that Sublessee
has no option to extend the Term of this Sublease.
4. Rent:
A. Monthly Base Rent. Commencing on the Commencement Date and
continuing on first day of each calendar month of the Term, Sublessee shall pay
to Sublessor Monthly Base Rent for the Subleased Premises in equal monthly
installments of One Hundred Eight Thousand Seven Hundred Fifty and No/100
Dollars ($108,750.00).
As used herein, "month" shall mean a period beginning on the first (1st) day of
a calendar month and ending on the last day of that month. Monthly Base Rent
shall be paid on or before the first (1st) day of each month. Rent (as defined
in Paragraph 4.B. below) for any period during the Term hereof
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<PAGE> 2
which is for less than one month of the Term shall be a prorata portion of the
monthly installment based on a 30-day month. Rent shall be payable without
notice or demand and without any deduction, offset, or abatement, in lawful
money of the United States of America. Rent shall be paid directly to Sublessor
at 625 Second Street, San Francisco, California 94107, Attn: Accounts
Receivable, or such other address as may be designated in writing by Sublessor.
B. Additional Rent. In addition to Monthly Base Rent, Sublessee
shall pay to Sublessor, within twenty (20) days after receipt of Sublessor's
invoice therefor, Sublessee's Proportionate Share of Sublessor's costs for all
utilities and janitorial service for the Premises. Sublessee's Proportionate
Share hereby is agreed to be twenty-two and twenty-five hundredths percent
(22.25%), based upon the ratio that the square footage of the Subleased Premises
bears to the square footage of the Premises. Sublessee shall be responsible for
payment of its own telephone, telecommunications and data communications
charges. All monies required to be paid by Sublessee under this Sublease (except
for Monthly Base Rent, as defined in Paragraph 4.A.) shall be deemed additional
rent ("Additional Rent"). Monthly Base Rent and Additional Rent hereinafter
collectively shall be referred to as "Rent."
C. Payment of First Month's Rent. Upon the execution of this
Sublease by Sublessee, Sublessee shall pay to Sublessor the sum of One Hundred
Eight Thousand Seven Hundred Fifty and No/100 Dollars ($108,750.00), which sum
shall constitute Monthly Base Rent for the first month of the Term.
5. Security Deposit: Upon the execution of this Sublease by Sublessee,
Sublessee shall deposit with Sublessor, in cash, the sum of Two Hundred
Thirty-Seven Thousand Five Hundred and No/100 Dollars ($237,500.00) as security
for the performance by Sublessee of the terms and conditions of this Sublease
("Security Deposit"). If Sublessee fails to pay Rent or other charges due
hereunder or otherwise defaults with respect to any provision of this Sublease,
and such default continues after the passage of applicable notice and cure
periods, then Sublessor may, but shall not be required to, draw upon, use, apply
or retain all or any portion of the Security Deposit for the payment of any Rent
or other charge in default, for the payment of any other sum which Sublessor has
become obligated to pay by reason of Sublessee's default, or to compensate
Sublessor for any loss or damage which Sublessor has suffered thereby. The use,
application or retention of the Security Deposit, or any portion thereof, by
Sublessor shall not prevent Sublessor from exercising any other right or remedy
provided by this Sublease or by law, it being intended that Sublessor shall not
first be required to proceed against the Security Deposit, and the Security
Deposit shall not operate as a limitation on any recovery to which Sublessor
otherwise may be entitled. If Sublessor so uses or applies all or any portion of
the Security Deposit, then Sublessee shall, within five (5) days after demand
therefor, deposit cash with Sublessor in the amount required to restore the
Security Deposit to the full amount stated above. Within thirty (30) days after
the later of the expiration or earlier termination of this Sublease and the date
that Sublessee surrenders the Subleased Premises in the condition required by
this Sublease, if Sublessee is then in default hereunder beyond applicable
notice and cure periods, Sublessor may retain so much of the
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<PAGE> 3
Security Deposit as is permitted to be applied by Sublessor pursuant to this
Paragraph, or which otherwise is required to cure Sublessee's defaults.
Sublessor shall return the balance, if any, to Sublessee. If Sublessee has not
been in default beyond applicable notice and cure periods under this Sublease,
and, at the beginning of the second-to-last and last months of the Term,
respectively, Sublessee is not then in default beyond applicable notice and cure
periods, then Sublessor shall credit one-half of the Security Deposit to Monthly
Base Rent for the second-to-last month of the Term, and the remaining balance to
the last month of the Term, and Sublessor thereafter shall be relieved of any
obligation to return the Security Deposit to Sublessee.
6. Equipment:
A. Contents. Sublessor shall deliver the Subleased Premises to Sublessee
equipped with the existing phone switch, voice mail system and one hundred (100)
handsets, in a configuration to be agreed upon by Sublessor and Sublessee.
Sublessor also shall deliver the Subleased Premises to Sublessee with a minimum
of one hundred (100) desks previously used by Sublessor. The phone switch, voice
mail system, handsets and desks hereinafter collectively shall be referred to as
the "Equipment". Sublessee shall use the Equipment in its "as-is, where-is"
condition, and Sublessor shall have no obligation to repair or replace any item
of Equipment. Sublessor makes no representation or warranty of any kind with
respect to the Equipment, including, without limitation, the condition or
fitness of the Equipment for Sublessee's proposed or actual use thereof. Upon
the expiration or earlier termination of this Sublease, Sub-Sublessee shall
return the phone switch, voice mail system and handsets to Sublessor in the
condition received, normal wear and tear excepted, but Sublessee, at its option,
shall be allowed to keep and thereafter own the desks. At Sublessee's request,
Sublessor shall provide to Sublessee a bill of sale with respect to the desks.
B. Payment. Commencing on the Commencement Date and continuing on the
first day of each full calendar month thereafter, Sublessee shall pay to
Sublessor the sum of Ten Thousand and No/100 Dollars ($10,000.00) as rent
("Equipment Rent") for the Equipment. The Equipment Rent shall be deemed
Additional Rent hereunder, and Sublessee's failure to timely pay the Equipment
Rent shall be a default under this Sublease. Upon the execution of this Sublease
by Sublessee, Sublessee shall pay to Sublessor the sum of Ten Thousand and
No/100 Dollars ($10,000.00), which sum shall constitute Equipment Rent for the
first month of the Term.
7. Condition of Subleased Premises: On the Commencement Date, Sublessor
shall deliver the Subleased Premises to Sublessee in broom-clean condition.
Sublessee shall have the right, in cooperation with Sublessor, to use the
loading dock for moving into and out of the Subleased Premises. Sublessee shall
be permitted to walk through and inspect the Subleased Premises with Sublessor
to determine whether the Subleased Premises is in the condition required by this
Paragraph and Paragraph 6 above. Other than as provided in the foregoing
sentence and in Paragraph 6, Sublessor shall deliver the Subleased Premises to
Sublessee in its "as-is" condition, and Sublessor shall have no obligation
whatsoever to make or pay the cost of any alterations, improvements or repairs
to the Subleased Premises, including, without limitation, any
-3-
<PAGE> 4
improvement or repair required to comply with any law, regulation, building code
or ordinance (including, without limitation, the Americans with Disabilities Act
of 1990). Subject to Paragraph 29.D. below, Sublessee shall look solely to the
Master Lessor for performance of any repairs required to be performed by Master
Lessor under the terms of the Master Lease.
8. Indemnity:
A. Sublessee's Indemnification. In addition to the
indemnifications set forth in Sections 18.1 and 7.2(a) of the Master Lease,
except to the extent caused by Sublessor's gross negligence or willful
misconduct, Sublessee shall indemnify, protect, defend with counsel reasonably
acceptable to Sublessor and hold harmless Sublessor from and against any and all
claims, liabilities, judgments, causes of action, damages, costs and expenses
(including reasonable attorneys' and experts' fees), caused by or arising in
connection with: (i) a breach of Sublessee's obligations under this Sublease; or
(ii) a breach of Sublessee's obligations under the Master Lease.
B. Sublessor's Indemnification. Except to the extent caused by
Sublessee's negligence or willful misconduct, Sublessor shall indemnify,
protect, defend with counsel reasonably acceptable to Sublessee and hold
Sublessee harmless from and against any and all claims, liabilities, judgments,
causes of action, damages, costs, and expenses (including reasonable attorneys'
and experts' fees), caused by or arising in connection with: (i) a breach of
Sublessor's obligations under this Sublease; or (ii) a breach of Sublessor's
obligations as Tenant under the Master Lease to the extent those obligations are
not assumed by Sublessee under this Sublease; or (iii) the gross negligence or
willful misconduct of Sublessor, its employees, contractors, agents or invitees
occurring on or about the Subleased Premises or the Building. Sublessee shall
have no responsibility or cost obligation with respect to Hazardous Materials
used, stored, released, disposed of, generated or transported by Sublessor, its
agents, employees, contractors or invitees on or about the Subleased Premises or
the Building.
The foregoing indemnifications referenced and set forth in this
Paragraph shall survive the expiration or earlier termination of this Sublease.
9. Right to Cure Defaults: If Sublessee fails to pay any sum of money to
Sublessor, or fails to perform any other act on its part to be performed
hereunder after the passage of applicable notice and cure periods, then
Sublessor may, but shall not be obligated to, upon two (2) business days' prior
notice to Sublessee, make such payment or perform such act. All such sums paid,
and all reasonable costs and expenses of performing any such act, shall be
deemed Additional Rent payable by Sublessee to Sublessor upon demand, together
with interest thereon at the maximum rate permitted by law from the date of the
expenditure until repaid.
10. Assignment and Subletting: Sublessee may not assign this Sublease,
sublet the Subleased Premises, transfer any interest of Sublessee therein, or
permit any use of the Subleased Premises by another party.
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<PAGE> 5
11. Use: Sublessee may use the Subleased Premises only for the uses
permitted in Article 7 of the Master Lease and for no other purpose. Upon
demand, Sublessee shall pay to Sublessor all taxes or charges imposed by
applicable governmental authorities against the Subleased Premises or Sublessor
(including, without limitation, assessments imposed as a consequence of the
occurrence, storage, use or disposal of Hazardous Materials by Sublessee, its
agents, employees, contractors or invitees in or about the Subleased Premises or
the Building). Sublessee shall not do or permit anything to be done in or about
the Subleased Premises which would (i) injure the Subleased Premises, or (ii)
vibrate, shake, overload, or impair the efficient operation of the Subleased
Premises or the sprinkler systems, heating ventilating or air conditioning
equipment, or utilities systems located therein. Sublessee shall not store any
materials, supplies, finished or unfinished products, or articles of any nature
outside of the Subleased Premises. Sublessee shall comply with all rules and
regulations promulgated from time to time by Master Lessor and which have been
delivered to Sublessee.
12. Effect of Conveyance: As used in this Sublease, the term "Sublessor"
means the holder of the lessee's interest under the Master Lease. In the event
of any transfer of said lessee's interest, the Sublessor shall be and hereby is
entirely relieved of all covenants and obligations of the Sublessor hereunder
from and after the date of the transfer, and it shall be deemed and construed,
without further agreement between the parties, that the transferee has assumed
and shall carry out all covenants and obligations thereafter to be performed by
Sublessor hereunder. Sublessor shall transfer and deliver any security of
Sublessee to the transferee of said lessee's interest in the Master Lease, and
thereupon the Sublessor shall be discharged from any further liability with
respect thereto.
13. Delivery and Acceptance: If Sublessor is unable to deliver
possession of the Subleased Premises to Sublessee on or before the Commencement
Date for any reason whatsoever, then this Sublease shall not be void or
voidable, nor shall Sublessor be liable to Sublessee for any loss or damage;
provided, however, in such event, Rent shall abate until Sublessor delivers
possession of the Subleased Premises to Sublessee. By taking possession of the
Subleased Premises, Sublessee shall conclusively be deemed to have accepted the
Subleased Premises in their as-is, then-existing condition, subject to the
provisions of Paragraph 7 hereof.
14. Improvements: No alterations or improvements shall be made to the
Subleased Premises except in accordance with this Sublease and Article 13 of the
Master Lease, and with the prior written consent of both Master Lessor and
Sublessor, which consent of Sublessor shall not be unreasonably withheld or
delayed. Upon the expiration or earlier termination of this Sublease, Sublessee
shall be responsible for removing any and all alterations or improvements
installed in the Subleased Premises by Sublessee, provided that Sublessor
notified Sublessee in writing of such removal requirement at the time Sublessor
consented to such alterations or improvements.
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<PAGE> 6
15. Release: Sublessor shall not be liable to Sublessee, nor shall
Sublessee be entitled to terminate this Sublease or to abate Rent, for any
reason, including, without limitation: (i) failure or interruption of any
utility system or service; or (ii) failure of Master Lessor to maintain the
Subleased Premises as may be required under the Master Lease. Notwithstanding
the foregoing to the contrary, to the extent that Rent is abated for Sublessor
with respect to the Subleased Premises pursuant to the terms of the Master
Lease, Sublessee's Rent obligations with respect to the Subleased Premises also
shall be abated. So long as Sublessor or Sublessee are corporations, the
obligations of Sublessor and Sublessee shall not constitute the personal
obligations of the officers, directors, trustees, partners, joint venturers,
members, owners, stockholders or other principals or representatives of such
corporations.
16. Default: Sublessee's performance of each of its obligations under
this Sublease constitutes a condition as well as a covenant, and Sublessee's
right to continue in possession of the Subleased Premises is conditioned upon
such performance. In addition, Sublessee shall be in material default of its
obligations under this Sublease if Sublessee is responsible for the occurrence
of any of the events of default set forth in Section 24.1 of the Master Lease.
17. Remedies: In the event of any default by Sublessee under this
Sublease beyond applicable notice and cure periods (including, without
limitation, a default pursuant to Section 24.1 of the Master Lease), Sublessor
shall have all remedies provided by applicable law, including, without
limitation, all rights pursuant to Sections 24.2 and 24.4 of the Master Lease.
Sublessor may resort to its remedies cumulatively or in the alternative.
18. Surrender: On or before the Expiration Date or earlier termination
of this Sublease, Sublessee shall remove all of its trade fixtures and all
alterations and improvements which Master Lessor requires be removed, and shall
surrender the Subleased Premises to Sublessor in the condition required by
Article 32 of the Master Lease, free of Hazardous Materials stored, used or
disposed of by Sublessee. If the Subleased Premises are not so surrendered, then
Sublessee shall be liable to Sublessor for all costs incurred by Sublessor in
returning the Subleased Premises to the required condition, plus interest
thereon at the maximum rate permitted by law. Sublessee shall indemnify, defend,
protect and hold harmless Sublessor against any and all claims, liabilities,
judgments, causes of action, damages, costs, and expenses (including attorneys'
and experts' fees) resulting from Sublessee's delay in surrendering the
Subleased Premises, including, without limitation, any claim made by any
succeeding tenant founded on or resulting from such failure to surrender. The
indemnification set forth in this Paragraph shall survive the expiration or
earlier termination of this Sublease.
19. Brokers: Sublessor and Sublessee each represent to the other that
they have dealt with no real estate brokers, finders, agents or salesmen in
connection with this transaction, except Julien T. Studley, Inc., representing
Sublessee, and Colliers Parrish International, representing Sublessor. Each
party agrees to hold the other party harmless from and against all claims for
brokerage commissions, finder's fees, or other compensation made by any other
agent, broker,
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<PAGE> 7
salesman or finder as a consequence of said party's actions or dealings with
such agent, broker, salesman, or finder. Pursuant to separate agreement,
Sublessor shall pay any commission due in connection with this transaction.
20. Notices: Unless five (5) days' prior written notice is given in the
manner set forth in this Paragraph, the addresses of Sublessor and Sublessee for
all purposes connected with this Sublease shall be the addresses set forth below
their respective signatures. All notices, demands, or communications in
connection with this Sublease shall be considered received when (i) personally
delivered, or (ii) if properly addressed and either sent by nationally
recognized overnight courier or deposited in the mail (registered or certified,
return receipt requested, and postage prepaid), on the date shown on the return
receipt or other documentation for acceptance or rejection. All notices given to
the Master Lessor under the Master Lease shall be considered received only when
delivered in accordance with the Master Lease to all parties hereto at the
addresses set forth below their signatures at the end of this Sublease and to
Master Lessor at the address set forth in the Master Lease.
21. Severability: If any term of this Sublease is held to be invalid or
unenforceable by any court of competent jurisdiction, then the remainder of this
Sublease shall remain in full force and effect to the fullest extent possible
under the law, and shall not be affected or impaired.
22. Amendment: This Sublease may not be amended except by the written
agreement of all parties hereto.
23. Sublessee's Liability Insurance: Notwithstanding anything to the
contrary contained in this Sublease or the Master Lease, Sublessor hereby
consents to Sublessee carrying commercial general liability insurance in the
amount of $1,000,000.00 per occurrence, $2,000,000.00 aggregate, with an
umbrella policy in the amount of $10,000,000.00, subject to Master Lessor's
consent.
24. Other Sublease Terms:
A. Incorporation By Reference. The terms and conditions of this
Sublease shall include various Sections of the Master Lease, which are
incorporated into this Sublease as if fully set forth, except that: (i) each
reference in such incorporated Sections to "Lease" shall be deemed a reference
to "Sublease"; (ii) each reference to the "Premises" shall be deemed a reference
to the "Subleased Premises"; (iii) each reference to "Landlord" and "Tenant"
shall be deemed a reference to "Sublessor" and "Sublessee", respectively, except
as expressly set forth herein; (iv) with respect to work, services, repairs,
restoration, provision of insurance or the performance of any other obligation
of Master Lessor under the Master Lease, the sole obligation of Sublessor shall
be to request the same in writing from Master Lessor as and when requested to do
so by Sublessee, and to use Sublessor's diligent good faith efforts (without
requiring Sublessor to spend more than a nominal sum) to obtain the Master
Lessor's performance; (v) with respect to any obligation of Sublessee to be
performed under this Sublease, wherever the Master Lease grants to Sublessor a
specified number of
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<PAGE> 8
days to perform its obligations under the Lease, Sublessee shall have three (3)
fewer days to perform the obligation, including, without limitation, curing any
defaults (provided, however, that if any cure period provides for three (3) days
or less to perform, Sublessee shall have two (2) business days to perform); and
(vi) with respect to any approval required to be obtained from the "Landlord"
under the Master Lease, such consent must be obtained from both the Master
Lessor and the Sublessor and the approval of Sublessor may be withheld, if the
Master Lessor's consent is not obtained.
The following paragraphs of the Master Lease are hereby incorporated
into this Sublease:
Basic Lease Information Terms (b), (c), (d), (e), (g), and (k);
The first full paragraph of Section 4.3, except that (i) the references
to "Landlord" in the third, fifth, seventh, ninth and twelfth sentences of that
paragraph shall mean only Master Lessor; and (ii) the reference to "Tenant" in
the seventh sentence shall mean only Sublessor, and (ii) the fourth and sixth
sentences of Section 4.3 hereby are deleted;
Section 5.2;
Article 7;
Article 8, but only with respect to Master Lessor's address and notice
requirements;
Articles 10 and 11;
Article 13, except that (i) the references to "$25,000" in Section 13.2
shall be changed to "$5,000", and (ii) the references to "Landlord" in the first
and third sentences of Section 13.8 shall mean only Master Lessor;
Article 14, except that (i) the first phrase of the first sentence and
the last phrase of the sixth sentence of Section 14.1 hereby are deleted; and
(ii) the references to "Landlord" in the third and fourth sentences of Section
14.1 and in Section 14.2 (other than in line 19) shall mean only Master Lessor;
Articles 15 through 19;
Article 20, except that the references to "Landlord" in Sections 20.3
and 20.8 shall mean only Master Lessor;
Article 21, except that (i) the references to "Landlord" in Sections
21.1, 21.2, 21.3, 21.4, 21.5, 21.6 and 21.7 shall mean only Master Lessor; (ii)
the last two sentences of Sections 21.1 and 21.2 hereby are deleted; and (iii)
the "Tenant's" right to terminate in Sections 21.3 and 21.4 shall be exercised
only by Sublessor in its sole but reasonable discretion;
-8-
<PAGE> 9
Article 22, except that (i) references to "Landlord" in Sections 22.1
and 22.2 shall mean only Master Lessor; and (ii) the "Tenant's" right to
terminate in Section 22.1 shall be exercised only by Sublessor in its sole but
reasonable discretion;
Article 23;
Article 24, except that Sections 24.3 and 24.5 hereby are deleted;
Articles 26 through 33, except that references to "Landlord" in Articles
27 and 29 shall mean only Master Lessor;
Articles 34 and 35, except that the reference to "ten (10) days" in
Article 34 shall be changed to "five (5) days";
Articles 36 through 47, except that references to "Landlord" in the
first sentence of Article 36, the last sentence of Article 39 and the last
sentence of Article 46 shall mean only Master Lessor;
Article 48, except that the second, third, sixth, seventh, ninth, tenth,
eleventh and twelfth sentences hereby are deleted;
Articles 49 through 53, except that references in Article 51 to
financial statements for the last two years shall be deemed to mean references
to Sublessee's audited financial statements for the last nine months, together
with additional financial statements if requested by Master Lessor, subject to
Master Lessor's agreement to keep such additional financial statements
confidential;
Article 55, except that (i) the references to "Landlord" in the first
two sentences of this Article shall mean only Master Lessor; (ii) the first
phrase of the third sentence and the fourth sentence of this Article hereby is
deleted; and (iii) the reference to "Landlord's indemnification obligation"
hereby is deleted; and
Exhibits A, B, C and D.
B. Assumption of Obligations: This Sublease is and all times shall be
subject and subordinate to the Master Lease and the rights of Master Lessor
thereunder. Sublessee hereby expressly assumes and agrees except as otherwise
expressly provided herein: (i) to comply with all provisions of the Master Lease
with respect to the Subleased Premises; (ii) to perform all the obligations on
the part of the "Tenant" to be performed under the terms of the Master Lease
with respect to the Subleased Premises during the Term of this Sublease; and
(iii) to hold Sublessor free and harmless of and from all liability, judgments,
costs, damages, claims, demands, and expenses (including reasonable attorneys'
and experts' fees) arising out of Sublessee's failure to comply with or to
perform Sublessee's obligations hereunder or the obligations of the "Tenant"
under the Master
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<PAGE> 10
Lease as herein provided, or to act or omit to act in any manner which will
constitute a breach of the Master Lease.
25. Condition Precedent: This Sublease and Sublessor's and Sublessee's
obligations hereunder are conditioned upon obtaining the written consent (in
form and content acceptable to Sublessor in Sublessor's sole discretion, and in
form reasonably acceptable to Sublessee) of the Master Lessor. If Sublessor
fails to obtain the Master Lessor's consent, in form and content acceptable to
Sublessor and Sublessee as set forth in the preceding sentence, within thirty
(30) days after the latest of the dates of execution of this Sublease by
Sublessor and Sublessee, then either Sublessor or Sublessee may terminate this
Sublease by giving the other written notice, neither party shall have any
further rights or obligations hereunder and Sublessor shall return to Sublessee
all sums paid to Sublessor in connection with Sublessee's execution hereof. The
return of all sums paid by Sublessee shall be Sublessee's sole and exclusive
remedy in the event of a termination pursuant to the foregoing sentence.
26. Parking: Sublessee shall have the right to use eight (8) parking
spaces in the Garage (upon completion of the Garage) upon payment of the monthly
Parking Lot Rent per space as set forth in Section 4.3 of the Master Lease.
27. Signage: Sublessee shall have the right, at Sublessee's sole cost
and expense, to install signage outside the entry to the Subleased Premises in
accordance with the provisions of Section 48 of the Master Lease, subject to the
prior written consent of Sublessor, which shall not be unreasonably withheld or
delayed, and of Master Lessor.
28. Sublessor's Representations: Sublessor represents and warrants that
it has full right and lawful authority to enter into this Sublease. Sublessor
further represents and warrants that the Master Lease is in full force and
effect, and that, to the best of its knowledge without a duty to investigate,
neither Sublessor nor Master Lessor are in default in the performance of their
respective obligations thereunder. So long as Sublessee pays all of the Rent due
hereunder and performs all of Sublessee's other obligations hereunder, Sublessor
shall do nothing to affect Sublessee's quiet and undisturbed possession and use
of the Subleased Premises for the Term of this Sublease.
29. Sublessor's Obligations:
A. No Voluntary Termination. Except with respect to Sublessor's
termination rights in the event of casualty or condemnation as set forth in the
Master Lease, Sublessor shall not voluntarily terminate the Master Lease during
the Term unless and until Master Lessor has agreed in writing to continue this
Sublease in full force and effect as a direct lease between Master Lessor and
Sublessee upon and subject to all of the terms, covenants and conditions of this
Sublease for the balance of the Term hereof. If Master Lessor so consents,
Sublessee shall attorn to Master Lessor in connection with any such voluntary
termination and shall execute an attornment agreement in such form as may
reasonably be requested by Master Lessor; provided, however, that the attornment
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<PAGE> 11
agreement does not materially and adversely affect the use by Sublessee of the
Sublease Premises in accordance with the terms of this Sublease, materially
increase Sublessee's obligations under this Sublease or materially decrease
Sublessee's rights under this Sublease.
B. Consent of Master Lessor. Sublessor agrees that in any case
where the rights conferred upon Sublessee in this Sublease require the consent
or approval of Master Lessor prior to the taking of any action, Sublessor shall
use commercially reasonable efforts (without the obligation to spend more than a
nominal sum) to obtain the consent or approval of Master Lessor, including the
transmission by Sublessor to Master Lessor of Sublessee's request for such
consent or approval and Sublessor's reasonable cooperation with Sublessee to
obtain such approval or consent.
C. Notice of Default. Sublessor promptly shall deliver to
Sublessee a copy of any notice received by Sublessor claiming a default or
stating Master Lessor's intention to exercise any remedy reserved to Master
Lessor under the Master Lease. Sublessor agrees that if Sublessor fails to
perform or observe any of its obligations under this Sublease or the Master
Lease (to the extent such obligations under the Master Lease are not the
obligations of Sublessee hereunder), Sublessee may (but shall not be required
to) perform such obligations, and Sublessor shall reimburse Sublessee for its
actual and reasonable costs in connection therewith.
D. Enforcement of Master Lease. Within a reasonable period after
receipt of request of Sublessee, Sublessor shall notify Master Lessor if Master
Lessor fails to perform any of its obligations under the Master Lease, and
Sublessor shall cooperate with Sublessee, at Sublessee's sole cost and expense,
in requiring the performance by Master Lessor of its obligations under the
Master Lease.
E. Sublessor's Failure to Pay Rent Due Under the Master Lease.
Sublessor hereby irrevocably authorizes and directs Sublessee, upon receipt of
any written notice from Master Lessor stating that a default exists in the
performance of Sublessor's obligation to pay rent under the Master Lease, to pay
to Master Lessor the Rent due and to become due under this Sublease, unless and
until Master Lessor notifies Sublessee in writing that Sublessee again shall pay
such Rent to Sublessor. Sublessor agrees that Sublessee shall have the right to
rely upon any such statement and request from Master Lessor, and that Sublessee
shall pay such rents to Master Lessor without any obligation to inquire as to
whether such default exists and notwithstanding any notice or claim from
Sublessor to the contrary, and Sublessor shall have no right or claim against
Sublessee for any such Rent so paid by Sublessee.
F. Estoppel Certificates. Within fifteen (15) days after receipt
of request by the other, Sublessor and Sublessee shall execute, acknowledge and
deliver to the requesting party a statement certifying the Commencement Date,
stating that this Sublease is unmodified and in full force and effect (or if
there have been modifications, that this Sublease is in full force and effect as
modified, and the nature of the modifications), the dates to which Rent has been
paid hereunder, and such other matters as reasonably may be requested by the
requesting party.
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<PAGE> 12
30. Waiver of Subrogation: By consenting to this Sublease, Master Lessor
hereby agrees that the provisions of Section 20.6 of the Master Lease regarding
waiver of subrogation shall be extended to Sublessee, and Master Lessor,
Sublessor and Sublessee shall be bound thereby.
IN WITNESS WHEREOF, the parties have executed this Sublease on the day
and year first above written.
SUBLESSEE: SUBLESSOR:
ORGANIC, INC., LOOKSMART, LTD,
a Delaware corporation a Delaware corporation
By: Margaret Maxwell Zagel By: /s/ Ed O'Dea
Its: VP, Chief Legal Officer Its: VP, Corporate Development
By: Sue Field
Its: Chief Executive Officer
Address: Address:
510 Third Street 625 Second Street
San Francisco, California 94107 San Francisco, California 94107
Attn: Chief Financial Officer Attn: VP Corporate Development
Telephone: Telephone:
(415) 365-5684 (415) 348-7553
with a copy to:
Barbara Milanovich, Esq.
Coblentz, Patch, Duffy & Bass
222 Kearny Street, 7th floor
San Francisco, CA 94108
(415) 391-4800
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<PAGE> 13
OFFICE LEASE
by and between
ROSENBERG SOMA INVESTMENTS III, LLC
(Landlord)
and
LOOKSMART, LTD.
(Tenant)
EXHIBIT A
<PAGE> 14
TABLE OF CONTENTS
1. The Premises............................................................. 5
2. Term..................................................................... 5
3. Possession............................................................... 7
4. Monthly Basic Rent/Parking Lot Rent...................................... 9
5. Operating Expenses.......................................................13
6. Security Deposit.........................................................19
7. Use......................................................................22
8. Payments and Notices.....................................................24
9. Brokers..................................................................24
10. Holding Over.............................................................25
11. Taxes on Tenant's Property...............................................25
12. Condition of Premises....................................................26
13. Alterations..............................................................26
14. Repairs..................................................................30
15. Liens....................................................................31
16. Entry by Landlord........................................................31
17. Utilities and Services...................................................32
18. Indemnification..........................................................32
19. Damage to Tenant's Property..............................................33
20. Insurance................................................................33
i
<PAGE> 15
21. Damage or Destruction................................................... 35
22. Eminent Domain.......................................................... 37
23. Bankruptcy.............................................................. 38
24. Defaults and Remedies................................................... 39
25. Assignment and Subletting............................................... 41
26. Quiet Enjoyment......................................................... 43
27. Subordination........................................................... 43
28. Estoppel Certificate.................................................... 44
29. Rules and Regulations................................................... 44
30. Conflict of Laws........................................................ 45
31. Successors and Assigns.................................................. 45
32. Surrender of Premises................................................... 45
33. Professional Fees....................................................... 45
34. Performance by Tenant................................................... 45
35. Mortgage and Senior Lessor Protection................................... 46
36. Definition of Landlord.................................................. 46
37. Waiver.................................................................. 46
38. Identification of Tenant................................................ 47
39. Year 2000............................................................... 47
40. Terms and Headings...................................................... 47
41. Examination of Lease.................................................... 47
42. Time.................................................................... 47
43. Prior Agreement; Amendments............................................. 47
ii
<PAGE> 16
<TABLE>
<S> <C> <C>
44. Severability ..................................................... 48
45. Recording ........................................................ 48
46. Limitation on Liability .......................................... 48
47. Riders ........................................................... 48
48. Signs ............................................................ 48
49. Modification for Lender .......................................... 49
50. Accord and Satisfaction .......................................... 49
51. Financial Statements ............................................. 49
52. Tenant as Corporation ............................................ 49
53. No Partnership or Joint Venture .................................. 49
54. Rooftop Deck/Rooftop Antennae .................................... 49
55. Landlord's Representations ....................................... 50
56. Arbitration ...................................................... 50
</TABLE>
<PAGE> 17
SUMMARY OF BASIC LEASE INFORMATION
The undersigned hereby agree to the following terms of this Summary of
Basic Lease Information (the "Summary"). This Summary is hereby incorporated
into and made a part of the attached Office Lease (this Summary and the Office
Lease to be known collectively as the "Lease") which pertains to the office
building (the "Building") which is located at 625 Second Street, San Francisco,
California. Each reference in the Office Lease to any term of this Summary shall
have the meaning as set forth in this Summary for such term. In the event of a
conflict between the terms of this Summary and the Office Lease, the terms of
the Office Lease shall prevail. Any capitalized terms used herein and not
otherwise defined herein shall have the meaning as set forth in the Office
Lease.
<TABLE>
<CAPTION>
TERMS OF LEASE DESCRIPTION
-------------- -----------
<S> <C>
(a). Date: May 5, 1999
(b). Landlord: Rosenberg SOMA Investments III, LLC,
a Delaware limited liability company
(c). Address of Landlord: c/o ROK Properties, Inc.
(Paragraph 8) 501 Second Street, Suite 214
San Francisco, California 94107
with a copy to: The Rosenberg Company
580 California Street, Suite 2225
San Francisco, California 94104
(d). Tenant: LookSmart, Ltd., a Delaware corporation
(e). Address of Tenant (Paragraph 8): Prior to Commencement Date:
LookSmart Ltd.
487 Bryant Street
San Francisco, California 94107-1516
Attention: Mr. Ed O'Dea
and
After Lease Commencement Date, to:
625 Second Street
San Francisco, California 94107
Attention: Mr. Ed O'Dea
With a copy to: Director of Facilities
(f). Premises (Paragraph 1): All space existing on all four (4) floors of office space in the Building (referred to
as "Floor One" "Floor Two", "Floor Three" and "Floor Four", respectively) consisting of
approximately 134,847 rentable square feet, and all of the basement parking garage and
basement storage area consisting of approximately 2,162 rentable square feet, all as set
forth in Exhibit A hereto.
</TABLE>
<PAGE> 18
<TABLE>
<CAPTION>
<S> <C>
(g). Building (Paragraph 1): 625 Second Street, San Francisco, California.
(h). Term (Paragraph 2): Ten (10 years.
(i) Lease Commencement Date: October 15, 1999, subject to adjustment pursuant to Paragraph 3 of
the Lease.
(ii) Lease Expiration Date: In the event that the Lease Commencement Date occurs on the first
day of a calendar month, the Lease Expiration Date shall be the
last day of the calendar month immediately preceding the calendar
month in which the tenth (10th) anniversary of the Lease
Commencement Date occurs and in the event that the Lease
Commencement Date occurs on a date other than the first day of a
calendar month, the Lease Expiration Date shall be the last day of
the calendar month in which the tenth (10th) anniversary of the
Lease Commencement Date occurs.
(i). Renewal Options (Paragraph 2): Two (2) consecutive five (5) year terms.
(j). Monthly Basic Rent (Paragraph 4):
During First Lease Year: Three Hundred Sixteen Thousand Eight Hundred Ninety Dollars and 45
CENTS ($316,890.45)
During Second Lease Year: Three Hundred Twenty-Eight Thousand One Hundred Twenty-Seven
Dollars and 70 CENTS ($328,127.70)
During Third Lease Year: Three Hundred Thirty-Nine Thousand Three Hundred Sixty-Four
Dollars and 95 CENTS ($339,364.95)
During Fourth Lease Year: Three Hundred Fifty-Six Thousand Two Hundred Twenty Dollars and 82
CENTS ($356,220.82)
During Fifth Lease Year: Three Hundred Sixty-One Thousand Eight Hundred Thirty-Nine Dollars
and 45 CENTS ($361,839.45)
During Sixth Lease Year: Three Hundred Seventy-Six Thousand Four Hundred Forty-Seven
Dollars and 87 CENTS ($376,447.87)
During Seventh Lease Year: Three Hundred Eighty-Two Thousand Sixty-Six Dollars and 50 CENTS
($382,066.50)
During Eight Lease Year: Three Hundred Eighty-Seven Thousand Six Hundred Eighty-Five
Dollars and 12 CENTS ($387,685.12)
During Ninth Lease Year: Three Hundred Ninety-Three Thousand Three Hundred Three Dollars
and 75 CENTS ($393,303.75)
During Tenth Lease Year: Three Hundred Ninety-Eight Thousand Nine Hundred Twenty-Two
Dollars and 37 CENTS ($398,922.37)
(k). Parking Lot Rent (Paragraph 4.3): See Paragraph 4.3.
(l). Aggregate Monthly Basic Rent
(Paragraph 4.5): Monthly Basic Rent plus Parking Lot Rent plus Storage Rent
</TABLE>
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<PAGE> 19
(m). Operating Expenses (Paragraph 5):
(i) Base Year: 1999, subject to Paragraph 5.3, and
subject to readjustment at the
commencement of the option terms (see
Paragraph 5.1).
(ii) Tenant's Percentage Share: 100%
(n). Security Deposit (Paragraph 6): See Paragraph 6.
(o). Prepaid Rent (Paragraph 4.1): $316,890.45, representing the first
month's Monthly Basic Rent.
(p). Broker (Paragraph 9):
Tenant Broker: Colliers International (Michael D.
McCarthy)
Two Embarcadero Center, Suite 1000
San Francisco, California 94111
Landlord Broker: ROK Properties, Inc.
501 Second Street, Suite 214
San Francisco, California 94107
(q). Work Letter (Exhibit E): Attached.
<PAGE> 20
The foregoing terms of this Summary are agreed to by Landlord and Tenant.
LANDLORD: TENANT:
Rosenberg SOMA Investments III, LLC, LookSmart, Ltd., a Delaware corporation
a Delaware limited liability company
By: TRC Investors III, LLC, a By: /s/ EDWARD M. O'DEA
California limited liability ------------------------------------
company, Manager Name: Edward M. O'Dea
----------------------------------
Its: VP Corp. Div.
-----------------------------------
By: The Rosenberg Company, a
California corporation, By:
Manager ------------------------------------
Name:
By: /s/ DOUGLAS C. ROSENBERG ----------------------------------
------------------------- Its:
Douglas C. Rosenberg, -----------------------------------
President
By: /s/ DOUGLAS C. ROSENBERG
-------------------------
Douglas C. Rosenberg,
Secretary
4
<PAGE> 21
The foregoing terms of this Summary are agreed to by Landlord and Tenant.
LANDLORD: TENANT:
Rosenberg SOMA Investments III, LLC, LookSmart, Ltd., a Delaware corporation
a Delaware limited liability company
By: TRC Investors III, LLC, a By:
California limited liability ------------------------------------
company, Manager Name:
----------------------------------
Its:
-----------------------------------
By: The Rosenberg Company, a
California corporation, By:
Manager ------------------------------------
Name:
By: /s/ DOUGLAS C. ROSENBERG ----------------------------------
------------------------- Its:
Douglas C. Rosenberg, -----------------------------------
President
By: /s/ DOUGLAS C. ROSENBERG
-------------------------
Douglas C. Rosenberg,
Secretary
4
<PAGE> 22
OFFICE LEASE
This Office Lease ("LEASE"), dated May 5, 1999 (the "EFFECTIVE DATE"), is made
and entered into by and between Rosenberg SOMA Investments III, LLC, a Delaware
limited liability company ("LANDLORD") and LookSmart, Ltd., a Delaware
corporation ("TENANT").
1. The Premises.
1.1 Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, the Premises designated in the Summary and as outlined on the Floor
Plan attached hereto as Exhibit "A" in the building at the address designated in
the Summary (the "BUILDING"), located on the parcel of real property (the
"SITE") under the Building, subject to those rules and regulations attached
hereto as Exhibit D, and such additional reasonable rules and regulations as
Landlord may deliver in writing to Tenant from time to time. Tenant acknowledges
that Landlord has made no representation or warranty regarding the condition of
the Premises, Building, or Site except as specifically stated in this Lease. The
parties hereto agree that Tenant's leasing of the Premises is upon and subject
to the terms, covenants and conditions herein set forth and Tenant covenants as
a material part of the consideration for this Lease to keep and perform each and
all of said terms, covenants and conditions by it to be kept and performed and
that this Lease is made upon the condition of such performance.
1.2 The rights and obligations of the parties regarding the construction
of the Premises are described in Paragraphs 2 and 3 of this Lease, and in the
Work Letter ("WORK LETTER") attached as Exhibit E. Any inconsistency between the
provisions of the Work Letter and the provisions of the balance of the Lease
shall be governed by the provisions of the Work Letter.
1.3 The Premises as described herein shall include the right of Tenant
to use the loading dock. The obligations of Tenant with respect to the Premises
as provided in this Lease shall be applicable to the loading dock as well as to
the remainder of the Premises.
1.4 References in this Lease to "rentable square feet", "rentable square
footage" and "rentable area" shall have the same meanings, and Tenant hereby
acknowledges and agrees that the rentable square footage of the Premises shall
be deemed, and is, 134,847 rentable square feet excluding the basement parking
and storage areas. No adjustment in the Monthly Basic Rent, Tenant's Percentage
Share, any monetary or other obligation of Tenant, or any other term of this
Lease shall be made by reason of any discrepancy in the rentable square footage
which is later discovered.
2. Term.
2.1 Subject to Paragraphs 2.2 and 3.1, the term of this Lease ("TERM")
shall commence on the Lease Commencement Date, and terminate on the Lease
Expiration Date, as such terms are defined in the Summary, unless the Term is
earlier terminated as hereinafter provided. Landlord shall provide Tenant, and
Tenant's consultant's and contractors, with access to the Premise at least three
(3) weeks prior to the anticipated Lease Commencement Date for purposes of
installation by Tenant of its fixtures, equipment, wiring, furniture and other
similar matters. In connection with any such early entry by Tenant, Tenant and
its consultants and contractors shall not interfere with the completion of
construction by Landlord of the Landlord's Work and the Tenant's Improvements
(as defined below). At all times that Tenant has access to the Premises, the
provisions of this Lease shall be applicable, provided only that the obligation
of Tenant to
5
<PAGE> 23
pay Monthly Basic Rent, Parking Lot Rent and Operating Rent (as defined below)
shall not commence until the Lease Commencement Date.
2.2 Landlord shall substantially complete the initial, base improvements
to the Building and the Premises, as required of Landlord pursuant to the terms
of the Work Letter, ("LANDLORD'S WORK") and shall further substantially
complete the Tenant's Improvements ("TENANT'S IMPROVEMENTS") as described in
the Work Letter on or before October 15, 1999 with respect to Floor Three and
Floor Four and October 22, 1999 with respect to Floor One and Floor Two. The
Lease Commencement Date shall be October 15, 1999 as specified in the Summary,
subject, however, to adjustment pursuant to the provisions of Paragraph 3
below. The Lease Commencement Date shall occur notwithstanding that Floor One
and Floor Two have not been delivered by Landlord to Tenant, it being
acknowledged that it is anticipated that Floor One and Floor Two will be
delivered subsequent to delivery of Floor Three and Floor Four. The actual
Lease Commencement Date shall be specified in Landlord's Notice of Lease Term
Dates ("NOTICE"), in the form of Exhibit "B" attached hereto, and shall be
served upon Tenant as provided in Paragraph 8, as soon as Landlord determines
that the Landlord's Work and the Tenant's Improvements with respect to Floor
Three and Floor Four have been substantially completed as provided in Paragraph
3.1 below. The Notice shall be binding upon Tenant unless Tenant objects to the
Notice in writing, served upon Landlord as provided in Paragraph 8, within five
(5) business days of Tenant's receipt of the Notice.
2.3 Tenant shall have two (2) consecutive options (the "EXTENSION
OPTIONS"; each an "EXTENSION OPTION") to extend the Term, each for a five (5)
year period (the "FIRST EXTENDED TERM" and "SECOND EXTENDED TERM", respectively;
each an "EXTENDED TERM") on all the terms and conditions contained in this
Lease with the exception of the Monthly Basic Rent and the Base Year which
shall be adjusted pursuant to the provisions of Paragraphs 4.2 and 5.1 below.
Upon commencement of the First Extended Term, the only remaining option to
extend the Term shall be the Second Extended Term, and upon exercise of the
option with respect to the Second Extended Term, no further right to extend the
Term shall exist. In the event Tenant fails to timely exercise the option for
the First Extended Term, Tenant's option for the Second Extended Term shall be
void. In order to exercise an Extension Option, Tenant shall deliver written
notice of its exercise of the option ("OPTION NOTICE") to Landlord at least two
hundred twenty-five (225) days but not more than one (1) year before the
expiration of the initial Term or First Extended Term, as the case may be. The
Extension Options shall be subject to the following terms and conditions:
(a) An Extension Option may be exercised only by delivery of the
Option Notice as provided in this Paragraph and only if, as of the date of
delivery of the Option Notice, Tenant is not in default, beyond applicable cure
periods, under this Lease.
(b) The rights contained in this Paragraph shall be personal to the
originally named Tenant and may be exercised only by the originally named
Tenant (and not any assignee, sublessee, or other transferee of Tenant's
interest in this Lease other than a Permitted Transferee as defined in
Paragraph 25 below) and only if the originally named Tenant (or Permitted
Transferee) occupies the entire Premises as of the date it exercises an
Extension Option in accordance with the terms of this Paragraph.
(c) If Tenant properly exercises an Extension Option and is not in
default, beyond applicable cure periods, under this Lease at the end of the
initial Term (or the First Extended Term, as the case may be), the Term shall
be extended for the applicable Extended Term.
References in this Lease to the "Term" shall include the initial Term of
ten (10) years and shall, in
6
<PAGE> 24
addition, include the First Extended Term and the Second Extended Term, as
applicable.
2.4 For purpose of this Lease the term "LEASE YEAR" shall mean each
consecutive twelve (12) month period during the Term provided that (i) the first
Lease Year commences on the Lease Commencement Date and in the case in which the
Lease Commencement Date occurs on the first (1st) day of a calendar month, the
first Lease Year ends on the last day of the twelfth (12th) calendar month
thereafter (inclusive of the calendar month in which the Lease Commencement Date
occurs) and in the case in which the Lease Commencement Date occurs on other
than the first (1st) day of a calendar month, the first Lease Year ends on the
last day of the calendar month in which the first (1st) anniversary of the Lease
Commencement Date occurs; (ii) the second and each succeeding Lease Year
commences on the first day of the next calendar month; and (iii) the last Lease
Year ends on the Lease Expiration Date or earlier date of termination.
3. Possession.
3.1 Tenant agrees that in the event Landlord is unable to deliver
possession of Floor Three and Floor Four to Tenant, with Landlord's Work and the
Tenant's Improvements having been substantially completed on or before October
15, 1999, this Lease shall not be void or voidable, nor shall Landlord be liable
to Tenant for any loss or damage resulting therefrom. In the event that Landlord
fails to deliver Floor Three and Floor Four to Tenant with Landlord's Work and
Tenant's Improvements substantially completed on or before October 15, 1999, the
Lease Commencement Date shall be extended to the date on which Landlord delivers
Floor Three and Floor Four to Tenant with Landlord's Work and Tenant's
Improvements substantially completed subject to the limitations as provided in
Paragraph 3.2 below. For purposes of this Lease, Landlord's Work and Tenant's
Improvements shall be considered as having been substantially completed (i) upon
completion in all material respects of Landlord's Work and the Tenant's
Improvements with respect to Floor Three and Floor Four or Floor One and Floor
Two, as the case may be, as certified by Landlord's architect as identified in
the Work Letter ("LANDLORD'S ARCHITECT") subject only to such punch list items
as may have been identified by Landlord's Architect or by Tenant pursuant to the
provisions of Paragraph 12 below, and (ii) upon Landlord obtaining all
governmental approvals and occupancy certificates required for the legal
occupancy of the Floor Three and Floor Four or Floor One and Floor Two, as the
case may be, (collectively, "GOVERNMENT APPROVALS").
3.2 Notwithstanding the provisions of Paragraphs 3.1 to the
contrary, any extension of the Lease Commencement Date in accordance with the
provisions of Paragraph 3.1 shall be reduced by the aggregate number of days of
Tenant Delay (as defined below). By way of example, if pursuant to the
provisions of Paragraph 3.1 the Lease Commencement Date occurs on October 25,
1999 but there is an aggregate number of ten (10) days of Tenant Delay, then
notwithstanding the provisions of Paragraph 3.1, the Lease Commencement Date
(and the obligation of Tenant to pay Monthly Basic Rent [subject to the
provisions of Paragraph 3.3 below], Parking Lot Rent and Operating Rent) shall
commence as of October 15, 1999. A delay by Tenant ("TENANT DELAY") shall occur
upon: (i) Tenant's failure to perform any obligation of Tenant to be performed
under the Work Letter on or before the date or within the time period set forth
in the Work Letter including, without limitation, any failure by Tenant to
timely satisfy a Tenant Benchmark (as defined in the Work Letter); (ii) any
change by Tenant in the Construction Drawings (as defined in the Work Letter)
which Tenant has previously approved or a change by Tenant in the work to be
performed in connection with the Tenant's Improvements from that work otherwise
specified in the Construction Drawings, which change results in a delay in the
construction of the Tenant's Improvements; (iii) failure of Tenant to timely
pay on or before the date required all amounts required to be paid by Tenant as
provided in the Work Letter; or (iv) any other delay caused by Tenant or
Tenant's Architect in connection with the design, construction or bidding
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process with respect to the Tenant's Improvements including, without limitation,
the failure by Tenant or Tenant's Architect to promptly respond to reasonable
requests from the Contractor (as defined in the Work Letter) for clarification
and/or additional detail relating to the work to be performed pursuant to the
Construction Drawings. The period of any Tenant Delay with respect to the
matters described in clauses (i) or (iii) above, shall be the number of days
from the date on which the matter was to be performed by Tenant through and
including the day on which the matter is fully cured and performed by Tenant and
the number of days of any Tenant Delay as specified in clause (ii) and clause
(iv) above shall be equal to the number of days of delay in the performance of
the work in connection with the Tenant's Improvements resulting from the failure
by Tenant or by Tenant's consultants or representatives or the delay resulting
from any change made by Tenant as described in clause (ii). In the event that
Landlord during the construction of Tenant's Improvements asserts that a Tenant
Delay has occurred, Landlord shall give written notice of such asserted Tenant
Delay to Tenant and to Tenant's Architect as defined in the Work Letter
("TENANT'S ARCHITECT") which notice ("DELAY NOTICE") shall state specifically
the nature of the purported Tenant Delay. In the event that Landlord fails to
give a Delay Notice within five (5) business days following the occurrence of
the asserted Tenant Delay, Landlord shall be deemed to have waived such asserted
delay and shall thereafter not be entitled to assert such Tenant Delay in
connection with the provisions of this Paragraph 3.2 or Paragraph 3.3 below. In
the event that Landlord timely gives a Delay Notice and Tenant disagrees with
the assertion of the claimed delay by giving written notice of such disagreement
to Landlord within five (5) business days following the date on which the Delay
Notice is given, then within ten (10) days following the substantial completion
of the Landlord's Work and the Tenant's Improvements with respect to Floor One,
Floor Two, Floor Three and Floor Four as evidenced by the certificate of
Landlord's architect and receipt of the Government Approvals (collectively,
"COMPLETION CERTIFICATE"), Landlord's Architect and Tenant's Architect shall
attempt to come to an agreement, which agreement shall be binding on Landlord
and Tenant, as to whether any Tenant Delay has occurred and the number of days
of such Tenant Delay. A copy of the Completion Certificate shall be given by
Landlord to Tenant which, with respect to the Government Approvals, shall
consist of the certificate of occupancy. In the event that Landlord's Architect
and Tenant's Architect are unable to so agree within twenty (20) days following
the date on which the Landlord's Completion Certificate is given to Tenant then
the issue of the occurrence and the extent of any delay caused by Tenant shall
be subject to arbitration in accordance with the provisions of Paragraph 57. In
the event that Tenant fails to object to any Delay Notice given by Landlord by
timely giving written notice of such objection to Landlord, Tenant shall be
considered to have approved the Tenant Delay as set forth in the Delay Notice.
In the event that a final determination with respect to the occurrence of any
Tenant Delay as provided in this Paragraph 3.2 has not occurred on or before the
date asserted by Landlord to be the Lease Commencement Date (taking into account
any Tenant Delay as asserted by Landlord) then the Lease Commencement Date shall
be considered to have occurred on the date as provided in the Summary and in
accordance with the provisions of Paragraphs 2.2 and 3.1 subject to adjustment
as asserted by Landlord pursuant to the provisions of this Paragraph 3.2. In the
event that subsequent to such date it is finally determined that a further delay
in the occurrence of the Lease Commencement Date should have occurred by reason
of the provisions of Paragraph 3.1 and the provisions of this Paragraph 3.2,
then Tenant shall be entitled to a credit in an amount equal to the per day
amount in connection with the Monthly Basic Rent, the Parking Lot Rent and the
Operating Rent as then having been paid by Tenant for the prior of the
additional delay as finally determined pursuant to the provisions of this
Paragraph 3.2. Such credit shall be applied against the next payment of Monthly
Basic Rent, Parking Lot Rent and/or Operating Rent as then due pursuant to this
Lease from Tenant to Landlord.
3.3 It is anticipated that Floor Three and Floor Four, with the
Landlord's Work and the Tenant's Improvements substantially completed, will be
delivered by Landlord to Tenant prior to delivery of Floor One and Floor Two.
Notwithstanding any provision to the contrary of this Lease, in the event that
Floor One and
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Floor Two are delivered by Landlord to Tenant with the Landlord's Work and the
Tenant's Improvements substantially completed subsequent to the delivery of
Floor Three and Floor Four then, the Monthly Basic Rent otherwise payable as of
the Lease Commencement Date shall be reduced by fifty percent (50%) until such
time as Floor One and Floor Two are delivered by Landlord to Tenant with
Landlord's Work and Tenant's Improvements substantially completed in accordance
with the provisions of Paragraph 3.1. Commencing on such date (the "SUBSEQUENT
COMMENCEMENT DATE") and continuing thereafter, the full Monthly Basic Rent
shall be payable each month as otherwise provided in this Lease. The date on
which the Subsequent Commencement Date occurs (and thus the date on which the
obligation of Tenant to pay the full Monthly Basic Rent commences) shall be
adjusted to a date earlier than the date otherwise provided pursuant to this
Paragraph 3.3 by the number of days equal to the number of days of Tenant Delay
occurring prior to the Lease Commencement Date as described in Paragraph 3.2
together with the number of days of Tenant Delay occurring on and after the
Lease Commencement Date in connection with delivery by Landlord of Floor One
and Floor Two with the Landlord's Work and the Tenant's Improvements
substantially completed. The determination of the number of days of Tenant
Delay, including the number of days of Tenant Delay occurring on and after the
Lease Commencement Date shall be made in accordance with the provisions of
Paragraph 3.2 and shall be subject to arbitration in accordance with the
provisions of Paragraph 56. In connection with any partial calendar month, the
portion of the Monthly Basic Rent payable in connection with Floor One and
Floor Two (i.e. fifty percent) for each such day of any partial calendar month
shall be pro-rated on the basis of the actual number of days in such calendar
month.
3.4 Notwithstanding the anticipated delivery dates with respect Floor
Three and Floor Four of October 15, 1999 and with respect to Floor One and
Floor Two of October 22, 1999, Landlord, by giving at least six (6) weeks prior
written notice to Tenant, shall be entitled to deliver Floor Three and Floor
Four substantially complete prior to October 15, 1999 but no earlier than
October 1, 1999 and/or deliver Floor One and Floor Two substantially complete
prior to October 22, 1999 but no earlier than October 8, 1999. In the event
that Landlord gives such notice to Tenant with respect to Floor Three and Floor
Four, the Lease Commencement Date shall occur on the date set forth in such
notice given by Landlord, notwithstanding the provisions to the contrary of
this Lease, including without limitation the provisions of the Summary subject,
however, to adjustment in accordance with the provisions of Paragraphs 2.2, 3.1
and 3.2 above. In the event that Landlord gives such notice with respect to
Floor One and Floor Two, the Subsequent Commencement Date shall occur on the
date set forth by such notice given by Landlord, subject to delay, in
accordance with the provisions of Paragraph 3.3 above. In the event that
Landlord gives any notice of early delivery pursuant to the provisions of this
Paragraph 3.4, Tenant hereby agrees to accept such early delivery in connection
with Floor Three and Floor Four and/or in connection with Floor One and Floor
Two.
3.5 Notwithstanding anything in the foregoing Paragraphs to the contrary,
if the Landlord's Work and the Tenant's Improvements are not substantially
completed (as evidenced by a Completion Certificate) with respect to Floor
Three and Floor Four and Floor One and Floor Two on or before January 15, 2000,
then Tenant shall have the right to terminate this Lease by written notice
given to Landlord at any time prior to the date a certificate of occupancy is
obtained for the Premises. Termination of the Lease hereunder shall be Tenant's
sole remedy in the event of a failure of delivery of possession of the Premises
to Tenant.
4. Monthly Basic Rent/Parking Lot Rent/Storage Rent.
4.1 Tenant agrees to pay to Landlord as Monthly Basic Rent for the
Premises the Monthly Basic Rent designated in the Summary for each respective
period ("MONTHLY BASIC RENT"), each in advance on the first day of each and
every calendar month during said Term except that the first month's Monthly
Basic Rent
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shall be paid upon the execution hereof. In the event the Term of this Lease
ends on a day other than the last day of a calendar month, then the rental for
such period shall be prorated in the proportion that the number of days this
Lease is in effect during such period bears to thirty (30), and such rental
shall be paid at the commencement of such period. In the event that the Lease
Commencement Date occurs other than on the first day of a calendar month, and
the full first month's Monthly Basic Rent has been previously paid as provided
in this Lease, then the rent for the initial partial calendar month commencing
as of the Lease Commencement Date shall be prorated in the proportion that the
number of days this Lease is in effect during such calendar month bears to
thirty (30) and the prepaid first month's Monthly Basic Rent shall be applied
to such prorated amount with the balance of the prepaid first month's Monthly
Basic Rent being applied to reduce the payment of Monthly Basic Rent to be paid
on the first day of the first full calendar month of the Term of this Lease
(and to the extent not entirely applied by reasons of the provisions of
Paragraph 3.3, applied to reduce the payment of the subsequent month's Monthly
Basic Rent until fully applied). In addition to said Monthly Basic Rent, Tenant
agrees to pay the amount of the rental adjustments as and when provided in this
Lease. Said Monthly Basic Rent and all additional rent including, without
limitation, Parking Lot Rent, Storage Rent and Operating Rent, shall be paid to
Landlord, without any prior demand therefor and without any deduction or offset
whatsoever in lawful money of the United States of America, which shall be
legal tender at the time of payment, at the address of Landlord designated in
Subparagraph (c) of the Summary or to such other person or at such other place
as Landlord may from time to time designate in writing. Further, all charges to
be paid by Tenant hereunder, including, without limitation, payments for
repairs and other costs and expenses shall be considered additional rent for
the purposes of this Lease, and the word "rent" in this Lease shall include such
additional rent as well as Monthly Basic Rent, Parking Lot Rent, Storage Rent
and Operating Rent unless the context specifically or clearly implies that only
the Monthly Basic Rent, Parking Lot Rent, Storage Rent and/or Operating Rent is
referenced. Tenant shall deliver to Landlord as prepaid rent that amount set
forth in the Summary upon execution of this Lease.
4. In the event Tenant exercises either of the options to extend the
Term pursuant to the provisions of Paragraph 2.3, the Monthly Basic Rent shall
be adjusted at the commencement of each Extended Term to reflect the then-fair
market rental value of the Premises pursuant to the terms of this Paragraph. The
fair market rental value of the Premises shall be determined in good faith by
Landlord, who shall notify Tenant of such determination in writing within thirty
(30) days of receipt of the Option Notice. If Tenant does not agree with
Landlord's determination, Tenant shall deliver written notice of Tenant's
objection to Landlord within fifteen (15) days of receipt of notice from
Landlord, or Landlord's determination of the fair market rental value shall be
final. If Tenant timely objects to Landlord's determination, Landlord and
Tenant shall diligently attempt in good faith to agree on the fair market
rental value of the Premises on or before the tenth (10th) day following
delivery of Tenant's written objection to Landlord's determination (the
"OUTSIDE AGREEMENT DATE"). If Landlord and Tenant are unable to agree on the new
Monthly Basic Rent by the Outside Agreement Date, the fair market rental value
of the Premises shall be determined by appraisal. Landlord and Tenant shall
first attempt to select a mutually agreeable appraiser to conduct the
appraisal, which appraiser's conclusion shall be binding on the parties. In the
event they are unable to agree on one appraiser within ten (10) days of the
Outside Agreement Date, the parties shall each select an appraiser within 20
(20) days of the Outside Agreement Date, who together shall attempt to
determine the fair market rental value of the Premises. If either party fails
to appoint an appraiser within such time period, the appraiser timely appointed
by the other party shall be the sole appraiser, whose determination shall be
binding on both parties. If two appraisers are timely appointed, but they are
unable to agree on the fair market rental value of the Premises within fifty
(50) days of the Outside Agreement Date, they shall mutually select a third
appraiser and the three appraisers shall each submit their appraisal of the
fair market rental value of the Premises within thirty (30) days of selection
of the third appraiser. The fair market rental value of the Premises shall be
the
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average of the three appraisals; provided, however, that if either the high or
low appraisal differs from the middle appraisal by ten percent (10%) or more,
it shall be disregarded and the two remaining appraisals shall be averaged to
determine the fair market rental value. If both the high and low appraisals
differ from the middle appraisal by ten percent (10%) or more, then both shall
be disregarded, and the fair market rental value of the Premises shall be as
determined by the middle appraisal. Each party shall bear the cost of their
respective appraisers; if a third appraiser is necessary, the parties shall
share equally the cost of the third appraiser. All appraisers shall be MAI
qualified appraisers, and shall have a minimum of five (5) years experience in
the appraisal of commercial properties in the San Francisco Bay Area and no
appraiser shall have worked previously for Landlord or Tenant in any capacity.
The fair market rental value shall be based on comparable space in San
Francisco, which shall (i) not be subleased, (ii) shall be comparable in size,
location and quality with the Premises, (iii) shall be leased for a term
comparable to the subject option term (five years), and (iv) shall take into
account the value of any rent abatement, tenant improvement allowances or other
concessions given to the tenant of the comparable space. The Monthly Basic Rent
shall be adjusted to reflect the fair market rental value, as so determined.
The Base Year for each Extended Term shall be adjusted as set forth in
Paragraph 5.1 below.
4.3 In addition to the Monthly Basic Rent, Tenant shall pay an
additional monthly rental amount (the "PARKING LOT RENT") for Tenant's use of
the Garage located in the basement of the Building. The Parking Lot Rent shall
be payable, in advance, on the first day of each and every calendar month during
the Term with amounts payable for any partial month to be prorated in proportion
to the number of days that this Lease is in effect during such period bears to
thirty (30) with such rental to be paid at the commencement of such period. The
Garage shall be delivered by Landlord to Tenant on or before the Lease
Commencement Date. The Garage shall constitute a portion of the Premises and
shall be subject to all terms and conditions of this Lease. During the Term,
Landlord shall provide a parking valet/attendant on all business days during the
hours of 8:00 a.m. to 6:00 p.m. Tenant, at its election, shall be entitled to
request Landlord to adjust the hours during which valet/attendant parking is
provided so that such hours commence one (1) hour earlier or one (1) hour later,
and end one (1) hour earlier or one (1) hour later, as the case may be, provided
that, in all events, Landlord shall not be obligated to provide valet/attendant
parking for in excess of ten (10) hours and further provided that any adjustment
in such hours requested by Tenant shall be subject to compliance with any
collective bargaining agreements then in effect with respect to the employees
providing parking and any excess cost incurred by reason of any such adjustment
in the hours shall be borne solely by Tenant. It is agreed that the number of
vehicles which can be reasonably valet parked in the Garage is ninety (90),
subject to an increase or decrease to a maximum of one hundred (100) and a
minimum of seventy (70) which increase or decrease shall be subject to the
reasonable determination of Landlord and Tenant. Entrance to the Garage shall be
pursuant to a card key access system. Prior to the Lease Commencement Date,
Landlord shall substantially complete installation of a card key reader
apparatus at the Garage entrance facing Colin P. Kelly Street which shall allow
24 hour/7 days per week access to the Garage via the use of magnetic card keys.
The Parking Lot Rent which Tenant shall pay to Landlord shall be the product of
the sum of Two Hundred Dollars ($200.00) multiplied by the number of vehicles
which can be reasonably valet parked in the Garage. The Parking Lot Rent shall
be adjusted upward on an annual basis, commencing on the first day (the "FIRST
ADJUSTMENT DATE") of the second Lease Year and continuing thereafter on each
subsequent anniversary of the First Adjustment Date thereafter (each, an
"ADJUSTMENT DATE") throughout the initial ten (10) year Term of this Lease, by
an amount equal to four percent (4%) of the Parking Lot Rent in effect for the
month immediately preceding the subject Adjustment Date. Thereafter during the
Extended Terms (if applicable), in the sole and absolute discretion of Landlord,
the Parking Lot Rent shall be periodically adjusted upward to reflect
then-current market conditions. In no event shall the Parking Lot Rent be
decreased from the Parking Lot Rent in effect for the month immediately
preceding any adjustment.
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In the event that Landlord and Tenant are unable to agree upon the amount
of the increase or decrease in the number of vehicles which can be reasonably
valet parked in the Garage within ten business days following the written
request of either given to the other ("OUTSIDE PARKING DATE"), then the amount
of such increase or decrease shall be determined by a third party parking
company experienced in the valet parking of vehicles. The right to request a
determination by a third party parking company (or companies) as described in
this Paragraph shall be a one-time right and after exercise by either Landlord
or Tenant shall thereafter not be further exercisable by either Landlord or
Tenant. Landlord and Tenant shall first attempt to select a mutually agreeable
parking company to conduct a review of the Garage and determine on a basis
binding on both parties the amount of increase or decrease in the number of
vehicles which can be reasonably valet parked in the garage (referred to as the
"AMOUNT OF ADJUSTMENT"). In the event Landlord and Tenant are unable to agree
on a parking company within ten (10) days of the Outside Parking Date, the
parties shall each select a parking company within twenty (20) days of the
Outside Parking date, who together shall attempt to determine the Amount of
Adjustment. If either party fails to appoint a parking company within such time
period, the parking company timely appointed by the other party shall be the
sole parking company, whose determination shall be binding on both parties. If
two parking companies are timely appointed but they are unable to agree on the
Amount of Adjustment within forty (40) days of the Outside Parking date, they
shall mutually select a third parking company and the three parking companies
shall each submit their determination of the Amount of Adjustment within ten
(10) business days following the selection of the third parking company. The
Amount of Adjustment shall be the average of the three determinations,
provided, however, that if either the high or low determination differs from
the middle determination by 10% or more, it shall be disregarded and the two
remaining determinations shall be averaged to determine the Amount of
Adjustment. If both the high and low determinations differ from the middle
determination by 10% or more, then both shall be disregarded, and the Amount of
Adjustment shall be as determined by the middle parking company. Each party
shall bear the cost of its respective parking company; if a third parking
company is necessary, the parties shall share equally the cost of the third
parking company. All parking companies shall have a minimum of five (5) years
experience in the management and operation of valet parking lots and/or garages
and no parking company shall have previously worked for either the Tenant or
the Landlord.
If the Amount of Adjustment is determined subsequent to the Lease
Commencement Date, the Parking Lot Rent payable as of the Lease Commencement
date shall be based upon the number of ninety (90) vehicles. In the event that
it is finally determined that an adjustment is required, then the Parking Lot
Rent payable on the first day of the next succeeding calendar month and
thereafter, shall be based upon the number of vehicles as so adjusted. In
addition, in the event that the Amount of Adjustment results in an increase in
the number of vehicles from the initially determined ninety (90), then within
twenty (20) days following receipt by Landlord and Tenant of final
determination of such Amount of Adjustment, Tenant shall pay to Landlord the
amount of additional Parking Lot Rent attributable to such adjustment based
upon Two Hundred Dollars ($200) per month per additional vehicle (pro rated if
necessary on the basis of a partial month). In the event that the Amount of
Adjustment results in a decrease in the number of vehicles from the initial
ninety (90), then Tenant shall be entitled to a credit against the next Parking
Lot Rent then due based upon such decrease in the number of vehicles at a rent
of Two Hundred Dollars ($200) per vehicle per month (with any partial month to
be pro rated).
4.4 In addition to the Monthly Basic Rent and Parking Lot Rent, Tenant
shall be obligated to pay an additional monthly rental amount, (the "STORAGE
RENT") in accordance with the provisions of this Paragraph 4.4. Tenant shall be
entitled to use of the storage area within the Building ("STORAGE AREA"), which
Storage Area is described on Exhibit A attached hereto. The Storage Area
consists of Two Thousand One Hundred
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and Sixty-two (2,162) useable square feet. Notwithstanding any other provision
of this Lease to the contrary, Landlord shall have no obligation to repair or
maintain any portion of the Storage Area or provide services of any kind
whatsoever with respect to the Storage Area. Tenant shall not be obligated to
pay any Storage Rent during the first five (5) Lease Years of the Term.
Commencing as of the first day of the sixth Lease Year of the Term and
continuing on the first (1st) day of each and every calendar month thereafter,
Tenant shall be obligated to pay storage rent in the amount of Two Thousand One
Hundred and Sixty-two Dollars ($2,162) per month. The Storage Rent for each
Extended Term, if applicable, shall be as determined by Landlord in its
reasonable discretion.
4.5 The aggregate of the Monthly Basic Rent, the Parking Lot Rent and the
Storage Rent from time to time to be paid pursuant to the provisions of this
Lease may sometimes be referred to as the "AGGREGATE MONTHLY BASIC RENT". The
Aggregate Monthly Basic Rent shall be payable in advance on the first day of
each and every calendar month during the Term as provided herein in connection
with the Monthly Basic Rent, the Parking Lot Rent and the Storage Rent,
respectively.
4.6 All payments received by Landlord from Tenant for Monthly Basic
Rent, Parking Lot Rent, Storage Rent, Operating Rent or any other sums due under
this Lease shall be applied to the oldest payment obligation owed by Tenant to
Landlord. No designation by Tenant, either in a separate writing or on a check
or money order, shall modify this clause or have any force or effect.
4.7 Landlord shall use commercially reasonable efforts to make available
to Tenant, to the extent required to satisfy parking requirements associated
with the Premises, up to one hundred (100) additional parking spaces located
among the following existing parking facilities controlled by Landlord, or an
affiliate of Landlord, so long as such control exists: 96 Townsend Street;
670-680 Second Street; 635/699 Second Street; 160 King Street and 501 Second
Street, San Francisco, California. In no event, however, shall Landlord (or any
affiliate of Landlord) be required to impair the use of any of the above
described buildings or incur any material costs by reason of provision of the
above described additional parking to Tenant. Further, in connection with the
provision of any such parking, it is agreed that Landlord, and the applicable
affiliate of Landlord, shall retain the right to terminate or otherwise limit
the parking at any particular facility to the extent required in connection with
the use of such facility for the described property and shall further have the
right to terminate any provision of such parking in the event of any sale of the
above described property by Landlord (or the applicable affiliate of Landlord).
In connection with any additional parking as made available to Tenant in
accordance with the provisions of this Paragraph 4.7, Tenant shall pay the
parking fee and any and all other charges made in connection with such parking
on a basis consistent with market rates as determined by Landlord.
5. Operating Expenses.
5.1 For the purposes of this Subparagraph 5.1, the following terms are
defined as follows:
Tenant's Percentage Share. Tenant's Percentage Share shall mean the
percentage set forth in the Summary.
Base Year. Base Year shall mean the year set forth in the Summary;
provided, however, that should Tenant exercise its option for the First Extended
Term and/or the Second Extended Term, then the Base Year for the applicable
Extended Term shall be revised to mean the calendar year in which the applicable
Extended Term commences.
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Operating Expenses. Operating Expenses shall consist of all costs of
operation and maintenance of the Building, the common areas and the Site as
determined by standard accounting practices, calculated assuming the Building is
ninety-five (95%) occupied (unless actually occupied in a greater percentage, in
which case the actual occupancy percentage shall be used), including the
following costs by way of illustration, but not limitation: real property taxes
and assessments and any taxes or assessments hereafter imposed in lieu thereof;
gross receipt taxes (whether assessed against Landlord or assessed against
Tenant and collected by Landlord, or both); the net cost and expense of
insurance for which Landlord is responsible hereunder or which Landlord or any
first mortgagee with a lien affecting the Premises reasonably deems necessary in
connection with the operation of the Building (including the deductible portion
of any insured loss); janitorial services; security; parking valet/attendant
expenses; card key parking apparatus repair and maintenance; any and all
Garage-related expenses, with all such valet/attendant, car key apparatus
repair, maintenance and other Garage-related expenses not to exceed such
expenses incurred by prudent operators of substantially similar sized garages
within the geographical location of the Premises; labor; utilities and utilities
surcharges, and any other costs levied, assessed or imposed by, or at the
direction of, or resulting from statutes or regulations or interpretations
thereof, promulgated by any federal, state, regional, municipal or local
government authority in connection with the use or occupancy of the Building or
the Premises or the parking facilities serving the Building or the Premises; the
cost (amortized over the useful life of the improvement or equipment in question
as reasonably determined by Landlord in accordance with generally accepted
accounting principles at an interest rate of ten percent (10%)) of (a) any
capital improvements made to the Building by the Landlord which are reasonably
anticipated to increase the efficiency of the Building or made to the Building
by Landlord that are required under any governmental law or regulation that was
not applicable to the Building at the time it was constructed, or (b)
replacement of any building equipment needed to operate the Building at the same
quality levels (or levels of efficiency) as prior to the replacement; costs
incurred in the management of the Building, if any (including supplies, wages
and salaries of employees used in the management, operation and maintenance of
the Building, and payroll taxes and similar governmental charges with respect
thereto); on site Building management office rental; a management fee (not to
exceed 3% of the gross revenue receivable by Landlord from time to time in
connection with the Premises pursuant to this Lease); air conditioning; waste
disposal; heating; ventilating; elevator maintenance; supplies; materials;
equipment; tools; repair and maintenance of the structural portions of the
Building and the plumbing, heating, ventilating, air conditioning and electrical
systems installed or furnished by Landlord; and maintenance, costs and upkeep of
all parking and common areas, rental of personal property used in maintenance;
costs and expenses of gardening and landscaping, maintenance of signs (other
than Tenant's signs); personal property taxes levied on or attributable to
personal property used in connection with the entire Building, including the
common areas; reasonable audit or verification fees; and costs and expenses of
repairs, resurfacing, repairing, maintenance, painting, lighting, cleaning,
window washing, refuse removal, security and similar items, including
appropriate reserves.
Notwithstanding anything contained in this Paragraph 5.1 to the contrary,
Operating Expenses shall not include any of the following:
(a) electrical, water, sewer, gas, garbage, and janitorial costs
(including janitorial supplies) with respect to the Premises which are to be
paid directly by Tenant or reimbursed to Landlord as having been separately
billed by Landlord to Tenant as provided in Paragraph 5.2 below;
(b) depreciation on the Building or equipment therein;
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(c) Landlord's executive salaries;
(d) real estate brokers' commissions;
(e) interest expense on Building financing;
(f) amortization of cost of tenant improvements in the Building;
(g) ground rent;
(h) income and franchise taxes;
(i) Landlord's cost of electricity or other service sold to tenants to
the extent Landlord is reimbursed therefore as a charge over the Monthly Basic
Rent and any additional rent payable under the lease with that tenant;
(j) third party accountants' fees, attorneys' fees and other professional
fees and costs incurred in connection with disputes or lease negotiations with
tenants or other occupants or prospective tenants or occupants of the Building,
the enforcement of any leases (including unlawful detainer proceedings and the
collection of rents), other than de minimis amounts, and requests to assign or
sublet;
(k) overhead and profit paid to subsidiaries or affiliates of the
Landlord for management or other services on or to the Building for supplies or
other materials, to the extent that the overall cost of the services, supplies
or materials provided by Landlord materially exceeds the competitive cost of
the services, supplies, or materials if obtained from an unrelated third party
on an arm's length basis;
(l) compensation paid to clerks, attendants, or other persons in
commercial concessions operated by the Landlord;
(m) rentals and other related expenses incurred in leasing air
conditioning systems, elevators, or other equipment ordinarily considered to be
of a capital nature;
(n) items and services for which Tenant reimburses the Landlord or pays
third parties or that the Landlord provides selectively to one or more tenants
of the Building other than Tenant without reimbursement;
(o) maintenance costs incurred in connection with repairs or other work
needed because of fire, windstorm, or other casualty or cause insured against
by Landlord or to the extent Landlord's insurance required under the terms of
the Lease would have provided insurance, whichever is greater;
(p) all voluntary contributions to any political or charitable
organizations or other industry related associations (e.g., BOMA);
(q) capital costs for the acquisition of sculpture, paintings or other
art objects;
(r) advertising, marketing and promotion costs;
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(s) costs associated with the operation of the corporation or
other entity which constitutes the Landlord, as distinguished form costs of
operation of the Building, including accounting and legal costs, costs of
defending lawsuits with any mortgagee, and the costs of selling, syndicating,
financing, mortgaging or hypothecating any ownership interest in Landlord, or
any of the Landlord's interests in the Building;
(t) costs that are actually reimbursed to the Landlord by
insurance companies or other third parties; provided that the Landlord shall use
commercially reasonable efforts to pursue payment from such insurance companies
or other third parties (the costs of such efforts to procure payment to be
included as an Operating Expense);
(u) reserves for capital items, bad debts, or rental losses;
(v) the costs incurred to investigate the presence of any
Hazardous Material (as defined below), costs to respond to any claim of
Hazardous Material contamination or damage, costs to remove any Hazardous
Material from the Premises, Building or Site or to remediate any Hazardous
Material contamination, any judgments or other costs incurred in connection with
any Hazardous Material exposure or release, except to the extent that the cost
is caused by the storage, use, release or disposal of the subject Hazardous
Material by Tenant;
(w) fines and penalties incurred due to Landlord's operation of
the Building in violation of applicable laws or due to Landlord's failure to
timely pay real property taxes;
(x) except to the extent expressly permitted, any repairs of a
capital nature or costs for items that would normally be capitalized under
generally accepted accounting principles; and
(y) interest, charges and fees incurred with respect to mortgage
financing for the Building or Site.
As used herein, the term "real property taxes" shall include any form of
assessment, license fee, license tax, business license fee, tax, levy, charge,
or similar imposition, imposed by any authority having the direct power to
tax, including any city, county, state or federal government, or any school,
agricultural, lighting, drainage or other improvement or special assessment
district thereof, as against any legal or equitable interest of Landlord in the
Premises, including, but not limited to, the following:
(i) any tax on Landlord's "right" to rent or "right" to other income
from the Premises or as against Landlord's business of leasing the Premises;
(ii) any assessment, tax, fee, levy or charge in substitution, partially
or totally, of any assessment, tax, fee, levy or charge previously included
within the definition of real estate tax, it being acknowledged by Tenant and
Landlord that Proposition 13 was adopted by the voters of the State of
California in the June, 1978 Election and that assessments, taxes, fees, levies
and charges may be imposed by governmental agencies for such services as fire
protection, street, sidewalk and road maintenance, refuse removal and for other
governmental services formerly provided without charge to property owners or
occupants. It is the intention of Tenant and Landlord that all such new and
increased assessments, taxes, fees, levies and charges be included within the
definition of "real property taxes" for the purposes of
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this Lease;
(iii) any assessment, tax, fee, levy or charge allocable to or measured by
the area of the Premises or the rent payable hereunder, including, without
limitation, any excise tax levied by the State, City or Federal government, or
any political subdivision thereof, with respect to the receipt of such rent, or
upon or with respect to the possession, leasing, operating, management,
maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or
any portion thereof;
(iv) any assessment, tax, fee, levy or charge upon this transaction or any
document to which Tenant is a party, creating or transferring an interest or an
estate in the Premises;
(v) any assessment, tax, fee, levy or charge by any governmental agency
related to any transportation plan, fund or system instituted within the
geographic area of which the Building is a part; or
(vi) reasonable legal and other professional fees, costs and disbursements
incurred in connection with proceedings to contest, determine or reduce real
property taxes.
Notwithstanding any provision of this Paragraph 5.1 expressed or implied to
the contrary, "real property taxes" shall not include Landlord's federal or
state income, franchise, inheritance, gift or estate taxes. Real property taxes
also shall not include any tax or assessment expense (i) in excess of the amount
which would be payable if such tax or assessment expense were paid in
installments over the longest possible term; or (ii) imposed on land and
improvements other than the Building and/or Site. Tenant may in good faith
contest any tax or assessment, provided that Tenant indemnifies Landlord from
any loss or liability in connection therewith and further provided that Tenant
bears the cost of any such contest including without limitation the cost of any
interest and penalties which may be assessed.
5.2 Tenant shall directly and timely pay all electrical, gas, water,
garbage and sewer costs as well as janitorial costs (including the cost of
janitorial supplies) relating to the Premises. With respect to janitorial costs
(including the cost of janitorial supplies) Tenant shall be entitled to contract
with such supplier of janitorial services as Tenant may elect (subject to the
approval of Landlord, which approval shall not be unreasonably withheld or
delayed), or in the alternative, shall be entitled to internally provide
janitorial services in connection with the Premises. In all events, Tenant shall
provide janitorial services in connection with the Premises in a commercially
reasonable fashion consistent with janitorial services provided in first class
commercial buildings in the geographical area in which the Premises is located.
The cost of all janitorial supplies in connection with the Premises shall be the
responsibility of Tenant. All such janitorial costs (including the costs of
janitorial supplies) shall be paid directly by Tenant. Upon request of the
Landlord, from time to time, but no more frequently than once during each Lease
year, Tenant shall provide to Landlord evidence reasonably satisfactory to
Landlord of the payment of such costs. In the event that such costs are not
timely paid by Tenant, Landlord shall be entitled (but not obligated), upon ten
(10) days prior notice to Tenant, to pay such costs which payment shall promptly
be reimbursed by Tenant to Landlord within twenty (20) days after receipt of
Landlord's invoice, together with interest equal to the annual rate of the
lesser of ten percent (10%) or the maximum rate allowed by law from the date of
payment to the date of receipt by Landlord.
5.3 No later than April of each calendar year following the Lease
Commencement Date during the Term of this Lease, or as soon thereafter as
possible, Landlord shall endeavor to deliver to Tenant a statement ("ESTIMATE
STATEMENT") wherein Landlord shall estimate the Operating Expenses for the
current
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calendar year, and Tenant's Percentage Share of the excess, if any, of the
estimated Operating Expenses for the current calendar year over the Operating
Expenses for the Base Year. If Operating Expenses estimated in the Estimated
Statement of the current calendar year exceed the Operating Expenses of the
Base Year then Tenant's Percentage Share of such excess amount shall be divided
into twelve (12) equal monthly installments and Tenant shall pay to Landlord
within thirty (30) days, following the receipt of such statement, an amount
equal to one (1) monthly installment multiplied by the number of months from
January in the calendar year in which said statement is submitted to the month
of such payment, both months inclusive. Subsequent installments shall be paid
concurrently with the regular monthly rent payments for the balance of the
calendar year and shall continue until the next calendar year's Estimate
Statement is rendered. If Landlord determines that Tenant's Percentage Share of
the excess Operating Expenses for such current calendar year is greater than
that set forth in the Estimate Statement, then Landlord may, at any time, but
not more frequently than once during each calendar year, deliver a revised
Estimate Statement and Tenant shall pay to Landlord, within thirty (30) days of
the delivery of such revised Estimate Statement, the difference between such
revised Estimate Statement and the original Estimate Statement for the portion
of the current calendar year which has then expired and Tenant shall pay
during the balance of such current calendar year a fraction of the balance of
such difference as would fully amortize such excess over the remaining months
of the then current calendar year. Notwithstanding anything to the contrary set
forth in this Paragraph 5.3, or elsewhere in this Lease or the Summary, Tenant
shall have no obligation to pay Tenant's Percentage Share of the increase in
Operating Expenses over the Base Year for the first twelve full calendar (12)
months following the Lease Commencement Date. Tenant's first obligation to pay
Operating Rent shall accrue in the thirteenth full calendar (13th) month
following the Lease Commencement Date. Notwithstanding the designation of Base
Year in the Summary, for purposes of calculating Tenant's share of the increase
in real property taxes, the initial real property taxes for purposes of
determining any increase, shall be the real property taxes based on an assessed
value of the Premises, Building and Site which takes into account the
construction of Landlord's Work and the Tenant's Improvements. Tenant's
obligation to pay increases in real property taxes, if any, shall commence as
of the thirteenth (13th) full calendar month following the Lease Commencement
Date even if such increases, if any, cannot be calculated until subsequent to
such time.
By the first day of June of each succeeding calendar year during the Term
of this Lease, or as soon thereafter as possible (but, in any event, no later
than December 31 of such succeeding calendar year), Landlord shall endeavor to
deliver to Tenant a statement ("ACTUAL STATEMENT") wherein Landlord shall
state the actual Operating Expenses for the preceding calendar year. If the
Actual Statement reveals a greater increase in Tenant's Percentage Share of
Operating Expenses in excess of the Base Year than was estimated by Landlord in
the Estimate Statement delivered as provided herein, then within thirty (30)
days following receipt of the Actual Statement by Landlord, Tenant shall pay
a lump sum equal to said total increase over the Operating Expenses for the
Base Year, less the total of the monthly installments of increases set forth on
the Estimate Statement which were paid in the previous calendar year. If the
Actual Statement reveals that Tenant overpaid Operating Expenses for any
calendar year, any overpayment made by Tenant on the monthly installment basis
provided above shall be credited toward the next monthly rent falling due and
the monthly installment of Tenant's Percentage Share of Operating Expenses to
be paid pursuant to the then current Estimate Statement shall be adjusted to
reflect such lower expenses for the most recent calendar year, or if this Lease
has been terminated, such excess shall be credited against any amount which
Tenant owes Landlord pursuant to this Lease and, to the extent all amounts
which Tenant owes Landlord pursuant to this Lease have been paid, Landlord
shall promptly pay such excess to Tenant. Landlord shall not be entitled to
deliver an Actual Statement more than one time per calendar year. Any delay or
failure by Landlord in delivering any estimate or statement pursuant to this
Paragraph shall not
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constitute a waiver of its right to require an increase in Tenant's share of the
Operating Expenses in excess of the Base Year nor shall it relieve Tenant of its
obligations pursuant to this Paragraph, except that Tenant shall not be
obligated to make any payments based on such estimate or statement until thirty
(30) days after receipt of such estimate or statement.
5.4 Even though the Term has expired and Tenant has vacated the Premises,
when the final determination is made of Tenant's Percentage Share of Operating
Expenses for the calendar year in which this Lease terminates, Tenant, within
twenty (20) days after receipt of Landlord's determination, shall pay any
increase due over the estimated expenses paid and conversely any overpayment
made in the event said expenses decrease shall be rebated by Landlord to Tenant,
within twenty (20) days after Landlord's determination.
5.5 Notwithstanding anything contained in this Paragraph 5, the rental
payable by Tenant each month shall in no event be less than the Monthly Basic
Rent specified in Paragraph 4 hereof. The excess Operating Expenses to be paid
by Tenant to Landlord pursuant to the provisions of this Paragraph 5 shall
sometimes be referred to in the aggregate as the "OPERATING RENT".
5.6 Notwithstanding any provision to the contrary contained in this Lease,
within sixty days after receipt by Tenant of Landlord's Operating Expenses for
any prior calendar year during the Term, Tenant or its authorized representative
shall have the right to inspect the books of Landlord upon reasonable notice and
during the business hours of Landlord at Landlord's office in the Building, or,
at Landlord's option, at such other location as Landlord reasonably may specify,
for the purpose of verifying the information contained in the statement. Unless
Tenant assets specific errors within sixty (60) days after receipt of the
statement, the statement shall be deemed correct as between Landlord and Tenant.
6. Security Deposit.
6.1 As and for security for Tenant's full and faithful performance of all
the terms, covenants and conditions of this Lease to be kept and performed by
Tenant, Tenant shall deposit with Landlord (i) cash in the amount of Three
Hundred Sixty Thousand Dollars ($360,000) and (ii) an unconditional, irrevocable
letter of credit ("LOC") in favor of Landlord in the sum of One Million Six
Hundred Forty Thousand Dollars ($1,640,000) (subject to adjustment pursuant to
Subparagraph 6.2) from a bank or other financial institution and in a form
reasonably acceptable to Landlord. If at any time during the Term, any item
constituting rent as provided herein, or any other sum payable by Tenant to
Landlord hereunder, shall be overdue and unpaid, beyond applicable cure periods,
then Landlord may, at the sole option of Landlord, but without any requirement
to do so, draw down or make a claim or demand for draw against the LOC (or at
the election of Landlord against the cash portion of the security deposit) an
amount equal to the overdue and unpaid amount, together with Landlord's actual
and reasonable expenses incurred in connection with the default, beyond any
applicable cure period, and apply such sum to payment of such overdue rent or
other sum. The LOC shall provide that any draw thereunder shall be accompanied
by a certificate of an officer of Landlord stating that Tenant is in default
under the Lease beyond the applicable notice and cure period, if any, and that
Landlord or its authorized agent is entitled to draw down on the LOC the amount
requested pursuant to the terms of this Lease. Further in the event of the
failure of Tenant to keep and perform any term, covenant or condition of this
Lease to be kept or performed by Tenant, beyond any applicable cure period,
then, at the sole option of Landlord, and after termination of this Lease,
Landlord may draw down the entire LOC (and draw against any remaining cash
portion of the security deposit), or so much thereof as may be necessary to
compensate Landlord for any loss or damage sustained or suffered
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by Landlord due to such breach on the part of Tenant. In the event that all or
any portion of the LOC is drawn down by Landlord to pay overdue rent or other
sums due and payable to Landlord by Tenant hereunder, then Tenant shall, within
ten (10) days after receipt of written demand of Landlord, promptly remit to
Landlord a sufficient amount in cash or an additional letter of credit to
restore Landlord's security to the original amount of the LOC as provided in
this Paragraph. In the event that all or any portion of the cash portion of the
security deposit is charged against by Landlord to pay overdue rent or other
sums due and payable to Landlord by Tenant hereunder, then Tenant shall, within
ten (10) days after receipt of written demand of Landlord, promptly remit to
Landlord a sufficient amount in cash to restore the cash portion of Landlord's
security deposit as drawn against by Landlord. Any failure on the part of Tenant
to restore either the cash portion of the security deposit or the LOC in
accordance with the provisions immediately above within ten (10) days following
the date on which demand for restoration is deemed given hereunder, shall
constitute a default by Tenant pursuant to this Lease. In the event Landlord
transfers the LOC and the cash portion of the security deposit to any successor
in interest of Landlord to title of the Site and Building, then, in such event,
Landlord shall be discharged from any further obligation or liability with
respect to the LOC and the cash portion of the security deposit. Tenant waives
the provisions of California Civil Code Section 1950.7 and all other provisions
of law now in force or that become in force after the date of execution of this
Lease that provide that Landlord may claim from a security deposit only those
sums reasonably necessary to remedy defaults in the payment of rent, to repair
damages caused by Tenant, or to clean the Premises. Landlord and Tenant agree
that Landlord may, in addition, claim those sums reasonably necessary to
compensate Landlord for any out-of-pocket (but not consequential) loss or damage
caused by any act or omission of Tenant or Tenant's officers, agents, employees,
independent contractors or invitees. Landlord's obligations with respect to the
cash portion of the security deposit are those of a debtor and not of a trustee,
and Landlord is entitled to commingle the cash portion of the security deposit
with Landlord's general fund. Landlord shall not be required to pay Tenant
interest on any portion of the security deposit including without limitation the
cash portion of the security deposit.
The cash portion of the security deposit shall be delivered by Tenant to
Landlord within five (5) days following execution and delivery by Landlord and
Tenant of this Lease. The LOC shall be delivered by Tenant to Landlord within
ten (10) days after execution and delivery of this Lease by Landlord and Tenant.
6.2 The LOC shall be subject to adjustment under the following
circumstances:
(a) Provided that Tenant completely and faithfully performs all
terms, conditions and obligations imposed upon Tenant by this Lease for the
first nine full calendar (9) months of the Term, and provided that Tenant is not
then in default, beyond any applicable cure period, of this Lease, the LOC may
be reduced by ten percent (10%) of its original amount at the conclusion of said
nine (9) month period. Thereafter, on each subsequent anniversary date of the
first reduction, and provided Tenant has not been in default, beyond any
applicable cure period, of this Lease since the prior reduction in the LOC, the
LOC may be further reduced by ten percent (10%) of the outstanding amount of the
LOC. Notwithstanding any provision to the contrary of this Lease including,
without limitation, the provisions of this Paragraph 6.2, in no event shall the
security deposit to be given by Tenant, pursuant to the provisions of Paragraph
6 be reduced to an amount less than a cash deposit in the amount of Three
Hundred Sixty Thousand Dollars ($360,000). Such minimum cash deposit shall be
subject to return to Tenant upon the expiration or earlier termination of this
lease only in accordance with the provisions of Paragraph 6.5 below.
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(b) in the event that (i) Tenant becomes subject to the reporting
requirements of the Securities and Exchange Commission (after the filing of a
Form S-1 Registration Statement), and shares of Tenant become publicly traded on
a nationally recognized exchange, and (ii) the audited net worth of the Tenant
is equal to or greater than One Hundred and Twenty-five Million ($125,000,000)
for an entire calendar quarter and (iii) during the same calendar quarter the
arithmetic average market capitalization value of Tenant exceeds 1.5 Billion
Dollars, then the provisions of this Paragraph 6.2(b) shall be applicable. The
date on which all of the matters specified in clauses (i), (ii), and (iii) above
shall have occurred shall be referred to as the "PUBLIC DATE". Prior to the
occurrence of the Public Date, the provisions of this Paragraph 6.2(b) shall not
be applicable.
If, on the tenth (10) month anniversary of the occurrence of the
Public Date, or at any time thereafter, Tenant provides Landlord with
satisfactory evidence (such as audited financial statements) that Tenant's
earnings before income taxes, depreciation and amortization (but including
interest) ("EBITDA") reflect a profit for the immediately preceding three (3)
consecutive calendar quarters, and Tenant's net worth is no less than
Seventy-Five Million Dollars ($75,000,000.00), then the LOC may be terminated
and Landlord shall, subject to the provisions below, thereafter hold only the
cash security deposit in the amount of Three Hundred and Sixty Thousand Dollars
($360,000). Thereafter, the LOC shall be reinstated in, or increased to, as the
case may be, an amount equal (i) to two (2) month's Monthly Basic Rent if
Tenant's net worth as determined in accordance with generally accepted
accounting principles falls below Seventy-Five Million Dollars
($75,000,000.00), (ii) to four (4) month's Monthly Basic Rent if Tenant's net
worth falls below Fifty Million Dollars ($50,000,000.00), and (iii) to six (6)
month's Monthly Basic Rent if Tenant's net worth falls below Thirty Million
Dollars ($30,000,000.00). Further, in the event that the financial statements of
Tenant at any time reflect a loss for two or more consecutive calendar quarters
on the basis of EBITDA, then the amount of the LOC otherwise then in effect
shall be increased by an amount equal to one month of Monthly Basic Rent. If the
LOC has been terminated at the time that an increase is required by the
preceding sentence, then the LOC shall be reinstated in the amount required by
the preceding sentence. All multiples of Monthly Basic Rent shall be calculated
on the then applicable Monthly Basic Rent. Notwithstanding any provisions to the
contrary contained in this Paragraph 6.2, if Tenant's net worth, after falling
below any of the variables described above in this Paragraph 6.2(b),
subsequently rises to a higher net worth threshold and remains at such higher
threshold for three consecutive months, at the end of such three month period
Tenant shall have the right to replace the LOC in the higher amount with an LOC
for the lower amount provided for with respect to the higher net worth threshold
as described above in this Paragraph 6.2(b) that Tenant has maintained for the
preceding three month period subject, however, to subsequent increase in the
amount of the LOC should Tenant's net worth again fall below such higher
threshold amount. Tenant shall from time to time promptly provide to Landlord
for each calendar quarter during the Term hereof a copy of Tenant's financial
statement (audited if available) provided that Tenant shall not be obligated to
provide Landlord with a copy of Tenant's financial statement more often than
once per calendar quarter.
6.3 If, after any default by Tenant beyond applicable cure periods and a
termination of this Lease by Landlord as set forth in Paragraph 6.1 above and
Landlord has drawn down the entire LOC, any proceeds of the LOC in excess of the
sum equal to the amount necessary to compensate Landlord for any loss or damage
sustained or suffered by Landlord due to Tenant's default, together with
Landlord's actual and reasonable expenses incurred in connection therewith,
shall be held in a separate, interest-bearing account ("ACCOUNT") in Landlord's
name at such national bank as Landlord reasonably selects ("BANK"). Tenant shall
have no rights to the money in the Account, except for (i) the return rights
specified below, and (ii) the right to receive interest on the Account, as
specified herein. Landlord agrees to place on the
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signature card for the Account the following language "[name of Landlord] is
holding the funds in the Account in accordance with a Lease dated [date of
Lease] between [name of Landlord] and LookSmart, Ltd. The rights of [name of
Landlord] and LookSmart, Ltd. in and to the funds are subject to the terms of
such Lease." Within ten (10) business days after Landlord signs the signature
card (or any replacement signature card) on the Account, Landlord agrees to
provide Tenant with a copy of the signature card for the Account. Landlord
agrees to request the Bank to pay interest on the Account directly to Tenant on
a quarterly basis, and to report to the appropriate taxing authorities that such
interest has been paid to Tenant; provided, however, that if, despite Landlord's
request, the Bank will not or cannot pay the interest directly to Tenant, the
(x) the Bank shall pay interest on the Account directly to Landlord, in which
case, within ten (10) business days after Landlord receives such payment of
interest, Landlord shall pay to Tenant the interest Landlord receives from the
Bank on the Account, and (y) Landlord shall have the right to report to the
appropriate taxing authorities that such income is the income of Tenant. Tenant
represents to Landlord that Tenant's Federal Taxpayer Identification Number is
13-3904355. If the proceeds of the LOC are placed in a fixed term instrument,
such as a certificate of deposit, then Landlord shall not be liable for any
prepayment penalty if Landlord uses the Account, or a portion thereof, in
accordance with the provisions of this Paragraph 6.
6.4 Notwithstanding anything contained in this Paragraph 6 to the
contrary, if Landlord draws on the LOC an amount in excess of the amount
necessary to compensate Landlord in full for any loss or damage sustained or
suffered by Landlord due to the default of Tenant, then Tenant shall have the
right, upon ten (10) days' prior written notice to Landlord, to obtain a refund
from Landlord of any excess proceeds of the LOC which Landlord has drawn upon,
any such refund being conditioned upon Tenant simultaneously delivering to
Landlord a new replacement LOC in the amount then required, and otherwise
meeting the requirements contained in this Paragraph 6.
6.5 Upon the expiration or earlier termination of this Lease, Landlord
shall return to Tenant so much of the LOC (and the cash portion of the security
deposit) as has not been applied or entitled to be held by Landlord to be
applied to cure any and all defaults by Tenant occurring prior to the expiration
or earlier termination of this Lease and any default by Tenant pursuant to the
provisions of Paragraph 13.1(f) below.
7. Use.
7.1 Tenant shall use the Premises for general office purposes and purposes
incident thereto and shall not use or permit the Premises to be used for any
other purpose without the prior written consent of Landlord, which consent may
be granted or withheld in Landlord's sole discretion. Tenant shall not use or
occupy the Premises in violation of any recorded covenants, conditions and
restrictions affecting the Site or of any law or of the Certificate of Occupancy
issued for the Building, and shall upon five (5) days' written notice from
Landlord, discontinue any use of the Premises which is declared by any
governmental authority having jurisdiction to be a violation of any recorded
covenants, conditions and restrictions affecting the Site or of any law or of
said Certificate of Occupancy. Subject to the provision of Paragraph 54.2,
Tenant shall not install any radio or television antenna, loudspeaker or other
device on the roof or exterior walls of the Building. Tenant shall not interfere
with radio or television broadcasting or reception from or in the Building or
elsewhere. Tenant shall comply with any direction of any governmental authority
having jurisdiction which shall, by reason of the nature of Tenant's specific
use or alteration of the Premises, impose any duty upon Tenant or Landlord with
respect to the Premises or with respect to the use or occupation thereof. Tenant
shall not do or permit to be done anything which will invalidate or
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increase the cost of any fire, extended coverage or any other insurance policy
covering the Building and/or property located therein and shall comply with all
rules, orders, regulations and requirements of the Pacific Fire Rating Bureau or
any other organization performing a similar function. Tenant shall within twenty
(20) days after receipt of demand reimburse Landlord as additional rent for any
additional premium charged for such policy by reason of Tenant's failure to
comply with the provisions of this Paragraph 7. Tenant shall not do or permit
anything to be done in or about the Premises which will in any way obstruct or
interfere with the rights of other tenants or occupants of the Building, or
injure them, or use or allow the Premises to be used for any unlawful purpose,
nor shall Tenant cause, maintain or permit any nuisance in, on or about the
Premises. Tenant shall not commit or suffer to be committed any waste in or upon
the Premises and shall keep the Premises in first-class repair and appearance.
Tenant shall not place a load upon the Premises exceeding the average pounds of
live load per square foot of floor area specified for the Building by Landlord's
Architect, with the partitions to be considered a part of the live load.
Landlord reserves the right to prescribe the weight and position of all safes,
files and heavy equipment which Tenant desires to place in the Premises so as to
distribute properly the weight thereof. Tenant's business machines and
mechanical equipment which cause vibration or noise that may be transmitted to
the Building structure or to any other space in the Building shall be so
installed, maintained and used by Tenant as to eliminate such vibration or
noise. Tenant shall be responsible for all structural engineering required to
accommodate the structural load. Tenant shall fasten all files, bookcases and
like furnishings to walls in a manner to prevent tipping over in the event of
earth movements. Landlord shall not be responsible for any damage or liability
for such events.
7.2 Except for the normal and proper use and storage of typical cleaning
fluids and solutions, and office equipment and supplies (such as copier toner),
in amounts commensurate with Tenant's use and occupancy of the Premises, Tenant
shall not use, introduce to the Premises, generate, manufacture, produce, store,
release, discharge or dispose of, on, under or about the Premises or transport
to or from the Premises any Hazardous Material (as defined below) or allow its
employees, agents, contractors, invitees or any other person or entity to do so.
Tenant warrants that it shall not make any use of the Premises which may cause
contamination of the soil, the subsoil or ground water. Tenant shall keep and
maintain the Premises in compliance with, and shall not cause or permit the
Premises to be in violation of any and all federal, state or local laws,
ordinances, rules or regulations pertaining to health, industrial hygiene or the
environmental conditions on, under or about the Premises. Tenant shall give
immediate written notice to Landlord of (i) any action, proceeding or inquiry by
any governmental authority or any third party with respect to the presence of
any Hazardous Material on the Premises or the migration thereof from or to other
property or (ii) any spill, release or discharge of Hazardous Materials that
occurs with respect to the Premises or Tenant's operations.
(a) Tenant shall indemnify and hold harmless Landlord, its
directors, officers, employees, agents, successors and assigns (collectively
"LANDLORD") from and against any and all claims arising from Tenant's use of the
Premises in violation of this paragraph. The indemnity shall include all costs,
fines, penalties, judgments, losses, reasonable attorney's fees, expenses and
liabilities incurred by Landlord for any such claim or any action or proceeding
brought thereon including, without limitation, (a) all foreseeable consequential
damages including without limitation loss of rental income and diminution in
property value; and (b) the costs of any cleanup, detoxification or other
ameliorative work of any kind or nature required by any governmental agency
having jurisdiction thereof or Landlord. This indemnity shall survive the
expiration or termination of this Lease. In any action or proceeding brought
against Landlord by reason of any such claim, upon notice from Landlord if
Landlord does not elect to retain separate counsel, Tenant shall defend the same
at Tenant's expense by counsel reasonably satisfactory to Landlord.
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employees or invitees, and from and against all costs, reasonable attorneys'
fees, expenses and liabilities incurred for such claim or any action or
proceeding brought thereon. In case any action or proceeding is brought against
Landlord by reason of any such claim, Tenant upon notice from Landlord hereby
agrees to defend the same at Tenant's expense by counsel reasonably approved in
writing by Landlord. Tenant, as a material part of the consideration to
Landlord, hereby assumes all risk of damage to property or injury to persons
in, upon or about the Premises from any cause whatsoever except to the extent
caused by Landlord's gross negligence, intentional misconduct or the failure of
Landlord to observe any of the terms and conditions of this Lease where such
failure has persisted for an unreasonable period of time after written notice
of such failure, and Tenant hereby waives all its claims in respect thereof
against Landlord.
18.2 Landlord shall indemnify Tenant and hold it harmless from any loss by
reason of injury to person or property to the extent such injury is caused by
the gross negligence or intentional misconduct of Landlord or its agents,
employees or contractors, including without limitation any liability or injury
to the person or property of Landlord, its officers, directors, partners,
employees, agents, invitees or guests. Nothing herein shall relieve Tenant of
liability for its own willful acts or negligence.
19. Damage to Tenant's Property. Notwithstanding the provisions of Paragraph 18
to the contrary, except to the extent caused by the gross negligence or willful
misconduct of Landlord, its agents, employees or contractors, Landlord or its
agents shall not be liable for any damage to property entrusted to employees of
the Building (except by reason of the gross negligence of such employees), nor
for loss of or damage to any property by theft or otherwise, nor for any injury
or damage to persons or property resulting from fire, explosion, falling
plaster, steam, gas, electricity, water or rain which may leak from any part of
the Building or from the pipes, appliances or plumping works therein or from the
roof, street or sub-surface or from any other place or resulting from dampness
or any other patent or latent cause whatsoever. Landlord or its agents shall not
be liable for interference with the light, air, view or intangible
characteristics or qualities of the Premises. Tenant shall give prompt notice to
Landlord in case of fire or accidents in the Premises or in the Building or of
defects known to Tenant therein or in the fixtures or equipment located therein.
Further, neither Landlord nor any partner, director, officer, agent, servant,
member or employee of Landlord shall be liable: (i) for any such damage caused
by other tenants or persons in, upon or about the Building, or caused by
operations in the construction of any private, public or quasi-public work (the
limitations of liability set forth in this clause (i) shall not apply to any
damage or liability caused by the gross negligence or intentional misconduct of
Landlord or its agents, employees or contractors); or (ii) for consequential
damages, including lost profits, of Tenant or any person claiming through or
under Tenant.
20. Insurance.
20.1 During the Term hereof, Tenant, at its sole expense, shall obtain and
keep in force the following insurance:
(a) Commercial general liability insurance naming the Landlord as an
additional insured against any and all claims for bodily injury and property
damage occurring in, or about the Premises arising out of Tenant's use and
occupancy of the Premises. Such insurance shall have a combined single limit of
not less than Three Million Dollars ($3,000,000.00) per occurrence with a Six
Million Dollar ($6,000,000.00) aggregate limit. Such liability insurance shall
be primary and not contributing to any insurance available to Landlord and
Landlord's insurance shall be in excess thereto. In no event shall the limits of
such insurance be considered as limiting the liability of Tenant under this
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(b) Landlord shall indemnify and hold harmless Tenant, its directors,
officers, employees, agents, successors and assigns (collectively, "TENANT")
from and against any and all claims arising from or relating to Hazardous
Materials actually existing and present at the Building or the Site or within
the Premises as of the Lease Commencement Date. The indemnity shall include all
costs, fines, penalties, judgments, losses, reasonable attorney's fees, expenses
and liabilities incurred by Tenant for any such claim or any action or
proceeding brought thereon including, without limitation, (a) all foreseeable
consequential damages; and (b) the cost of any clean up, detoxification or other
ameliorative work of any kind or nature required by any governmental agency
having jurisdiction thereof. This indemnity shall survive the expiration or
termination of this Lease. Any action or proceeding brought against Tenant by
reason of any such claim, upon notice from Tenant, if Tenant does not elect to
retain separate counsel, Landlord shall defend the same at Landlord's expense by
counsel reasonably satisfactory to Tenant.
(c) As used herein, the term "HAZARDOUS MATERIAL" shall mean any
substance or material which has been determined by any state, federal or local
governmental authority to be capable of posing a risk of injury to health,
safety or property, including all of those materials and substances designated
as hazardous or toxic by the city in which the Premises are located, the U.S.
Environmental Protection Agency, the Consumer Product Safety Commission, the
Food and Drug Administration, the California Water Resources Control Board, the
Regional Water Quality Control Board, San Francisco Bay Region, the California
Air Resources Board, CAL/OSHA Standards Board, Division of Occupational Safety
and Health, the California Department of Food and Agriculture, the California
Department of Health Services, and any federal agencies that have overlapping
jurisdiction with such California agencies, or any other governmental agency now
or hereafter authorized to regulate materials and substances in the environment.
Without limiting the generality of the foregoing, the term "Hazardous Material"
shall include all of those materials and substances defined as "hazardous
materials" or "hazardous waste" in Sections 66680 through 66685 of Title 22 of
the California Administrative Code, Division 4, Chapter 30, as the same shall be
amended from time to time, petroleum, petroleum-related substances and the
by-products, fractions, constituents and sub-constituents of petroleum or
petroleum-related substances, asbestos, and any other materials requiring
remediation now or in the future under federal, state or local statutes,
ordinances, regulations or policies.
8. Payments and Notices. All rents and other sums payable by Tenant to
Landlord hereunder shall be paid to Landlord by check at the address designated
by Landlord in the Summary or at such other places as Landlord may hereafter
designate in writing. Any notice required or permitted to be given hereunder
must be in writing and may be given by personal delivery, mail, or by recognized
overnight courier. If notice is given by personal delivery, such notice shall be
deemed to be given upon delivery, if notice is given by registered or certified
mail addressed to Tenant at the address designated in the Summary or to Landlord
at both of the addresses designated in the Summary, then such notice shall be
deemed given three (3) business days following deposit in the U.S. mail, postage
prepaid, addressed to Tenant as designated in the Summary or to Landlord at both
of the addresses designated in the Summary and if given by overnight courier
shall be deemed given one (1) business day following delivery to the courier,
charges prepaid, addressed as stated above. Either party may by written notice
to the other specify a different address for notice purposes. If more than one
person or entity constitutes the "Tenant" under this Lease, service of any
notice upon any one of said persons or entities shall be deemed as service upon
all of said persons or entities.
9. Brokers. The parties recognize that the brokers who negotiated this Lease
are the brokers whose
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names are stated in the Summary, and agree that Landlord shall be solely
responsible for the payment of brokerage commissions to said brokers, and that
Tenant shall have no responsibility therefor. As part of the consideration for
the granting of this Lease, Tenant represents and warrants to Landlord that to
Tenant's knowledge no other broker, agent or finder negotiated or was
instrumental in negotiating or consummating this Lease and that Tenant knows of
no other real estate broker, agent or finder who is, or might be, entitled to a
commission or compensation in connection with this Lease. Any broker, agent or
finder of Tenant whom Tenant has failed to disclose herein shall be paid by
Tenant. Tenant shall hold Landlord harmless from all damages and indemnify
Landlord for all said damages paid or incurred by Landlord resulting from any
claims that may be asserted against Landlord by any broker, agent or finder who
has, or has claimed to have, rendered services to Tenant undisclosed by Tenant
herein. Landlord shall hold Tenant harmless from all damages and indemnify
Tenant for all said damages paid or incurred by Tenant resulting from any claims
that may be asserted against Tenant by any broker, agent or finder who has, or
has claimed to have, rendered services to Landlord undisclosed by Landlord
herein.
10. Holding Over. If Tenant remains in possession of the Premises after
expiration or earlier termination of this Lease with Landlord's express consent,
Tenant's occupancy shall be a month to month tenancy at a rent agreed upon by
Landlord and Tenant but, in no event less than the aggregate of the Monthly
Basic Rent, Parking Lot Rent, Storage Rent and Tenant's Percentage Share of the
Operating Costs payable under this Lease during the last full month before the
date of expiration or earlier termination. The month to month tenancy shall be
on the terms and conditions of this Lease except as provided in the preceding
sentence and the Lease clauses concerning extension rights. If Tenant holds over
after the expiration or earlier termination of the Term hereof without the
express written consent of Landlord, Tenant shall become a tenant at sufferance
only, at a rental rate equal to one hundred fifty percent (150%) of the Monthly
Basic Rent, Storage Rent and Parking Lot Rent which would be applicable to the
Premises upon the date of such expiration (subject to adjustment as provided
herein and prorated on a daily basis) for the first (60) days of such holdover,
and two hundred percent (200%) of such aggregate amount thereafter during the
pendency of such holdover, and otherwise subject to the terms, covenants and
conditions herein specified, so far as applicable including, without limitation,
the obligation to pay increased Operating Expenses as provided in Paragraph 5.
Acceptance by Landlord of rent after such expiration or earlier termination
shall not constitute a consent to a holdover hereunder or result in a renewal.
The foregoing provisions of this Paragraph 10 are in addition to and do not
affect Landlord's right of re-entry or any rights of Landlord hereunder or as
otherwise provided by law. If Tenant fails to surrender the Premises upon the
expiration of this Lease despite demand to do so by Landlord, Tenant shall
indemnify and hold Landlord harmless from all loss or liability arising out of
such failure, including without limitation, any claim made by any succeeding
tenant founded on or resulting from such failure to surrender. No provision of
this Paragraph 10 shall be construed as implied consent by Landlord to any
holding over by Tenant. Landlord expressly reserves the right to require Tenant
to surrender possession of the Premises to Landlord as provided in this Lease
upon expiration or other termination of this Lease. The provisions of this
Paragraph 10 shall not be considered to limit or constitute a waiver of any
other rights or remedies of Landlord provided in this Lease or at law.
11. Taxes on Tenant's Property. Tenant shall be liable for and shall pay
before delinquency, taxes levied against any personal property or trade fixtures
placed by Tenant in or about the Premises. If any such taxes on Tenant's
personal property or trade fixtures are levied against Landlord or Landlord's
property or if the assessed value of the Premises is increased by the inclusion
therein of a value placed upon such personal property or trade fixtures of
Tenant and if Landlord, after written notice to Tenant, pays the taxes based
upon such increased assessments, which Landlord shall have the right to do
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regardless of the validity thereof, but only under proper protest if requested
by Tenant, Tenant shall within ten (10) days after receipt of demand repay to
Landlord the taxes levied against Landlord, or the proportion of such taxes
resulting from such increase in the assessment; provided that in any such event,
at Tenant's sole cost and expense, Tenant shall have the right, in the name of
Landlord and with Landlord's full cooperation, to bring suit in any court of
competent jurisdiction to recover the amount of any such taxes so paid under
protest, any amount so recovered to belong to Tenant.
12. Condition of Premises. Other than with respect to the completion of
Landlord's construction obligations set forth in the Work Letter, which shall be
done in a good and workmanlike manner in accordance with all applicable law
(including, without limitation, the Americans With Disabilities Act of 1990) and
in accordance with the provisions of the Work Letter, using materials and
equipment of good quality, Tenant acknowledges that neither Landlord nor any
agent of Landlord has made any representation or warranty of any kind whatsoever
with respect to the Premises or the Building or with respect to the suitability
of either for the conduct of Tenant's business. The acceptance of possession of
the Premises by Tenant after receipt of the Notice, without objection within the
time prescribed for such objection, shall conclusively establish that the
Premises and the Building were at such time in satisfactory condition. Tenant
acknowledges and agrees that Tenant is relying solely upon Tenant's own
inspection of the Premises, and Tenant is not relying on any representation or
warranty from the Landlord regarding the Premises or the Building, except as
specifically set forth in this Lease or the Work Letter, including, without
limitation, any representation or warranty as to the physical condition, design
or layout of the Premises. Notwithstanding the foregoing, as of the Lease
Commencement Date, the heating, ventilating and air conditioning system, and the
electrical, plumbing, sewer, life safety and, if applicable, security systems
(collectively, "BUILDING SYSTEMS") serving Floor Three and Floor Four or Floor
One and Floor Two, as the case may be, shall be in good working order and
repair. In connection with delivery of possession of Floor Three and Floor Four
or Floor One and Floor Two, as the case may be, to Tenant with Landlord's Work
and the Tenant's Improvements having been substantially completed, Tenant,
together with Tenant's Architect and a representative of Landlord and Landlord's
Architect, shall conduct a walk through of the applicable portion of the
Premises and prepare a punch list setting forth a description of any and all of
Landlord's Work and/or Tenant's Improvements remaining to be completed or
defective and requiring repair or replacement as reasonably determined by
Tenant's Architect and Landlord's Architect. Landlord shall, following the
preparation of such punch list, diligently pursue completion or repair of the
punch list items and upon completing or repairing all such punch list items,
Landlord shall be considered to have fulfilled its obligations in connection
with construction of both the Landlord's Work and the Tenant's Improvements.
Landlord shall for a period of thirty (30) days following delivery of possession
of Floor Three and Floor Four or Floor One and Floor Two, as the case may be, to
Tenant, perform any repairs required in connection with the Building Systems so
as to maintain such systems in good working order and repair, provided, however,
that Landlord shall have no obligation to make any repairs in connection with
any portion of the Building Systems damaged by Tenant or any of Tenant's
contractors, employees or agents.
13. Alterations.
13.1 Tenant may, at any time and from time to time during the Term of this
Lease, at its sole cost and expense, make alterations, additions, installations,
substitutions, improvements and decorations (hereinafter collectively called
"CHANGES" and individually, a "CHANGE") in and to the Premises, excluding
structural changes, on the following conditions, and providing such Changes will
not result in a violation of or require a change in the Certificate of Occupancy
applicable to the Premises:
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(a) The outside appearance, character or use of the Building shall
not be affected, and no Changes shall weaken or impair the structural strength
or, in the reasonable opinion of Landlord, lessen the value of the Building or
create the potential for unusual expenses to be incurred upon the removal of
Changes and the restoration of the Premises upon the termination of this Lease.
(b) No part of the Building outside of the Premises shall be
physically affected.
(c) The proper functioning of any of the mechanical, electrical,
sanitary and other service systems or installations of the Building ("SERVICE
FACILITIES") shall not be adversely affected and there shall be no construction
which might interfere with Landlord's free access to the Service Facilities or
interfere with the moving of Landlord's equipment to or from the enclosures
containing the Service Facilities.
(d) In performing the work involved in making such Changes, Tenant
shall be bound by and observe all of the conditions and covenants contained in
this Paragraph 13.
(e) All work shall be done at such times and in such manner as
Landlord from time to time may reasonably designate.
(f) At the date upon which the Term of this Lease shall end, or the
date of any earlier termination of this Lease, Tenant shall remove all Changes
with respect to which Landlord has given notice to Tenant requiring such
removal as provided in Paragraph 13.2 below and restore or repair the Premises
in accordance with the direction of Landlord as described in Paragraph 13.2
below. Such removal and restoration or repair shall be made not later than the
date of expiration of this Lease or thirty (30) days following any earlier
termination of this Lease. If Tenant fails to complete the removal and
restoration or repair, as the case may be, before the expiration of the Term, or
in the case of any earlier termination of this Lease, within thirty (30) days
following the occurrence of such termination, Landlord may complete the removal
and restoration or repair and charge the cost of such to Tenant. At the
expiration or earlier termination of this Lease, Tenant shall, in addition, at
the option of Landlord, be required to remove and restore any Change (including
a Minor Changes, as defined below) with respect to which Tenant has failed to
give notice to Landlord in accordance with the provisions of Paragraph 13.2
below. Any such removal and restoration by Tenant shall be made within thirty
(30) days following the request by Landlord (which request by Landlord in the
case of expiration of this Lease, shall not be given later than thirty (30) days
prior to such expiration and, in the case of earlier termination of this Lease,
shall not be given later than the date of such earlier termination) and Landlord
may complete the removal and restoration of any such Change and charge the cost
to Tenant in the event that Tenant fails to timely complete such removal and
restoration.
13.2 Before proceeding with any Change (exclusive only of changes to
items constituting Tenant's personal property and non-structural Changes not
costing in the aggregate more than Twenty-five Thousand Dollars ($25,000) per
work of improvement and not requiring any building permit or other like permit
from any applicable governmental agency), Tenant shall submit to Landlord plans
and specifications for the work to be done, which shall in all cases require
Landlord's prior written approval which shall not be unreasonably withheld or
delayed. In connection with any nonstructural changes not costing in the
aggregate, more than Twenty-five Thousand Dollars ($25,000) per work of
improvement and not requiring building permit or like permit from any applicable
governmental agency ("MINOR
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CHANGE"), Tenant shall deliver to Landlord at least ten (10) business days prior
to commencement of such Minor Change, a general description of the proposed
Change including a copy of any plans and specifications available. Landlord's
consent shall not be required in connection with any proposed Minor Change
although construction of any such Minor Change by Tenant shall otherwise be
performed in accordance with the provisions of this Paragraph 13. At the time
Tenant requests the consent of Landlord to a proposed Change (other than a Minor
Change) Landlord, in connection with granting any such consent shall advise
Tenant as to whether Landlord will require Tenant upon the expiration of this
Lease or any earlier termination of this Lease to remove such Change and, in the
event that Landlord elects to require such removal, whether Landlord will
require Tenant to (i) restore the Premises to its condition prior to the making
of such Change or, (ii) merely to remove the Change and repair any damages
resulting from such removal. In connection with any Minor Change of which
Landlord receives notice from Tenant, Landlord shall advise Tenant as to whether
Landlord will require removal of such Change at the expiration or earlier
termination of this Lease and in connection with any required removal, as to
whether Landlord will require restoration or merely repair as described above.
In connection with any Change requiring Landlord's approval, Landlord may confer
with consultants in connection with the review of the plans and specifications.
If Landlord or such consultant(s) shall disapprove of any of the Tenant's plans
Tenant shall be advised of the reasons of such disapproval. In any event, Tenant
agrees to pay to Landlord, as additional rent, the reasonable cost of such
consultation and review (but not in excess of $1,000 per request) within twenty
(20) days after receipt of invoices either from Landlord or such consultant(s).
Any Change for which approval has been received shall be performed strictly in
accordance with the approved plans and specifications, and no material
amendments or additions to such plans and specifications shall be made without
the prior written consent of Landlord which shall not be unreasonably withheld
or delayed. Minor Changes shall generally be performed in accordance with the
notice given by Tenant to Landlord.
13.3 If the proposed Change requires approval by or notice to the lessor of
a superior lease or the holder of a mortgage, no Change shall proceed until such
approval has been received, or such notice has been given, as the case may be,
and all applicable conditions and provisions of said superior lease or mortgage
with respect to the proposed Change or alteration have been met or complied with
at Tenant's expense; and Landlord, if it approves the Change, will promptly
request such approval or give such notice, as the case may be.
13.4 Tenant shall submit to Landlord the name and address of each
contractor intended to be used by Tenant in connection with construction of
Changes and Landlord's approval thereof shall not be unreasonably withheld or
delayed. No contractor which is reasonably unacceptable to Landlord shall be
engaged by Tenant. All costs and expenses incurred in Changes shall be timely
paid by Tenant after each billing therefor. If Landlord approves the
construction of specific interior improvements in the Premises by contractors or
mechanics selected by Tenant and approved by Landlord, then Tenant's contractors
shall obtain on behalf of Tenant and at Tenant's sole cost and expense, (i) all
necessary governmental permits and certificates for the commencement and
prosecution of Tenant's Changes and for final approval thereof upon completion,
and (ii) at Landlord's request, a completion and lien indemnity bond, or other
surety, reasonably satisfactory to Landlord, for the Changes. In the event
Tenant shall request any changes in the work to be performed after the
submission of the plans referred to in this Paragraph 13, such additional
changes shall be subject to the same approvals and notices as the changes
initially submitted by Tenant.
13.5 All Changes and the performance thereof shall at all times comply with
(i) all laws, rules, orders, ordinances, directions, regulations and
requirements of all governmental authorities, agencies
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offices, departments, bureaus and boards having jurisdiction thereof, (ii) all
rules, orders, directions, regulations and requirements of the Pacific Fire
Rating Bureau, or of nay similar insurance body or bodies, and (iii) all
reasonable rules and regulations of Landlord, and Tenant shall cause Changes to
be performed in compliance therewith and in good and first class workmanlike
manner, using materials and equipment at least equal in quality and class to
the existing improvements and installations of the Building. Changes shall be
performed in such manner as not to delay or impose any additional expense upon
Landlord in construction, maintenance or operation of the Building, and shall
be performed by contractors or mechanics approved by Landlord and submitted to
Tenant pursuant to this Paragraph, who shall coordinate their work in
cooperation with any other work being performed with respect to the Building.
Throughout the performance of Changes, Tenant at its expense, shall carry, or
cause to be carried, workmen's compensation insurance in statutory limits, and
general liability insurance for any occurrence in or about the Building, of
which Landlord and its managing agent shall be named as parties insured, in
such limits as Landlord may reasonably prescribe, with insurers, reasonably
satisfactory to Landlord all in compliance with Subparagraph 20.2.
Notwithstanding any provision of this Lease to the contrary, in no event shall
Landlord be required to undertake any alteration or any improvements of any
kind whatsoever in connection with the Premises or the Building as a result of
or in connection with any Changes being made by Tenant and specifically, but
without limitation, Landlord shall not be required to make any improvements or
alteration of any kind whatsoever in order to comply with any applicable laws,
orders, ordinances, regulations or building codes which may be required in
connection with Changes being made by Tenant.
13.6 Tenant further covenants and agrees that any mechanic's lien filed
against the Premises or against the Building for work claimed to have been done
for, or materials claimed to have been furnished to Tenant, will be discharged
by Tenant, by bond or otherwise, within twenty (20) days after the receipt of
notice of filing thereof, at the cost and expense of Tenant. All alterations,
decorations, additions or improvements upon the Premises, made by either party,
including (without limiting the generality of the foregoing) all wall covering,
built-in cabinet work, paneling and the like, shall, unless Landlord elects
otherwise, at the time set forth in Paragraph 13.1(f) above, become the
property of Landlord, and shall remain upon, and be surrendered with the
Premises, as a part thereof, at the end of the Term hereof. Notwithstanding
any provision to the contrary contained in this Paragraph 13.6, Tenant shall
not be required to remove or restore any Changes which Landlord agreed in
accordance with the provisions of Subparagraph 13.1(f) need not be removed or
restored. In no event shall Tenant be obligated to remove the Landlord's work
or the Tenant's Improvements upon the expiration or earlier termination of this
Lease.
13.7 All articles of personal property and all business and trade
fixtures, machinery and equipment, furniture and movable partitions owned by
Tenant or installed by Tenant at its expense in the Premises shall be and
remain the property of Tenant and may be removed by Tenant at any time during
the Term provided Tenant is not in default hereunder, and provided that Tenant
shall repair any damage caused by such removal. If Tenant shall fail to remove
all of its effects from said Premises upon termination of this Lease for any
cause whatsoever, Landlord may, at its option, remove the same in any manner
that Landlord shall choose, and store said effects without liability to Tenant
for loss thereof, and Tenant agrees to pay Landlord within ten (10) days after
receipt of demand any and all expenses incurred in such removal, including
court costs and reasonable attorneys' fees and storage charges on such effects
for any length of time that the same shall be in Landlord's possession or
Landlord may, at its option, without notice, sell said effects, or any of the
same, at private sale and without legal process, for such price as Landlord may
obtain and apply the proceeds of such sale against any amounts due under this
Lease from Tenant to Landlord and against the expense incident to the removal
and sale of said effects.
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13.8 Subject to Landlord's agreement to minimize any disturbance of
Tenant's use of the Premises, Landlord reserves the right at any time and from
time to time without the same constituting an actual or constructive eviction
and without incurring any liability to Tenant therefor or otherwise affecting
Tenant's obligations under this Lease, to make such changes, alterations,
additions, improvements, repairs or replacements in or to the Site or the
Building (including the Premises if required so to do by any law or regulation)
and the fixtures and equipment thereof, as well as in or to the street
entrances, halls, passages and stairways thereof, on ninety (90) days advance
written notice to Tenant, and/or to change the name by which the Building is
commonly known, as Landlord may deem necessary or desirable. Nothing contained
in this Paragraph 13, shall be deemed to relieve Tenant of any duty, obligation
or liability of Tenant with respect to making any repair, replacement or
improvement or complying with any law, order or requirement of any government or
other authority and nothing contained in this Paragraph 13, shall be deemed or
construed to impose upon Landlord any obligation, responsibility or liability
whatsoever, for the care, supervision or repair of the Building or any part
thereof other than as otherwise provided in this Lease. Landlord's exercise of
the foregoing rights shall not materially increase Tenant's obligations nor
diminish Tenant's rights under this Lease, or interfere with Tenant's parking
rights.
13.9 The construction of the improvements to the Premises to be
constructed pursuant to the provisions of the Work Letter attached to this Lease
as Exhibit E shall be governed by the terms of such Work Letter and not by the
provisions of this Paragraph 13.
14. Repairs.
14.1 Subject to the provisions of Paragraph 12, by entry hereunder, Tenant
accepts the Premises as being in good and sanitary order, condition and repair.
Tenant shall, when and if needed, at Tenant's sole cost and expense, maintain
and make all repairs to the Premises and every part thereof, to keep, maintain
and preserve the Premises in first class condition, excepting ordinary wear and
tear, casualties, condemnation and acts of God. Any such maintenance and repairs
shall be performed by Landlord's contractor, or a contractor or contractors
reasonably approved in advance in writing by Landlord. All costs and expenses
incurred in such maintenance and repair shall be paid by Tenant within twenty
(20) days after receipt of billing by Landlord or such contractor or
contractors. Tenant shall upon the expiration or sooner termination of the Term
hereof surrender the Premises to Landlord in the same condition as when
received, reasonable wear and tear, casualties, condemnation, Hazardous
Materials not existing, released or disbursed by Tenant or any of its employees,
agents, contractors or invitees, acts of God and Changes not required to be
removed excepted. Landlord shall have no obligation to alter, remodel, improve,
repair, decorate or paint the Premises or any part thereof and the parties
hereto affirm that Landlord has made no representations to Tenant respecting the
condition of the Premises or the Building except as specifically herein set
forth or in the Tenant's Work Letter. Notwithstanding anything set forth above
in this Paragraph to the contrary, Tenant shall have no obligation to install,
maintain, repair or replace any of the structural elements or systems of the
Building (including, without limitation, the Building Systems, as defined
above), unless such work is required due to Tenant's specific use or misuse of
the Premises. Notwithstanding any provision to the contrary contained in this
Lease, as part of its maintenance and repair obligations, Tenant shall not be
required to construct or pay the cost of (i) complying with any laws existing as
of the Commencement Date, including without limitation, all Hazardous Materials
Laws (as defined below) regarding the presence of Hazardous Materials, unless
the same are stored, used or disposed of by Tenant, its agents, invitees or
employees on, in, under or about the Premises; or (ii) the correction of any
condition existing on the Premises as of the Commencement Date;
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or (iii) the correction of any latent or structural defect in the Premises
during the Term, as it may be extended.
14.2 Anything contained in Subparagraph 14.1 above to the contrary
notwithstanding, Landlord shall repair and maintain the structural portions of
the Building, including the basic plumbing, heating, ventilating, air
conditioning and electrical systems installed or furnished by Landlord, unless
such maintenance and repairs are caused in part in or in whole by the act,
neglect, fault of or omission of any duty by Tenant, its agents, servants,
employees or invitees, in which case Tenant shall pay to Landlord as additional
rent, the reasonable cost of such maintenance and repairs. Landlord shall not be
liable for any failure to make any such repairs, or to perform any maintenance
unless such failure shall persist for an unreasonable time after written notice
of the need of such repairs or maintenance is given by Tenant to Landlord.
Except as provided in Paragraph 21 hereof there shall be no abatement of rent
and no liability of Landlord by reason of any injury to or interference with
Tenant's business arising from the making of any repairs, alterations or
improvements in or to any portion of the Building or the Premises or in or to
fixtures, appurtenances and equipment therein. Tenant hereby waives the
provisions of California Civil Code Sections 1932(1), 1941 and 1942 and of any
similar law, statute or ordinance now or hereafter in effect. Notwithstanding
anything to the contrary contained in this Paragraph 14, Tenant shall maintain
and repair at it sole cost and expense, and with maintenance contractors
approved by Landlord, all non-base building facilities, including lavatory,
shower, toilet, washbasin and kitchen facilities and heating and air
conditioning systems, including all plumbing connected to said facilities or
systems installed by Tenant or on behalf of Tenant (including, without
limitation, the Tenant's Improvements) or existing in the Premises at the time
of delivery of possession of the Premises to Tenant by Landlord exclusive only
of normal wear and tear. The provisions of the immediately preceding sentence
shall not apply to the Building basic heating and air conditioning system or to
the basic plumbing system (excluding lavatory, shower, toilet, washbasin, and
kitchen facilities actually located within the Premises as well as base building
facilities installed by Tenant or at Tenant's request as a part of the Tenant's
Improvements).
15. Liens. Tenant shall not permit any mechanic's, materialmen's or other liens
to be filed against the real property of which the Premises form a part nor
against the Tenant's leasehold interest in the Premises. Landlord shall have the
right at all reasonable times to post and keep posted on the Premises any
notices which it deems necessary for protection from such liens. If any such
liens are filed and Tenant fails to remove such liens within twenty (20) days
after receipt of notice of attachment thereof, Landlord may, without waiving its
rights and remedies based on such breach of Tenant and without releasing Tenant
from any of its obligations, cause such liens to be released by any means it
shall deem proper, including payment in satisfaction of the claim giving rise to
such lien. Tenant shall pay to Landlord at once, upon notice by Landlord, any
sum paid by Landlord to remove such liens, together with interest at the maximum
rate per annum permitted by law from the date of such payment by Landlord.
16. Entry by Landlord. Upon reasonable prior notice, Landlord reserves and shall
at any and all reasonable times (except in the case of emergency, in which case,
Landlord shall have the right for immediate entry without notice) have the right
to enter the Premises for any valid purpose including without limitation to
inspect the same, to supply any service to be provided by Landlord to Tenant
hereunder, to submit said Premises to prospective purchasers or
mortgagors/lenders or, during the last nine (9) months of the Term of this
Lease, to prospective tenants, to post notices of nonresponsibility, to alter,
improve or repair the Premises or any other portion of the Building, all without
being deemed guilty of any eviction of Tenant and without abatement of rent, and
may, in order to carry out such purposes, erect scaffolding and other necessary
structures where reasonably required by the character of the work to be
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performed, provided that the business of Tenant shall be interfered with as
little as is reasonably practicable. Notwithstanding any provision to the
contrary contained in this Lease, any entry by Landlord or Landlord's agents
shall not impair Tenant's operations more than reasonably necessary, and Tenant
shall have the right to have an employee accompany landlord and/or its agents
at all times that Landlord and/or its agents are present on the Premises except
in the case of an emergency in which event Landlord shall be entitled to enter
the Premises regardless of whether an employee is available to accompany
Landlord. Tenant hereby waives any claim for damages for any injury or
inconvenience to or interference with Tenant's business, any loss of occupancy
or quiet enjoyment of the Premises, and any other loss occasioned thereby
except to the extent caused by the gross negligence or willful misconduct of
Landlord, its agents, employees or contractors. For each of the aforesaid
purposes, Landlord shall at all times have and retain a key with which to
unlock all of the doors in, upon and about the Premises excluding Tenant's
vaults, safes, and security areas, and Landlord shall have the means which
Landlord may deem proper to open said doors in an emergency in order to obtain
entry to the premises, and any entry to the Premises obtained by Landlord by
any of said means, or otherwise, shall not under any circumstances be construed
or deemed to be a forcible or unlawful entry into, or a detainer of, the
Premises, or an eviction of Tenant from the Premises or any portion thereof,
and any damages caused on account thereof shall be paid by Tenant except to the
extent caused by the gross negligence or willful misconduct of Landlord, its
agents, employees or contractors. It is understood and agreed that no provision
of this Lease shall be construed as obligating Landlord to perform any repairs,
alterations or decorations except as otherwise expressly agreed herein to be
performed by Landlord. Landlord shall attempt in the exercise of its rights
under this Paragraph 16 to minimize any disturbance of Tenant's use and
possession of the Premises and to provide as much notice to Tenant as may be
reasonably possible prior to any such exercise of Landlord's rights under this
Paragraph 16.
17. Utilities and Services. Consistent with the provisions of Paragraph 5.2,
Tenant is directly paying for and obtaining all utilities in connection with
the Premises as well as all janitorial services (including the cost of all
janitorial supplies). Landlord shall not be liable for, and Tenant shall not be
entitled to any abatement or reduction of rent by reason of the unavailability
or partial unavailability of utility service to the Premises. The cost of all
such utility services as being paid directly by Tenant, shall not be considered
to be a part of the Operating Expenses. Tenant hereby waives the provisions of
California Civil Code Section 1932(1) or any other applicable existing or future
law, ordinance or governmental regulation permitting the termination of this
Lease due to the interruption or failure of or inability to provide any
services required to be provided by Landlord hereunder. Landlord shall allow
Tenant access to the Premises on a twenty-four (24) hour per day basis, subject
to events beyond Landlord's reasonable control.
18. Indemnification.
18.1 To the fullest extent permitted by law, and except to the extent
caused by the gross negligence or willful misconduct of Landlord, its agents,
employees or contractors, Tenant hereby agrees to defend, indemnify, protect
and hold Landlord harmless against and from any and all loss, cost, damage or
liability arising in whole or in part from Tenant's use of the Premises or the
conduct of its business or from any activity, work, or thing done, permitted or
suffered by Tenant, it agents, contractors, employees or invitees in or about
the Premises, Building and/or Site, and hereby agrees to further indemnify and
hold harmless Landlord against and from any and all loss, cost, damage or
liability arising in whole or in part from any breach or default in the
performance of any obligation on Tenant's part to be performed under the terms
of this Lease or arising from any act, neglect, fault or omission of Tenant, or
of its agents,
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Lease.
(b) Personal property insurance insuring all equipment, trade
fixtures, inventory, fixtures and personal property located on or in the
Premises for perils covered by the causes of loss -- special form (all risk)
and in addition, coverage for boiler and machinery (if applicable). Such
insurance shall be written on a replacement cost basis in an amount equal to
the full replacement value of the aggregate of the foregoing less any
applicable deductible.
(c) Workers' compensation insurance in accordance with statutory law.
(d) Loss of income and extra expense insurance in such amounts as
will reimburse Tenant for direct or indirect loss of earnings attributable to
all perils commonly insured against by prudent tenants or attributable to
prevention of access to the Premises or to the Building as result of such
perils.
(e) Any other form or forms of insurance as Tenant, Landlord, or
Landlord's mortgagees or ground or primary lessors may reasonably require from
time to time (with additions not to be required more than once in any Lease
Year) in form, in amounts, and for insurance risks against which a prudent
tenant of a comparable size and in a comparable business would protect itself.
20.2 The policies required to be maintained by Tenant shall be with
companies rated AX or better in the most current issue of Best's Insurance
Reports. Insurers shall be licensed to do business in the state in which the
Premises are located and domiciled in the USA. Any deductible amounts under any
insurance policies required hereunder shall not exceed Ten Thousand Dollars
($10,000). Certificates of insurance shall be delivered to Landlord prior to
the Lease Commencement Date and annually thereafter at least thirty (30) days
prior to the expiration date of the old policy. Tenant shall have the right to
provide insurance coverage which it is obligated to carry pursuant to the terms
hereof in a blanket policy, provided such blanket policy expressly affords
coverage to the Premises and to Landlord as required by this Lease. Each
policy of insurance shall provide that Landlord and Landlord's managing agent
(and any mortgagee or lender) are additional insureds and shall provide
notification to Landlord at least thirty (30) days prior to any cancellation or
modification to reduce the insurance coverage.
20.3 During the Term hereof, Landlord shall insure the Building
(excluding any property which Tenant is obligated to insure under
Subparagraph 20.1(b) hereof but including the Landlord's Work and Tenant's
Improvements) against damage with All Risk insurance in the amount of the full
replacement cost of the Building and shall maintain public commercial liability
insurance, all in such amounts and with such deductibles as Landlord considers
appropriate and consistent with the provisions of Paragraph 20.8. Landlord may,
but shall not be obligated to, obtain and carry any other form or forms of
insurance as it or Landlord's mortgagees may determine advisable. Landlord
shall not be required to maintain earthquake coverage. Notwithstanding any
contribution by Tenant to the cost of insurance premiums, as provided herein,
Tenant acknowledges that it has no right to receive any proceeds from any
insurance policies carried by Landlord.
20.4 Tenant will not knowingly keep, use, sell, or offer for sale in, or
upon, the Premises any article which may be prohibited by any insurance policy
periodically in force covering the Building. If Tenant's occupancy or business
in, or on, the Premises, whether or not Landlord has consented to the same,
results in any increase in premiums for the insurance periodically carried by
Landlord with respect to the Building, Tenant shall pay any such increase in
premiums as additional rent within twenty (20) days
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after being billed therefor by Landlord. In determining whether increased
premiums are a result of Tenant's use of the Premises, a schedule issued by the
organization computing the insurance rate on the Building or the Premises
showing the various components of such rate, shall be conclusive evidence of
the several items and charges which make up such rate. Tenant shall promptly
comply with all reasonable requirements of the insurance authority or any
present or future insurer relating to the Premises.
20.5 If any of Landlord's insurance policies shall be canceled or
cancellation shall be threatened or the coverage thereunder reduced or
threatened to be reduced in any way because of the specific use of the Premises
or any part thereof by Tenant or any assignee or sub-tenant of Tenant or by
anyone Tenant permits on the Premises and, if Tenant fails to remedy the
condition giving rise to such cancellation, threatened cancellation, reduction
of coverage, threatened reduction of coverage, increase in premiums, or
threatened increase in premiums, within 72 hours after receipt of notice
thereof, Landlord may, at its option, either terminate this Lease or enter upon
the Premises and attempt to remedy such condition, and Tenant shall promptly
pay the cost thereof to Landlord as additional rent. Landlord shall not be
liable for any damage or injury caused to any property of Tenant or of others
located on the Premises resulting from such entry. If Landlord is unable, or
elects not, to remedy such condition, then Landlord shall have all of the
remedies provided for in this Lease in the event of a default by Tenant.
Notwithstanding the foregoing provisions of this Subparagraph 20.5, if Tenant
fails to remedy as aforesaid, Tenant shall be in default of its obligation
hereunder and Landlord shall have no obligation to remedy such default.
20.6 Landlord and Tenant hereby mutually waive their respective rights of
recovery against each other for any loss of, or damage to, either parties'
property, to the extent that such loss or damage is insured by an insurance
policy required to be in effect at the time of such loss or damage. Each party
shall obtain any special endorsements, if required by its insurer whereby the
insurer waives its rights of subrogation against the other party. The
provisions of this clause shall not apply in those instances in which waiver of
subrogation would cause either party's insurance coverage to be voided or
otherwise made uncollectible.
20.7 In the event Tenant does not purchase the insurance required by this
Lease or keep the same in full force and effect, Landlord may, but shall not be
obligated to, purchase the necessary insurance and pay the premium. The Tenant
shall repay to Landlord, as additional rent the amount so paid promptly upon
demand. In addition, Landlord may recover from Tenant and Tenant agrees to pay,
as additional rent, any and all reasonable expense (including attorneys' fees)
and damages which Landlord may sustain by reason of the failure of Tenant to
obtain and maintain such insurance.
20.8 Landlord shall maintain insurance coverage comparable to insurance
coverage maintained by prudent landlords of buildings in the area in which the
Building is located that are comparable to the Building, and which in any event
includes fire and extended coverage insurance for the Building and commercial
liability coverage.
21. Damage or Destruction.
21.1 In the event that the Premises is damaged by fire or other casualty
which is covered under insurance pursuant to the provisions of the foregoing
paragraph, Landlord shall restore such damage provided that: (i) the
destruction of the Building does not exceed fifty percent (50%) of the then
replacement value of the Building; (ii) insurance proceeds are available
(inclusive of any deductible amounts) to pay one hundred percent (100%) of the
cost of restoration; and (iii) in the reasonable
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judgment of Landlord, the restoration can be completed within three hundred and
sixty-five (365) days after the date of the damage or casualty under the laws
and regulations of the state, federal, county and municipal authorities having
jurisdiction. Landlord shall notify Tenant whether or not the Premises will be
restored under this paragraph within thirty (30) days of the occurrence of the
casualty. The deductible amount of any insurance coverage shall be paid by
Tenant. If such conditions apply so as to require Landlord to restore such
damage pursuant to this paragraph, this Lease shall continue in full force and
effect, unless otherwise agreed in writing by Landlord and Tenant. Tenant shall
be entitled to a proportionate reduction of Monthly Basic Rent, Parking Lot
Rent, Storage Rent and Operating Rent at all times during which Tenant's use of
the Premises is interrupted, such proportionate reduction to be based on the
extent to which the damage and restoration efforts actually interfere with
Tenant's business in the Premises. Tenant's right to a reduction of Rent
hereunder shall be Tenant's sole and exclusive remedy in connection with any
such damage. Notwithstanding the foregoing, if Landlord elects to terminate
this Lease pursuant to this Subparagraph 21.1, if within thirty (30) days after
receipt of Landlord's notice Tenant elects to provide the funds necessary to
make up the shortage (or absence) of insurance proceeds and provides Landlord
with reasonable assurance thereof, Landlord shall restore the Premises as
provided in this Subparagraph provided that the Premises are reasonably subject
to restoration within three hundred and sixty-five (365) days following the
date on which the casualty occurs. Tenant in connection with such election,
shall have the right to exercise the first or second (as applicable) option to
extend the Term provided by Paragraph 2.3 above, provided that Tenant otherwise
meets all requirements necessary for such exercise.
21.2. In the event that the Building is damaged by casualty and Landlord
is not required to restore such damage in accordance with the provisions of the
immediately preceding paragraph, Landlord shall have the option to either (i)
repair or restore such damage, with the Lease continuing in full force and
effect, but Monthly Basic Rent, Parking Lot Rent, Storage Rent and Operating
Rent to be proportionately abated as provided above; or (ii) give notice to
Tenant at any time within thirty (30) days after the occurrence of such damage
terminating this Lease as of a date to be specified in such notice which date
shall not be less than thirty (30) nor more than sixty (60) days after the
date on which such notice of termination is given. In the event of the giving of
such notice of termination, this Lease shall expire and all interest of Tenant
in the Premises shall terminate on the date so specified in such notice and the
rent, reduced by any proportionate reduction in Monthly Basic Rent, Parking Lot
Rent, Storage Rent and Operating Rent as provided for above, shall be paid to
the date of such termination. Notwithstanding the foregoing, if within thirty
(30) days after receipt of Landlord's notice, Tenant elects to advance to
Landlord the funds necessary to make up the shortage (or absence) in insurance
proceeds and provides Landlord with reasonable assurance thereof and the
restoration can be completed in a two hundred seventy (270) day period, as
reasonably determined by Landlord, Landlord shall restore the Premises as
provided in the immediately preceding paragraph. Tenant in connection with any
such election, shall have the right to exercise the first or second (as
applicable) option to extend the Term provided by Paragraph 2.3 above, provided
that Tenant otherwise satisfies all requirements in connection with such
exercise.
21.3 Notwithstanding the foregoing, either Landlord or Tenant may
terminate this Lease if the Building damaged by fire or other casualty (and
Landlord's reasonably estimated cost of restoration of the Premises exceeds ten
percent (10%) of the then replacement value of the Building) and such damage or
casualty occurs during the last twelve (12) months of the Term of this Lease
(or the Term of any renewal option, if applicable) by giving the other notice
thereof at any time within thirty (30) days following the occurrence of such
damage or casualty. Such notice shall specify the date of such termination,
which date shall not be less than thirty (30) nor more than sixty (60) days
following the date on which such notice of
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termination is given. In the event of the giving of such notice of termination,
this Lease shall expire and all interest of Tenant in the Premises shall
terminate on the date so specified in such notice and the Rent shall be paid to
the date of such termination. Notwithstanding the foregoing to the contrary,
Landlord shall not have the right to terminate this Lease if damage or casualty
occurs during the last twelve (12) months of the Term if Tenant timely
exercises its option to extend the Term of this Lease (if any) within thirty
(30) days after the date of such damage or casualty.
21.4 In the event that the destruction to the Premises cannot be restored
as required herein under applicable laws and regulations within two hundred
seventy (270) days of the damage or casualty, notwithstanding the availability
of insurance proceeds, or if Landlord commences the restoration but does not
substantially complete the restoration within three hundred (300) days, in
either case Tenant shall have the right to terminate this Lease by giving the
Landlord notice thereof within thirty (30) days of date of the occurrence of
such casualty, or within thirty (30) days after the end of the three hundred
(300) day period, as applicable, specifying the date of termination which shall
not be less than thirty (30) days nor more than sixty (60) days following the
date on which such notice of termination is given. In the event of the giving
of such notice of termination, this Lease shall expire and all interest of
Tenant in the Premises shall terminate on the date so specified in such notice
and the rent, reduced by any proportionate reduction in Monthly Basic Rent,
Parking Lot Rent, Storage Rent and Operating Rent as provided for above, shall
be paid to the date of such termination.
21.5 Upon any termination of this Lease under any of the provisions of
this Paragraph 21, the parties shall be released thereby without further
obligation to the other from the date possession of the Premises is surrendered
to Landlord except for items which have already accrued and are then unpaid.
21.6 Tenant shall not be released from any of its obligations under this
Lease except to the extent and upon the conditions expressly stated in this
Paragraph 21. Notwithstanding anything to the contrary contained in this
Paragraph 21, should Landlord be delayed or prevented from repairing or
restoring the damaged Premises within three hundred (300) days after the
occurrence of such damage or destruction by reason of acts of God, war,
governmental restrictions, inability to procure the necessary labor or
materials, or other cause beyond the control of Landlord, Landlord shall be
relieved of its obligation to make such repairs or restoration and Tenant shall
be released from its obligations under this Lease as of the end of said three
hundred (300) day period.
21.7 It is hereby understood that if Landlord is obligated to or elects
to repair or restore as herein provided, Landlord shall be obligated to make
repairs or restoration only of those portions of the Building and the Premises
which were originally provided at Landlord's expense (including, without
limitation, Landlord's Work or the Tenant's Improvements) or which were insured
by either party and the proceeds of such insurance have been received by
Landlord, and the repair and restoration of items not provided at Landlord's
expense shall be the obligation of Tenant.
2.18 Tenant hereby waives California Civil Code Sections 1932(2) and
1933(4), providing for termination of hiring upon destruction of the thing
hired and Sections 1941 and 1942, providing for repairs to and of Premises.
22. Eminent Domain.
22.1 In case the whole of the Premises, or such part thereof as shall
substantially interfere with
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Tenant's use and occupancy thereof, shall be taken for any public or
quasi-public purpose by any lawful power or authority by exercise of the right
of appropriation, condemnation or eminent domain, or sold to prevent such
taking, either party shall have the right to terminate this Lease effective as
of the date possession is required to be surrendered to said authority. Tenant
shall not assert any claim against Landlord or the taking authority for any
compensation because of such taking (provided that Tenant may present a separate
claim for Tenant's relocation costs, moving expenses, loss of goodwill, the
unamortized cost of any Changes paid for by Tenant and lost personal property,
so long as such claim does not diminish any award otherwise available to
Landlord), and Landlord shall be entitled to receive the entire amount of any
award without deduction for any estate or interest of Tenant. In the event the
amount of property or the type of estate taken shall not substantially interfere
with the conduct of Tenant's business, Landlord shall be entitled to the entire
amount of the award without deduction for any estate or interest of Tenant. If
this Lease is not so terminated, Landlord shall promptly proceed to restore the
Premises to substantially their same condition prior to such partial taking, and
a proportionate allowance shall be made to Tenant for the rent corresponding to
the time during which, and to the part of the Premises of which, Tenant shall be
so deprived on account of such taking and restoration. Nothing contained in this
Paragraph shall be deemed to give Landlord any interest in any award separately
made to Tenant for the taking of personal property and trade fixtures belonging
to Tenant or for relocation costs incurred by Tenant in relocating Tenant's
business, moving expenses, loss of goodwill and the unamortized cost of any
Changes paid for by Tenant.
22.2 In the event of taking of the Premises or any part thereof for
temporary use, (i) this Lease shall be and remain unaffected thereby and rent
shall not abate, and (ii) Tenant shall be entitled to receive for itself such
portion or portions of any award made for such use with respect to the period
of the taking which is within the Term, provided that if such taking shall
remain in force at the expiration or earlier termination of this Lease, Tenant
shall then pay to Landlord a sum equal to the reasonable cost of performing
Tenant's obligations under Paragraph 14 with respect to surrender of the
Premises and upon such payment shall be excused from such obligations. For
purpose of this Subparagraph 22.2, a temporary taking shall be defined as a
taking for a period of 270 days or less.
22.3 Landlord and Tenant each hereby waive the provisions of
California Code of Civil Procedure section 1265.130 and any other applicable
existing or future law, ordinance or governmental regulation providing for, or
allowing either party to petition the courts of the state of California for, a
termination of this lease upon a partial taking of the Premises and/or the
Building.
23. Bankruptcy. If Tenant shall file a petition in bankruptcy under any
Chapter of federal bankruptcy law as then in effect, or if Tenant be
adjudicated a bankrupt in involuntary bankruptcy proceedings and such
adjudication shall not have been vacated within sixty (60) days from the date
thereof, or if a receiver or trustee be appointed of Tenant's property and the
order appointing such receiver or trustee not be set aside or vacated within
sixty (60) days after the entry thereof, or if Tenant shall assign Tenant's
estate or effects for the benefit of creditors, or if this Lease shall
otherwise by operation of law pass to any person or persons other than Tenant,
then and in any such event Landlord may, if Landlord so elects, with or without
notice of such election and with or without entry or action by Landlord,
forthwith terminate this Lease. Notwithstanding any other provisions of this
Lease, Landlord, in addition to any and all rights and remedies allowed by law
or equity, shall upon such termination be entitled to recover damages in the
amount provided in Subparagraph 24.2 below and neither Tenant nor any person
claiming through or under Tenant or by virtue of any statute or order of any
court shall be entitled to possession of the Premises but shall forthwith quit
and surrender the Premises to Landlord. Nothing herein contained shall
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limit or prejudice the right of Landlord to prove and obtain as damages by
reason of any such termination an amount equal to the maximum allowed by any
statute or rule of law in effect at the time when, and governing the
proceedings in which, such damages are to be proved, whether or not such
amount be greater, equal to, or less than the amount of damages recoverable
under the provisions of this Paragraph 23.
24. Defaults and Remedies.
24.1 The occurrence of any one or more of the following events shall
constitute a default hereunder by Tenant:
(a) The vacation or abandonment of the Premises by Tenant.
Abandonment is herein defined to include, but is not limited, to, any absence by
Tenant from the Premises for ten (10) days or longer while in default of any
provision of this Lease.
(b) The failure by Tenant to make any payment of Basic Rent,
Parking Lot Rent, Storage Rent, Operating Rent, other rent or sums deemed
herein as additional rent, or any other payment required to be made by Tenant
hereunder as and when due, where such failure continues for a period of five
(5) business days after written notice thereof from Landlord to Tenant.
(c) The failure by Tenant to observe or perform any of the
express or implied covenants or provisions of this Lease to be observed or
performed by Tenant, other than as specified in Subparagraph 24.1(a) or 24.1(b)
above, where such failure shall continue for a period of thirty (30) days after
written notice thereof from Landlord to Tenant; provided, however, that any
such notice shall be in lieu of, and not in addition to, any notice required
under California Code of Civil Procedure 1161; provided, further, that if the
nature of Tenant's default is such that more than thirty (30) days are
reasonably required for its cure, then Tenant shall not be deemed to be in
default if Tenant shall commence such cure within said thirty-day period and
thereafter diligently and without interruption prosecute such cure to
completion.
(d) (1) The making by Tenant of any general assignment for the
benefit of creditors; (2) the filing by or against Tenant of a petition to have
Tenant adjudged a bankrupt or a petition for reorganization or arrangement
under any law relating to bankruptcy (unless, in the case of a petition filed
against Tenant, the same is dismissed within sixty (60) days); (3) the
appointment of a trustee or receiver to take possession of substantially all of
Tenant's assets located at the Premises or of Tenant's interest in this Lease,
where possession is not restored to Tenant within sixty (60) days; or (4) the
attachment, execution or other judicial seizure of substantially all of Tenant's
assets located at the Premises or of Tenant's interest in this Lease where such
seizure is not discharged within sixty (60) days.
(e) The failure by Tenant within ten (10) days after receipt
of written demand of Landlord to restore the security deposit by deposit of
additional cash or an additional letter of credit as required pursuant to the
provisions of Paragraph 6.1 of this Lease.
24.2 In the event of any such default by Tenant, in addition to any
other remedies available to Landlord at law or in equity, Landlord shall have
the immediate option to terminate this Lease and all rights of Tenant
hereunder. Upon such termination of Tenant's right to possession of the
Premises, this Lease shall terminate and Landlord shall be entitled to recover
damages from Tenant as provided in California Civil Code Section 1951.2 or any
other applicable existing or future law, ordinance or
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regulation providing for recovery of damages for such breach, including but not
limited to the following:
(a) the worth at the time of award of any unpaid rent which had been
earned at the time of such termination; plus
(b) the worth at the time of award of the amount by which the unpaid rent
which would have been earned after termination until the time of award exceeds
the amount of such rental loss that Tenant proves could have been reasonably
avoided; plus
(c) the worth at the time of award of the amount by which the unpaid rent
for the balance of the Term after the time of award exceeds the amount of such
rental loss that Tenant proves could be reasonably avoided, plus
(d) any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform his obligations
under this Lease or which in the ordinary course of things would be likely to
result therefrom.
As used in Subparagraphs 24.2(a) and 24.2(b) above, the "worth at the time
of award" is computed by allowing interest at the maximum rate permitted by law
per annum. As used in Subparagraph 24.2(c) above, the worth at the time of
award is computed by discounting to present value such amount at the discount
rate of the Federal Reserve Bank of San Francisco at the time of award plus one
percent (1%).
24.3 If a default under this Lease, Landlord shall also have the remedy
described in California Civil Code Section 1951.4 (Landlord may continue this
Lease in effect after Tenant has breached this Lease and abandoned the Premises
and recover rent as it becomes due; provided, however that Tenant as the right
to sublet or assign this Lease, subject only to reasonably limitations). Acts
of maintenance or preservation or efforts to relet the Premises or the
appointment of a receiver upon initiative of Landlord to protect Landlord's
interest under this Lease shall not constitute a termination of Tenant's right
to possession.
24.4 During the continuance of a default beyond applicable cure periods,
Landlord may enter the Premises without terminating this Lease and, upon five
(5) days prior written notice to Tenant, remove all Tenant's personal property,
any Changes and trade fixtures from the Premises and store them at Tenant's
risk and expense. If Landlord removes such property from the Premises and
stores it at Tenant's risk and expense, and if Tenant fails to pay the cost of
such removal and storage after written demand therefor and/or to pay any rent
then due, then after the property has been stored for a period of thirty (30)
days or more Landlord may sell such property at public or private sale, in the
manner and at such times and places as Landlord may sell such property at public
or private sale, in the manner and at such times and places as Landlord deems
commercially reasonably following reasonable notice to Tenant of the time and
place of such sale. The proceeds of any such sale shall be applied first to the
payment of the expenses for removal and storage of the property, the
preparation for and the conducting of such sale, and for reasonable attorneys'
fees and other legal expenses incurred by Landlord in connection therewith; and
the balance shall be applied to any past due amount owing hereunder.
Tenant hereby waives all claims for damages that may be caused by
Landlord's reentering and taking possession of the Premises or removing and
storing Tenant's personal property pursuant to this Paragraph 24, and Tenant
shall hold Landlord harmless from and against any loss, cost or damage
resulting from any such act. No reentry by Landlord shall constitute or be
construed as a forcible entry by
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Landlord.
24.5 All rights, options and remedies of Landlord contained in this Lease
shall be construed and held to be cumulative, and no one of them shall be
exclusive of the other, and Landlord shall have the right to pursue any one or
all of such remedies or any other remedy or relief which may be provided by
law, whether or not stated in this Lease. No waiver of any default of Tenant
hereunder shall be implied from any acceptance by Landlord of any rent or other
payments due hereunder or any omission by Landlord to take any action on
account of such default if such default persists or is repeated, and no express
waiver shall affect defaults other than as specified in said waiver. The
consent or approval or Landlord to or any act by Tenant requiring Landlord's
consent or approval shall not be deemed to waive or render unnecessary
Landlord's consent or approval to or of any subsequent similar acts by Tenant.
24.6 If Landlord is in default of any obligations under this Lease, and
fails to commence to cure within thirty (30) days after receipt of written
notice from Tenant which notice shall specify the nature of Landlord's default,
Tenant shall be entitled to exercise any and all remedies available to Tenant
at law or in equity except to the extent expressly waived by Tenant pursuant to
this Lease.
25. Assignment and Subletting. Tenant shall not voluntarily assign or encumber
its interest in this Lease or in the Premises, or sublease all or any part of
the Premises, or allow any other person or entity to occupy or use all or any
part of the Premises, without first obtaining Landlord's prior written consent,
which consent shall not be unreasonably withheld or delayed. Any assignment,
encumbrance or sublease without Landlord's prior written consent shall be
voidable, at Landlord's election, and shall constitute a default. If Tenant is
a partnership, a withdrawal or change, voluntary, involuntary or by operation
of law of any partner, or the dissolution of the partnership, shall be deemed a
voluntary assignment. If Tenant consists of more than one person, a purported
assignment, voluntary or involuntary or by operation of law from one person to
the other shall be deemed a voluntary assignment. If Tenant is a nonpublic
corporation, any dissolution of Tenant, or sale or other transfer of a
controlling percentage of the capital stock of Tenant, or the sale of at least
seventy percent (70%) of the value of the assets of Tenant shall be deemed a
voluntary assignment. If Tenant is a publicly traded corporation, any sale or
other transfer of a controlling percentage of the capital stock of Tenant in
one transaction or a series of related transactions to one person or entity or
two or more affiliated entities and/or persons shall be deemed a voluntary
assignment which requires Landlord's consent. Except as set forth in the
sentence immediately above, the transfer of publicly traded shares of Tenant,
whether or not in the aggregate constituting a transfer of a controlling
percentage of the capital stock of Tenant, shall not constitute a voluntary
assignment. No consent to any assignment, encumbrance, or sublease shall
constitute a further waiver of the provisions of this Paragraph. No later than
thirty (30) days prior to the effective date of the proposed assignment or
sublease, Tenant shall notify Landlord in writing of Tenant's intent to assign,
encumber, or sublease, the name of the proposed assignee or sublessee,
information concerning the financial responsibility of the proposed assignee or
sublessee and the terms of the proposed assignment or subletting, and Landlord
shall, within fifteen (15) days of receipt of such written notice as well as
any additional information requested by Landlord concerning the proposed
assignee's or sublessee's financial responsibility, elect one of the following:
(i) Consent to such proposed assignment, encumbrance or sublease;
(ii) Refuse such consent, which refusal shall be on reasonable
grounds, including but not limited to those matters set forth hereinbelow;
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(iii) In the case of an assignment, elect to terminate this
Lease. In the case of a sublease elect to terminate this Lease with respect to
that portion of the Premises being requested for sublease consideration, but
only in the event that a request to sublet would have the result of in excess
of fifty percent (50%) of the rentable square feet of the Premises being
subject to sublease at any time during the Term. In the event that Landlord
elects to terminate the Lease by reason of a proposed assignment or by reason
of a proposed sublease as described immediately above, Landlord shall give
notice of such election ("RECAPTURE NOTICE") to Tenant within fifteen (15) days
after receipt of written notice from Tenant of the proposed assignment or
sublease as well as any additional information requested by Landlord concerning
the proposed assignee's or sublessee's financial responsibility. In the case of
a proposed sublease (and not a proposed assignment), in the event that Landlord
gives a Recapture Notice, Tenant shall be entitled to rescind its proposed
sublease (and thus avoid termination of the Lease) by giving written notice to
Landlord of such rescission within five (5) days following receipt by Tenant of
the Recapture Notice. In the event that Tenant fails to give such notice within
such five (5) days, Tenant shall be considered to have waived its right to give
such rescission notice. The Recapture Notice, if given, shall in addition to
stating Landlord's election to terminate this Lease, state a date of
termination of the Lease which, in no event, shall be earlier than thirty (30)
days following the date on which the Recapture Notice is given no later than 90
days following the date on which the Recapture Notice is given.
Without limiting the other instances in which it may be reasonable for
Landlord to withhold its consent to an assignment or subletting, Landlord and
Tenant acknowledge that it shall be reasonable for Landlord to withhold its
consent in the following instances: (i) if at the time consent is requested or
at any time prior to the granting of consent, Tenant is in default, beyond any
applicable cure period, under this Lease or would be in default under this
Lease but for the pendency of any grace or cure period under Paragraph 24
above; (ii) if the proposed assignee or sublessee is a governmental agency;
(iii) if, in Landlord's reasonable judgment, the use of the Premises by the
proposed assignee or sublessee (1) would be inconsistent with Paragraph 7 of
this Lease, (2) would contemplate any alterations which would lessen the value
of the leasehold improvements in the Premises, (3) would result in more than a
reasonable number of occupants per floor, or (4) would materially require
increased services by Landlord; (iv) if the proposed assignee's or sublessee's
credit, character and business or professional standing does not meet the
commercially reasonable standards of Landlord; (v) the proposed assignee has a
net worth of less than the net worth of Tenant as of the date of this Lease (in
the approximate amount of One Hundred Twenty-Five Million Dollars
[$125,000,000]); or (vi) if Landlord is currently marketing space in the
Building to such proposed assignee or sublessee.
Landlord may require that the rent payable by such assignee or sublessee
be at the then current rental rates for the Premises or comparable premises in
the Building and may require that the assignee remit directly to Landlord on a
monthly basis all monies due to Tenant by said assignee. Payments with respect
to any sublease, so long as the Tenant is not in default hereunder, may be made
directly to Tenant and Tenant shall then promptly pay to Landlord any amount
due Landlord in connection with such sublease. In the event that Landlord shall
consent to any assignment or sublease under the provisions of this Paragraph
25, Tenant shall pay Landlord's reasonable processing costs and attorneys' fees
incurred in giving such consent, not to exceed one thousand dollars ($1,000)
per request for consent. If for any proposed assignment or sublease Tenant
receives rent or other consideration, either initially or over the term of the
assignment or sublease, in excess of the rent and monthly amortization of
Transfer Costs (defined below) called for hereunder, or, in case of the
sublease of a portion of the Premises, in excess of the monthly amortization of
all Transfer Costs and such rent fairly allocable to such portion, after
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appropriate adjustments to assure than all other payments called for hereunder
are taken into account, Tenant shall pay to Landlord as additional rent
hereunder fifty percent (50%) of all of the excess of each such payment of rent
or other consideration received by Tenant promptly after its receipt. As used
herein, "Transfer Costs" shall mean the aggregate of (i) commercially reasonable
brokerage commissions and attorneys' fees incurred by Tenant in negotiating and
documenting such assignment or sublease and (ii) the actual third party costs
incurred by Tenant in connection with constructing improvements to the Premises
directly related to the assignment or sublease subject, however, to a maximum
cost of ten dollars ($10) per rentable square foot. Such Transfer Costs are to
be amortized (without interest) for the purposes of Tenant's recovery of same
from excess consideration, on a straight-line basis over the remaining initial
Term of this Lease as of the effective date of such assignment or subletting.
Landlord's waiver or consent to any assignment or subletting shall not relieve
Tenant from any obligation under this Lease.
Notwithstanding any provision to the contrary of this Paragraph 25,
Tenant, without Landlord's prior written consent, may sublet all or any portion
of the Premises or assign this Lease to (i) a corporation controlling,
controlled by or under common control with Tenant; (ii) a successor corporation
related to Tenant by merger, consolidation or non-bankruptcy reorganization
provided that if Tenant is not the surviving corporation, then the surviving
corporation shall have a minimum net worth as of the date of sublease or
assignment at least equal to that of Tenant immediately prior to completion of
the subject merger, consolidation or reorganization; or (iii) a purchaser of
substantially all of Tenant's assets, provided that immediately following such
purchase, such purchaser shall have a net worth at least equal to that of
Tenant immediately prior to completion of the subject purchase. In connection
with any such assignment or sublease, Tenant shall not be relieved of any
liability or obligations pursuant to this Lease. The entities described in
clauses (i), (ii) and (iii) above shall sometimes be referred to as a
"PERMITTED TRANSFEREE". In connection with any transfer to a Permitted
Transferee, Tenant shall give Landlord at least thirty (30) days prior to
written notice of such intended transfer and shall provide to Landlord such
information and copies of such documents as Landlord may reasonably request in
connection with such proposed transfer. Notwithstanding any provision of this
Lease to the contrary including, without limitation, any provision of this
Paragraph 25, no assignment or sublease of this Lease shall relieve Tenant of
any of its obligations or liability pursuant to this Lease. Landlord
acknowledges that Tenant intends to sublease not more than fifty thousand
square feet of the Premises within the first twelve (12) months of the Term.
26. Quite Enjoyment. Landlord covenants and agrees that, conditioned upon
Tenant paying the rent required under this Lease and paying all other charges
and performing all of the covenants and provisions to be observed and performed
by Tenant under this Lease, and subject to the terms and conditions of this
Lease, Tenant shall and may peaceably and quietly have, hold and enjoy the
Premises in accordance with this Lease.
27. Subordination. Without the necessity of any additional document being
executed by Tenant for the purpose of effecting a subordination, and at the
election of Landlord or any mortgagee with a lien on the Building or any ground
lessor with respect to the Building, this lease shall be subject and
subordinate at all times to: (a) all ground leases or underlying leases which
may now exist or hereafter be executed affecting the Building or the land upon
which the Building is situated or both, and (b) the lien of any mortgage or
deed of trust which may now exist or hereafter be executed in any amount for
which the Building, land, ground leases or underlying leases, or Landlord's
interest or estate in any of said items is specified as security.
Notwithstanding the foregoing, Landlord shall have the right to subordinate or
cause to be subordinated any such ground leases or underlying leases or any such
liens to this lease. In the event that any ground lease or underlying lease
terminates for any reason or any mortgage or deed of trust is
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foreclosed or a conveyance in lieu of foreclosure is made for any reason,
Tenant shall, if requested by the ground lessor, mortgagee or beneficiary, as
applicable, attorn to and become the Tenant of the successor in interest to
Landlord and in such event Tenant's right to possession of the Premises shall
not be disturbed if Tenant is not in default beyond acceptable cure periods and
so long as Tenant shall pay the rent and all other amounts required to be paid
to Landlord pursuant to the terms hereof and observe and perform all of the
provisions of this Lease, unless the Lease is otherwise terminated pursuant to
its terms. Tenant covenants and agrees to execute and deliver, upon demand by
Landlord and in the form reasonably requested by Landlord, any additional
documents evidencing the priority or subordination of this Lease with respect
to any such ground leases or underlying leases or the lien of any such mortgage
or deed of trust. Should Tenant fail to sign and return any such documents
within ten (10) business days of receipt, Tenant shall be in default, and
Landlord may, at Landlord's option, terminate this Lease provided written
notice of such termination is received by Tenant prior to Landlord's receipt of
such documents. In connection with any subordination by Tenant of its leasehold
interest to any future ground lease, or the lien of any mortgage or deed of
trust, Tenant shall be entitled to obtain a non-disturbance agreement in a form
reasonably satisfactory to Tenant providing that Tenant's right to occupancy of
the Premises shall not be disturbed in the event of any termination of the
ground lease or any foreclosure of the lien of the deed of trust or mortgage.
Landlord shall take such action as is reasonable (without cost to Landlord) so
as to cause a non-disturbance agreement to be available to Tenant in connection
with any subordination by Tenant of its leasehold interest. In connection with
the execution of this Lease by Landlord and Tenant, Landlord shall use its best
efforts (without cost to Landlord) to cause a Subordination and Non-Disturbance
Agreement to be made available to Tenant in a form reasonably acceptable to
Tenant within twenty (20) days following the execution and delivery of this
Lease by Landlord and Tenant in connection with any lender or lenders with
respect to any deed of trust currently constituting a lien against the Building
and Site.
28. Estoppel Certificate.
28.1 Within ten (10) business days following receipt of Landlord's
written request, Tenant shall execute and deliver to Landlord a statement, in a
form substantially similar to the form of Exhibit "C" attached hereto,
certifying; (i) the Lease Commencement Date; (ii) the fact that this Lease is
unmodified and in full force and effect (or, if there have been modifications
thereto, that this Lease is in full force and effect, as modified, and stating
the date and nature of such modifications); (iii) the date to which the rent
and other sums payable under this Lease have been paid; (iv) the fact that
there are no current defaults under this Lease by either Landlord or Tenant
except as specified in such statement; and (v) such other matters reasonably
requested by the requesting party. Landlord and Tenant intend that any
statement delivered pursuant to this Paragraph 28 may be relied upon by any
mortgagee, beneficiary, purchaser or prospective purchaser of the Building or
any interest therein.
28.2 Tenant's failure to deliver such statement within such time shall be
conclusive upon Tenant (i) that this Lease is in full force and effect, without
modification except as may be represented by the requesting party, (ii) that
there are no uncured defaults in the requesting party's performance, and (iii)
that not more than one (1) month's rent has been paid in advance.
29. Rules and Regulations. Tenant shall faithfully observe and comply with the
"Rules and Regulations," a copy of which is attached hereto and marked Exhibit
"D", and all reasonable and nondiscriminatory modifications thereof and
additions thereto from time to time put into effect by Landlord that do not
increase any obligations or diminish any rights of Tenant. In the event of any
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conflict between the terms of this Lease and the Rules and Regulations, the
terms of this Lease shall prevail.
30. Conflict of Laws. This Lease shall be governed by and construed pursuant
to the laws of the State of California.
31. Successors and Assigns. Except as otherwise provided in this Lease, all of
the covenants, conditions and provisions of this Lease shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
personal representative, successors and assigns.
32. Surrender of Premises. The voluntary or other surrender of this Lease by
Tenant, or a mutual cancellation thereof, shall not work a merger, and shall,
at the option of Landlord, operate as an assignment to it of any or all
subleases or subtenancies. Upon the expiration or termination of this Lease,
Tenant shall peaceably surrender the Premises and all alterations and additions
thereto broom-clean, in good order, repair and condition, reasonable wear and
tear, casualty, condemnation, acts of God, Hazardous Materials not stored,
used, released or disposed of by Tenant, its agents, employees,invitees or
contractors and Changes with respect to which Landlord has not reserved the
right to require removal excepted. The delivery of keys to any employee of
Landlord or to Landlord's agent or any employee thereof shall not be sufficient
to constitute a termination of this Lease or a surrender of the Premises.
33. Professional Fees.
33.1 In the event that Landlord or Tenant should bring suit for the
possession of the Premises, for the recovery of any sum due under this Lease, or
because of the breach of any provisions of this Lease, or for any other relief
against Tenant or Landlord hereunder, or should either party bring suit against
the other with respect to matters arising from or growing out of this Lease,
then all costs and expenses, including without limitation, its reasonable
professional fees such as appraisers', accountants' and attorneys' fees,
incurred by the prevailing party therein shall be paid by the other party, which
obligation on the part of the other party shall be deemed to have accrued on
the date of the commencement of such action and shall be enforceable whether or
not the action is prosecuted to judgment.
33.2 Should Landlord, without gross negligence or willful misconduct by
Landlord, be named as a defendant in any suit brought against Tenant in
connection with or arising out of Tenant's occupancy hereunder, Tenant shall
pay to Landlord its costs and expenses incurred in such suit, including without
limitation, its actual and reasonable professional fees such as appraiser's,
accountants' and attorneys' fees.
34. Performance by Tenant. All covenants and agreements to be performed by
Tenant under any of the terms of this Lease shall be performed by Tenant at
Tenant's sole cost and expense and without any abatement of rent, except as
expressly set forth in this Lease. Tenant acknowledges that the late payment by
Tenant to Landlord of any sums due under this Lease will cause Landlord to
incur costs not contemplated by this Lease, the exact amount of such cost being
extremely difficult and impractical to fix. Such costs include, without
limitation, processing and accounting charges, and late charges that may be
imposed on Landlord by the terms of any encumbrance and note secured by
any encumbrance covering the Premises or the Building of which the Premises are
a part. Therefore if, following five (5) business days after Landlord has
notified Tenant that such amount has not been received, any monthly installment
of Monthly Basic Rent is not received by Landlord, or if Tenant fails to pay
any other sum of money due hereunder and such failure continues for ten (10)
days after receipt by Tenant of notice thereof from
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Landlord, Tenant shall pay to Landlord, as additional rent, ten percent (10%)
of the overdue amount as a late charge. Such overdue amount shall also bear
interest, as additional rent, at the maximum rate permissible by law
calculated, as appropriate, from the date either (a) the monthly installment of
Monthly Basic Rent, or other amount, is due, or (b) of receipt of said notice,
until the date of payment to Landlord. Landlord's acceptance of any late charge
or interest shall not constitute a waiver of Tenant's default with respect to
the overdue amount or prevent Landlord from exercising any of the other rights
and remedies available to Landlord under this Lease or any law now or hereafter
in effect. Further, in the event such late charge is imposed by Landlord for
three (3) consecutive months for whatever reason, Landlord shall have the
option to require that, beginning with the first payment of rent due following
the imposition of the third consecutive late charge, rent shall no longer be
paid in monthly installments but shall be payable three (3) months in advance.
35. Mortgagee and Senior Lessor Protection. No act or failure to act on the
part of Landlord which would entitle Tenant under the terms of this Lease, or
by law, to be relieved of Tenant's obligations hereunder or to terminate this
Lease, shall result in a release of such obligations or a termination of this
Lease unless (a) Tenant has given notice by registered or certified mail to
Landlord and to any beneficiary of a deed of trust or mortgage covering the
Building and to the lessor under any master or ground lease covering the
Building, the Site or any interest therein whose identity and address shall
have been furnished to Tenant, and (b) Tenant offers such beneficiary,
mortgagee or lessor a reasonable opportunity (but in no event less than thirty
(30) days) to cure the default, including time to obtain possession of the
Premises by power of sale or of judicial foreclosure, if such should prove
necessary to effect a cure. Landlord shall, from time to time, give Tenant
written notice of the identity and address of the beneficiary of any deed of
trust or mortgage covering the Building and/or the lessor under any master or
ground lease.
36. Definition of Landlord. The term "Landlord" as used in this Lease, so far
as covenants or obligations on the part of Landlord are concerned, shall be
limited to mean and include only the owner or owners, at the time in question,
of the fee title to, or a lessee's interest in a ground lease of the Site or
master lease of the Building. In the event of any transfer, assignment or other
conveyance or transfer of any such title or interest, Landlord herein named
(and in case of any subsequent transfers or conveyances, the then grantor)
shall be automatically freed and relieved from and after the date of such
transfer, assignment or conveyance of all liability with respect to the
performance of any covenants or obligations on the part of Landlord contained
in this Lease thereafter to be performed and, without further agreement, the
transferee of such title or interest shall be deemed to have agreed to observe
and perform any and all obligations of Landlord hereunder, during its ownership
of the Premises. Landlord may transfer its interest in the Premises without the
consent of Tenant and such transfer or subsequent transfer shall not be deemed
a violation on Landlord's part of any of the terms and conditions of this Lease.
37. Waiver. The failure of Landlord or Tenant to seek redress for violation
of, or to insist upon strict performance of, any term, covenant or condition of
this Lease or the Rules and Regulations attached hereto as Exhibit "D", shall
not be deemed a waiver of such violation or prevent a subsequent act which
would have originally constituted a violation from having all the force and
effect of an original violation, nor shall the failure of Landlord to enforce
any of said Rules and Regulations against any other tenant of the Building be
deemed a waiver of any such Rule or Regulation, nor shall any custom or
practice which may become established between the parties in the administration
of the terms hereof be deemed a waiver of, or in any way affect, the right of
either party to insist upon the performance by the other in strict accordance
with said terms. The subsequent acceptance or payment of rent hereunder by
Landlord or Tenant shall not be deemed to be a waiver of any preceding breach
by Tenant or Landlord of any term,
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covenant or condition of this Lease, other than the failure of Tenant to pay
the particular rent so accepted, regardless of Landlord's knowledge of such
preceding breach at the time of acceptance of such rent.
38. Identification of Tenant. Unless the provisions of Paragraph 52 herein
below are applicable to this Lease, then if more than one person executes this
Lease as Tenant, (a) each of them is jointly and severally liable for the
keeping, observing and performing of all of the terms, covenants, conditions,
provisions and agreements of this Lease to be kept, observed and performed by
Tenant, and (b) the term "Tenant" as used in this Lease shall mean and include
each of them jointly and severally and the act of or notice from, or notice or
refund to, or the signature of, any one or more of them, with respect to the
tenancy or this Lease, including, but not limited to, any renewal, extension,
expiration, termination or modification of this Lease, shall be binding upon
each and all of the persons executing this Lease as Tenant with the same force
and effect as if each and all of them had so acted or so given or received such
notice or refund or so signed.
39. Year 2000. Notwithstanding any covenant or provision contained in the Lease
to the contrary, Landlord shall have no liability or responsibility whatsoever
to Tenant for (i) any disruption or interruption in Tenant's business, (ii) any
disruption or interruption in Tenant's use or possession of the Premises, or
(iii) any other damage or consequence suffered or experienced by Tenant, arising
from or relating in any way to the malfunction, shut down or other abnormal
behavior of any computer or computer controlled system which provides utilities
or services to the Premises, or controls any systems serving the Premises
(whether such computer is within the control of Landlord or otherwise) resulting
from the inability or failure of any such computer or computer controlled system
to recognize the year 2000, and distinguish said year from the year 1900
(sometimes referred to as the "Y2K problem", or the "failure to be year 2000
compliant"). In connection with the construction of the Landlord's Work and the
Tenant's Improvements, Landlord shall request that the Contractor (as defined in
the Work Letter) take such action as is commercially reasonable so that the
systems being installed are year 2000 compliant.
40. Terms and Headings. The words "Landlord" and "Tenant" as used herein shall
include the plural as well as the singular. Words used in any gender include
other genders. If there be more than one Tenant, i.e., if two or more persons or
entities are jointly referred to in this Lease as "Tenant," the obligations
hereunder imposed upon Tenant shall be joint and several. The Paragraph headings
of this Lease are not a part of this Lease and shall have no effect upon the
construction or interpretation of any part hereof.
41. Examination of Lease. Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of or option for Lease,
and it is not effective as a Lease or otherwise until execution by and delivery
to both Landlord and Tenant.
42. Time. Time is of the essence with respect to the performance of every
provision of this Lease in which time or performance is a factor. For purposes
of this Lease, the term "BUSINESS DAY" shall refer to any day other than a
Saturday, Sunday or a legal holiday for national banks in the location where the
Building is located.
43. Prior Agreement; Amendments. This Lease contains all of the agreements of
the parties hereto with respect to any matter covered or mentioned in this
Lease, and no prior agreement or understanding, oral or written, express or
implied, pertaining to any such matter shall be effective for any purpose. No
provision of this Lease may be amended or added to except by an agreement in
writing signed by the parties hereto or their respective successors in interest.
The parties acknowledge that all prior agreements, representations and
negotiations are deemed superseded by the execution of this Lease to the extent
they
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are not incorporated herein.
44. Severability. Any provision of this Lease which shall prove to be invalid,
void or illegal in no way affects, impairs or invalidates any other provision
hereof, and such other provisions shall remain in full force and effect.
45. Recording. Neither Landlord nor Tenant shall record this Lease nor a short
memorandum thereof without the consent of the other and if such recording
occurs, it shall be at the sole cost and expense of the party requesting the
recording, including any documentary transfer taxes or other expenses related
to such recordation.
46. Limitation on Liability. The obligations of Landlord under this Lease do
not constitute personal obligations of the individual partners, directors,
officers, members or shareholders of Landlord, and Tenant shall not seek
recourse against the individual partners, directors, officers, members or
shareholders of Landlord or any of their personal assets for satisfaction of any
liability in respect to this Lease. In consideration of the benefits accruing
hereunder, Tenant and all successors and assigns covenant and agree that in the
event of any actual or alleged failure, breach or default hereunder by
Landlord, the sole and exclusive remedy shall be against Landlord's interest in
the Building in the rental stream and sales proceeds thereof.
47. Riders. Clauses, plats and riders, if any, signed by Landlord and Tenant
and affixed to this Lease are a part hereof.
48. Signs. Tenant shall not place any sign upon the Premises or the Building
without Landlord's prior written consent which consent in the case of interior
signage within the Building, shall not be unreasonably withheld or delayed and
which consent, in the case of exterior signage with respect to the Building
(except as specifically provided in this Paragraph 48) may be given or withheld
by Landlord in its discretion. Notwithstanding the sentence immediately above,
Tenant shall have the exclusive right to display its identity through signage
on the exterior of the Building without any additional compensation to Landlord
except during the Extended Terms as provided below. All such exterior signage
shall be subject to the approval of Landlord, which approval shall not be
unreasonably withheld or delayed. All signs shall be constructed, erected and
affixed to the Premises at Tenant's sole cost and expense, and Tenant shall be
responsible for the removal of such signage, and the repair of any damage to
the Building caused thereby, at the end of the Term. All signs shall be in full
compliance with all applicable ordinances, statutes and regulations imposed by
all applicable governmental authorities. During the Extended Terms, Landlord
may impose a reasonable signage rental fee, and adjust such fee periodically as
Landlord reasonably determines, based on the then-current rental value for
comparable signage. Tenant's rights to utilize the Building facades for signage
is limited to signage related to the business of Tenant only (and in the event
of an assignment or sublease pursuant to the provisions of this Lease, the
business of such assignee or sublessee). Tenant shall have no right to sublet
the signage space, nor otherwise earn a profit therefrom. Following the full
execution and delivery of this Lease by both Landlord and Tenant, Tenant shall
be entitled to place a banner at the roof line on the exterior facade of the
Building announcing the intended occupancy of the Building by Tenant. The
wording of such banner shall be subject to reasonable review by Landlord. Any
and all publicity or public announcements of any kind with respect to the
execution of this Lease or any other matter relating to the Lease (exclusive of
the banner described immediately above) to be made by Tenant shall be subject
to the prior written consent of Landlord, which consent shall not be
unreasonably withheld or delayed. Following the full execution and delivery of
this Lease by Landlord
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and Tenant, Landlord, at its cost, shall remove any existing signage on the
exterior of the Building.
49. Modification for Lender. If in connection with obtaining construction,
interim or permanent financing for the Building, the lender shall request
reasonable modifications in this Lease as a condition to such financing, Tenant
will not unreasonably withhold, delay or defer its consent thereto, provided
that such modifications do not increase the obligations of Tenant hereunder or
materially adversely affect the leasehold interest hereby created or Tenant's
right hereunder, including Tenant's parking rights.
50. Accord and Satisfaction. No payment by Tenant or receipt by Landlord of
a lesser amount than the rent payment herein stipulated shall be deemed to be
other than on account of the rent, nor shall any endorsement or statement on
any check or any letter accompanying any check or payment as rent be deemed an
accord and satisfaction and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of such rent or pursue any
other remedy provided in this Lease. Tenant agrees that each of the foregoing
covenants and agreements shall be applicable to any covenant or agreement
either expressly contained in this lease or imposed by any statute or at common
law.
51. Financial Statements. At any time during the Term of this Lease, and if
requested by Landlord in connection with a potential sale or financing of the
Building, Tenant shall, upon ten (10) days prior written notice from Landlord,
provide Landlord with a current financial statement and financial statements of
the two (2) years prior to the current financial statement year. Except in
connection with a request by Landlord in connection with a potential sale or
financing, Landlord shall limit its request for financial statements to once
per calendar quarter. Such statements shall be prepared in accordance with
generally accepted accounting principles and, if such is the normal practice of
Tenant, shall be audited by an independent certified public accountant.
Landlord shall use commercially reasonable efforts to protect the
confidentiality of any such statement and to request that any proposed buyer or
lender similarly treat the information contained in such statement as being
confidential in nature, such that such information shall only be disclosed to
the consultants, analysts or counsel as may be reasonably necessary in order to
evaluate a potential purchase of, or loan upon, the Building.
52. Tenant as Corporation. If Tenant executes this Lease as a corporation,
then Tenant and the persons executing this Lease on behalf of Tenant represent
and warrant that the individuals executing this Lease on Tenant's behalf are
duly authorized to execute and deliver this Lease on its behalf in accordance
with a duly adopted resolution of the board of directors of Tenant, a copy of
which is to be delivered to Landlord on execution hereof, and in accordance
with the By-Laws of Tenant and that this Lease is binding upon Tenant in
accordance with its terms.
53. No Partnership or Joint Venture. Nothing in this Lease shall be deemed
to constitute Landlord and Tenant as partners or joint venturers. It is the
express intent of the parties hereto that their relationship with regard to
this Lease be and remain that of landlord and tenant.
54. Rooftop Deck/Rooftop Antennae.
54.1 Subject to Landlord's prior approval of the plans and
specifications, which approval shall not be unreasonably withheld or delayed,
Tenant shall have the right to construct a roof deck on the Building. Any such
improvement to the Building shall be done at Tenant's sole cost, by licensed,
bonded contractors reasonably approved by Landlord, and in strict compliance
with all applicable rules, regulations, ordinances and other requirements of
every nature imposed by any governmental authority.
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with jurisdiction over the Building. Tenant shall obtain all applicable permits
and approvals as may also be required for such construction.
54.2 Subject to Landlord's prior approval, which approval shall not be
unreasonably withheld or delayed, Tenant may install, at Tenant's sole cost, an
antennae or satellite dish on the roof of the Building. Any such improvement to
the Building shall be done at Tenant's sole cost, by licensed, bonded
contractors reasonably approved by Landlord, and in strict compliance with all
applicable rules, regulations, ordinances and other requirements of every
nature imposed by any governmental authority with jurisdiction over the
Building. Tenant shall obtain all applicable permits and approvals as may also
be required for such modifications.
55. Landlord's Representations. Notwithstanding any provision to the contrary
of this Lease, Landlord represents and warrants to Tenant that, to the best of
Landlord's knowledge: (i) the Premises, the Building and the Site as of the
date of this Lease are in compliance in all material respects with all laws
regarding Hazardous Materials ("HAZARDOUS MATERIALS LAWS"). Landlord further
represents and warrants that, to the best of Landlord's knowledge, no
litigation has been filed or threatened, nor are any settlements pending with
any governmental or private party, concerning the actual or alleged presence of
Hazardous Materials in or on the Premises, Building or Site, nor has Landlord
received any written notice of any violation, or any alleged violation, of any
Hazardous Materials Laws, pending claims or pending investigations with respect
to the presence of Hazardous Materials on or in the Premises, Building or Site.
In addition to Landlord's indemnification of Tenant pursuant to the provisions
of Paragraph 7.2(b) above, except to the extent that the Hazardous Material in
question was released, emitted, used, stored, manufactured, transported or
discharged by Tenant or any of its agents, employees, contractors or invitees,
Tenant shall not be responsible for and Tenant is hereby released from any
claim, remediation obligation, investigation obligation, removal obligation,
monetary obligation, liability, cause of action, penalty, attorneys' fees,
costs, expenses or damages owing or alleged to be owing to any third party with
respect to any Hazardous Materials present in or on the Premises, the Building
or the Site, or the soil, ground water or surface water thereof, without regard
to whether the Hazardous Materials were present in or on the Premises, the
Building or the Site as of the Lease Commencement Date or whether the presence
of the Hazardous Materials was caused by any person other than Landlord. In no
event, however, shall the indemnification obligations of Landlord in connection
with the Hazardous Materials be more expansive than the indemnification
obligation of Landlord as set forth in Paragraph 7.2(b) above. Landlord's
representations and warranties under this Paragraph 56 and Landlord's
indemnification obligation under Paragraph 7.2(b) shall survive termination of
this Lease.
56. Arbitration. Any dispute pursuant to the provisions of Paragraph 3.2 which
is not resolved pursuant to such Paragraph shall be finally settled by binding
arbitration in accordance with and under the rules of practice and procedure
for arbitration hearings of Judicial Arbitration and Mediation Services, Inc.
("JAMS"), or its successor in San Francisco, California. The parties may agree
upon a retired judge from the JAMS panel. If they are unable to agree, JAMS
shall provide a list of available judges containing one more judge than there
are parties to the arbitration and each party may strike one. The remaining
judge shall serve as the arbitrator. The arbitrator shall have the authority to
grant injunctive and/or other equitable relief. The arbitrator shall not have
the power to commit errors of law or legal reasoning and the appropriate
court shall have the authority to review the award for errors of fact, law or
legal reasoning. The award may also be vacated or corrected pursuant to the
California Code of Civil Procedure for any such error. If and when a demand for
arbitration is made by either party, the parties agree to execute a submission
agreement, provided by JAMS, setting forth the rights of the parties and the
rules and
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procedures to be followed at the arbitration hearing; provided, however, that
(i) the arbitration shall take place in San Francisco, California; (ii) the
arbitrator shall apply the rules of evidence and substantive law of the State
of California; (iii) the arbitrator shall render written findings of fact and
conclusions of law; (iv) the parties shall be entitled to conduct such
pre-hearing discovery as would otherwise be permitted under California law; (v)
the arbitrator shall have the authority to entertain and decide motions before
the arbitration hearing as otherwise would be permitted in a court of law,
including, by way of example, motions to compel discovery and motions for
summary judgment; and (vi) remedies which the arbitrator shall have the
authority to grant shall be limited to the same remedies which could otherwise
be imposed by a court of law. Such arbitration shall be the sole remedy
available to the parties with respect to disputes involving the matters
described in Paragraph 3.2.
57. Other Available Space. Landlord shall give written notice to Tenant at any
time that Landlord (or any affiliate of Landlord) has available for lease,
space in a building controlled by Landlord in the immediately geographical area
surrounding the Building, which space is suitable for occupancy by Tenant as
additional space. In no event, however, shall Landlord be in default pursuant
to this Lease in the event that Landlord fails to give any such notice to
Tenant and in no event shall this paragraph be construed as granting to Tenant
an option or first right of refusal or any other right of any kind whatsoever
with respect to any such additional space or controlled building.
IN WITNESS WHEREOF, the parties have executed and delivered this Lease on
the day and year first above written.
LANDLORD: TENANT:
Rosenberg SOMA Investments III, LLC, a LookSmart, Ltd., a
Delaware limited liability company Delaware corporation
By: TRC Investors III, LLC, a California
limited liability company, Manager
By: [Signature Illegible]
----------------------------
By: The Rosenberg Company, a Name: [Name Illegible]
California corporation, Manager --------------------------
Its: VP Corp Dev
By: /s/ DOUGLAS C. ROSENBERG ---------------------------
----------------------------
Douglas C. Rosenberg By:
President ----------------------------
Name:
By: /s/ DOUGLAS C. ROSENBERG --------------------------
---------------------------- Its:
Douglas C. Rosenberg ---------------------------
Secretary
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EXHIBIT A
FLOOR PLAN
625 SECOND STREET
FIRST FLOOR
<PAGE> 70
FLOOR PLAN
625 SECOND STREET
SECOND FLOOR
<PAGE> 71
FLOOR PLAN
625 SECOND STREET
THIRD FLOOR
<PAGE> 72
FLOOR PLAN
625 SECOND STREET
FOURTH FLOOR
<PAGE> 73
FLOOR PLAN
625 SECOND STREET
Garage
<PAGE> 74
EXHIBIT B
LANDLORD'S NOTICE OF LEASE TERM DATES
To: LookSmart, Ltd., a Delaware corporation
Date: ________________, 1999
Re: The Office Lease ("Lease") dated March ____, 1999 between LookSmart,
Ltd., a Delaware corporation, ("Tenant"), and Rosenberg SOMA Investments III,
LLC, a Delaware limited liability company, ("Landlord"), concerning that
certain premises (the "Premises") consisting of all four (4) floors of office
space, all of the basement parking garage and basement storage area located in
that certain building (the "Building") commonly known as 625 Second Street, San
Francisco, CA.
In accordance with the Lease, Landlord and Tenant confirm as follows:
1. The Premises and the Building have been delivered to and accepted by
Tenant; Tenant acknowledges that all Tenant Improvements and other Landlord's
Work required under the Lease have been satisfactorily completed.
2. The Lease Commencement Date is _____, 1999; the Lease Expiration Date
is ____, 2009.
3. Tenant's obligation to pay Aggregate Monthly Basic Rent under the
Lease shall commence on the Lease Commencement Date, as specified in Paragraph
2 above.
4. Aggregate Monthly Basic Rent and Operating Rent (when accrued
pursuant to Paragraph 5.3 of the Lease) are due and payable in advance on the
first day of each and every month during the Term of Lease. All payments shall
be made payable to Landlord and
<PAGE> 75
delivered care of ROK Properties, Inc., 501 Second Street, Ste. 214, San
Francisco, CA 94107.
AGREED AND ACCEPTED
LANDLORD: TENANT:
Rosenberg SOMA Investments III, LLC, a LookSmart, Ltd., a
Delaware limited liability company Delaware corporation
By: TRC Investors III, LLC, a California By: ______________________
limited liability company, Manager Name: ____________________
Its: _____________________
By: The Rosenberg Company, a
California corporation, Manager By: ______________________
Name: ____________________
By: ______________________ Its: _____________________
Douglas C. Rosenberg
President
By: ______________________
Douglas C. Rosenberg
Secretary
<PAGE> 76
EXHIBIT C
SAMPLE FORM OF
TENANT ESTOPPEL CERTIFICATE
The undersigned, ____________________________ ("LANDLORD"), with a mailing
address c/o ______________________________________________________________
and _________________________ ("TENANT"), hereby certify to
_____________________________, a _______________________ as follows:
1. Attached hereto is a true, correct and complete copy of that certain
lease dated ________________________ between Landlord and Tenant (the
"LEASE"), which demises premises which are located on the second
(2nd) floor of the Building located at _________________________.
The Lease is now in full force and effect and has not been amended,
modified or supplemented, except as set forth in Paragraph 4 below.
2. The term of the Lease commenced on ___________________________.
3. The term of the Lease shall expire on ________________________.
4. The Lease has: (Initial one)
( ) not been amended, modified, supplemented, extended, renewed or
assigned.
( ) been amended, modified, supplemented, extended, renewed or
assigned by the following described agreements, copies of which
are attached hereto:
_______________________________________________________________
_______________________________________________________________
5. Tenant has accepted, is now in possession of and is now conducting
business in said Premises.
6. Tenant and Landlord acknowledge that the Lease will be assigned to
and that no modification, adjustment, revision or cancellation of the
Lease or amendments thereto shall be effective unless written consent
of is obtained, and that until further notice, payments under the
Lease may continue as heretofore.
7. The amount of Basic Annual Rent is $_______________.
Basic Annual Rent shall be increased based upon operating expense
increases and as follows:
_______________________________________.
8. The amount of security deposits (if any) is $_________________
No other security deposits have been made.
<PAGE> 77
9. Tenant is paying the full lease rental, which has been paid in full
as of the date hereof. No rent under the Lease has been paid for more
than thirty (30) days in advance of its due date.
10. All Work required to be performed by Landlord under the Lease has
been completed and all required contributions by Landlord to Tenant
on account of Tenant Improvements have been received.
11. There are no defaults on the part of the Landlord or Tenant under the
Lease.
12. Tenant has no defense as to its obligations under the Lease and
claims no set-off or counterclaim against Landlord.
13. Tenant has no right to any concessions (rental or otherwise) or
similar compensation in connection with renting the space it
occupies, except as provided in the Lease.
14. The Lease, amended as noted in Item 4 above, represents the entire
agreement between Landlord and Tenant as to this leasing.
All provisions of the Lease and the amendments thereto (if any)
referred to above are hereby ratified.
DATED: ________________________, 19___
TENANT: LANDLORD:
___________________________________, _________________________________,
a __________________________________ a ________________________________
By: ________________________________ By: ______________________________
Name: ______________________________ Name: ____________________________
Its: _______________________________ Its: _____________________________
<PAGE> 78
EXHIBIT D
RULES AND REGULATIONS
1. Subject to Paragraph 48 of the Lease, no sign, placard,
picture, advertisement, name or notice shall be installed or displayed on any
part of the outside or inside of the Building without the prior written consent
of Landlord, which shall not be unreasonably withheld or delayed. Landlord
shall have the right to remove, at Tenant's expense and without notice, any
sign installed or displayed in violation of this rule. All approved signs or
lettering on doors, windows and walls shall be printed, painted, affixed or
inscribed at the expense of Tenant by a person reasonably approved by Landlord,
using materials, style and format reasonably acceptable to Landlord.
2. Landlord shall have the right to approve the window coverings
in all exterior and atrium window offices of the Premises, which approval shall
not be unreasonably withheld or delayed. No awning shall be permitted on any
part of the Premises. Tenant shall not place anything against or near glass
partitions or doors or windows which may appear unsightly from outside the
Premises.
3. Tenant shall not obstruct any sidewalks, halls passages, exits,
entrances, elevators or stairways of the Building in a manner which would
violate any applicable code or ordinance.
4. Landlord will furnish Tenant, free of charge, with 10 keys to
each door lock in the Premises and 90 parking garage entry cards. Landlord may
make a reasonable charge for any additional keys or parking entry cards.
Tenant shall not make or have made additional keys or cards without Landlord's
prior consent. Tenant may install a security system at the Premises at Tenant's
expense, in which event Tenant shall provide Landlord with a key and/or entry
card for purposes of Landlord's entry to the Premises as provided in the Lease.
Tenant, upon the termination of its tenancy, shall deliver to Landlord the keys
for all doors and all parking cards which have been furnished to Tenant, and in
the event of loss of any keys or card keys so furnished, shall pay Landlord
therefor.
5. If Tenant requires telegraphic, telephonic, burglar alarm or
similar services, it shall first obtain, and comply with, Landlord's reasonable
instructions in their installation.
6. No equipment, materials, furniture, packages, supplies,
merchandise or other property will be received in the Building or carried in
the elevators except between such hours and in such elevators as may be
designated by Landlord.
7. Tenant shall not place a load upon any floor of the premises
which
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exceeds the load per square foot which such floor was designed to carry and
which is allowed by law. Landlord shall have the right to prescribe the weight,
size and position of all equipment, materials, furniture or other property
brought into the Building. Heavy objects, if such objects are considered
necessary by Tenant, as reasonably determined by Landlord, shall stand on such
platforms as determined by Landlord to be necessary to properly distribute the
weight. The persons employed to move such equipment in or out of the Building
must be reasonably acceptable to Landlord. Landlord will not be responsible for
loss of, or damage to, any such equipment or other property from any cause, and
all damage done to the Building by maintaining or moving such equipment or
other property shall be repaired at the expense of Tenant.
8. Tenant shall not use or keep in the Premises any kerosene,
gasoline or inflammable or combustible fluid or material other than those
limited quantities necessary for the operation or maintenance of office
equipment. Tenant shall not use or permit to be used in the Premises any foul or
noxious gas or substance, or permit or allow the Premises to be occupied or used
in an unlawful manner by reason of noise, odors or vibrations, nor shall Tenant
bring into or keep in or about the Premises any birds or animals, except animals
assisting disabled persons.
9. Tenant shall not use any method of heating or air conditioning
other than that reasonably approved by Landlord. No space heaters of any type
are to be used within the Premises. Landlord reserves the right to remove space
heaters found during normal inspection of Premises.
10. Heat and air conditioning shall be provided as set forth in the
Lease.
11. Landlord reserves the right, exercisable without notice and
without liability to Tenant, to change the name and street address of the
Building.
12. Landlord reserves the right to exclude from the building between
the hours of 6:00 p.m. and 7:00 a.m. the following day, or such other hours as
may be established from time to time by Landlord, and on Saturdays, Sundays and
legal holidays, any person unless that person is known to the person or
employee in charge of the Building and has a pass or is properly identified.
Tenant shall be responsible for all persons for whom it requests passes and
shall be liable to Landlord for all acts of such persons. Landlord shall not be
liable for damages for any error with regard to the admission to or exclusion
from the Building of any person. Landlord reserves the right to prevent access
to the Building in case of invasion, mob, riot, public excitement or other
commotion by closing the doors or by other appropriate action.
13. Tenant shall close and lock the doors of its Premises and
entirely shut off all water faucets or other water apparatus, and, except with
regard to Tenant's computers and other equipment which requires utilities on a
twenty-four hour basis, all electricity, gas or air outlets before Tenant and
its employees leave the Premises. Tenant shall be responsible for any damage or
injuries sustained by Landlord for noncompliance with this rule.
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14. The toilet rooms, toilets, urinals, wash bowls and 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. The expense of any breakage, stoppage or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose employees or
invitees, shall have caused it.
15. Tenant shall not sell, or permit the sale at retail, of newspapers,
magazines, periodicals, theater tickets or any other goods or merchandise to
the general public in or on the Premises. Tenant shall not use the Premises for
any business or activity other than that specifically provided for in Tenant's
Lease.
16. Tenant shall not mark, drive nails, screw or drill into the
partitions, woodwork or plaster or in any way deface the Premises or any part
thereof, except to install normal wall hangings, and to secure files and
bookcases and other furniture that could fall over. Landlord reserves the right
to direct electricians as to where and how telephone and telegraph wires are to
be introduced to the Premises. Tenant shall not cut or bore holes for wires.
Tenant shall not affix any floor covering to the floor of the Premises in any
manner except as reasonably approved by Landlord. Tenant shall repair any
damage resulting from noncompliance with this rule.
17. Tenant shall not install, maintain or operate upon the Premises any
vending machine without the written consent of Landlord.
18. Landlord reserves the right to exclude or expel from the Building any
person who, in Landlord's reasonable judgment, is intoxicated or under the
influence of liquor or drugs or who is in violation of any of the Rules and
Regulations of the Building.
19. Tenant shall not place in any trash box or receptacle any material
which cannot be disposed of in the ordinary and customary manner of trash and
garbage disposal. All garbage and refuse storage and disposal shall be made in
accordance with directions issued from time to time by Landlord.
20. The Premises shall not be used for the storage of merchandise held
for sale to the general public, or for lodging or for manufacturing of any
kind, nor shall the Premises be used for any improper, immoral or objectionable
purpose. No cooking shall be done or permitted by any tenant on the Premises,
except that use by tenant of Underwriters' Laboratory-approved equipment for
brewing coffee, tea, hot chocolate and similar beverages shall be permitted,
and the use of a microwave oven shall be permitted, provided that such
equipment and use is in accordance with all applicable federal, state, county
and city laws, codes, ordinances, rules and regulations.
21. Except for mail carts and hand trucks, Tenant shall not bring any
vehicles
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or any kind into the Building except the Garage. Tenant shall comply with all
reasonable rules and regulations with respect to the use of the Garage as
Landlord may from time to time deliver to Tenant in writing.
22. Without the written consent of Landlord, Tenant shall not use the
name of the Building in connection with or in promoting or advertising the
business of Tenant except as Tenant's address.
23. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by any governmental agency or reasonably
established by Landlord.
24. Tenant assumes any and all responsibility for protecting its Premises
from theft, robbery and pilferage, which includes keeping doors locked and other
means of entry to the Premises closed.
25. The requirements of Tenant will be attended to only upon appropriate
application to the office of the Building by an authorized individual.
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 of Landlord will admit any person (tenant or otherwise) to any office
without specific instructions from Landlord.
26. Landlord may waive any one or more of these Rules and Regulations for
the benefit of Tenant, but no such waiver by Landlord shall be construed as a
permanent or continuing waiver of such Rules and Regulations in favor of
Tenant, nor prevent Landlord from thereafter enforcing any such Rules and
Regulations against Tenant.
27. These Rules and Regulations are in addition to the terms, covenants,
agreements and conditions of the Lease. In the event these Rules and
Regulations conflict with any provision of the Lease, the Lease shall control.
28. Landlord reserves the right to make such other and reasonable Rules
and Regulations as, in its judgment, may from time to time be needed for safety
and security, for care and cleanliness of the Building and for the preservation
of good order therein, provided such rules and regulations do not materially
increase Tenant's obligation hereunder or diminish Tenant's rights hereunder.
Tenant agrees to abide by all such Rules and Regulations hereinabove stated and
any additional rules and regulations which are adopted.
29. Tenant shall be responsible for the observance of all of the
foregoing rules by Tenant's employees, agents, clients, customers, invitees and
guests.
30. Smoking is prohibited in all enclosed areas of the Building without
limitation. When smoking outside the Building, ash receptacles must be used and
provided by
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the smoker if not provided by Landlord. Smokers must not leave any ashtrays,
smoking material or debris in the area where they have been smoking, except in
ash receptacles.
5
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EXHIBIT E
WORK LETTER
625 SECOND STREET, SAN FRANCISCO, CALIFORNIA
TENANT WORK LETTER
This Tenant Work Letter ("WORK LETTER") is entered into effective May 5,
1999, and shall set forth the terms and conditions controlling the construction
of the Premises. Unless otherwise defined herein, all capitalized terms shall
have the meanings ascribed to them in that certain lease between LookSmart,
Ltd., a Delaware corporation ("TENANT") and Rosenberg SOMA Investments III,
LLC, a Delaware limited liability company ("LANDLORD") dated ____, 1999 (the
"LEASE").
SECTION 1
SELECTION OF CONTRACTOR
1.1 Selection for General Contractor. Tenant acknowledges and agrees that
Landlord shall engage Cannon Constructors ("CONTRACTOR") to act as the general
contractor for construction of all Landlord's Work (as defined below) and the
Tenant's Improvements (as defined below) to be performed to the Building.
Landlord shall enter into separate contracts with Contractor for the
construction of Landlord's Work and the Tenant's Improvements (sometimes
referred to collectively as the "IMPROVEMENT WORK"). The contract between
Landlord and Contractor with respect to the Landlord's Work shall separately
reference and describe the Landlord's Work and the costs and charges therefor,
and the contract for the Tenant's Improvements shall separately reference and
describe the Tenant's Improvements and the costs and charges therefor. Landlord
shall use commercially reasonable efforts to cause the Improvement Work to be
substantially completed with respect to Floor Three and Floor Four not later
than October 15, 1999 and with respect to Floor One and Floor Two not later
than October 22, 1999. It is acknowledged, that substantial completion of the
Tenant's Improvements is dependant, in part, on the timely performance by
Landlord of those matters required of Landlord in connection with construction
of the Tenant's Improvements and on the timely performance by Tenant of those
matters required by Tenant in connection with construction of the Tenant's
Improvements, including without limitation, those certain Tenant Benchmarks as
defined and set forth in Paragraph 5.2 below. Tenant's failure to meet a Tenant
Benchmark shall constitute a Tenant Delay and shall be subject to Paragraph 3.2
and 3.3 of the Lease. For purposes of the Lease and this Work Letter,
"substantial completion" of the Improvement Work shall mean the date on which
all of the following have occurred: (i) Landlord has substantially completed
the Improvement Work with respect to Floor Three and Floor Four or with respect
to Floor One and Floor Two, as the case may be, in accordance with this Work
Letter, as certified by Landlord's Architect (as defined below) subject only to
completion of punch list items and such other items as do not materially affect
the ability of Tenant to occupy and use the Premises for general office
purposes; and (ii) Landlord has obtained all governmental approvals and
occupancy certificates required for the legal occupancy of Floor Three and
Floor Four or Floor One and Floor Two, as the case may be. Upon substantial
completion of the Improvement Work with respect to Floor Three and Floor Four
or with respect to Floor One and Floor Two, as the case may be, Landlord shall
give
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written notice thereof to Tenant. Within three (3) business days after Tenant's
receipt of such written notice, a representative of Tenant, a representative of
Landlord and Tenant's Architect (as defined below) and Landlord's Architect
shall conduct a physical inspection and walk through of the Premises for the
purpose of determining which components of the Improvement Work with respect to
Floor Three and Floor Four or with respect to Floor One and Floor Two, as the
case may be, if any, have not been completed, and which require additional work
or repair. Within three (3) business days thereafter, Tenant's Architect and
Landlord's Architect shall prepare a punch list setting forth such components of
the Improvement Work. Landlord shall thereafter diligently pursue completion
and/or repair of the punch list items. Upon completion of all such punch list
items, Landlord shall be considered to have completely fulfilled its
obligations in connection with the Improvement Work with respect to Floor Three
and Floor Four or Floor One and Floor Two, as the case may be, subject to the
provisions of Paragraph 12 of the Lease. Notwithstanding any provision to the
contrary contained in the Lease or in this Work Letter, Tenant's acceptance of
the Improvement Work or submission of a "punch list" with respect to
Improvement Work shall not be deemed a waiver of Tenant's right to have latent
defects in Improvement Work repaired at no cost to Tenant. Tenant shall give
written notice to Landlord whenever any such defect becomes reasonably apparent
and Landlord shall repair such defect as soon as practicable so long as Tenant
gives such notice to Landlord within one (1) year following substantial
completion of the Improvement Work (as defined in Section 1.1) with respect to
Floor Three and Floor Four or Floor One and Floor Two, as the case may be.
Notwithstanding the above provisions, Landlord shall have no obligation to
repair any defect in the Tenant's Improvements resulting from or relating to
design defects attributable to Tenant's Architect or any one or more of
Tenant's Engineers (as defined below). Subsequent to one (1) year following
substantial completion of the Improvement Work, the repair obligation of
Landlord with respect to latent defects shall be as otherwise set forth in the
Lease. Following such one year period Landlord, upon the request of Tenant
shall assign to Tenant without representation of any kind Landlord's rights, if
any, against Contractor in connection with any latent defects with respect to
construction of the Tenant's Improvements. Landlord, at no cost to Landlord,
shall reasonably cooperate with Tenant in connection with any action commenced
by Tenant against the Contractor with respect to any latent defects in
connection with the Tenant's Improvements. In connection with any assignment of
such rights against Contractor to Tenant, Tenant shall agree to indemnify,
defend and hold Landlord harmless from any and all costs, obligations or
liabilities of any kind whatsoever (including reasonable attorneys' fees)
arising out of or relating to any action taken by Tenant with respect to the
Contractor pursuant to such assignment.
1.2 General Contractor's Contract for Improvements. As a condition of
Contractor's contract with Landlord for the construction of the Tenant's
Improvements (the "CONSTRUCTION CONTRACT"), Contractor shall solicit and employ
commercially reasonable effort to obtain bids reasonably satisfactory to Tenant
for each component of work contemplated by the Construction Drawings (as
defined below) to be performed pursuant to subcontract. Contractor shall
provide Landlord and Tenant with a copy of all such bids related to the
Tenant's Improvements. Contractor shall also provide Landlord and Tenant with
an itemized breakdown of all general conditions proposed under the Construction
Contract
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related to the Tenant's Improvements. All general conditions shall be subject
to Landlord's approval and to Tenant's approval as provided below in this
paragraph. Contractor shall be limited to three and one-half percent (3-1/2%)
of the total cost of construction of the Tenant's Improvements incurred by
Contractor as Contractor's profit in connection with construction of the
Tenant's Improvements. The proposed form of Construction Contract shall set
forth the cost of construction for Tenant's Improvements (either on fixed basis
or on a guaranteed maximum basis) and relate to the construction of the
Tenant's Improvements in accordance with the Construction Drawings. A copy of
the proposed form of Construction Contract shall be delivered by Landlord to
Tenant. Within five (5) business days following delivery by Landlord to Tenant
of (i) a copy of the proposed form of Construction Contract; (ii) a copy of all
bids of subcontractors in connection with the Construction Contract; and (ii)
an itemized breakdown of the general conditions proposed in the Construction
Contract, Tenant shall deliver written approval or disapproval of all such
items to Landlord. If Tenant disapproves any such items, Tenant's notice to
Landlord shall specify the basis for the disapproval. In the event that Tenant
approves all of such items, Landlord shall proceed with construction of the
Tenant's Improvements in accordance with the Construction Contract as so
approved. In the event that Tenant disapproves any such items, Landlord shall
reasonably attempt to satisfy any such objections of Tenant and shall give
Tenant written notice of suggested resolutions which in each case Tenant shall
approve or disapprove in writing within one (1) business day after receipt.
Landlord may elect not to proceed with construction of the Tenant's Improvements
pursuant to the Construction Contract until all objections as raised by Tenant
have been fully satisfied and Tenant has given written approval of the
Construction Contract in full, including without limitation all of the above
described items. In the alternative, Landlord shall be entitled to proceed with
construction of the Tenant's Improvements pursuant to the Construction Contract
even if Tenant's final approval to all components of the Construction Contract
has not yet been obtained provided that Landlord gives written notice to Tenant
of its intent to so proceed and Tenant fails to object to such notice within
two (2) business days following receipt by giving written notice to Landlord of
such objection.
SECTION 2
LANDLORD'S WORK
2.1 Scope of Landlord's Work. The following work and improvements
("LANDLORD'S WORK") shall be specified in construction drawings (and
specifications) prepared by Landlord's Architect ("LANDLORD'S DRAWINGS") and
shall be constructed at Landlord's sole cost. Prior to Landlord's entry into
the Construction Contract for construction of the Tenant's Improvements,
Landlord shall provide Tenant with a copy of Landlord's Drawings. Landlord
shall not be required to enter into the Construction Contract for the
construction of the Tenant's Improvements until and unless Tenant has given
written approval of Landlord's Drawings. The Landlord's Drawings shall set
forth the scope of the Landlord's Work and shall include, but not be limited
to, the improvements set forth below.
2.1.1 Installation of the primary heating, ventilating, and
air-conditioning system ("HVAC") for the Building, stubbed out to each floor,
ready for local distribution.
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2.1.2 Installation of one hour rated electrical closets on each floor
with 480 volt, 3 phase electrical power supply with distribution of 450 amps,
to each floor of the Building as specified in the Construction Drawings.
2.1.3 Installation of life-safety systems as required by applicable
building codes on an unimproved basis (i.e., an unoccupied building), including
gall strobes (to the extent required by applicable building code), sprinkler
systems, emergency exit systems (including required lighting and signage) and
other required fire safety systems.
2.1.4 Installation of the main telephone terminal panel with
appropriately sized services in the telephone/electrical room specified in the
Construction Drawings, and installation of telephone closets on each floor of
the Building, ready for secondary line branching throughout each floor.
2.1.5 Construction of Men's and Women's restrooms on each floor of the
Building, as specified in the Landlord's Drawings, with the exception of the
basement.
2.1.6 Construction of lighted and gated basement parking and installation
of a card key access system.
2.1.7 Installation of two (2) new passenger elevators serving all floors,
as specified in the Landlord's Drawings.
2.1.8 Installation of new or refurbished windows throughout the Building
including new windows to be installed into the south side of the Building.
2.1.9 Performance of all work necessary for the Building to comply with
all applicable seismic regulations, the Americans with Disabilities Act of 1980
(except with respect to those compliances associated exclusively with the
Tenant's Improvements) and all applicable path of travel regulations.
2.1.10 Installation of at least one (1) fiber optic system to a location
in the Garage ready for distribution throughout the Building provided that
Tenant selects Landlord's pre-existing provider in connection with such fibre
optic system.
2.1.11 Sandblasting of substantially all interior brick and wood surfaces
followed by air blasting of such surfaces with clear seal only to be applied to
sand blasted brick.
SECTION 3
TENANT'S IMPROVEMENTS
3.1 Scope of Tenant's Improvements. The physical improvements to the
Premises and the Building (in addition to Landlord's Work) set forth and
described in the Construction
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Drawings shall constitute the "TENANT'S IMPROVEMENTS". For purposes of this Work
Letter, the "TENANT IMPROVEMENT ALLOWANCE ITEMS" shall consist of the following:
(i) all costs incurred in connection with or arising from the Construction
Contract; (ii) all fees and costs of Tenant's Architect and Tenant's Engineers
(as defined below); (iii) all space planning costs (subject to the limitations
of paragraph 3.4); (iv) the cost of Tenant's security system to be installed at
the Premises; (v) Landlord's supervision/construction management fee (as
described in Paragraph 4.3 below); (vi) all costs related to obtaining all
necessary construction and other permits necessary for construction of the
Tenant's Improvements; (vii) all fees and costs associated with the hiring of an
expediter, if any, to assist in obtaining all building and planning department
consents and approvals with respect to the Tenant's Improvements; (viii) the
cost of other items related to the design and construction of the Tenant's
Improvements; and (ix) all other costs and expenses incurred in connection with
the Construction Contract or construction of the Tenant's Improvements. Tenant
shall be responsible for the full amount of all such costs in connection with
the Tenant's Improvements, all of which shall be paid in accordance with the
provisions of this Work Letter. The Tenant Improvement Allowance Items shall
include fifty percent (50%) of the cost of the technology cabling to be
installed within the Premises, which cost Landlord may pay and if paid by
Landlord, Tenant agrees that such technology cabling will remain in the Premises
upon the termination of the Lease. Notwithstanding anything to the contrary
contained in the Lease or this Work Letter, the cost of the Tenant's
Improvements and the Tenant Improvement Allowance Items shall not include (and
Tenant shall have no responsibility for) the following components: (i) costs
attributable to Landlord's Work or improvements installed "off-site" (such as
streets, curbs, gutters, traffic lights, lights for parking and street
lighting); (ii) costs incurred to remove hazardous materials from the Building
unless the presence of such materials was caused by Tenant or its agents,
contractors, employees or invitees in violation of hazardous materials laws (as
such may exist from time to time); (iii) attorneys' fees incurred in connection
with the Construction Contract (or any subcontracts), or attorneys' fees,
experts' fees and other costs of legal and arbitration proceedings to resolve
construction disputes with third parties except for attorney's fees and other
costs incurred in connection with construction disputes relating to or arising
out of decisions made, actions taken or positions taken by Tenant's Architect;
(iv) loan fees, mortgage, brokerage fees, interest and other costs of financing
construction costs; (v) costs incurred as a consequence of a delay by Landlord
or construction defects except for construction defects arising or relating in
whole or in part to services provided or decisions made by Tenant's Architect or
any other consultant or contractor engaged by Tenant; (vi) restoration costs in
excess of insurance proceeds as a consequence of a casualty during construction,
unless the casualty is caused by Tenant, its agents, contractors, employees or
invitees; (vii) costs recovered by Landlord by reason of warranties or
insurance; and (viii) penalties and late charges attributable to the failure to
pay construction costs in accordance with the Construction Contract, except to
the extent such penalties and late charges arise due to delays caused by Tenant,
its agents, contractors, employees or invitees including, without limitation,
Tenant's Architect.
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3.2 Tenant Improvement Allowance. Tenant shall be entitled to a one-time
tenant improvement allowance (the "TENANT IMPROVEMENT ALLOWANCE") in the amount
of Thirty-One and 50/100 Dollars ($31.50) per rentable square foot of office
space within the Premises. For purposes of calculation of the total Tenant
Improvement Allowance, the maximum amount of the Improvement Loan (as defined
below) and Landlord's obligation to advance space planning costs, the rentable
square feet of the Premises shall be 134,847. The Tenant Improvement Allowance
shall be exclusively applied toward the costs of completing the Tenant's
Improvements. Landlord shall be entitled to employ the Tenant's Improvement
Allowance in connection with payment of the Tenant Improvement Allowance Items.
In no event shall Landlord be obligated to make disbursements pursuant to this
Work Letter, or otherwise for the construction of the Tenant's Improvements, in
excess of the Tenant Improvement Allowance, except as provided in Paragraph
3.3. Tenant shall be solely responsible for all costs incurred in constructing
the Tenant's Improvements in excess of the Tenant Improvement Allowance,
whether resulting from cost overruns, changes to the Construction Drawings
requested by Tenant (or made necessary by reason of design or other issues in
connection with the Construction Drawings prepared by Tenant's Architect or
Tenant's Engineers) or otherwise.
3.3 Additional Funds for Tenant's Improvements. Notwithstanding the
limitation on the Tenant Improvement Allowance to be provided by Landlord in
the immediately preceding Paragraph, Tenant may request that Landlord loan
Tenant additional funds (the "IMPROVEMENT LOAN") to be used to complete the
Tenant's Improvements, if reasonably necessary, in the event the Tenant
Improvement Allowance is insufficient to pay in full the cost of the Tenant's
Improvements, taking into account any changes to the Construction Drawings made
by Tenant (which shall be at Tenant's sole cost). In the event that the Tenant
Improvement Allowance is insufficient as described above, Landlord shall loan
to Tenant an additional amount not to exceed Three and 50/100 Dollars ($3.50)
per rentable square foot of office space within the Premises. The obligation of
Landlord to make the Improvement Loan shall be conditioned on (i) exhaustion of
the Tenant Improvement Allowance in connection with Tenant Improvement
Allowance Items, (ii) Tenant contributing an amount equal to the Improvement
Loan ("MATCHING FUNDS") and (iii) the Improvement Loan and Matching Funds being
applied only towards hard construction costs as set forth in the Construction
Contract, fees and costs of Tenant's Architect and Tenant's Engineers and fifty
percent (50%) of the costs of the technology cabling to be installed within the
Premises (provided that such technology cabling remains in the Premises at the
termination of the Lease). If, at the time the Construction Contract is
approved by Tenant, the costs of the Tenant Improvement Allowance Items are
reasonably anticipated to be in excess of the Tenant Improvement Allowance,
then as a condition to Landlord's obligation to execute the Construction
Contract, Tenant shall fund the full amount of the reasonably anticipated
Matching Funds to Landlord as provided below. The amount of the Improvement
Loan shall be evidenced by an installment promissory note (the "NOTE") made by
Tenant in favor of Landlord in a form reasonably acceptable to Landlord and
Tenant. The Note shall provide for interest at the rate of nine percent (9%)
per annum, for a term of ten (10) years commencing as of the Lease Commencement
Date and for equal monthly installment payments of principal and interest due
on the first day of each calendar month, which
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payments shall be sufficient to fully amortize the principal amount of the
Improvement Loan over the ten (10) year term of the Note. In the event that at
the time the Construction Contract is finally approved by Tenant, it is not
anticipated that any amount in excess of the Tenant Improvement Allowance will
be required in connection with the cost of the Tenant Improvements, then to the
extent that excess costs are thereafter incurred, Landlord shall be required to
make the Improvement Loan in the maximum amount as described above, subject
however, to the conditions provided in Clauses (i), (ii) and (iii) above. In
connection with any such excess costs anticipated to be incurred and the
requirement for Matching Funds or additional Matching Funds to be contributed
by Tenant, such funds shall be deposited with Landlord as described below.
Tenant shall solely be responsible for bearing the cost of the Tenant's
Improvements in excess of the Tenant Improvement Allowance and the Improvement
Loan. In the event it becomes reasonably apparent from the Construction
Drawings and Construction Contract that the cost of the Tenant's Improvements
will exceed the Tenant Improvement Allowance, the Improvement Loan and the
Matching Funds, within ten (10) business days following final approval of the
Construction Contract by Tenant, Tenant shall deposit with Landlord (to be held
in an interest bearing account by Landlord) an amount equal to the cost of the
Tenant's Improvements in excess of the Tenant Improvement Allowance, the
Improvement Loan and the Matching Funds as reasonably determined by Landlord.
Tenant shall, in addition, within ten (10) business days following final
approval of the Construction Contract, deposit the Matching Funds with Landlord
to be held in an interest bearing account by Landlord. The amount so deposited
by Tenant ("TENANT'S FUNDS") shall be disbursed and/or employed in accordance
with Paragraph 3.5 below; provided however, that Tenant's Funds shall not be
used or applied towards the cost of completing the Tenant's Improvements until
such time as the Tenant Improvement Allowance has been exhausted in accordance
with the provisions of this Work Letter. In the event that following final
approval of the Construction Contract by Tenant, additional funds are required
by reason of additional costs attributable to change orders or other reasons
approved by Tenant (or Tenant's Architect), which approval shall not be
unreasonably withheld or delayed, Landlord may, thereafter, from time to time
upon written notice to Tenant, require that Tenant deposit additional funds
with Landlord (within ten (10) business days following receipt by Tenant of the
request for an additional deposit) to be held by Landlord in an interest
bearing account as a part of the Tenant's Funds in an amount as reasonably
determined by Landlord equal to such excess amount of costs to be incurred in
connection with construction of the Tenant's Improvements. Any and all interest
accruing on the Tenant's Funds shall accrue for the benefit of Tenant. In the
event that Tenant fails to deposit additional funds with Landlord within ten
(10) business days following receipt by Tenant of the request for an additional
deposit as described above, then Landlord may, at the sole option of Landlord,
but without any requirement to do so, draw down from the cash portion of the
security deposit made by Tenant pursuant to the provisions of Paragraph 6.1 of
the Lease the amount of additional deposit requested by Landlord which Tenant
has failed to timely make. In the event of any such withdrawal by Landlord, the
funds so withdrawn shall be held by Landlord as a portion of the Tenant's Funds
and disbursed by Landlord as otherwise provided herein. Further, in the event
of any draw by Landlord against the cash
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portion of the security deposit, Tenant shall be obligated to restore such
drawn amount to the security deposit within ten (10) days after receipt of
written demand of Landlord requiring such restoration in accordance with the
provisions of Paragraph 6.1 of the Lease. Within ten (10) business days
following completion of construction of the Tenant's Improvements and payment
in full of all costs incurred by Landlord in connection with such
construction, any Tenant's Funds then held by Landlord, together with any
accrued interest then held, shall be disbursed by Landlord to Tenant.
3.4 Cost of Initial Space Planning. In connection with the Tenant's
Improvements, Landlord shall advance the cost of initial space planning for the
Premises up to the maximum amount of Ten Cents ($0.10) per rentable square foot
of office space within the Premises, which amount actually advanced by Landlord
shall be debited against the Tenant Improvement Allowance otherwise available.
3.5 Landlord's Disbursement Process. During the construction of the
Tenant's Improvements, Landlord shall make monthly disbursements of the Tenant
Improvement Allowance (and to the extent necessary, the Improvement Loan, the
Matching Funds and Tenant's Funds) for Tenant Improvement Allowance Items for
the benefit of Tenant and shall authorize the release of monies for the benefit
of Tenant as follows:
3.5.1 Monthly Disbursements. On or before the first day of each
calendar month during the construction of the Tenant's Improvements (or such
other date as Landlord may designate), and before Landlord shall be required to
disburse any funds hereunder, Contractor shall deliver to Landlord: (i) a
request for payment of Contractor (and others as appropriate), approved by
Tenant's Architect (which approval shall not be unreasonably withheld or
delayed), in a form to be provided by Landlord, showing the schedule, by trade,
of percentage of completion of the Tenant's Improvements in the Building,
detailing the portion of the work completed and the portion not completed;
(ii) invoices from Contractor (and others as appropriate), for labor rendered
and materials delivered to the Building; (iii) executed mechanic's lien
releases from Contractor (and all others requesting payment) which shall comply
with the appropriate provisions, as reasonably determined by Landlord, of
California Civil Code Section 3262(d); and (iv) all other information
reasonably requested by Landlord. Tenant's Architect's approval of any request
for payment shall be deemed Tenant's acceptance and approval of the work
furnished and/or the materials supplied as set forth in the subject payment
request. Tenant's Architect and Tenant's Representative (as defined below)
shall approve or disapprove any request for payment within three (3) business
days following receipt of Tenant's Architect of such request and, in connection
with any disapproval of the request, shall specifically state the reason for
disapproval. In connection with any disapproval, Tenant's Architect shall,
thereafter, respond within two (2) business days following receipt by Tenant's
Architect of any revised request for payment. Within five (5) business days
following written approval by Tenant's Architect, Landlord shall deliver a
check made payable to Contractor (or other party as appropriate) in payment of:
(A) amounts so requested by Contractor, as set forth in this Paragraph, less a
retention in accordance with the provisions of the Construction Contract (the
aggregate amount of such retentions to be
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known as the "FINAL RETENTION"), provided that Landlord does not dispute any
request for payment based on non-compliance of any work with the approved
Construction Drawings, or due to any substandard work, or for any other reason.
Landlord's payment of such amounts shall not be deemed Landlord's approval or
acceptance of the work furnished or materials supplied as set forth in the
subject payment request. In addition to the disbursement described immediately
above, Landlord shall be entitled to disburse funds in payment of obligations
incurred by Landlord for Tenant Improvement Allowance Items as Landlord may,
from time to time, deem appropriate. Landlord shall provide to Tenant and
Tenant's Architect, copies of invoices in connection with any such
disbursements within five (5) business days following disbursement. Tenant
shall, in addition, be entitle to submit, from time to time, invoices of
Tenant's Architect and Tenant's Engineers, which invoices shall be approved by
Tenant. Landlord shall pay such invoices as approved by Tenant within thirty
(30) days following receipt by Landlord of approved invoices, but no more often
than once per calendar month.
In no event shall Landlord have any obligation to make disbursements
in excess of the aggregate of; (i) the Tenant Improvement Allowance, (ii) the
Improvement Loan, (iii) the Matching Funds as having been deposited by Tenant
with Landlord, and (iv) the Tenant's Funds as having been deposited by Tenant
with Landlord (exclusive of Matching Funds).
3.5.2 Final Retention. Subject to the provisions of this Work Letter,
a check for the Final Retention payable to Contractor shall be delivered by
Landlord to Contractor following the completion of construction of the Tenant's
Improvements, provided that (i) Contractor delivers to Landlord properly
executed mechanics lien releases in compliance with both California Civil Code
Section 3262(d)(2) and either Section 3262(d)(3) or Section 3262(d)(4), (ii)
Landlord has determined that no substandard work exists which adversely affects
the mechanical, electrical, plumbing, heating, ventilating and air
conditioning, life-safety or other systems of the Building, the structure or
exterior appearance of the Building, and (iii) Tenant's Architect delivers to
Landlord a certificate, in a form reasonably acceptable to Landlord, certifying
that the construction of the Tenant's Improvements in the Building has been
substantially completed.
3.6 Unused Allowance. In the event that there remains any unused portion
of the Tenant Improvement Allowance following disbursements by Landlord in
connection with the Tenant's Improvements, any such amount shall be retained by
Landlord. Tenant shall have no entitlement to any excess of the Tenant
Improvement Allowance not in good faith consumed in the construction of the
Tenant's Improvements.
SECTION 4
CONSTRUCTION DRAWINGS; SUPERVISION OF WORK
4.1 Selection of Architect/Construction Drawings. Tenant hereby selects
Keith Hooks, Hooks Design and Architecture ("TENANT'S ARCHITECT") to prepare
the Construction
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Drawings, and Landlord hereby consents to such selection of Tenant's Architect.
Tenant shall enter into a written contract with Tenant's Architect reasonably
acceptable to Landlord. To the extent required or appropriate, Tenant also shall
select engineering consultants reasonably acceptable to Landlord ("TENANT'S
ENGINEERS") to prepare and/or review plans and drawings relating to the Tenant's
Improvements. The plans and specifications to be prepared by Tenant's Architect
and Tenant's Engineers shall be known collectively as the "CONSTRUCTION
DRAWINGS". In connection with the preparation of the Construction Drawings,
Tenant shall submit to Landlord, the schematic plans ("SCHEMATIC PLANS") prior
to and in connection with the Construction Drawings, which Schematic Plans shall
be subject to the approval of Landlord which approval shall not be unreasonably
withheld or delayed. Following the approval by Landlord of the final Schematic
Plans, the Construction Drawings shall be prepared and a copy delivered to
Landlord. The Construction Drawings shall be subject to Landlord's written
approval, which shall not be unreasonably withheld or delayed. The Construction
Drawings shall be full and complete and sufficient to obtain all necessary
governmental permits and approvals required in connection with the construction
of the Tenant's Improvements. Tenant's Architect shall respond within three (3)
business days upon receipt of any written request of Landlord or Contractor for
clarification or further definition in connection with the Construction
Drawings. Tenant and Tenant's Architect shall verify in the field the actual
dimensions and surface conditions of the Building, and Tenant and Tenant's
Architect shall be solely responsible therefor and shall rely exclusively
thereon. Landlord shall have no responsibility whatsoever for determination of
the dimensions and conditions of the Building, and makes no representations in
connection therewith. Landlord's review of the Construction Drawings as set
forth in this Paragraph 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 by Landlord or its
architect, engineers and consultants (if any), and notwithstanding any advice or
assistance which may be rendered to Tenant by Landlord or Landlord's Architect,
engineers, and consultants (if any), Landlord shall have no liability whatsoever
in connection therewith and shall not be responsible for any omissions or errors
contained in the Construction Drawings. No changes, modifications or alterations
in the Construction Drawings may be made without the prior written consent of
Landlord, which shall not be unreasonably withheld or delayed. Any delay in the
completion of construction of the Tenant's Improvements resulting from any
defect or omission in the Construction Drawings including, without limitation,
the failure of the Construction Drawings to satisfy or to comply with any
applicable law, code or regulations shall constitute a Tenant Delay for purposes
of Paragraph 3.2 of the Lease.
4.2 Permits. Prior to the commencement of construction of the Tenant's
Improvements, Landlord, with the assistance and cooperation of Tenant's
Architect, shall submit the Construction Drawings as approved by Landlord to
the appropriate municipal authorities and Landlord shall obtain all applicable
building permits necessary to allow the Contractor to commence and fully
complete the construction of the Tenant's Improvements
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(the "PERMITS"). Tenant shall reasonably cooperate with Landlord in taking such
action as may be reasonably required so as to enable Landlord to obtain all
such Permits and approvals.
4.3 Landlord's Supervision Fee. In connection with Landlord's review and
supervision of construction of the Tenant's Improvements as provided in this
Work Letter, Landlord has designated Douglas C. Rosenberg ("LANDLORD'S
SUPERVISOR") to serve as its representative and supervisor of the construction
of the Tenant's Improvements and all related matters, and in connection with
such function, Landlord shall be entitled to a supervision fee equal to
Twenty-Five Thousand Dollars ($25,000), which fee shall be payable
incrementally from time to time from the Tenant Improvement Allowance,
Improvement Loan, Matching Funds and Tenant's Funds. The supervision fee shall
be payable at least once calendar month and shall generally be payable on a
basis consistent with the percentage of the total cost for the Tenant's
Improvements then having been incurred as approved by Landlord's Architect in
accordance with Paragraph 3.5.1 above.
SECTION 5
TENANT'S COVENANTS AND BENCHMARKS; LEASE COMMENCEMENT DATE
5.1 Tenant Indemnity. Tenant hereby indemnifies Landlord from any loss,
claims, damages, actions or courses of action (including, without limitation,
reasonable attorney's fees) arising from or relating to the actions of Tenant's
agents, employees or contractors in the Premises or the Building or in the
event Tenant shall conduct additional work to the Premises separate and apart
from the Tenant Improvements prior to substantial completion of the Tenant
Improvements, such as fixture installation or workstation set up, Tenant shall
do so in strict compliance with any and all rules and regulations related
thereto that Contractor or Landlord shall reasonably impose. Tenant shall only
have the right to conduct such activities prior to substantial completion
provided that such activities do not interfere with Landlord's completion of
the Tenant's Improvements.
5.2 Tenant's Benchmarks. The obligations of Tenant in connection with the
Tenant's Improvements include the following (each a "TENANT BENCHMARK" and
collectively, the "TENANT BENCHMARKS") which Tenant Benchmarks, notwithstanding
any provision to the contrary of this Work Letter or the Lease, are to be
completed by the date indicated below:
<TABLE>
<CAPTION>
Date of
Description of Tenant Benchmark Completion
------------------------------- ----------
<S> <C>
(i) Tenant's written approval and delivery to Landlord and the May 17,1999
Contractor of final schematic drawings.
</TABLE>
Page 11
<PAGE> 94
<TABLE>
<S> <C>
(ii) Tenant's written approval and delivery to Landlord and June 7, 1999
the Contractor of final design development drawings and written
identification of long lead architectural items, light fixtures
and other mechanical, electrical and plumbing items (and
written agreement on specifications for each of such items).
(iii) Delivery by Tenant to Landlord of final approval and release 4 business days
of the long lead architectural items described immediately above. following receipt
Landlord will provide to Tenant pricing information and availability by Tenant of the
information in connection with the long lead items ("LONG LEAD Long Lead
SUBMISSION") for purposes of obtaining Tenant's final approval with Submission
respect to all such items.
(iv) Delivery by Tenant to Landlord and the Contractor of complete July 2, 1999
construction drawings and specifications (collectively, the
"CONSTRUCTION DRAWINGS").
(iv) Final written approval by Tenant of the bid pricing of the 4 business days
Tenant's Improvements (and the guaranteed maximum price) as set forth following receipt
in the Construction Drawings which bid pricing shall be set forth in by Tenant of the
a submission by Landlord and the Contractor to Tenant ("PRICING Pricing
SUBMISSION") and authorization to proceed with construction of the Submission
Tenant's Improvements. Tenant may authorize the Contractor to proceed
with portions of the Tenant's Improvements prior to approval of the
Pricing Submission in its entirety, but in any event approval of the
Pricing Submission in its entirety shall be made within the four
business days as provided herein.
</TABLE>
SECTION 6
MISCELLANEOUS
6.1 Early Access. Prior to the anticipated Lease Commencement Date
and at such time as construction of the Improvement Work allows, and as the
status of such construction is appropriate, Landlord shall provide Tenant and
Tenant's consultants and contractors with access to the Premises for the
purpose of installation by Tenant, at its cost (subject to payment of fifty
percent [50%] of such cabling costs as provided above) of Tenant's technology
cabling within the Premises. Landlord shall attempt to provide access to Tenant
at least three (3) weeks prior to the anticipated Lease Commencement Date. In
connection with any such early entry by Tenant, Tenant and its consultants and
contractors shall not interfere with the completion of construction by Landlord
and any delay in completion of the Improvement Work resulting from the early
access by Tenant and its contractors or consultants shall
Page 12
<PAGE> 95
constitute a Tenant Delay for purposes of Section 3.2 of the Lease. In
connection with any early access to the Premises by Tenant, the provisions of
the Lease shall be applicable provided only that the obligation of Tenant to pay
Monthly Basic Rent, Parking Lot Rent and Operating Rent shall not commence until
the Lease Commencement Date. Any and all contractors and consultants acting on
behalf of Tenant in connection with any such early access shall generally follow
the directives of the Contractor in connection with their performance of work
with respect to the Premises so as to facilitate the continuing and orderly
performance by the Contractor of its work.
6.2 Tenant's Representative. Tenant has designated Matt Oliver as its sole
representative with respect to the matters set forth in this Work Letter, who
shall have full authority and responsibility to act on behalf of the Tenant as
required in this Work Letter.
6.3 Landlord's Representative. Landlord has designated Landlord's
Supervisor, as defined above, 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.
6.4 Time of the Essence. Unless otherwise indicated, all references herein
to a "number of days" shall mean and refer to calendar days. If any item
requiring approval is timely disapproved by Landlord or Tenant, the procedure
for preparation of the document and approval thereof shall be repeated until the
document is approved by Landlord or Tenant, as the case may be. Unless otherwise
provided in this Work Letter, Landlord's approval or Tenant's approval of any
submittals required to be approved by the other shall be given or withheld
within three (3) business days after receipt by the approving party of the
submittal. In connection with any disapproved matter, any resubmittal by
Landlord or Tenant, as the case may be, shall be approved or disapproved within
two (2) business days and this procedure shall continue until Landlord's or
Tenant's approval, as the case may be, of any submittal or resubmittal has been
approved. For purposes of this Paragraph 6.3, references to submittals to and
approvals by Tenant, shall be equally applicable to submittals to and approvals
by Tenant's Architect.
6.5 Hazardous Materials. Landlord shall be responsible for the lawful
treatment and/or disposal of all hazardous or toxic materials (as such terms may
be defined from time to time by any governmental authority with jurisdiction)
existing at the Building prior to the Lease Commencement Date which are
disrupted or disturbed in connection with construction of the Improvement Work,
with the exception of any such materials which were introduced to the Building
or at the Site by Tenant or any of Tenant's representatives, agents, contractors
or invitees.
6.6 Landlord's Architect. Landlord hereby designates SMP/SHG Incorporated
("LANDLORD'S ARCHITECT") to act as architect on behalf of Landlord in connection
with this Work Letter and the Lease.
Page 13
<PAGE> 96
6.7 Incorporated into the Lease. For all purposes, this Work Letter shall
be and is hereby deemed a part of the Lease, and to the extent necessary, they
shall together be construed as one and the same document.
IN WITNESS WHEREOF, the parties have executed and delivered this Work
Letter on the day and year first above written.
LANDLORD: TENANT:
Rosenberg SOMA Investments III, LLC, a LookSmart, Ltd., a Delaware
Delaware limited liability company corporation
By: The Rosenberg Company, a
California corporation, Manager
By: /s/ DOUGLAS C. ROSENBERG By: /s/ EDWARD M. O'DEA
---------------------------- --------------------------
Douglas C. Rosenberg, Name: Edward M. O'Dea
President ------------------------
Its: VP Corp Div.
By: /s/ DOUGLAS C. ROSENBERG -------------------------
----------------------------
Douglas C. Rosenberg, By:
Secretary --------------------------
Name:
------------------------
Its:
-------------------------
Page 14
<PAGE> 97
[FLOOR PLAN]
626 SECOND STREET
EXHIBIT B
FIRST FLOOR
<PAGE> 1
EXHIBIT 10.19
OMNIBUS SERVICES AGREEMENT
THIS OMNIBUS SERVICES AGREEMENT (this "Agreement") is entered into as
of February 1, 1999 ("Effective Date") by and between Organic, Inc., with
offices located at 510 Third Street, Suite 540, San Francisco, CA 94107
("ORGANIC") and BLOCKBUSTER INC., with principal offices located at 1201 Elm
Street, Dallas, Texas 75270 ("CUSTOMER").
WHEREAS, ORGANIC provides assistance to companies in developing
e-commerce and internet business solutions for use on the Internet public
computer network, and other related services; and
WHEREAS, CUSTOMER desires to retain ORGANIC to provide such assistance
and services to CUSTOMER in accordance with the terms and conditions set forth
in this Agreement.
NOW, THEREFORE, the parties set forth above hereby agree as follows:
1. DEFINITIONS.
1.1 "Affiliate" shall mean, with respect to an entity, another entity
that controls or is controlled by such first entity; provided that
(a) such other entity is not itself, does not control, and is not
controlled by or under common control with, a competitor of
ORGANIC; and
(b) such other entity is in the entertainment business.
For purposes of this Section, "control" shall mean both:
(x) the ability to control directly or indirectly the direction
and management of the controlled entity; and
(y) the ownership of greater than 30% of the voting equity
interest in the controlled entity.
1.2 "APPLICABLE SPECIFICATIONS" shall mean the designs and
specifications mutually agreed upon in writing by the parties for functionality
of the portions of the Web Site that are Deliverables and/or any other
Deliverable, including updated versions of the Interactive Design Functional
Specifications dated as of July 15, 1999, the Data Components and Interfaces
Diagram dated June 28, 1999, the Redundant Network diagram dated June 28, 1999,
the Physical Systems and Network Diagram dated June 28, 1999, and the Content
Feeds Diagram dated June 28, 1999, which shall be revised by ORGANIC and
provided to Customer no later than the Hard Launch of the Web Site for review
and approval by Customer; together with any user guides or operating manuals for
the portions of the Web Site that are Deliverables and other Deliverables to the
extent such user guides are prepared by ORGANIC and delivered by ORGANIC to
CUSTOMER.
1.
<PAGE> 2
1.3 "Authorized Licensee" shall mean the following:
(a) CUSTOMER;
(b) up to three (3) franchisees of CUSTOMER; provided that such
franchisees have agreed in writing with ORGANIC to be bound by
the terms of Sections 3.1 and 9 of this Agreement;
(c) Affiliates of CUSTOMER.
1.4 "CUSTOMER CONTENT" shall mean marketing collateral, data,
databases, text, audio files, video files, photographs, illustrations, graphics
and other materials: (a) provided or posted on the Web Site by CUSTOMER; or (b)
developed by or on behalf of ORGANIC pursuant to the mutually-agreed
specifications set forth in Statement(s) of Work (as defined). Customer Content
expressly does not include Organic Software, Organic Materials, Third Party
Materials, Developed Software or Developed Materials.
1.5 "DELIVERABLES" shall mean materials to be developed, delivered
and/or implemented by ORGANIC hereunder, including, without limitation, those
elements of the Website developed and implemented by ORGANIC, system
configurations developed and implemented by ORGANIC, Customer Content developed
by Organic, Developed Software, Developed Materials, Documentation developed by
Organic, HTML Code, Organic Materials, Organic Software and Third Party
Materials. The Deliverables expressly do not include materials licensed by,
developed, delivered and/or implemented by CUSTOMER or by CUSTOMER's third-party
licensors or third-party contractors.
1.6 "DEVELOPED MATERIALS" shall mean reports, studies, designs,
specifications, Documentation, manuals, data and other materials (and any
translations, conversions, improvements, enhancements, or modifications to any
of the foregoing) that the parties mutually agree in writing (e.g. in Schedule D
or in a Statement of Work) are "Developed Materials" and are developed or
prepared by ORGANIC for CUSTOMER and in connection with this Agreement and
delivered by ORGANIC to CUSTOMER under this Agreement. The Developed Materials
expressly do not include any Third Party Materials or Customer Content.
1.7 "DEVELOPED SOFTWARE" shall mean any Software that the parties
mutually agree in writing (e.g. in Schedule D or in a Statement of Work) is
"Developed Software" and is developed by ORGANIC for CUSTOMER in connection with
this Agreement and delivered by ORGANIC to CUSTOMER under this Agreement
(excluding HTML Code). The Developed Software expressly does not include any
Third Party Materials.
1.8 "DOCUMENTATION" shall mean user guides, operating manuals,
education materials, product descriptions and specifications, technical manuals,
supporting materials, and other information relating to Deliverables or used in
conjunction with the Services, whether distributed in print, magnetic,
electronic, or video format.
2.
<PAGE> 3
1.9 "HTML CODE" shall mean Hyper Text Markup Language that contains
Customer Content.
1.10 "INDEMNIFIED ITEM" shall mean the Deliverables, ORGANIC
Confidential Information disclosed to CUSTOMER and the intellectual property
rights in or to the foregoing.
1.11 "LAUNCH DATES" shall mean the dates that different versions of the
Web Site become accessible to CUSTOMER's end-users. The Launch Dates shall
consist of a "Soft Launch" on October 30, 1999, containing functionality
addressed in Exhibit A-1, and a "Hard Launch" on November 22, 1999, containing
functionality addressed in Exhibits A-3, A-5 and A-6.
1.12 "ORGANIC MATERIALS" shall mean the pre-existing materials set
forth on Schedule D derivative works thereof and materials that are developed by
ORGANIC and related to the Web Site that the parties mutually agree in writing
(e.g. in a Statement of Work) are not Developed Materials. The Organic Materials
expressly do not include any Developed Materials, Developed Software, Customer
Content, HTML Code, Third Party Posted Content, Third Party Materials or
materials licensed by CUSTOMER from third parties.
1.13 "ORGANIC SOFTWARE" shall mean the pre-existing Software developed
by ORGANIC and related to the Web Site, including, without limitation, the
Software set forth on Schedule D and the Software and Software Changes thereto
that the parties mutually agree in writing (e.g. in a Statement of Work) are not
Developed Software. The Organic Software expressly does not include any
Developed Materials, Developed Software, Third Party Tools, Third Party
Materials, HTML Code or Software licensed by CUSTOMER from third parties.
1.14 "PRODUCTION SPECIFICATIONS" shall mean the specification of the
digitized format in which Customer Content is to be delivered to or formatted by
ORGANIC, as applicable, as set forth in any Statement of Work.
1.15 "RESERVED WORK" shall mean materials and/or Software that are
identified in strict accordance with Section 3.9 of this Agreement as "Reserved
Work" in Schedule D or in the applicable Statement of Work.
1.16 "SERVER USAGE DATA" shall mean server usage data and statistics
related to the Web Site, generated by the Organic Software, in form and
substance to be mutually-agreed upon by the parties.
1.17 "SERVICES" shall mean the services to be provided by ORGANIC under
this Agreement as set forth in Schedule A-1 through Schedule A-6, or any other
document in a substantially similar format as those Schedules that is attached
hereto by written mutual agreement of the parties (any such document may
hereinafter be referred to as a "Statement of Work"), if such document is
identified as a "Statement of Work."
3.
<PAGE> 4
1.17.1 "AUTHORING SERVICES" shall mean the Services, including
consulting, design, authoring, programming, management and set up services, set
forth in the Statement of Work dated August 23, 1999, attached hereto as
Schedule A-1.
1.17.2 "CONTENT MAINTENANCE SERVICES" shall mean the services to
be provided by ORGANIC under this Agreement in connection with the maintenance
of content as set forth in Schedule A-2.
1.17.3 "WEB OPERATIONS SERVICE" shall mean the services to be
provided by ORGANIC under this Agreement in connection with support as set forth
in Schedule A-3.
1.18 "SOFTWARE" shall mean computer programs, together with input and
output formats, source and object codes, program listings, data models, flow
charts, outlines, narrative descriptions, operating instructions and supporting
documentation, and includes tangible embodiments thereof, including all
authorized reproductions. Except as otherwise expressly provided in this
Agreement, Software includes Software Changes.
1.19 "SOFTWARE CHANGES" shall mean any corrections, new versions,
programs enhancements, translations, modifications, updates, new releases and
other changes to Software to the extent the same are provided under this
Agreement.
1.20 "THIRD PARTY MATERIALS" shall mean materials (including Software
but only in such formats as provided by the third-party owner thereof) that: (a)
are incorporated in the Deliverables or are required for the operation of the
Deliverables in the Web Site; (b) are owned by a third party; and (c) are not
licensed from a third party by CUSTOMER. Third Party Materials do not include
materials or Software that are used in conjunction with the Deliverables or the
Web Site but that are not required for the operation of the same (e.g., HTML
editors, image editors, programming language compilers, and other software
tools). Third Party Materials expressly do not include any Third Party Posted
Content.
1.21 "THIRD PARTY POSTED CONTENT" shall mean any data, text, audio
files, video files, graphics or other materials posted to or incorporated into
the Web Site other than by CUSTOMER or ORGANIC.
1.22 "THIRD PARTY TOOLS" shall mean Software (but only in such formats
as provided by the third-party owner thereof) proprietary to a third party, that
are used in conjunction with the Deliverables to achieve the desired
functionality of the Web Site but that are not Third Party Materials.
1.23 "WEB SITE" shall mean the site on the World Wide Web identified in
Schedule C.
2. SERVICES AND OTHER PRINCIPAL OBLIGATIONS.
2.1 SERVICES.
4.
<PAGE> 5
2.1.1 SCHEDULE FOR AND PROVISION OF SERVICES. ORGANIC shall provide
Services and related Deliverables substantially in accordance with the
provisions of the Statement(s) of Work that include such Services. Except as
provided in a Statement of Work, CUSTOMER shall deliver to ORGANIC all Customer
Content selected by CUSTOMER for incorporation into the Web Site on or before
the dates specified in the respective Statement(s) of Work. If any CUSTOMER
failures to deliver such Customer Content in accordance with time schedules or
to timely take any other action required of CUSTOMER by any Services Statement
of Work (including, without limitation, approvals for conversion of Customer
Content pursuant to Section 2.1.2), individually or in the aggregate materially
affect ORGANIC's time or cost to perform Services, there shall be an equitable
adjustment, which the parties shall negotiate in good faith, of the delivery and
fee schedule for provision of those Services.
2.1.2 FORMATTING OF CUSTOMER CONTENT. CUSTOMER shall deliver the
Customer Content to ORGANIC substantially in accordance with the Production
Specifications for Services. In the event CUSTOMER does not so deliver on or
before the applicable delivery date without limiting the provisions of Section
2.1.1, ORGANIC may convert non-complying Customer Content to comply with the
Production Specifications for a fixed conversion rate of two hundred fifty
($250.00) per graphic item; provided that ORGANIC notifies CUSTOMER of such
non-complying Customer Content and obtains CUSTOMER's prior consent to such
conversion.
2.1.3 ACCEPTANCE OF DELIVERABLES. All Deliverables shall be subject
to reasonable acceptance testing by CUSTOMER to confirm that such Deliverables
substantially conform to and operate in accordance with the Applicable
Specifications as they relate to such Deliverable. ORGANIC shall provide to
CUSTOMER all relevant documents, information and assistance reasonably requested
by CUSTOMER to make its evaluation. The schedule and manner of testing may be
set forth in the Statement of Work for the respective Deliverables. In the
absence of any schedule in a Statement of Work, the period for CUSTOMER to test
a Deliverable shall be deemed to be eight (8) weeks. For the avoidance of doubt,
the schedule and manner of acceptance testing need not be labeled "Acceptance"
in the applicable Statement of Work (e.g., they may be referred to as "Quality
Assurance" or "Abbreviated Quality Assurance Cycle"). At the end of the
respective acceptance testing period, CUSTOMER shall provide ORGANIC with
written notice of its acceptance of the Deliverable or of any failure of such
Deliverable substantially to conform to the Applicable Specifications as they
relate to the applicable Deliverable, which notice shall reasonably identify and
describe the nonconformity. ORGANIC and CUSTOMER shall review the notice and
Deliverable and Applicable Specifications as they relate to the applicable
Deliverables, and ORGANIC will correct any non-conformities with the Applicable
Specifications as they relate to the applicable Deliverables and provide
CUSTOMER with a revised Deliverable within a commercially reasonable time frame
(which may be stated in the respective Statement of Work), for testing by
CUSTOMER in accordance with the procedures set forth above. If ORGANIC has not
received a written response from CUSTOMER prior to the end of the respective
acceptance testing period, the Deliverable shall be deemed to be accepted.
5.
<PAGE> 6
2.2 SERVICE LEVELS. CUSTOMER shall be entitled to the remedies set
forth in Schedule E and the respective Statement(s) of Work in connection with
the failure of the Web Site or the Services to conform to the service levels set
forth in the respective Statement(s) of Work.
2.3 ADDITIONAL STATEMENTS OF WORK. In addition to Schedules A-1 through
A-6, other new Statements of Work may be entered into from time to time by
mutual agreement of the parties thereto. Each such Statement of Work, as so
mutually agreed, and each of Schedules A-1 through A-6, is hereby (a)
incorporated by reference into this Agreement and made a part hereof as if fully
set forth in this Agreement and (b) made binding on the parties thereto. Each
Statement of Work shall be deemed to include the following provision, which
provision shall prevail in the event of any conflict with another provision of
the Statement of Work:
"GENERAL. This is a Statement of Work between CUSTOMER and ORGANIC
under, and governed by, the Omnibus Services Agreement by and between
ORGANIC and CUSTOMER dated February 1, 1999 (the "Agreement"). In the
event of any conflict among the Agreement and/or a Change Order
Response and/or this Statement of Work, the order of precedence
established in the Agreement shall control. Any capitalized term used
but not defined herein have the meaning such term would have if used in
the Agreement."
2.4 CHANGE ORDERS. In the event that CUSTOMER wishes to request
change(s) that are individually or collectively material to any Statement of
Work, CUSTOMER shall submit a written change order ("Change Order"), to ORGANIC.
The Change Order shall be substantially in the form of Schedule B. ORGANIC will
use commercially reasonable efforts to, within five (5) business days of receipt
of the Change Order, submit to CUSTOMER any revised fees, delivery schedules and
other information reflecting the impact of the additional or different Services
("Change Order Response"); provided, however, that if the requested change in
Services is so substantial that, in the reasonable judgment of ORGANIC, a Change
Order Response could not, with commercially reasonable efforts, be submitted
within five (5) business days, ORGANIC will provide to CUSTOMER a proposed
schedule for submitting the Change Order Response. CUSTOMER shall accept or
reject the Change Order Response within ten (10) business days of receipt or
such longer or shorter period as the parties agree, and shall be deemed to have
rejected the Change Order Response unless CUSTOMER notifies ORGANIC of
acceptance of the Change Order Response within such period. ORGANIC may continue
work pursuant to the existing Statement of Work, and will not be bound by any
Change Order, until the applicable Change Order Response is accepted in
accordance with this Section 2.4. ORGANIC will use commercially reasonable
efforts to meet rush Change Orders outside the original scope of work and
delivery schedules in a Statement of Work, but such rush Change Orders may be
subject to higher hourly rates than ORGANIC's standard hourly rates to reflect
additional costs incurred by ORGANIC, which higher hourly rates will be stated
in the Change Order Response. ORGANIC will use provide Services substantially in
accordance with the provisions of a Change Order Response accepted in accordance
with the provisions of this Section 2.4. Each such Change Order Response is
hereby (a) incorporated by reference into this Agreement and made a part hereof
as if fully set forth in this Agreement and (b) made binding on the parties
thereto. Each Change Order Response shall be deemed to include the following
6.
<PAGE> 7
provision, which provision shall prevail in the event of any conflict with
another provision of the Change Order Response:
"GENERAL. Once accepted in accordance with Section 2.4 of the Agreement
(as defined), this shall be a Change Order Response under, and governed
by, the Omnibus Services Agreement by and between ORGANIC and CUSTOMER
dated February 1, 1999 (the "Agreement"). In the event of any conflict
among the Agreement and/or this Change Order Response and/or a
Statement of Work, the order of precedence established in the Agreement
shall control. Any capitalized term used but not defined herein have
the meaning such term would have if used in the Agreement. "
2.5 NO HIRING OR SOLICITATION. In no event during the term of this
Agreement or during the one (1) year thereafter shall either party directly or
indirectly solicit employment of an employee or contractor of the other party
who is involved in the performance of this Agreement, without the prior written
consent of the other party. For purposes of the Agreement, general employment
advertising and use of independent employment agencies, shall not constitute
solicitation unless directed at one or more of the other party's employees.
3. PROPRIETARY RIGHTS; LICENSE GRANTS.
3.1 LICENSES TO CUSTOMER. ORGANIC hereby grants to the Authorized
Licensees a perpetual, irrevocable, limited, non-exclusive, non-transferable,
worldwide license to use, execute, display, reproduce, maintain, modify, and
prepare derivative works from the Organic Software (in object code and source
code), Organic Materials and, except to the extent agreed to by the parties in a
Statement of Work or otherwise, Third Party Materials (and related
Documentation), solely for use in connection with the development,
implementation, modification, support, maintenance and operation (including
without limitation the display of Customer Content) of (a) Internet websites and
pages owned or operated by or for Authorized Licensees or (b) Internet websites
and pages that are owned by or operated for franchisees of CUSTOMER that are not
Authorized Licensees; provided that such Internet websites and pages relate
primarily to the business of retail sale or rental (in stores or over the
Internet) of pre-recorded music products, pre-recorded video products,
electronic games, and other home entertainment products and services. A
permitted assignment of this Agreement by CUSTOMER shall not affect the licenses
to Blockbuster Inc., Affiliates of Blockbuster Inc. and franchisees of
Blockbuster Inc., including entities that become Affiliates or franchisees of
Blockbuster Inc. following such assignment, to utilize the Organic Software,
Organic Materials and Third Party Materials for so long as such entities are
Affiliates or franchisees of Blockbuster Inc. ORGANIC will provide CUSTOMER on
expiration or termination of this Agreement for any reason, or upon CUSTOMER's
request, with sufficient Documentation and source code for Authorized Users to
fully utilize the Organic Software in accordance with this Agreement. Except for
the licenses and rights expressly granted in this Agreement, ORGANIC retains all
right, title and interest in the Organic Software and Organic Materials.
3.2 LICENSES TO ORGANIC.
7.
<PAGE> 8
3.2.1 SERVER USAGE DATA. CUSTOMER hereby grants to ORGANIC a
non-exclusive license to use, copy, modify, prepare derivative works from and
display the Server Usage Data in connection with gathering information and
generating reports on behalf of CUSTOMER.
3.2.2 CUSTOMER CONTENT. CUSTOMER hereby grants to ORGANIC a
non-exclusive license to use, copy, modify, prepare derivative works from and
display Customer Content as necessary to perform obligations under this
Agreement.
3.2.3 DELIVERABLES. CUSTOMER hereby grants to ORGANIC a limited,
perpetual, irrevocable, non-exclusive, royalty-free license to reproduce,
prepare derivative works of, publicly perform, publicly display in any form or
medium, whether now known or later developed, make, have made, use and import
throughout the universe the Deliverables (other than Customer Content and HTML
Code) and Documentation originally developed, invented, prepared or discovered
by ORGANIC (but specifically excluding any Reserved Work) and ORGANIC's
derivative works thereof; provided that (a) ORGANIC may only use or distribute
the Developed Materials and Developed Software in the furtherance of its
business; provided that ORGANIC shall not provide such Developed Materials and
Developed Software on a stand-alone basis; and (b) ORGANIC's use of the
Deliverables must not disclose Confidential Information of Customer.
3.3 THIRD PARTY TOOLS. Each party will obtain, at its sole cost and
expense, all consents necessary to permit such party to use the Third Party
Tools as required in connection with this Agreement.
3.4 PROPERTY RIGHTS AND OWNERSHIP. The Web Site will consist of, and
operate in conjunction with, multiple elements, all of which are subject to
certain intellectual property rights. As between parties, a party's rights with
respect to such elements shall be as set forth below. For purposes of this
Agreement, the term "ownership" refers to ownership of all right, title and
interest in and to an element, including without limitation, any patent,
copyright, trade secret, trademark, moral rights or other intellectual property
rights. ORGANIC hereby makes a nonterminable, irrevocable assignment to CUSTOMER
of all ownership rights in and to the Customer Content, the Developed Software,
the HTML Code and Developed Materials.
<TABLE>
<CAPTION>
====================================================================================================================
ELEMENTS OWNERSHIP/RIGHTS AS BETWEEN PARTIES
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
Customer Content and modifications . CUSTOMER has sole ownership.
- --------------------------------------------------------------------------------------------------------------------
Developed Software and Developed Materials. CUSTOMER has sole ownership. ORGANIC will have a license to
Developed Software and Developed Materials as set forth in
Section 3.2 of this Agreement.
- --------------------------------------------------------------------------------------------------------------------
HTML Code and modifications CUSTOMER has sole ownership
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
8.
<PAGE> 9
<TABLE>
<CAPTION>
====================================================================================================================
ELEMENTS OWNERSHIP/RIGHTS AS BETWEEN PARTIES
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
Organic Software and Organic Materials. ORGANIC has sole ownership of the Organic Software and
Organic Materials. Authorized Licensees will
have licenses to the Organic Software and Organic Materials
as set forth in Section 3.1 of this Agreement.
- --------------------------------------------------------------------------------------------------------------------
Server Usage Data. CUSTOMER has sole ownership. ORGANIC will have a license to
the Server Usage Data as set forth in Section 3.2 of this
Agreement.
- --------------------------------------------------------------------------------------------------------------------
Third Party Materials. Third parties have ownership. Authorized Licensees will have
licenses to the Third Party Materials as set forth in
Section 3.1 of this Agreement.
- --------------------------------------------------------------------------------------------------------------------
Third Party Tools Third parties have ownership. Each party will obtain, at its
sole cost and expense, all consents necessary to permit such
party to use the Third Party Tools as required in connection
with this Agreement.
====================================================================================================================
</TABLE>
3.5 USE OF THIRD PARTY MATERIALS. ORGANIC shall: (i) notify CUSTOMER of
its intent to incorporate in the Deliverables or require the use of Third Party
Materials prior to commencement of performance of Services incorporating or
requiring such Third Party Materials; (ii) identify to CUSTOMER the ownership of
such Third Party Materials; (iii) describe the use to which ORGANIC intends to
put such Third Party Materials; and (iv) explain ORGANIC's ability to proceed
with performance of the Services without the use of such Third Party Materials.
CUSTOMER may request that ORGANIC perform Services without the use of such Third
Party Materials. ORGANIC will respond to any such request with information
regarding the feasibility of performing the Services without the use of Third
Party Materials, including any additional costs or time required to do so.
3.6 SUPPORTING DOCUMENTS. Each party agrees to execute any additional
documents reasonably necessary to effect and evidence the other party's rights
(at such other party's request and sole expense) with respect to the elements
set forth above.
3.7 Proprietary Notices. All copies of the materials owned by or
licensed from third parties by either party and used by the other party shall
contain copyright and other proprietary notices in the same manner in which the
owner of such materials incorporates such notices in the same or in any other
manner reasonably requested by such party. Each party agrees not to alter,
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remove, cover or obliterate, or otherwise interfere with the display of, any
copyright notice or trademark or other proprietary rights notices placed by the
other party on or in the materials owned by such other party.
3.8 RESIDUALS. Nothing contained in this Agreement shall restrict
either party from the use of any ideas, concepts, know-how, methodologies,
processes, technologies, algorithms or techniques relating to the Services which
either Party develops or discloses under this Agreement and which are retained
by the recipient parties' employees in intangible form; provided that in doing
so such party does not breach its obligations under Section 9. Notwithstanding
anything to the contrary in this Agreement, no disclosure made by either party
hereunder grants, in itself, any license to either party under any patents,
copyrights, trademarks or trade secrets of the other party.
3.9 RESERVED WORKS. The parties may agree in a Statement of Work that
certain materials and/or Software to be developed by ORGANIC for CUSTOMER will
be Reserved Work; provided that materials and/or Software shall be Reserved Work
only if such Statement of Work contains a provision that expressly states that,
notwithstanding the provisions of Section 3.2.3, ORGANIC shall not have the
right to use certain Deliverables, except as required to perform the Services.
4. PAYMENT.
4.1 EXPENSES. CUSTOMER shall pay fees to ORGANIC in accordance with the
provisions each Statement of Work and in accordance with the provisions of this
Section 4. The rates set forth on Schedule F to this Agreement, which are in
effect as of the date of execution hereof, shall remain in effect through June
30, 2000.
4.2 EXPENSES. CUSTOMER will reimburse ORGANIC for all out-of-pocket
costs incurred at the request of CUSTOMER or otherwise approved by CUSTOMER in
advance in connection with performing the Services.
4.3 TAXES. In addition to the fees due as specified above, CUSTOMER
shall be responsible for and shall pay any and all federal, state and local
sales, use, value added, excise, duty and any other taxes assessed, charged or
levied, based on, with respect to or measured by (a) such fees, (b) this
Agreement or (c) the Services. CUSTOMER hereby agrees to be responsible for
conducting a self assessment of any taxes assessed, charged or levied by the
State of Texas based on, with respect to or measured by (a) such fees, (b) this
Agreement or (c) the Services. CUSTOMER shall remit timely payments to the
appropriate governmental agencies. The parties agree to cooperate reasonably
with each other to determine more accurately CUSTOMER's tax liability and to
minimize such liability to the extent legally permissible. CUSTOMER shall not be
responsible for taxes on ORGANIC's net income. ORGANIC agrees to reasonably
cooperate with CUSTOMER to minimize and calculate any applicable tax.
4.4 PAYMENTS. Except as otherwise provided in this Agreement, ORGANIC
shall invoice CUSTOMER monthly. Amounts are due and payable thirty (30) days
after receipt of invoice. Amounts not subject to a good faith dispute and
received later than thirty (30) days
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following CUSTOMER's receipt after execution of this Agreement of an invoice
will bear interest at one percent (1%) per month or the maximum rate permitted
by law, whichever is less. All payments made pursuant to this Agreement shall be
made in U.S. dollars.
4.5 AUDIT RIGHTS.
4.5.1 GENERAL. Employees of CUSTOMER and its auditors who are from
time to time designated by CUSTOMER and who agree in writing to the security and
confidentiality obligations and procedures reasonably required by ORGANIC will
be provided with reasonable access, upon one (1) week's advance written notice,
to any ORGANIC facility at which the Services are being performed to enable them
to conduct audits of ORGANIC's performance of the Services and other matters
relevant to this Agreement, including (i) verifying the accuracy of ORGANIC's
time and materials charges to CUSTOMER (provided such financial audits may be
performed at most twice each calendar year) and (ii) verifying that the Services
are being provided in accordance with this Agreement, including any Service
Levels.
4.5.2 PROCEDURES. Subject to Section 4.5.1(i), such audits may be
conducted as frequently as CUSTOMER deems necessary during reasonable business
hours. ORGANIC will cooperate in the audit, will make the information reasonably
required to conduct the audit available on a timely basis and will assist the
designated employees of CUSTOMER or its auditors in conducting such audit.
4.5.3 RESULTS. If any audit reveals that ORGANIC's invoices for the
audited period are not correct for such period, ORGANIC will promptly reimburse
CUSTOMER for the amount of any net overcharges (and if such net overcharges are
seven percent (7%) or more of the total amount which should have been billed to
CUSTOMER over the audit period, ORGANIC will reimburse CUSTOMER for the
reasonable out-of-pocket costs of the audit), or CUSTOMER will promptly pay
ORGANIC for the amount of any net undercharges. Any payments for net overcharges
or net undercharges made under this Section 4.5 will include interest charges
computed in accordance with Section 4.4.
5. LIMITED WARRANTIES.
5.1 DELIVERABLES WARRANTIES
5.1.1 ORGANIC warrants to CUSTOMER that for a period of ninety (90)
days from the date of acceptance of any Deliverable, or in the case of a
Deliverables delivered for the Hard Launch, for a period of ninety days from the
Hard Launch Date (the "Warranty Period"), that such Deliverable (including any
system configuration developed and implemented by ORGANIC hereunder) will
substantially conform to and perform substantially in accordance with the
Applicable Specifications. CUSTOMER's sole remedy for a breach of this warranty
shall be for ORGANIC to use its best commercial efforts to correct failures of
the Deliverables to substantially comply with such warranty within a reasonable
period, but in no event later than thirty (30) days from the Warranty Period.
All warranty claims under this Section 5.1.1 shall be made in writing to ORGANIC
within the Warranty Period. ORGANIC's warranty obligations
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are solely for the benefit of CUSTOMER, who has no authority to extend or
transfer this warranty to any other person or entity. The foregoing warranties
will not extend to breaches to the extent caused (a) by an change or
modification to a Deliverable without ORGANIC's prior consent or (b) by
CUSTOMER's operating Software or a system configuration otherwise than in
accordance with the applicable Documentation or on hardware not recommended or
approved by ORGANIC.
5.1.2 ORGANIC warrants that the Deliverables have been subjected to
commercially reasonable measures to screen for purposes of discovering and
avoiding the introduction of any "virus" or "backdoor" or "trapdoor" or "drop
dead device" or "time bomb" or "Trojan Horse" (as such terms are generally
understood in the software industry).
5.2 ORGANIC warrants to CUSTOMER that the Deliverables are capable of
processing, providing and/or receiving date data within and between the
twentieth and twenty-first centuries in accordance with its associated
documentation, provided that all hardware, software, firmware and other products
used with the Deliverables properly exchange accurate date data with the same;
provided that CUSTOMER must give ORGANIC prompt written notice of such
noncompliance, together with any available details regarding such noncompliance
prior to May 1, 2000. CUSTOMER's sole remedy for a breach of the warranty set
forth in this Section 5.2 shall be for ORGANIC to best commercial efforts to
correct the noncompliance within a commercially reasonable timeframe. The
foregoing warranties will not extend to breaches to the extent caused (a) by an
change or modification to a Deliverable without ORGANIC's prior consent or (b)
by CUSTOMER's operating Software or a system configuration otherwise than in
accordance with the applicable Documentation or on hardware not recommended or
approved by ORGANIC. ORGANIC's warranty obligations are solely for the benefit
of CUSTOMER, who has no authority to extend or transfer this warranty to any
other person or entity.
5.3 SERVICES WARRANTY. ORGANIC warrants to CUSTOMER that: (a) the
Services shall be performed in a professional and workmanlike manner; and (b)
ORGANIC's personnel have sufficient skill, knowledge and training to perform the
Services.
5.4 DISCLAIMER OF OTHER WARRANTIES. THE EXPRESS WARRANTIES SET FORTH IN
THIS AGREEMENT ARE THE SOLE AND EXCLUSIVE WARRANTIES MADE BY ORGANIC TO CUSTOMER
PURSUANT TO THIS AGREEMENT, AND ORGANIC EXPRESSLY DISCLAIMS ALL OTHER WARRANTIES
OF ANY KIND WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT, EITHER EXPRESS
OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
5.5 ENCRYPTION AND SECURITY. WITHOUT LIMITING SECTION 5.4, ORGANIC
MAKES NO WARRANTIES AND SHALL HAVE NO LIABILITY IN CONNECTION WITH THE
EFFECTIVENESS OF ANY ENCRYPTION OR SECURITY SYSTEM USED BY OR FOR THE WEB SITE.
5.6 DISCONTINUANCE OR REGULATION OF THE INTERNET. WITHOUT LIMITING
SECTION 5.4, CUSTOMER ACKNOWLEDGES AND AGREES THAT: (A) THE INTERNET
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(INCLUDING WITHOUT LIMITATION THE WORLD WIDE WEB) IS A NETWORK OF PRIVATE AND
PUBLIC NETWORKS, THAT ORGANIC HAS NO CONTROL OVER THE INTERNET; AND THAT (B)
ORGANIC SHALL NOT BE LIABLE FOR ANY CHANGE, INTERRUPTION OR DISCONTINUANCE OF
OPERATION OF ANY PORTION OF THE INTERNET OR FOR ANY POSSIBLE REGULATION OF THE
INTERNET; ANY OF WHICH MIGHT RESTRICT OR PROHIBIT THE OPERATION OF THE WEB SITE.
6. INTELLECTUAL PROPERTY INDEMNIFICATION.
6.1 ORGANIC.
This Section 6.1 sets forth CUSTOMER's sole and exclusive remedy for
intellectual property infringement by ORGANIC.
6.1.1 Except as provided in Section 6.1.2, ORGANIC, at its own cost
and expense, shall defend, indemnify and hold harmless the CUSTOMER and any of
its officers, directors, employees or agents (the "Indemnitees"), from and
against all damages, expenses, liabilities and other costs (including reasonable
attorneys' fees) arising from or relating to a claim that an Indemnified Item
infringes a third party's patent issued as of the date of delivery of such
Indemnified Item, or a third party's copyright, trademark or trade secret or
that the use or publication in the United States of the Customer Content
provided by ORGANIC under this Agreement constitutes defamation or a violation
of the privacy, publicity or other similar right of any third party (whether
such right is statutory, common law or arises from a contract to which ORGANIC
is a party); provided, however, that the provisions of this Section 6.1.1 shall
apply only if: (a) the CUSTOMER notifies ORGANIC promptly in writing of any such
claim; (b) ORGANIC has the sole control of the defense and all related
settlement negotiations; and (c) the CUSTOMER provides ORGANIC with all
reasonably requested assistance, information, and authority to perform the
foregoing at ORGANIC's expense; provided, however, that (d) the CUSTOMER will be
entitled to participate in the defense of any such actions or claims and to
employ counsel at its own expense to assist in the handling of such claims; and
(e) ORGANIC will obtain the prior approval of the CUSTOMER before entering into
any settlement of any such claim that will result in any non-monetary liability
to CUSTOMER other than as set forth in Section 6.1.2(z).
6.1.2 ORGANIC shall have no liability for any claim of infringement
based on (a) use by the CUSTOMER of other than the current update of the
applicable Indemnified Item, if the infringement would have been avoided by use
of a more current update provided to CUSTOMER by ORGANIC; (b) modifications,
adaptations or changes to the Indemnified Items not made by ORGANIC; (c) the
combination or use of the materials furnished hereunder with materials not
furnished, recommended or approved by ORGANIC, if such infringement would have
been avoided by use of the ORGANIC materials alone; or (d) use or incorporation
of materials provided by CUSTOMER or any third party, including, without
limitation, Customer Content or Third Party Posted Content, not recommended or
approved by ORGANIC. In the event any Indemnified Item is held to, or ORGANIC
reasonably believes is likely to be held to, infringe the intellectual property
rights of a third party, ORGANIC shall: (x) substitute or
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modify the infringing Indemnified Item so that it is non-infringing and
qualitatively and functionally equivalent to the infringing Indemnified Item; or
(y) obtain for the CUSTOMER a license to continue using the infringing
Indemnified Item; or (z) if the foregoing are not available after ORGANIC's use
of its best commercial efforts (i) terminate the CUSTOMER's use of the
infringing Indemnified Item(s) immediately upon notice to the CUSTOMER; and (ii)
refund to CUSTOMER the fees paid to ORGANIC for Indemnified Items that will not
be available as a result of the infringement.
6.1.3 CUSTOMER, at its own cost and expense, shall defend,
indemnify and hold harmless ORGANIC and any of its officers, directors,
employees or agents, from and against all third party actions, claims, damages,
expenses, liabilities and other costs (including reasonable attorneys' fees)
arising from or relating to a claim that: (a) the Customer Content (other than
Customer Content provided by ORGANIC) or Third Party Posted Content infringes a
third party's patent issued as of the date of delivery of such Customer Content,
copyright, trademark or trade secret; (b) use or publication of the Customer
Content (other than Customer Content provided by ORGANIC) or Third Party Posted
Content constitutes defamation or a violation of the privacy, publicity or other
similar right of any third party (whether such right is statutory, common law or
arises from a contract to which CUSTOMER is a party); or (c) the operation of
the Web Site violates any statute or regulation in any jurisdiction (other than
violations caused by the Deliverables or any actions taken by ORGANIC); provided
that: (i) ORGANIC notifies CUSTOMER promptly in writing of any such claim; (ii)
CUSTOMER has the sole control of the defense and all related settlement
negotiations; and (iii) ORGANIC provides CUSTOMER with all reasonably requested
assistance, information, and authority to perform the foregoing at CUSTOMER's
expense.; and provided, further, that (iv) ORGANIC will be entitled to
participate in the defense of any such actions or claims and to employ counsel
at its own expense to assist in the handling of such claims and (v) CUSTOMER
will obtain the prior approval of ORGANIC before entering into any settlement of
any such claim that will result in any non-monetary liability to ORGANIC.
7. LIMITATIONS ON LIABILITY.
7.1 TOTAL DAMAGE LIMITATION. NOTWITHSTANDING ANY OTHER PROVISION OF
THIS AGREEMENT OR A STATEMENT OF WORK OR CHANGE ORDER RESPONSE, IN NO EVENT
SHALL EITHER PARTY'S TOTAL AGGREGATE LIABILITY TO THE OTHER ARISING FROM OR
RELATING TO THIS AGREEMENT EXCEED TEN MILLION DOLLARS (US$10,000,000.00),
REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT, TORT OR OTHERWISE.
7.2 NO LIABILITY FOR ACTS OF OR PERFORMANCE OR NON-PERFORMANCE OF THIRD
PARTIES. NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT OR A STATEMENT OF
WORK OR CHANGE ORDER RESPONSE, IN NO EVENT SHALL ORGANIC BE LIABLE FOR THE
PERFORMANCE OR NON-PERFORMANCE OF ANY THIRD PARTY, OTHER THAN AN ORGANIC
SUBCONTRACTOR, EVEN IF THE THIRD PARTY IS RECOMMENDED BY ORGANIC OR DEALT WITH
BY ORGANIC UNDER THIS AGREEMENT.
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7.3 NO CONSEQUENTIAL DAMAGES. NOTWITHSTANDING ANY OTHER PROVISION OF
THIS AGREEMENT OR A STATEMENT OF WORK OR CHANGE ORDER RESPONSE, NEITHER ORGANIC
NOR CUSTOMER SHALL BE LIABLE FOR ANY LOST DATA OR CONTENT, LOST PROFITS OR
REVENUE, BUSINESS INTERRUPTION OR FOR ANY INDIRECT, INCIDENTAL, SPECIAL,
CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES, ARISING OUT OF OR RELATING TO THIS
AGREEMENT, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
7.4 EXCEPTIONS. The provisions of this Section 7 shall not limit
ORGANIC's or CUSTOMER's liability to the other arising from or in connection
with its indemnity obligations under Section 6 of this Agreement or from any
liability arising from fraudulent misconduct, bodily injury or damage to
tangible property.
8. TERM AND TERMINATION.
8.1 TERM. The term of this Agreement shall commence on the Effective
Date and, unless terminated earlier in accordance with this Section 8 or
extended by mutual written agreement of the parties prior to expiration, shall
continue through December 31, 2000.
8.2 TERMINATION FOR CAUSE. This Agreement may be terminated by either
party in the event of any material breach of this Agreement by the other party,
which breach continues in effect after the breaching party has been provided
with written notice of breach and thirty (30) days to cure such breach.
8.3 TERMINATION AT WILL. This Agreement may be terminated by CUSTOMER,
for any reason, upon sixty (60) days' prior written notice without penalty or
liability for damages related to such early termination.
8.4 TERMINATION FOR BANKRUPTCY AND RELATED EVENTS. Subject to Title 11,
United States Code, if either party becomes or is declared insolvent or
bankrupt, is the subject of any proceedings (and in the case of involuntary
proceedings, such proceedings are not dismissed within sixty (60) days) relating
to its liquidation, insolvency or for the appointment of a receiver or similar
officer for it, makes an assignment for the benefit of all or substantially all
of its creditors or enters into an agreement for the composition, extension or
readjustment of all or substantially all of its obligations, then the other
party may, by giving written notice thereof to such party, terminate this
Agreement as of a date specified in such notice of termination
8.5 EFFECT OF TERMINATION.
(a) Transition. In connection with the expiration of this Agreement
or with the early termination of this Agreement by either party
for any reason, ORGANIC will comply with CUSTOMER's reasonable
directions to cause the orderly transition and migration from
ORGANIC to CUSTOMER (or a third party services provider
undertaking, on behalf of CUSTOMER, to provide Services (the
"Third Party Provider") then being performed by ORGANIC (the
"Termination Transition"). The Termination Transition will be
provided for a reasonable period of time that
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in no event will exceed six months. CUSTOMER will cooperate in
good faith with ORGANIC in connection with ORGANIC's obligations
under this Section 8.5(a) and will perform its obligations under
the Transition Plan. If the Termination Transition extends beyond
the expiration date or effective date of termination of this
Agreement by CUSTOMER, the provisions of this Agreement will
remain in effect for the duration of the Termination Transition
and will apply to all transition assistance services provided by
ORGANIC during such period (subject to the last two sentences of
Section 8.5(c)). ORGANIC will perform the following obligations
(and such other obligations as may be contained in the Transition
Plan), unless otherwise stated below or in the Transition Plan.
(i) Transition Plan. ORGANIC and CUSTOMER will work together to
develop a transition plan (the "Transition Plan") setting
forth the respective tasks to be accomplished by each Party
in connection with the Termination Transition and a
schedule pursuant to which such tasks are to be completed.
(ii) Specifications. ORGANIC will, upon CUSTOMER's request,
provide CUSTOMER with reasonably detailed available
specifications for the hardware and software needed by
CUSTOMER (or the Third Party Provider) to properly provide
the Services then being performed by ORGANIC.
(iv) Developed Software, Organic Software, HTML Code. ORGANIC
will deliver the Developed Software and Organic Software
(to the extent required to use the Deliverables as of the
effective date of termination in accordance with the
licenses granted in Section 3.1) (in object code and source
code) and existing Documentation (to the extent required to
use the Deliverables as of the effective date of
termination in accordance with the licenses granted in
Section 3.1) and the HTML Code (to the extent the foregoing
has not already been delivered to CUSTOMER) to CUSTOMER and
will install such copies on the equipment of CUSTOMER (or
the Third Party Provider).
(v) Developed Materials, Organic Materials, Customer Content.
ORGANIC will deliver the Developed Materials, Organic
Materials (to the extent required to use the Deliverables
as of the date of termination in accordance with the
licenses granted in Section 3.1) and Customer Content (to
the extent the foregoing has not already been delivered to
CUSTOMER) to CUSTOMER.
(vi) Third Party Materials. ORGANIC will deliver the Third Party
Materials, (including object code, source code (if
applicable) and available Documentation to any Software
included in the same) (to the extent the foregoing has not
already been delivered to CUSTOMER) to
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CUSTOMER and will install any Software on the equipment of
CUSTOMER (or the Third Party Provider).
(v) Third Party Tools. ORGANIC will assist CUSTOMER obtain
licenses, at CUSTOMER's expense, to Third Party Tools not
licensed to CUSTOMER.
(vi) Training. ORGANIC will provide appropriate general training
for the employees of CUSTOMER (or the Third Party Provider)
who will be assuming responsibility following the
Termination Transition. Such training shall be specific to
the Deliverables and shall include, as appropriate,
training regarding use of the Web Site, system
administration system hosting, content creation and
modification. General skills training (e.g., instruction on
Java) shall not be included in Termination Transition.
(b) Disclosure of Information. Prior to providing any termination
assistance to the Third Party Provider, CUSTOMER will cause the
Third Party Provider to provide ORGANIC with written assurances,
in form and substance reasonably satisfactory to ORGANIC, that
the Third Party Provider (i) will maintain at all times the
confidentiality of any ORGANIC proprietary information disclosed
or provided to, or learned by, the Third Party Provider in
connection therewith and (ii) will use such information
exclusively for the purposes for which CUSTOMER is authorized to
use such information pursuant to this Agreement. CUSTOMER shall
be responsible for any failures of the Third Party Provider to
comply with such obligations.
(c) Charges. For so long as this Agreement remains in effect and
during the Termination Transition but subject to the last two
sentences of this Section 8.5(c), CUSTOMER will pay to ORGANIC at
the time and materials rates in effect for Services under the
Statement of Work for which such Termination Transition is
provided. If the Termination Transition provided by ORGANIC under
this Section 8.5: (i) requires personnel or other resources in
excess of the amount of resources that would have otherwise been
provided pursuant to the Statement of Work for which such
Termination Transition is provided; or (b) extends beyond the
scheduled expiration date of such Statement of Work; CUSTOMER
will pay ORGANIC for such additional resources at ORGANIC's then
current commercial billing rates on a monthly basis. If this
Agreement is terminated by ORGANIC pursuant to Section 8.2,
CUSTOMER shall pay all fees for Termination Transition in
advance.
8.6 DISPUTE RESOLUTION. In the event of any dispute, controversy or
claim of any kind or nature arising under or in connection with this Agreement
(including disputes as to the creation, validity, interpretation, breach or
termination of this Agreement) (a "Dispute"), then upon the request of either
party, each of the parties will appoint a designated representative who does not
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devote substantially all of his or her time to performance under this Agreement
and whose task it will be to meet for the purpose of endeavoring to resolve the
Dispute. The designated representatives will meet as often as necessary during a
period of 10 business days period (or such other time as the parties may agree)
to discuss the problem and negotiate in good faith in an effort to resolve the
Dispute without the necessity of any formal proceeding relating thereto. If the
designated representatives cannot resolve the Dispute, then the Dispute will be
escalated to the Vice President, Managing Director of ORGANIC responsible for
the Services and the Chief Information Officer of CUSTOMER for their review and
resolution. If the Dispute cannot be resolved by such officers, then the Parties
may initiate formal proceedings upon the earlier to occur of: (a) the designated
representatives concluding in good faith that amicable resolution through
continued negotiation of the Dispute does not appear likely; (b) 15 business
days after the initial request to negotiate the Dispute unless preliminary or
temporary relief of an emergency nature is sought by one of the Parties); or (c)
30 days before the statute of limitations governing any cause of action relating
to the Dispute would expire. Except where clearly prevented by the Dispute, both
parties agree to continue performing their respective obligations under this
Agreement while the Dispute is being resolved unless and until such obligations
are terminated or expire in accordance with this Agreement. Nothing to the
contrary in this Section 8.6 shall prevent either party from pursuing injunctive
relief in connection with a violation by the other party of its obligations
under this Agreement relating to the use or nondisclosure of intellectual
property or Confidential Information of the other party.
8.7 SURVIVAL. Unsatisfied payment obligations arising before any
termination or expiration of this Agreement, and Sections 2.5, 3, 4.5, 5, 6, 7,
8, 9 and 10, shall survive any termination or expiration of this Agreement.
9. CONFIDENTIALITY.
9.1 DATA OF CUSTOMER. As between ORGANIC and CUSTOMER, information
relating to CUSTOMER and its customers, including without limitation the Server
Usage Data, (the "CUSTOMER Data") is confidential, will be subject to Section
9.3 and will be and remain the property of CUSTOMER. ORGANIC is hereby
authorized to have access to and to make use of the CUSTOMER Data for the term
of this Agreement as is appropriate for the performance by ORGANIC of its
obligations hereunder. Upon expiration or termination of this Agreement for any
reason, ORGANIC will return to CUSTOMER all of the CUSTOMER Data in ORGANIC's
possession. ORGANIC will not use the CUSTOMER Data for any purpose other than
providing the Services.
9.2 CONFIDENTIAL INFORMATION. Each party acknowledges that, in
connection with the performance of this Agreement, it may receive Confidential
Information of the other party. For the purpose of this Agreement, "Confidential
Information" shall mean information or materials that the party receiving the
information (the "Receiving Party") knows or has reason to know is the
confidential or proprietary information of the party disclosing the information
(the "Disclosing Party"), either because such information is marked or otherwise
identified by the Disclosing Party as confidential or proprietary, has
commercial value, or is not generally known
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in the Disclosing Party's trade or industry. Confidential Information shall
include, without limitation: (a) concepts and ideas relating to the development
and distribution of content in any medium; (b) trade secrets, designs,
specifications, reports, drawings, inventions, software programs, and software
source documents; (c) information regarding plans for research, development, new
service offerings or products, marketing and selling, business plans, business
forecasts, budgets and unpublished financial statements, licenses and
distribution arrangements, prices and costs, suppliers and customers; and (d)
existence and content of any business discussions, negotiations or agreements
between the parties, including the terms of this Agreement.
9.3 CONFIDENTIALITY. The Receiving Party hereby agrees: (a) to hold and
maintain in strict confidence all Confidential Information of the Disclosing
Party and not to disclose it to any third party; and (b) not to use any
Confidential Information of the Disclosing Party except as permitted by this
Agreement or as may be necessary for the Receiving Party to perform its
obligations under this Agreement. The Receiving Party will use at least the same
degree of care to protect the Disclosing Party's Confidential Information as it
uses to protect its own Confidential Information of like importance, and in no
event shall such degree of care be less than reasonable care. The obligations
and restrictions imposed by this Section 9 shall terminate two (2) years after
the expiration or termination of this Agreement. It will not be a violation of
this Section if a party provides access to and the use of the Confidential
Information to third party contractors for the sole purpose of providing
services to CUSTOMER, so long as CUSTOMER secures execution by such third
parties of a confidentiality agreement containing provisions protecting the
Confidential Information of the parties substantially equivalent to those
contained herein, and such party remains liable to the other party hereto for
such third parties' adherence to such terms.
9.4 EXCEPTIONS. Notwithstanding the foregoing, the parties agree that
Confidential Information will not include any information that: (a) was in the
public domain at the time it was communicated to the Receiving Party by the
Disclosing Party; (b) entered the public domain subsequent to the time it was
communicated to the Recipient by the Disclosing Party through no fault of the
Receiving Party; (c) was in the Receiving Party's possession free of any
obligation of confidence at the time it was communicated to the Receiving Party
by the Disclosing Party; (d) was rightfully communicated to the Receiving Party
by a third party, free of any obligation of confidence, subsequent to the time
it was communicated to the Receiving Party by the Disclosing Party; or (e) was
developed by employees or agents of the Receiving Party independently of and
without reference to any information communicated to the Receiving Party by the
Disclosing Party. In addition, the Receiving Party may disclose the Disclosing
Party's Confidential Information in response to a valid order by a court or
other governmental body, as required by law; provided that the Receiving Party
provides prompt notice of such order, or as necessary to establish the rights of
either party under this Agreement.
10. GENERAL PROVISIONS.
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10.1 FORCE MAJEURE. A party shall not be deemed to be in default for
failure to perform an obligation (other than an obligation for the payment of
money) of such party under this Agreement, if such failure results from acts or
events beyond the reasonable control of such party.
10.2 NOTICE. All notices permitted or required under this Agreement
shall be in writing and shall be by personal delivery, facsimile transmission or
by certified or registered mail, return receipt requested, and shall be deemed
given upon the earlier of actual receipt, three (3) days after deposit in the
mail, or receipt by sender of confirmation of facsimile transmission. Notices
shall be sent to the following addresses (or such other address as either party
may specify in writing):
If to ORGANIC, INC.:
ORGANIC
510 Third Street Suite 540
San Francisco CA 94107
Attention: Thelton McMillian
Telephone: (415) 365-5668
Facsimile: (415) 284-6891
E-mail: [email protected]
and
510 Third Street, Suite 540
San Francisco, California 94107
Attention: Peggy Zagel, Esq.
Telephone: (415) 365-5504
Facsimile: (415) 284-6891
E-mail: [email protected]
If to CUSTOMER:
Blockbuster Inc.
1201 Elm Street
Dallas, Texas 75270
Attention: Chief Information Officer
Telephone:
Facsimile:
E-mail:
With a copy to the attention of the General Counsel
10.3 WAIVER. No delay or failure on the part of any party hereto in
exercising any right, power or privilege under this Agreement shall impair any
such right, power or privilege or be construed as a waiver of any default or any
acquiescence therein. No single or partial exercise of any such right, power or
20.
<PAGE> 21
privilege shall preclude the further exercise of such right, power or privilege,
or the exercise of any other right, power or privilege. No waiver shall be valid
against any party hereto unless made in writing and signed by the party against
whom enforcement of such waiver is sought and then only to the extent expressly
specified therein.
10.4 PARTIAL INVALIDITY. In the event any one or more of the provisions
of this Agreement shall for any reason be held to be invalid, illegal or
unenforceable, the remaining provisions of this Agreement shall be unimpaired
and the invalid, illegal or unenforceable provision shall be construed to be
amended in order to avoid such invalidity, illegality or unenforceability while
preserving as closely as possible the economic intent of the parties and
intended effect of this Agreement.
10.5 COMPLIANCE WITH LAW. Each party agrees that it shall carry out the
obligations contemplated by this Agreement and shall otherwise deal with the
subject matter hereof in compliance with all applicable laws, rules and
regulations, of all governmental authorities, including, without limitation, any
applicable legal restrictions on exports, and such party shall, at its own
expense, obtain all permits and licenses required in connection with the subject
matter hereof. Without limiting the foregoing, each party agrees that it shall
comply fully with all applicable export and import laws, rules and regulations
of the United States and other jurisdictions so that nothing provided by the
other party under the Agreement is either (a) exported or imported, whether
directly or indirectly, in violation of such laws, rules or regulations; or (b)
used for any illegal purpose, including without limitation the proliferation of
nuclear, chemical or biological weapons.
10.6 GOVERNING LAW. This Agreement, the rights and obligations of the
parties hereto, and any claims or disputes thereto, shall be governed by and
construed in accordance with the laws of the State of California (excluding the
choice of law rules thereof and excluding the United Nations Convention on
Contracts for the International Sale of Goods and any legislation implementing
such Convention).
10.7 ASSIGNMENT. Except as provided below, neither party shall have the
right to assign this Agreement without the prior written consent of the other
party. ORGANIC shall not subcontract or delegate any of its duties or
obligations of performance under this Agreement without the prior written
consent of CUSTOMER, which consent shall not be unreasonably withheld. If either
party subcontracts or delegates any of its duties or obligations of performance
in this Agreement to any third party, such party shall remain fully responsible
for complete performance of all of such party's obligations set forth in this
Agreement and for any such third party's compliance with the non-disclosure and
confidentiality provisions set forth in this Agreement. The parties acknowledge
that either of them may become a party to one or more transactions in the form
of a merger (including a reincorporation merger), consolidation, reorganization,
stock sale or exchange, sale of all or substantially all of such party's assets
or some similar or related transaction, in any case with the result being that
the affected party is the surviving entity or, if the affected party is not the
surviving entity, the surviving entity continues to conduct the business
conducted by the affected party prior to consummation of the transaction. In
addition, CUSTOMER may assign this Agreement in connection with the transfer to
a third party of the Web Site and its related business; provided such third
party is not a competitor of ORGANIC
21.
<PAGE> 22
nor controlled by, controlling or under common control with a competitor of
ORGANIC (within the meaning of "control" set forth in Section 1.1. No such
transactions involving a party will be deemed to be an assignment of this
Agreement requiring the consent of the other.
10.8 PUBLICITY. Except for any announcement intended solely for
internal distribution by ORGANIC or any disclosure required by legal,
accounting, or regulatory requirements beyond the reasonable control of ORGANIC,
ORGANIC shall not make any media releases, public announcements, or public
disclosures (including, but not limited to, promotional or marketing material)
by ORGANIC or its employees or agents relating to this Agreement or its subject
matter, or including the name, trade name, trademark, or symbol of CUSTOMER or
any affiliate of CUSTOMER without the prior written consent of CUSTOMER, which
consent CUSTOMER may withhold in its sole discretion. ORGANIC shall not
represent directly or indirectly that any Product or Service provided by ORGANIC
to CUSTOMER has been approved or endorsed by CUSTOMER or include the name, trade
name, trademark, or symbol of CUSTOMER or any affiliate of CUSTOMER on a list of
ORGANIC's customers without CUSTOMER's express written consent.
10.9 Entire Agreement; Amendment; Precedence. This Agreement, together
with the Statements of Work, Change Order Responses and other documents that are
incorporated herein by reference, constitute the entire agreement between the
parties hereto with respect to the transactions contemplated herein, and
supersede all prior or contemporaneous oral and written agreements, commitments
or understandings with respect to the matters provided for herein. No amendment,
modification or discharge of this Agreement shall be valid or binding unless set
forth in writing and duly executed and delivered by the party against whom
enforcement of the amendment, modification, or discharge is sought. This
Agreement shall govern Statements of Work and Change Orders; provided, however,
that in the event of any conflict among the provisions of this Agreement and/or
those of a Statement of Work and/or a Change Order, solely to the extent of such
conflict and solely in connection with interpretation of the conflicting
documents as among each other (and not in connection with the interpretation of
any other Statement of Work or Change Order), the following order of provision
precedence shall apply: first, this Agreement, next, a Statement of Work
(provided such Statement of Work clearly identifies the provisions of this
Agreement that are being revised with respect to that Statement of Work), next,
a Change Order Response to the extent it is in conflict with the respective
Statement of Work.
10.10 HEADINGS. Section headings contained in this Agreement are
inserted for convenience or reference only, shall not be deemed to be a part of
this Agreement for any other purpose, and shall not in any way define or affect
the meaning, construction or scope of any of the provisions of this Agreement.
10.11 EXECUTION IN COUNTERPARTS. This Agreement may be executed in
several counterparts, each of which shall be deemed to be an original, and all
of which, when taken together, shall constitute one and the same instrument.
22.
<PAGE> 23
10.12 INDEPENDENT CONTRACTORS. The relationship of the parties
hereunder shall be that of independent contractors. Nothing herein shall be
construed to constitute a partnership between or joint venture of the parties,
nor shall either party be deemed the agent of the other or have the right to
bind the other in any way without the prior written consent of the other.
In Witness Whereof, the parties have caused their duly authorized
representatives to enter into this Agreement to be effective on the Effective
Date set forth above.
ORGANIC, INC. BLOCKBUSTER INC.
By: /s/ Thelton McMillan By: /s/ Joe Phillips
-------------------------------- --------------------------------
Title: VP, Managing Director Title: EVP, Distribution, Ecommerce
& CIO
----------------------------- -----------------------------
Date: 11/2/99 Date: 11/12/99
------------------------------ ------------------------------
23.
<PAGE> 24
SCHEDULE A-1
AUTHORING AND MANAGEMENT AND CONSULTING SERVICES STATEMENT OF WORK
PHASE I
[ATTACH SOW DATED 8/23/99 HERE]
24.
<PAGE> 25
SCHEDULE A-2
[TO BE ATTACHED]
<PAGE> 26
SCHEDULE B
FORM OF CHANGE ORDER
CLIENT
JOB
DATE
This document amends the original Statement of Work dated ________.
Situation
Project Specifications
Technical Implications
Organic will provide account management, production, creative development, and
quality assurance for this project.
Estimated Fees
ORGANIC has estimated that the total projected cost to ________ for the ________
project will be $________. ORGANIC reasonably believes that this estimate is
within 15% of the actual Cost for this project provided that Customer adheres to
all of the following: i) Customer and any third parties deliver all assets and
comments to ORGANIC . per the schedule detailed below; and ii) all assets, such
as text and graphics, are delivered to ORGANIC by Customer and any third party
in conformance with the specifications provided by ORGANIC; and iii) the scope
of the project, as detailed under the Project Specifications (above) does not
change. Any delays to the schedule caused by Customer's failure to meet their
deadlines will result in additional schedule and budget costs to be paid by
Customer.
ESTIMATED DELIVERY SCHEDULE
- --------------------------------------------------------------------------------
<PAGE> 27
Both parties agree to make all commercially reasonable efforts to complete the
project in the most timely fashion possible and to adhere to the schedule
detailed below. Customer acknowledges that ORGANIC's ability to meet its
delivery dates as described in the attached production schedule is subject to:
i) the timely receipt of assets and comments from Customer and third parties;
and ii) other events beyond the control of ORGANIC.
Please see the attached production schedule for the updated timetable. The new
estimated Launch Date is ________.
Notes:
- - Any and all changes submitted after these comments, with the exception
of debugging, will be considered change orders.
- - ________ agrees that this Change Order, coupled with the original
Statement of Work, constitutes all of the responsibilities and duties
of ORGANIC for the __________ project.
By signing this document, the parties agree to the Basic Project Requirements.
Customer also agrees that any changes to the Project Specifications may result
in changes in the Fees and Delivery Schedules. Customer further acknowledges
that ORGANIC has made all commercially reasonable efforts to accurately estimate
the Fees and Delivery Schedules in advance of beginning work on the foregoing
project and that the actual Fees and Delivery Schedules may vary from the
estimates. ORGANIC will notify Customer, in writing, as soon as reasonably
practicable, of variations between our estimated schedules and the actual
schedules, per the existing agreement between the parties.
- -------------------------------- ----------------------------------
Name Name
Title Title
ORGANIC INC. Company
Date: Date:
<PAGE> 28
SCHEDULE C
WEB SITE
The World Wide Web located at blockbuster.com, and the beta site
thereof.
<PAGE> 29
SCHEDULE D
DEVELOPED MATERIALS, DEVELOPED SOFTWARE, ORGANIC MATERIALS,
ORGANIC SOFTWARE AND RESERVED WORKS
DEVELOPED MATERIALS:
The following is a list of the Developed Materials, as defined in Section 1.6 of
the Agreement, to be owned by Blockbuster Inc. and licensed to Organic, Inc. in
accordance with Section 3.2 of the Agreement.
Version Date (if applicable)
Final IDFS and Site Architecture September 16, 1999
Design Review 4 July 6, 1999
Design Review 3 June 10, 1999
Design Review 2.5 June 1, 1999
Design Review 2 May 12, 1999
Exploratory Design Review 1 March 24, 1999
Final Creative Investigations April 12, 1999
Final Editorial Platform March 24, 1999
Final Creative Direction Document April 2, 1999
AssignCorp Report of Titles w/o BB item numbers October 1, October 14, 1999
Filtering Rules October 22, 1999
Functional Test Cases (ZIP file) September 20, 1999
High Level Test Plan September 2, 1999
Wireframe Testing, Key Findings and
Recommendations May 17, 1999
draft Measurement and Analysis Strategy April 26, 1999
draft M&A Strategy Appendix 2 (Excel file) April 26, 1999
Final Strategic Assessment March 2, 1999
Order Processing Flow (gif files): OrderTrust
Flow, diagram 1 10/18/99
OrderTrust Flow, diagram 2 10/18/99
OrderTrust Flow, diagram 3 10/18/99
FINAL Content Randomization Chart 10/05/99
Blockbuster.com Overview 9/02/99
Technical Specifications (ZIP) 9/2/99 and 9/29/99
Data Components & Interfaces Diagram 6/28/99
Redundant Network Diagram 6/28/99
Physical Systems & Network Diagram 6/28/99
Project Requirements April 13, 1999
High Level System Architecture diagram
Roles and Responsibilities diagram
Project Requirements Appendix A April 13, 1999
<PAGE> 30
The Developed Materials shall also include updates, enhancements and revisions
of the foregoing. Developed Materials does not include the methodologies or
tools used to create the foregoing or any ideas, concepts, know-how,
methodologies, processes, technologies, algorithms or techniques associated with
the creation of the foregoing.
Developed Software:
The following is a list of Developed Software, as defined in Section 1.7 of the
Agreement, to be owned by Blockbuster Inc. and licensed to Organic, Inc. in
accordance with Section 3.2 of the Agreement.
Server Engineering Code:
Calculate Shipping Cost
Game List
Product Sort by Release Date
Field Validation enforcing CX01 format
Code to determine if user is a Blue or Gold Rewards member
Blockbuster Store and StoreDBManager subclass of ATG class
Blockbuster Category subclass of ATG class
Blockbuster Sku subclass of ATG classes
Blockbuster Shipping Cost Service subclass of ATG class
Blockbuster Debug subclass of ATG classes
Blockbuster Servlet Request subclass of ATG classes
Blockbuster Session History subclass of ATG class
Blockbuster Range subclass of ATG classes
Blockbuster Sort and Sortable subclass of ATG classes
OrderTrust subclasses of ATG classes
OrderTrust services
Blockbuster Recommends:
Valet Client, Connection, and Service
Pick Categories
Rate Movies
Recommended Movie
WEB OPERATIONS CODE:
Mercado search monitoring and administration - monitor performance, usage, and
pyramid build Image server monitoring - monitor performance, usage
Recommendation engine monitoring and administration - monitor performance,
usage, data transfer scripts
CONTENT ENGINEERING CODE:
All JHTML templates
<PAGE> 31
DATABASE ENGINEERING CODE:
Content Load Scripts that load from the Content Integration System developed by
AssignCorp into the Blockbuster.com product catalog
Stored procedures that deal with specific Sound and Game functionality that is
not generically handled by the generic Product stored procedure.
DATABASE TABLES THAT SUPPORT BLOCKBUSTER CONTENT PERTAINING TO:
Works (Movies, Video Games, Soundtracks) Work Associations Work Credits Work
Keywords Work Ratings Movie plots, actors, keywords, categories, awards Video
Game descriptions, game characters, game categories Soundtrack track listings,
images, credits, Alternate titles Filmography
ORGANIC MATERIALS:
Organic Materials, as defined in Section 1.12 of the Agreement include all
materials not listed above, including methodologies or tools used to create the
above-listed Developed Materials and Developed Software or any ideas, concepts,
know-how, methodologies, processes, technologies, algorithms or techniques
associated with the creation of the above-listed Developed Materials and
Developed Software.
ORGANIC SOFTWARE:
The following is a list of the Organic Software, as defined in Section 1.13 of
the Agreement to be owned by Organic, Inc. and licensed to Blockbuster Inc. in
accordance with Section 3.1 of the Agreement. This list is composed of
individual Java source code files, representing classes, packages, and
interfaces, database stored procedures, shell scripts, and other programs.
Collectively, these files are used by Organic to implement standard, reusable
functionality for electronic commerce web sites. Some of these files are used as
extensions to ATG's Dynamo product while others are general Java utility code.
In addition, common web interfaces, common monitoring and administration
scripts, and database tables and code developed to support the standard,
reusable functionality are Organic Software.
WEB SITE APPLICATION FUNCTIONALITY:
Login
Registration (except for Blockbuster Updates)
Forget Password
Shopping Cart
<PAGE> 32
Back Order
Product Catalog
Product sort (by title, rank)
Product Search, Search Results page
Product Type, Attribute, Value, SKU associations
User Password and Credit Card Encryption
Email Address Validation
Credit Card:
Validation and Verification
Authorization
Response
Order Submission
Inventory Check
Shipping Options
Shipping Charge Calculation
Calculate Subtotal
Calculate Total
Calculate Tax
Verify City, State, Zip
Alphabetical Navigation
SSL services
Static Content lookup
Error Handling
User Event Tracking
Session History
Database Connectivity
Garbage collection services
URL menu handler
Message Format utility
String parsing utility
Test code to test order conveyance and inventory check
WEB SITE MONITORING AND ADMINISTRATION FUNCTIONALITY:
Database backup/recovery scripts
Database monitoring scripts - to monitor performance, database growth, and
general "health" of the system
Web server admin/monitoring scripts - check that web servers are up, restart
web servers automatically
App server admin/monitoring scripts - check that app servers are up, restart
app servers automatically
System backup/recovery scripts
Operating system admin/monitoring scripts - monitor performance, utilization,
disk growth, memory, i/o, uptime
<PAGE> 33
DATABASE TABLES:
Database tables to support the functionality listed above
Database tables that support the notion of people, and relationships between
people
DATABASE CODE (STORED PROCEDURES):
Address maintenance
Error Handling
Orders
Person
Product
Person and Product association
OTHER CODE:
Perl scripts to extract CLOB data into flat files
Reserved Works:
The following is a list of Developed Software and Developed Materials that shall
be deemed to be Reserved Works as defined in Sections 1.15 and 3.9 of the
Agreement. As provided in Section 3.9 of the Agreement, ORGANIC shall not
receive a license to use such Reserved Works in accordance with the license
provisions Section 3.2.3 of the Agreement.
SERVER ENGINEERING CODE:
Field Validation enforcing CX01 format
Code to determine if user is a Blue or Gold Rewards member
Blockbuster Recommends:
Valet Client, Connection, and Service
Pick Categories
Rate Movies
Recommended Movie
<PAGE> 34
SCHEDULE E
SERVICE LEVELS
<PAGE> 35
SCHEDULE F
ORGANIC'S STANDARD HOURLY RATES
As of July 1999
CREATIVE
Executive Creative Director $ 300
Creative Director $ 275
Senior Associate Creative Director $ 250
Associate Creative Director $ 225
Creative Resource Manager $ 200
Chief Information Architect $ 225
Senior Information Architect $ 200
Information Architect $ 175
Junior Information Architect $ 150
Senior Art Director $ 225
Senior Designer/Art Director $ 200
Designer $ 175
Junior Designer $ 150
Creative Service Manager $ 200
Senior Interactive Production Artist $ 175
Interactive Production Artist $ 150
Junior Interactive Production Artist $ 135
Senior Editor $ 225
Senior Writer/Senior Copywriter $ 225
Writer/Copywriter $ 175
Jr. Copywriter $ 150
CLIENT SERVICES
Client Partner $ 275
Associate Client Partner $ 225
Client Associate $ 175
STRATEGIC SERVICES
Director of Strategic Services $ 300
Chief Interactive Strategist $ 275
Senior Interactive Strategist $ 250
Interactive Strategist $ 225
Senior Strategic Analyst $ 200
<PAGE> 36
Strategic Analyst $ 175
Research Manager $ 250
Research Analyst $ 175
Web Archaeologist $ 175
Brand Strategist $ 250
PROJECT MANAGEMENT
Director of Project Management $ 300
Executive Producer $ 275
Senior Producer $ 200
Producer $ 175
Associate Producer $ 150
ENGINEERING
Director of Engineering $ 325
Associate Director of Engineering $ 300
CONTENT ENGINEERING
Chief Content Engineer $ 275
Managing Content Engineer $ 250
Senior Content Engineer $ 200
Content Engineer $ 175
Associate Content Engineer $ 150
SERVER ENGINEERING
Chief Server Engineer $ 275
Managing Server Engineer $ 250
Server Engineering Architect $ 275
Senior Server Engineer $ 250
Server Engineer $ 225
Associate Server Engineer $ 175
Technical Writer $ 250
PROJECT ENGINEERING
Chief Project Engineer $ 275
Managing Project Engineer $ 250
Senior Project Engineer $ 250
Project Engineer $ 225
Associate Project Engineer $ 175
<PAGE> 37
WEB OPERATIONS
Chief Hosting Engineer $ 275
Senior Hosting Engineer $ 250
Hosting Engineer $ 225
Associate Hosting Engineer $ 175
Statistics Engineer $ 200
Release Engineer $ 200
Database Administrator $ 200
QUALITY ASSURANCE
Quality Manager $ 250
Quality Engineer $ 200
Quality Coordinator $ 175
Quality Tester $ 150
Technical Proofreader $ 175
MEDIA
Media Director $ 275
Media Manager $ 250
Media Supervisor $ 225
Senior Media Planner $ 215
Media Planner $ 200
Assistant Media Planner $ 150
Media Buying Manager $ 250
Senior Media Buyer $ 200
Media Buyer $ 175
Assistant Media Buyer $ 150
Performance Analyst Manager $ 250
Senior Performance Analysis $ 200
Performance Analyst $ 175
Performance Analyst Assistant $ 140
Traffic Manager $ 175
Traffic Coordinator $ 165
Traffic Monitor $ 140
COMMUNICATIONS
General Manager $ 325
Director $ 300
Account Director $ 265
Senior Account Manager $ 225
Account Manager $ 190
Account Assistant $ 160
<PAGE> 38
OFFICERS
Chief Creative Officer $ 400
Chief Technology Officer $ 400
Vice President of Engineering $ 350
Vice President, Communications $ 350
Vice President, Managing Director $ 350
<PAGE> 39
OSA Components:
I. APPLICABLE SPECIFICATIONS (SECTION 1.2)
Final IDFS and Site Architecture September 16, 1999
Design Review 4 July 6, 1999
Design Review 3 June 10, 1999
Design Review 2.5 June 1, 1999
Design Review 2 May 12, 1999
Exploratory Design Review 1 March 24, 1999
Final Creative Investigations April 12, 1999
Final Editorial Platform March 24, 1999
Final Creative Direction Document April 2, 1999
AssignCorp Report of Titles w/o BB item numbers October 1, October 14, 1999
Filtering Rules October 22, 1999
Functional Test Cases (ZIP file) September 20, 1999
High Level Test Plan September 2, 1999
Wireframe Testing, Key Findings and Recommendations May 17, 1999
draft Measurement and Analysis Strategy April 26, 1999
draft M&A Strategy Appendix 2 (Excel file) April 26, 1999
Final Strategic Assessment March 2, 1999
Order Processing Flow (gif files): OrderTrust
Flow, diagram 1 10/18/99
OrderTrust Flow, diagram 2 10/18/99
OrderTrust Flow, diagram 3 10/18/99
FINAL Content Randomization Chart 10/05/99
Blockbuster.com Overview 9/02/99
Technical Specifications (ZIP) 9/2/99 and 9/29/99
Data Components & Interfaces Diagram 6/28/99
Redundant Network Diagram 6/28/99
Physical Systems & Network Diagram 6/28/99
Project Requirements April 13, 1999
High Level System Architecture diagram
Roles and Responsibilities diagram
Project Requirements Appendix A April 13, 1999
II. REMAINING DELIVERABLES SCHEDULE (SECTION 2.1.3)
A. Usability Testing SOW - Remaining Deliverables:
<TABLE>
<CAPTION>
Delivery Acceptance
-------- ----------
<S> <C> <C>
Discussion Guide 10/26/99 10/28/99
Interviews 11/9 and 11/11/99 n/a
Report of Findings 1/18/99 11/29/99
Video Tapes 11/18/99 n/a
</TABLE>
B. Sub-system, System and Integration Testing SOW - Remaining Deliverables:
<TABLE>
<CAPTION>
Delivery Acceptance
-------- ----------
<S> <C> <C>
Hard Launch Acceptance Criteria 10/29/99 11/2/99
</TABLE>
C. Clair V SOW - Remaining Deliverables:
<TABLE>
<CAPTION>
Delivery Acceptance
-------- ----------
<S> <C> <C>
Functional Test Cases (Christy) (Christy)
Tech Spec 11/15/99 11/17/99
</TABLE>
<PAGE> 40
D. Phase 1&2 SOW - Remaining Deliverables:
<TABLE>
<CAPTION>
Delivery Acceptance
-------- ----------
<S> <C> <C>
Style Guide 11/15/99 11/17/99
AssignCorp Design Doc 11/15/99 11/17/99
AssignCorp Datamodel 11/15/99 11/17/99
Data Components and Interfaces Diagram 11/15/99 11/17/99
Redundant Network Diagram 11/15/99 11/17/99
Physical Systems and Network Diagram 11/15/99 11/17/99
Content Feeds Diagram 11/15/99 11/17/99
Final Project Requirements 11/15/99 11/17/99
Operations Manual 4/20/00 4/24/00
</TABLE>
III. ADDITIONAL STATEMENTS OF WORK (SECTION 2.3)
<TABLE>
<CAPTION>
SOW Title Delivery Signed Date
- --------- -------- -----------
<S> <C> <C>
Usability Testing 8/23/99 8/27/99
Subsystem, System and Integration Testing 8/23/99 8/27/99
Clair V 8/23/99 8/27/99
Core Team 8/23/99 8/27/99
GiftCards 8/27/99 9/1/99
</TABLE>
IV. TOOLS (SECTION 8.5)
A. Standards and protocols that cannot be licensed to Blockbuster in the event
of termination due to the fact that they are public domain. Note that this
is NOT an all-inclusive list, but merely indicates some of the public
domain types of tools used to develop the site.
1) Blowfish algorithm for credit card encryption
2) MD5 algorithm
3) HTTP (Hypertext Transfer Protocol)
4) HTML (Hypertext Mark-up Language
5) FTP, SCP, SSH (File Transfer Protocol, Secure Copy, Secure Shell)
6) TCP/IP (Transmission Control Protocol/Internet Protocol)
7) SMTP (Simple Mail Transfer Protocol)
8) CVS (Source code control system)
9) Sendmail
10) Other programming languages (Java, Javascript, PERL, UNIX shells,
etc.)
B. Still working on the tools list that can in fact be transferred to
Blockbuster in the event of a termination of agreement.
<PAGE> 41
SCHEDULE B - ORGANIC SOFTWARE
The following is a list of the Organic Software, as defined in Section 1.10 of
the Omnibus Services Agreement (OSA), that is owned by Organic, Inc. and
licensed in Section 3.1 of the OSA to Blockbuster Inc. This list is composed of
individual Java source code files, representing classes, packages, and
interfaces, database stored procedures, shell scripts, and other programs.
Collectively, these files are used by Organic to implement standard, reusable
functionality for electronic commerce web sites. Some of these files are used as
extensions to ATG's Dynamo product while others are general Java utility code.
In addition, common web interfaces, common monitoring and administration
scripts, and database tables and code developed to support the standard,
reusable functionality are components in this list.
WEB SITE APPLICATION FUNCTIONALITY:
Login
Registration (except for Blockbuster Updates)
Forget Password
Shopping Cart
Back Order
Product Catalog
Product sort (by title, rank)
Product Search, Search Results page
Product Type, Attribute, Value, SKU associations
User Password and Credit Card Encryption
Email Address Validation
Credit Card:
Validation and Verification
Authorization
Response
Order Submission
Inventory Check
Shipping Options
Shipping Charge Calculation
Calculate Subtotal
Calculate Total
Calculate Tax
Verify City, State, Zip
Alphabetical Navigation
SSL services
Static Content lookup
Error Handling
User Event Tracking
Session History
Database Connectivity
Garbage collection services
URL menu handler
Message Format utility
String parsing utility
Test code to test order conveyance and inventory check
<PAGE> 42
WEB SITE MONITORING AND ADMINISTRATION FUNCTIONALITY:
Database backup/recovery scripts
Database monitoring scripts - to monitor performance, database growth, and
general "health" of the system
Web server admin/monitoring scripts - check that web servers are up, restart
web servers automatically
App server admin/monitoring scripts - check that app servers are up, restart
app servers automatically
System backup/recovery scripts
Operating system admin/monitoring scripts - monitor performance, utilization,
disk growth, memory, i/o, uptime
DATABASE TABLES:
Database tables to support the functionality listed above
Database tables that support the notion of people, and relationships
between people
DATABASE CODE (STORED PROCEDURES):
Address maintenance
Error Handling
Orders
Person
Product
Person and Product association
OTHER CODE:
Perl scripts to extract CLOB data into flat files
<PAGE> 43
SCHEDULE C1 - DEVELOPED SOFTWARE
The following is a list of the Software components developed by Organic
specifically for Blockbuster, as defined in Section 1.5 of the Omnibus Services
Agreement (OSA), that is owned by Blockbuster Inc. and licensed in Section 3.1
of the OSA to Organic Inc.
SERVER ENGINEERING CODE:
Calculate Shipping Cost
Game List
Product Sort by Release Date
Field Validation enforcing CX01 format
Code to determine if user is a Blue or Gold Rewards member
Blockbuster Store and StoreDBManager subclass of ATG class
Blockbuster Category subclass of ATG class
Blockbuster Sku subclass of ATG classes
Blockbuster Shipping Cost Service subclass of ATG class
Blockbuster Debug subclass of ATG classes
Blockbuster Servlet Request subclass of ATG classes
Blockbuster Session History subclass of ATG class
Blockbuster Range subclass of ATG classes
Blockbuster Sort and Sortable subclass of ATG classes
OrderTrust subclasses of ATG classes
OrderTrust services
Blockbuster Recommends:
Valet Client, Connection, and Service
Pick Categories
Rate Movies
Recommended Movie
WEB OPERATIONS CODE:
Mercado search monitoring and administration - monitor performance, usage, and
pyramid build Image server monitoring - monitor performance, usage
Recommendation engine monitoring and administration - monitor performance,
usage, data transfer scripts
CONTENT ENGINEERING CODE:
All JHTML templates
DATABASE ENGINEERING CODE:
Content Load Scripts that load from the Content Integration System developed by
AssignCorp into the Blockbuster.com product catalog
Stored procedures that deal with specific Sound and Game functionality that is
not generically handled by the generic Product stored procedure.
DATABASE TABLES THAT SUPPORT BLOCKBUSTER CONTENT PERTAINING TO:
Works (Movies, Video Games, Soundtracks)
Work Associations
Work Credits
Work Keywords
Work Ratings
Movie plots, actors, keywords, categories, awards
Video Game descriptions, game characters, game categories
Soundtrack track listings, images, credits,
<PAGE> 44
Alternate titles
Filmography
<PAGE> 45
SCHEDULE C2 - DEVELOPED MATERIALS
The following is a list of the Materials developed by Organic specifically for
Blockbuster, as defined in Section 1.6 of the Omnibus Services Agreement (OSA),
that is owned by Blockbuster Inc. and licensed in Section 3.1 of the OSA to
Organic Inc.
Final IDFS and Site Architecture September 16, 1999
Design Review 4 July 6, 1999
Design Review 3 June 10, 1999
Design Review 2.5 June 1, 1999
Design Review 2 May 12, 1999
Exploratory Design Review 1 March 24, 1999
Final Creative Investigations April 12, 1999
Final Editorial Platform March 24, 1999
Final Creative Direction Document April 2, 1999
AssignCorp Report of Titles w/o BB item numbers October 1, October 14, 1999
Filtering Rules October 22, 1999
Functional Test Cases (ZIP file) September 20, 1999
High Level Test Plan September 2, 1999
Wireframe Testing, Key Findings and Recommendations May 17, 1999
draft Measurement and Analysis Strategy April 26, 1999
draft M&A Strategy Appendix 2 (Excel file) April 26, 1999
Final Strategic Assessment March 2, 1999
Order Processing Flow (gif files): OrderTrust
Flow, diagram 1 10/18/99
OrderTrust Flow, diagram 2 10/18/99 OrderTrust
Flow, diagram 3 10/18/99
FINAL Content Randomization Chart 10/05/99
Blockbuster.com Overview 9/02/99
Technical Specifications (ZIP) 9/2/99 and 9/29/99
Data Components & Interfaces Diagram 6/28/99
Redundant Network Diagram 6/28/99
Physical Systems & Network Diagram 6/28/99
Project Requirements April 13, 1999
High Level System Architecture diagram
Roles and Responsibilities diagram
Project Requirements Appendix A April 13, 1999
<PAGE> 1
EXHIBIT 10.20
1-9-00
DAIMLERCHRYSLER CORPORATION AGREEMENT WITH ORGANIC, INC.
DaimlerChrysler Corporation, a Delaware corporation with its principal offices
at 1000 Chrysler Drive, Auburn Hills, Michigan 48326-2766 ("DC CORP"), and
Organic, Inc., (formerly known as Organic Online, Inc.) with its principal
offices at 510 Third Street, Suite 540, San Francisco, California 94107
("ORGANIC") enter into this agreement ("AGREEMENT") as of March 15, 1999
("EFFECTIVE DATE").
WHEREAS, Organic has special skills, experience and expertise in developing for
major corporate clients comprehensive interactive programs, including but not
limited to interactive advertising, sales and marketing programs, for use on the
Internet public computer network or an intranet network, including development
of software and content; and
WHEREAS, Organic desires to provide such skills, experience and expertise to DC
Corp in support of DC Corp's interactive programs, and DC Corp desires to retain
Organic to provide those services, subject to the terms and conditions of this
Agreement;
NOW, THEREFORE, the parties agree as follows:
1. SERVICES
A. Organic agrees to perform services ("SERVICES") and deliver
deliverables ("DELIVERABLES") as described in the attached
Statement of Work, which is hereby incorporated by reference and
attached as EXHIBIT A ("STATEMENT OF WORK").
B. The Statement of Work describes the scope of the Services and
Deliverables that Organic must provide during the initial 9.5
months and for the Fixed Fee. The parties agree to amend this
Agreement to add a description of the scope of Services and
Deliverables that Organic must provide for the subsequent 12
month period (calendar year 2000) at a Fixed Fee as described in
Section 3.E.
C. Changes to Statement of Work.
i. The procedure for changing the Statement of Work,
including the specifications or due dates for any
Deliverable, is to: (i) describe the changes in a
writing signed by an authorized representative of each
party (which, for DC Corp, is the Sales & Marketing
Interactive Project Manager,
1.
<PAGE> 2
currently Howard Morton); (ii) include in the writing
the date of each Statement of Work revision and a
description of how the particular revision relates to
the prior Statement of Work. (For example, state whether
the revisions are intended to supersede the prior
Statement of Work, or whether the revisions are to be
read together with the then-current Statement of Work).
In addition, a management level employee of DC Corp who
has a project under this Agreement ("STAKEHOLDER") may
sign a "Detailed SOW" or "Detailed Work Description"
ONLY IF the signature is on a document that contains the
following disclaimer: "BY SIGNING THIS DETAILED WORK
DESCRIPTION, A STAKEHOLDER AND ORGANIC AGREE THAT THE
DETAILED REQUIREMENTS SET FORTH IN THIS DOCUMENT FURTHER
DESCRIBE ORGANIC'S OBLIGATIONS UNDER THE STATEMENT OF
WORK ATTACHED AS EXHIBIT A TO THE PARTIES' AGREEMENT
DATED MARCH 15, 1999. NOTHING IN THIS DOCUMENT CHANGES
THE PARTIES' RESPECTIVE OBLIGATIONS UNDER THE
AGREEMENT."
ii. The Parties agree that the purpose of this procedure is
to provide flexibility for changing or refining with
greater detail the Statement of Work as frequently as
may be required given the absence of detailed (as
opposed to general functional) specifications for
Deliverables in the Statement of Work at the time of
contract execution. However, the parties also agree that
whenever a Statement of Work change results in changes
to DC Corp's financial obligations or the ownership
provisions under this Agreement, the signed writing
described in Section 1.C.i above must also be signed by
an authorized DC Corp Procurement & Supply ("P&S")
manager with corporate authority to sign amendments to
this Agreement, as described in Section 16.C.
iii. All references in this Agreement to the Statement of
Work, or any part of it, refer to the then-current
Statement of Work, as modified by the parties through
the procedures described in this subsection C. Unless
the parties amend the Agreement (in accordance with
Sections 1.C.ii and 16.C) specifying any additional, DC
Corp will have no liability to pay any fees beyond the
Fixed Fee, and Organic will have no obligation to
2.
<PAGE> 3
perform any Services outside the scope of the Statement
of Work.
2. TERM OF AGREEMENT
A. TERM. The term of this Agreement is 21.5 months (9.5 months + 12
months) from the Effective Date, except that either party may
terminate earlier in accordance with the Termination provisions
at section 13 below ("TERM").
(i) The initial 9.5 month period commences on March 15,
1999, and ends December 31, 1999.
(ii) The last 12 month period commences January 1, 2000 and
continues until December 31, 2000 ("THE 2000 CALENDAR
YEAR").
3. COMPENSATION
A. Organic agrees to perform all Services and deliver all
Deliverables requested or otherwise required under the Statement
of Work during the initial 9.5 months of the Agreement for the
fixed price of $16,484,306.00 ("FIXED FEE"), payable as set
forth below.
B. Each month of the initial 9.5 months of the Agreement, DC Corp
will pay Organic the following amount: [2/19 x (the Fixed Fee x
0.85)], except that in the last month the payment will be {1.5 x
[2/19 x (the Fixed Fee x 0.85)]}. Monthly fees are due on the
30th day of each month.
C. Each month of the initial 9.5 months of the Agreement, DC Corp
will put the following amount into a progress pool: [2/19 x (the
Fixed Fee x 0.15)] except that in the last month the payment
will be {1.5 x [2/19 x (the Fixed Fee x 0.15)]}.
D. Progress pool funds become payable to Organic subject to DC
Corp's good faith assessment of Organic's development progress,
which DC Corp has assessed for the period from March 15, 1999 to
December 31, 1999 (see Section 3.E below), and which DC Corp
must assess quarterly throughout the 2000 calendar year
("ASSESSMENT PERIODS"). DC Corp's assessment of Organic's
development progress for each assessment period in the 2000
calendar year will be based upon the "2000 Organic Online [sic],
Inc. Performance Rating Criteria," attached and incorporated by
reference into this Agreement as EXHIBIT B, with the actual
assessment within DC Corp's sole and reasonable discretion. For
3.
<PAGE> 4
each assessment period, DC will present a written assessment to
Organic that evaluates Organic's and recommends any necessary
improvements. Organic's performance in a subsequent assessment
period will be measured against the criteria in Exhibit B,
including any action items from the written report for the prior
assessment period.
(i) Payment from the progress pool, if any, must be made
within 45 days of the assessment period.
(ii) Residual amounts in progress pool are cumulative only
within the 9.5 month period and within the 2000 calendar
year, respectively. For example, residual amounts unpaid
from the first assessment period in the 2000 calendar
year may be paid at a later assessment that same
calendar year. Amounts unearned in the last assessment
period of the calendar year are forfeited.
E. The parties have not yet agreed upon a Fixed Fee or payment
terms for the 2000 calendar. The parties agree to amend this
Agreement to specify a Fixed Fee and payment terms for the 2000
calendar year unless either party exercises its right to
terminate, as described in Section 13 below. In addition, the
parties agree that absent an amendment stating otherwise, the
payment conditions for the 2000 calendar year, if any, will be
similar in structure to the payment terms described in Sections
3.B through 3.D, except that each instance of the term "2/19" in
the formulae above will change to "1/12."
F. As of January 09, 2000, DC Corp has paid Organic $8,889,127.00
of the total Fixed Fee for the initial 9.5 month period. This
amount represents a combination of monthly fees paid prior to
contract execution, and it represents full satisfaction of all
earned fees from the progress pool for the initial 9.5 month
period. (A total of $386,618.00 from the progress pool was
unearned and is unpayable ("Missed Bonus"). After contract
execution, Organic may invoice DC Corp for $7,208.561.00, i.e.,
the balance of the Fixed Fee for the initial 9.5 month period
minus the amount of the Missed Bonus.
4. OWNERSHIP AND LICENSES.
A. DC CORP PROPERTY. DC Corp owns all right, title and interest,
including but not limited to all copyrights, patents, trade
secrets, trademarks, trade dress right, and any other
proprietary rights in the following items provided or delivered
by Organic as
4.
<PAGE> 5
part of the Services or Deliverables, and each and all of them
are DC Corp's Confidential Information:
(i) all data and information content, including text or
other literary work, graphics, photographs, audiovisual
works or other content of any web site or content
generated by any software application whether originally
provided by Organic or by DC Corp or any of its other
agencies or suppliers ("CONTENT"), except that Content
does not include software provided by Organic.
(ii) Hyper Text Markup Language (HTML) files for website
Content;
(iii) all Content in screen outputs from the websites or
software applications (but not the software itself) and
the overall structure, sequence, organization, display
and arrangement (the "look and feel") of all Content and
of all application user interfaces and of all Internet
user interfaces provided under this Agreement;
(iv) all Interactive Marketing Plans developed for DC Corp by
Organic under the Statement of Work and any and all
other DC Corp or brand marketing plans, including all
related documents, reports, meeting notes or other
related information;
(v) the compilation copyright in any DC Corp web site,
subject to Organic's ongoing ownership of any Organic
Property;
(vi) all names, slogans, marks, logos, domain names and
vanity names except for those owned by third parties
and/or Organic prior to their use under this Agreement;
(vii) any software (including all literary and graphical
components owned by DC Corp as of the date that software
is provided to Organic under this Agreement, including
all modifications, enhancements or other derivatives of
that software developed by Organic;
(viii) all server usage data and statistics related to any web
site created or maintained under this Agreement.
All of the items in this Section 4.A are referred to collectively in
this Agreement as "DC CORP PROPERTY."
5.
<PAGE> 6
Organic assigns to DC Corp, its successors and assigns, all right, title
and interest, including but not limited to all copyrights, patents,
trade secrets, trademarks, trade dress rights, and any other proprietary
rights in any DC Corp Property that Organic provides under this
Agreement, whether provided directly or through any of Organic's
subcontractors. Organic is responsible for securing from each of its
subcontractors all rights necessary for Organic to meet its obligations
under this section. To the extent that any DC Corp Property is computer
software, Organic must deliver the object code and fully commented
source code to DC Corp for each such Deliverable provided under the
Agreement.
B. ORGANIC PROPERTY.
(i) Organic owns all right, title and interest, including
but not limited to all copyrights, patents, trade
secrets, trademarks, trade dress right, and any other
proprietary rights in any of Organic's preexisting
original works of authorship or inventions or designs,
methodologies, processes, tools, concepts or know-how
created or owned by Organic prior to Organic performing
any Services or delivering any Deliverables under this
Agreement, including but not limited to any preexisting
web-based software (e.g. internet publishing, authoring
or search engine software) or any preexisting
application software ("ORGANIC PREEXISTING WORKS");
(ii) Subject to section 4.A above and Organic's obligations
regarding DC Corp's Confidential Information, Organic
owns all right, title and interest, including but not
limited to all copyrights, patents, trade secrets,
trademarks, trade dress right, and any other proprietary
rights in the following items:
1. all modifications or enhancements to Organic
Preexisting Works that Organic develops or
otherwise provides under the Agreement; and
2. all custom developed web based or application
software that Organic develops or otherwise
provides under the Agreement.
All of the items in this Section 4.B are referred to collectively in
this Agreement as "ORGANIC PROPERTY."
C. LICENSE TO ORGANIC PROPERTY.
To the extent that any Organic Property is incorporated into any
Deliverable, Organic grants to DC Corp, its parent and each of
their
6.
<PAGE> 7
respective affiliates or subsidiaries worldwide ("DC
ENTERPRISE"), a worldwide, perpetual, fully paid, noncancellable
license to use, copy, distribute and make derivatives or
improvements of the Organic Property. Organic must deliver the
object code and fully commented source code form to DC Corp for
each software Deliverable provided under the Agreement. The DC
Enterprise users may not distribute any portion of the Organic
Property on a "standalone" basis or otherwise distribute all or
any part of the Organic Property separate and apart from the
Deliverables or derivatives or improvements of those
Deliverables.
D. LICENSE TO ORGANIC OF CERTAIN DC CORP PROPERTY. To the extent
that DC Corp provides any software, content or other materials
of any kind or nature to Organic in connection with Organic's
performance of the Services or production of the Deliverables,
DC Corp grants to Organic, and each of its affiliates or
subsidiaries worldwide, a non-exclusive, worldwide, fully paid,
license to use, copy, distribute and make derivatives or
improvements of such materials, solely in connection with the
performance of Organic's obligations under this Agreement.
E. SUPPORTING DOCUMENTS. Each party agrees to execute any
additional documents reasonably necessary to effect and evidence
the other party's rights with respect to the elements set forth
above.
F. PROPRIETARY NOTICES. All copies of the Organic Property used by
any DC Corp must retain any copyright or other proprietary
notices displayed by Organic. DC Corp agrees not to remove,
cover or obliterate any copyright notice, trademark or other
proprietary rights notices placed by Organic on Organic
Property.
5. PRIOR APPROVAL OF CONTENT.
Organic must obtain prior written approval from DC Corp of any material
or other Content prior to its dissemination or publication in any
medium, all in accordance with the substance of DC Corp's Corporate
Process Guideline GEN 007 attached hereto as EXHIBIT C (the "198
PROCEDURES") and any other procedures that DC Corp designates and
provides to Organic with written notice, except if otherwise directed to
proceed by a DC Corp Sales & Marketing Vice President or higher level DC
Corp officer.
6. CONFIDENTIAL INFORMATION
A. "DC CORP CONFIDENTIAL INFORMATION" means information relating to
the research, development, products, trade secrets, business
plans, sales or marketing plans, customers, finances, and
personnel data related to the business or affairs of DC Corp,
7.
<PAGE> 8
including but not limited to DC Corp's materials relating to the
DC Corp Property. DC Corp Confidential Information does not
include any information (i) which Organic knew before DC Corp or
one of DC Corp's other agencies or supplier, rightfully
disclosed it to Organic; (ii) which has become publicly known
through no wrongful act of Organic; or (iii) which Organic
developed independently, as evidenced by appropriate
documentation.
B. "Organic Confidential Information" means any Organic financial
information including but not limited to Organic's financial
statements, Organic's books and records with respect to its
performance under this Agreement and Organic's client list to
the extent that such information is shared with DC Corp.
C. In the course of performing this Agreement, Organic and DC Corp
will have access to each other's Confidential Information.
D. Each party agrees not to disclose any of the other party's
Confidential Information and to take all reasonable precautions
to prevent its unauthorized dissemination, both during and after
the Term. Without limiting the scope of this duty, each party
agrees to limit its internal distribution of the other party's
Confidential Information to its employees or contractors, if
any, who have a need to know, and to take steps to ensure that
the dissemination is so limited. Each party agrees not to use
the other party's Confidential Information for its own or for
the benefit of anyone other than the party owning the
Confidential Information, except to the extent necessary to
fulfill its obligations or exercise its rights under this
Agreement. Without limiting the scope of this duty, Organic
agrees not to design, develop or manufacture any products, which
incorporate any DC Corp Confidential Information.
E. All Confidential Information remains the property of the owning
party as defined above. Each party agrees to return the other
party's Confidential Information at the other party's request,
including all copies of that Confidential Information in any
medium.
F. EXCEPT AS EXPRESSLY SET FORTH HEREIN, ALL CONFIDENTIAL
INFORMATION PROVIDED BY DC CORP IS PROVIDED "AS IS" AND WITHOUT
ANY WARRANTY, EXPRESS, IMPLIED, OR OTHERWISE, REGARDING ITS
ACCURACY OR PERFORMANCE.
7. LOYALTY.
A. During the Term plus 1 year, Organic and its affiliates may not
perform services for or on behalf of, or negotiate, or otherwise
do
8.
<PAGE> 9
business with, another automotive or truck manufacturer or
automotive or truck parts manufacturer or any of their
subsidiaries, or any automotive or truck dealer or distributor
(domestic or foreign) without DC Corp's prior written consent.
C. DC Corp may work with other companies on Internet related
projects.
D. DC Corp recognizes and understands that Organic has previously
contracted to provide services to the companies listed below,
and that Organic may be required, as part of those contract
obligations, to provide the following services to those
companies in connection only with software provided prior to the
Effective Date of this Agreement: (i) training for use of that
software and (ii) repair of that software so that it conforms to
the relevant contract ("SUPPORT SERVICES"):
Autoconnect
BMW (from Organic's Sao Paulo, Brazil office only)
Organic warrants and represents that it will only provide
Support Services to those companies, and nothing else.
8. WARRANTIES AND REPRESENTATIONS. The warranties and representations in
this Section are applicable to the Services and Deliverables in their
form as delivered by Organic under this Agreement and as used in
accordance with the terms of this Agreement.
A. WARRANTIES AND REPRESENTATIONS. Organic warrants and represents
to DC Corp that, at all times relevant, Organic is not
encumbered by any third party, (via agreement, employment or
other legal relationship, past or present) or otherwise in a
manner that would prevent Organic from providing all Services
and Deliverables required under this Agreement or from licensing
or assigning, as applicable, the rights in all Services and
Deliverables as set forth in this Agreement. Organic further
warrants and represents to DC Corp that all Services performed
and Deliverables provided under this Agreement do not infringe
any U.S. or foreign patents in existence as of the Effective
Date, or copyrights, mask work rights, trade secret rights,
trademark or trade dress rights, or any other proprietary rights
of any third party (including but not limited to moral rights or
rights of privacy or publicity).
9.
<PAGE> 10
Organic further warrants that it has not previously granted and
will not grant any rights to any third party that are
inconsistent with the rights granted under this Agreement; that
each of Organic's employees, consultants, contractors, partners
or agents who have been or will be involved in providing
Services or in developing Deliverables will have signed an
agreement with Organic conveying to Organic all rights necessary
to enable Organic to meet its obligations under this Agreement
and agreeing to maintain in confidence all DC Corp Confidential
Information.
B. PERFORMANCE WARRANTY. Organic warrants that all Services and
Deliverables will be performed in a professional and workmanlike
manner and that Organic's personnel or subcontractors have
sufficient skill, knowledge and training to perform the
Services. Organic further warrants that all Services and
Deliverables will conform to the parties' agreed upon
specifications (as set forth in the Statement of Work or any
project description agreed upon pursuant to the Statement of
Work) for a period of one (1) year from completion and delivery
of the relevant Deliverable or performance of the relevant
Service.
C. YEAR 2000 WARRANTY. Organic warrants that each Service or
Deliverable provided to DC Corp by Organic will be YEAR 2000
COMPLIANT, as defined below, from its delivery date through
January 1, 2001. This warranty is in addition to any and all
other applicable warranties provided by Organic to DC Corp. YEAR
2000 COMPLIANT means that Service or Deliverable correctly
performs every date-related or date-dependent operation: (a)
without human intervention, other than original data entry of
any date; and (b) without regard to whether any date involved in
an operation is on, before or after January 1, 2000.
D. EXCEPTIONS FOR MODIFICATIONS. To the extent that a breach of
warranty would not have existed but for DC Corp's or a third
party's modification of a Service or Deliverable, then Organic
is excused from the applicable warranty obligation to the extent
caused by such modification.
E. EXCEPTIONS TO YEAR 2000 WARRANTY. Organic is excused from the
Year 2000 warranty to the extent that failure of any deliverable
provided under this Agreement to meet the warranty is caused
solely by: (1) non-Year 2000 Compliant third party hardware,
software, systems, data or equipment; or (2) non-Year 2000
Compliant DC Corp pre-existing software, systems, data or
equipment.
10.
<PAGE> 11
F. REMEDY FOR BREACH OF WARRANTY. For any breach of the warranties
specified in Section 8.A, 8.B or 8.C above, Organic must
promptly repair or replace any nonconforming Service or
Deliverable upon written notice of such condition. Organic will
replace promptly all defective media returned to it. This remedy
as it applies to the Warranty in Section 8.A is non-exclusive,
and DC Corp is not precluded from exercising any other remedy
available to it at law or in equity. With regard to the
warranties specified in Sections 8.B or 8.C, the remedies set
forth in this Section 8.F are exclusive remedies unless Organic
fails to repair or replace as set forth in this Section 8.F. In
that event, DC Corp is not precluded from exercising any other
remedy available to it at law or in equity.
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT, ORGANIC MAKES
NO OTHER REPRESENTATIONS OR WARRANTIES TO DC CORP OR ANY OTHER PERSON,
EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
9. INDEMNIFICATION
A. INDEMNIFICATION BY ORGANIC. With regard to the Services and
Deliverables, in their form as delivered by Organic under this
Agreement and as used in accordance with the terms of this
Agreement, Organic will indemnify and hold DC Corp, its
directors, officers, employees, subsidiaries and affiliates
harmless from and against all third party claims, losses,
liabilities and damages (including reasonable attorneys' fees
and costs of suit) (collectively, "CLAIMS") that DC Corp may
suffer, pay or incur arising from or relating to any allegation
that any Deliverable developed or Service performed by Organic,
including without limitation any Content:
(i) is libelous, slanderous, defamatory, or disparaging of a
third party or product;
(ii) infringes any United States patent or foreign patent in
existence as of the Effective Date, copyright, trademark
or violates any third party's trade secret, trade dress
or other proprietary rights, except that Organic has no
obligation under this subsection (ii) to the extent that
a claim is caused by an infringement that would not have
occurred but for:
11.
<PAGE> 12
(a) an unauthorized modification by or for DC Corp
after Organic has completed and delivered the
relevant Deliverable or performed the relevant
Service;
(b) DC Corp's failure to use corrections or
enhancements made available by Organic if those
corrections or enhancements are functionally and
technically within the requirements of the
Statement of Work and Organic offers in writing
to provide them to DC Corp and to make the
replacement into the relevant Deliverable at no
additional charge; or
(c) DC Corp's use of a Deliverable in combination
with any product or information not provided
under this Agreement.
(iii) constitutes an invasion of privacy or the unauthorized
use of a third party's name and likeness;
(iv) constitutes unfair competition, piracy or
misappropriation of ideas; or
(v) contains misrepresentations, misquotations, or
misstatements of fact.
B. INDEMNIFICATION BY DC CORP. Notwithstanding the provisions of
Section 9.A, DC Corp will indemnify and hold Organic, its
directors, officers, employees, subsidiaries and affiliates
harmless from and against all third party Claims that Organic
may suffer, pay or incur as the result of:
(i) a product liability lawsuit alleging personal injury
sustained in or as a result of the use of a DC Corp
product brought against Organic on the basis of
assertions made in the Content of a Deliverable
developed or of a Service performed by Organic; or
(ii) any Content or software provided by DC Corp that is used
in a Deliverable developed or Service performed by
Organic if DC Corp has informed Organic that DC Corp has
obtained the necessary releases, licenses, permits,
waivers, or other authorization for the use of the
applicable Content or software from all parties who have
or claim to have rights in those elements; or
12.
<PAGE> 13
(iii) assertions made in the Content of a Deliverable
developed or Service performed by Organic, which
assertions are based on DC Corp product information as
supplied to Organic by DC Corp ;
provided that Organic has complied with section 5 and DC Corp
has given written approval as to the form, content and
presentation of the Deliverable developed or Service performed
by Organic in question, prior to its publication, broadcast,
posting to the Internet or other form of distribution to a third
party.
10. INDEMNIFICATION PROCEDURES. The indemnified party must (i)
promptly notify the indemnifying party in writing of any Claim
under Section 9, (ii) give the indemnifying party sole control
of the defense (in cooperation with the indemnified party) and
any related settlement negotiations, provided however, that any
such settlement which imposes injunctive or other equitable
relief binding upon the indemnified party requires the
indemnified party's prior written consent (which consent may be
granted or withheld in the sole discretion of the indemnified
party), and (iii) cooperate and, at indemnifying party's request
and expense, assisting in such defense.
11. INSURANCE
Organic will, at its own expense, procure and maintain from an after
October 19, 1999, from an insurance company reasonably acceptable to DC,
insurance coverage of the type and in the amounts set forth as follows:
a. General Liability insurance with a minimum limit of $5 million
per occurrence including coverage for contractual liability
under policies covering third party claims for property damage,
bodily injury, and personal injury and contractual liability,
coverage for oral or written publication of material that
slanders or libels a person or organization or disparages a
person's or organization's goods, products or services, that
violates a person's right of privacy, and misappropriation of
advertising ideas or style of doing business, and infringement
of title or slogan; and
b. Technology Errors and Omissions Insurance or other appropriate
insurance coverage providing limits of no less than $10 million
per occurrence under policies covering errors and omissions
committed in the course of its business.
13.
<PAGE> 14
The coverage under Organic's insurance policies must be primary and not in
excess over or contributory with any other valid, applicable and collectible
insurance in force for DC Corp. Organic will provide to DC Corp appropriate
documentation demonstrating that DC Corp has been named as an "additional
insured" under each of the insurance policies described above, each of which
will provide for thirty (30) days prior written notice to DC Corp of
cancellation or modification thereof. Organic will deliver to DC Corp, an annual
renewal certificate of insurance. Failure to maintain such insurance will be an
event of default under this Agreement.
12. LIMITATIONS OF LIABILITY
EXCEPT FOR LIABILITY OR DAMAGE ARISING UNDER ANY VIOLATION OF SECTIONS
5, 6, 7 AND 8.A AND 9 OF THIS AGREEMENT, OR FOR ANY CLAIM OR ACTION
SOUNDING IN TORT CAUSED BY ANY TORTIOUS INTENTIONAL MISCONDUCT, GROSS
NEGLIGENCE OR WILLFUL OR WANTON CONDUCT BY OR ON BEHALF OF A PARTY,
INCLUDING PERSONAL INJURY OR PROPERTY DAMAGE, THE FOLLOWING LIABILITY
LIMITS APPLY TO THIS AGREEMENT:
A. A PARTY WILL HAVE NO LIABILITY FOR ANY INDIRECT, INCIDENTAL,
SPECIAL OR CONSEQUENTIAL DAMAGES ARISING UNDER THIS AGREEMENT
(INCLUDING, WITHOUT LIMITATION, LOST PROFITS, REVENUES, BUSINESS
OPPORTUNITY OR DATA) HOWEVER ARISING AND UNDER ANY THEORY OF
LIABILITY (INCLUDING BREACH OF CONTRACT BREACH OF WARRANTY AND
TORT (INCLUDING NEGLIGENCE AND STRICT LIABILITY)), REGARDLESS OF
WHETHER THE PARTY KNEW, SHOULD HAVE KNOWN OR WAS ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES; AND
B. IN NO EVENT SHALL A PARTY'S LIABILITY TO THE OTHER PARTY FOR
DIRECT DAMAGES FOR ALL CAUSES OF ACTION IN THE AGGREGATE EXCEED
THE GREATER OF TWO (2) TIMES THE FIXE FEE FOR THE THEN-CURRENT
CALENDAR YEAR STATEMENT OF WORK OR TWO (2) TIMES THE AMOUNT OF
FEES PAID UNDER THIS AGREEMENT.
14.
<PAGE> 15
13. TERMINATION
A. MUTUAL OPTION TO TERMINATE. Either party may terminate at the
end of the 13th month (April 30, 2000) by giving the other
written notice before February 26, 2000. (As used hereafter, the
term, "NOTICE PERIOD" means the period from January 1, 2000
through April 30, 2000.
B. EFFECT OF TERMINATION.
(i) Work in process. If either party issues a termination
notice as described in Section 13.A above, Organic will
not commence work during the Notice Period on any
Services or Deliverables described in any Statement of
Work for the 2000 calendar year (unless otherwise
requested in writing by DC Corp and agreed to in writing
by Organic). Organic must complete all Services and
Deliverables described in the Statement of Work for the
first 9.5 month period unless otherwise directed by DC
Corp. The terms and conditions of this Agreement will
govern any Deliverable delivered or Service performed
after the issuance of a notice of termination.
(ii) Fees during Notice Period. If either party exercises its
right to terminate as described in Section 13.A above,
then DC Corp's payments described in Section 3.A will
cease with the payment made for month 9.5, and payment
for Services performed and Deliverables delivered during
the Notice Period will be determined as follows: the
parties will agree to a reasonable monthly fee during
the Notice Period commensurate with the work that DC
Corp requests Organic to perform, not to exceed the
monthly payments described in Section 3.A. There will be
no performance bonuses during the Notice Period, but any
previously earned performance bonus may be paid during
the Notice Period.
(iii) Fees if DC Corp terminates this Agreement for material
breach. If DC Corp terminates this Agreement for
Organic's material breach, including but not limited to
Organic's breach of loyalty or violation of ownership or
confidentiality provisions, then DC Corp reserves the
right to suspend all payments under Section 3.A until a
good faith negotiation of fees owed and/or refund due is
determined by both parties or ordered by a court of
competent jurisdiction. This remedy is nonexclusive and
in addition to all legal or equitable other rights or
remedies available to DC Corp.
15.
<PAGE> 16
(iv) Survival. Unsatisfied payment obligations arising before
any termination or expiration of this Agreement, and
Sections 4, 6, 7, 8, 9, 12, 13, 14, 15 and 16, shall
survive any expiration or termination of this Agreement.
C. TRANSITIONAL SUPPORT. Organic recognizes that DC Corp's
interactive programs are vital to DC Corp and must be continued
without interruption. Upon any assignment of this Agreement by
Organic, or upon any termination of this Agreement by either
party, Organic or a successor agency of Organic will provide to
DC Corp services as follows ("TRANSITIONAL SUPPORT"):
(i) in the case of an assignment, Organic or its successor
must perform Services as required under this Agreement
for a period 180 days after the effective date of the
assignment; and
(ii) in the case of a termination, for the Notice Period plus
75 days, Organic will cooperate in an orderly and
efficient transition of Organic's obligations under this
Agreement to DC Corp or a successor agency of Organic.
Fees for Transitional Support during the 75 days following the
Notice Period will be the same as Fees for the Notice Period as
described in Section 13.B(ii) above. Fees for Transitional
Support following a termination by DC Corp for material breach
by Organic will be as described in Section 13.B.(iii) above.
Fees for Transitional Support following any other termination,
or for Transitional Support following an assignment will be
according to Organic's then-current hourly rate card at the time
immediately preceding the termination or assignment.
14. EXAMINATION OF AGENCY RECORDS
A. RIGHT TO AUDIT. During the Term of this Agreement and for 18
months thereafter, DC Corp will have the right, at DC Corp's
expense, to audit Organic's financial and operational books and
records that relate to Organic's performance under this
Agreement (the "RELEVANT RECORDS") on a semi-annual basis upon
no fewer than ten (10) business days' prior written notice to
Organic, for the purpose of evaluating the Organic's compliance
with this Agreement and for determining the level of Organic's
profitability on this transaction. Any such inspection must be
conducted in a manner that does not unreasonably interfere with
Organic's business operations and in a manner that protects any
Organic
16.
<PAGE> 17
Confidential Information. DC Corp may, at DC Corp's expense,
employ a third party to conduct an audit, subject to appropriate
measures to protect against wrongful disclosure of Organic's
business and financial information. The results of any audit may
affect the payment terms in a subsequent term and it may affect
the outcome of a progress assessment within the term or in a
later term. The results of an audit may not, however, affect any
previously agreed upon payment terms under this Agreement.
B. ACCESS TO INFORMATION. Organic will cooperate fully in any DC
Corp audit, including but not limited to providing DC reasonable
access during normal business hours to Organic's personnel and
allowing DC Corp to inspect and photocopy all or any portion of
the Relevant Records, including electronic copies, if reasonably
available.
C. FREQUENCY. DC Corp may conduct an audit in accordance with this
Section not more than once every 6 months, unless a prior audit
or a pattern of invoice errors or material variances from
applicable specifications gives DC Corp reasonable cause for
concern over the accuracy of the billings and invoices, in which
event DC Corp may audit not more frequently than quarterly.
D. ACCOUNTING AND CERTIFICATION. Organic must maintain complete
records relating to all fees billed to DC Corp under this
Agreement. Organic will keep its books, records, and accounts in
accordance with generally accepted accounting principles, and
must have them audited annually by an independent certified
public accounting firm. At Organic's expense, Organic will
provide to DC Corp each year, within one hundred and twenty
(120) days following the end of Organic's fiscal year, a written
audit opinion by such accounting firm that Organic's books,
records, and accounts were kept in accordance with generally
accepted accounting principles during the immediately preceding
fiscal year.
E. RECORD RETENTION. Organic will retain all records relating to or
supporting any charges or billings to DC Corp for a period of 5
years from the date such charges or billings are submitted to DC
Corp for payment.
15. NO SOLICITATION. Unless otherwise approved in writing, for a period
equal to the Term plus 12 months, neither party will solicit for
employment any employee of the other party involved in the performance
of services under this Agreement. This restriction does not apply to:
unsolicited inquiries to a party made by an employee of the other party;
inquiries received from an employee of a party as the result of a
general notice or advertisement
17.
<PAGE> 18
placed by the other party; or inquiries resulting from an employment
search firm hired by the employee.
16. GENERAL
A. SUBCONTRACTORS. Except for subcontractors under the direct
control of Organic management, Organic may not subcontract the
performance of any Services or the development of any
Deliverables without DC Corp's prior written consent, which
consent will not be unreasonably withheld or, if DC Corp
requires that the services to be performed by such party are to
be performed within ten (10) days from DC Corp's notice to
Organic of the services to be performed, Organic has obtained
oral approval from DC Corp and Organic uses its best efforts to
secure written memorialization of the oral approval as soon as
possible thereafter. Organic will be responsible for the work
performed by permitted subcontractors. No subcontract or other
agreement between Organic and a third party will provide for any
indemnity, guarantee, assumption of liability, or other
obligation on the part of DC Corp, without DC Corp's prior
written consent. Organic will be solely responsible for making
all payments due each of its subcontractors; provided, however,
that DC Corp, in its sole discretion and upon notice to Organic,
may elect from time to time to make payments directly to any
such subcontractor that would have been due to such
subcontractor by Organic.
B. INTEGRATION. This Agreement including all exhibits attached and
incorporated by reference into this Agreement contain the entire
agreement between DC Corp and Organic. This Agreement supersedes
all prior or contemporaneous communications, representations or
agreements, whether oral or written, with respect to the subject
matter hereof. No representations, statements or agreements were
made or relied upon by either party, other than those expressly
set forth herein.
C. MODIFICATION. Any attempted modification or amendment of this
Agreement will be without force and effect unless reduced to a
writing signed by an authorized representative of the party
against whom such modification or amendment is sought to be
enforced. For DC Corp, this is an authorized representative of
Procurement and Supply.
D. GOVERNING LAW AND JURISDICTION. The interpretation and
enforcement of this Agreement will be governed by the laws of
the State of Michigan (excluding the choice of law rules thereof
and excluding the United Nations Convention on Contracts for the
International Sale of Goods and any legislation implementing
such
18.
<PAGE> 19
Convention) without regard to its conflict of laws rules. The
parties irrevocably consent to the jurisdiction of the courts of
the State of Michigan located in Oakland County, and/or the
United States District Court for the Eastern District of
Michigan with respect to the adjudication of any matters arising
under or in connection with this Agreement.
E. WAIVER. The failure of a party in any instance to object to or
to take affirmative action with respect to an act or omission of
the other which violates the terms of this Agreement shall not
be construed as a waiver of that or any future violation.
F. NOTICES. All notices pertaining to this Agreement must be in
writing and will be transmitted either by registered or
certified mail, return receipt requested, to the respective
parties at the following addresses or to such other addresses as
either party may designate in writing to the other party:
If to DC Corp: DaimlerChrysler Corporation
1000 Chrysler Drive
Auburn Hills, Michigan 48326-2766
Attention: Vice President, Marketing Operations, with a copy to
The Office of the General Counsel
DaimlerChrysler Corporation
1000 Chrysler Drive
CIMS 485-14-23
Auburn Hills, Michigan 48326-2766
If to Organic: Organic, Inc.
510 Third Street, Suite. 540
San Francisco, California 94107
Attention: President
with a copy to: Organic, Inc
510 Third Street, Suite 540
San Francisco, California 94107
Attention: Chief Legal Officer
G. SECTION HEADINGS. The section headings contained in this
Agreement are for reference purposes only and will not affect in
any way the meaning or interpretation of this Agreement.
H. ASSIGNMENT. Neither party may assign its rights or delegate its
obligations under this Agreement without the other party's prior
19.
<PAGE> 20
written consent. Notwithstanding the foregoing, in the event of
a merger or acquisition, either party may, upon written
notification to the other party, assign its rights and delegate
its obligations under this Agreement to an entity that acquires
51% or more of its assets or 51% of its voting securities,
provided that the resulting entity agrees to assume the rights
and obligations of the assigning party under this Agreement.
I. SEVERABILITY. Whenever possible, each part of this Agreement
must be interpreted as enforceable under applicable law. If part
of this Agreement is unenforceable under applicable law, it is
unenforceable only to the extent required by applicable law, and
the remainder of this Agreement is otherwise fully enforceable.
J. FORCE MAJEURE. To the extent that a party is not able to perform
an obligation under this Agreement due to fire, flood, a strike
or other labor interruption, war, riot, an act of God, an act of
government, insurrection, civil disturbance, or other cause
beyond that party's reasonable control, that party may not be
liable for failing to perform that obligation, except that this
Section may not excuse any party from the obligation to pay
money that is owed.
K. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which is to be treated as an original, and
all of which is one and the same instrument.
IN WITNESS WHEREOF, each of the parties has caused this Agreement
to be executed and delivered by its duly authorized representative on the date
first written above.
ORGANIC, INC. DAIMLERCHRYSLER CORPORATION
By: /s/ Missy Devlin By: /s/ Douglas A. Brown
-------------------- -----------------------------
Its: VP, Managing Director Its:
------------------------ ----------------------------
Date: Jan. 12, 2000 Date:
------------------------ ---------------------------
20.
<PAGE> 21
EXHIBIT A
STATEMENT OF WORK
(FOR INITIAL 9.5 MONTH PERIOD)
21.
<PAGE> 22
<TABLE>
<CAPTION>
Project Description Amount
- ------- ----------- ------
<S> <C> <C> <C>
Section 1 and 2 A. Interactive Marketing Assist DC Corp in developing short term and long $ 500,000
Plan, Strategy and term (3year) interactive marketing strategies and
timeline plans, including a development-to-launch timeline
for interactive infrastructure, applications, sites
or other developments matching vehicle product
launch timelines.
B. Benchmarking On a quarterly basis analyze and benchmark selected
interactive marketing media, technologies, trends
and best practices worldwide, and recommend those
which are most suitable for use by DC Corp,
consistent with its Interactive Marketing Strategy
and Plan.
C. Update Interactive Update Interactive Marketing Strategy and Plan on a $ -
Marketing Strategy/ quarterly basis to include new media and
Propose Enhancements technologies trends and best practices. As a result
of this, create and propose, on a quarterly basis,
technical and content enhancements to web sites,
applications and interfaces that result in the
number of return visits, degree of repeated use,
amount of vehicle customer feedback or other
applicable measure of market response. The
implementation of these proposed enhancements are
not included in this scope of work. Cost included
in section 1A.
D. Agency/supplier Coordinate all efforts which are covered by this
coordination scope of work. Coordinate efforts with DC Corp and
its other advertising agencies and suppliers to
ensure that, on the whole, the interactive work
performed under this scope of work for each
Stakeholder, including revisions over the model
year, the "look and feel" the navigational design
and the content message is consistent with DC
Corp's Interactive Marketing Strategy and Plan.
E. Advertising advice Provide interactive advertising advice and $ 20,000
direction to DC Corp.
F. Propose Enhancements Included in Section 1C
H. DC Corp Meetings Participate in all DC Corp meetings involving
Organic interactive projects, both internal or
external (for example with DC Corp's other
advertising agencies or other suppliers), or
otherwise relating to the business groups of the
Stakeholders, as needed to accomplish Organic
project deliverables. Participate in interactive
project status meetings, as needed to accomplish
Organic project deliverables. Document each meeting
attended with a written report that identifies the
issues and resolutions discussed and remaining open
issues.
I. Site Standards Propose for approve by Stakeholders, DC Corp Sales $ 15,000
& Marketing and DC Corp Information Technology
Management ("ITM") web standards for all sites and
applications provided under this Agreement,
including site "look and feel" (e.g.,pixel size)
navigational strategy, user interfaces, application
functionality and infrastructure (e.g., N-tier
architecture) and creative content.
J. Hosting Advice/Hosting Cost removed from contract. Organic to provide at $ -
Operations no cost.
K. Shows and Exhibits Provide strategies for shows and exhibits and $ 5,000
delivery mediums (e.g. web site, kiosk, etc.)
featuring DC Corp interactive marketing
technologies. This does not include any
implementation, delivery or out of pocket costs,
including travel.
</TABLE>
Combined
Page 1
<PAGE> 23
<TABLE>
<S> <C> <C> <C>
L. Dealer meeting Assist in DC Corp, dealer council, and dealer
presentations meeting presentations regarding interactive
marketing, as needed or as requested by a
Stakeholder. This does not include any out of
pocket costs including travel.
Section 3 Sites and Applications: Design/Navigation-Define functionality for each web
site and application; design "look and feel" of
site or application user interface and design
navigational strategy for web users; develop
technical specifications for each web site and
application.
Build/Test/Pilot/Launch-Create each web site or
application, perform standard Organic testing to
ensure compliance with its specifications, conduct
a pilot test when appropriate and funded by the
stakeholder, and migrate the web site or
application into production in the timeframe agreed
upon with the applicable Stakeholder
Create Proof of Concepts as required by specific
project scope.
Ensure that each web site and application provided
under the Agreement facilitates accurate,
efficient, and effective measurement by DC Corp's
web measurement tool (for example standardized file
names that clearly identify components that should
be counted vs. components that should not be
counted as page views). The DC standard measurement
tool is Andromedia. If DC changes this measurement
tool, costs to modify sites/applications' hooks,
code, and/or naming conventions are outside the
scope of this agreement.
Ensure that each web site and application provided
under the Agreement is compatible with and can be
deployed on DC Corp's Intranet as needed or as
requested by a Stakeholder. Stakeholder must notify
Organic of its intention to place the site or
application within the DC Intranet environment, and
Organic must be provided with full hosting and
software specifications for the Intranet
environment by DCIT.
Ensure that each web site and application provided
under the Agreement can be integrated with the
World Class Customer Support ("WCCS") call center
once Organic is provided with full hosting and
software specifications to the WCCS environment.
Costs for integration of applications and sites
into WCCS that are in existence at the time
standards are finalized and provided to Organic are
outside the scope of this agreement.
Ensure that all web sites and applications provided
under the Agreement can be used internationally
(for example, double-byte enabled). All new
software applications will be developed for
compatibility with double-byte character
databases/data to be provided by DC. International
web sites to be developed in dual language where
identified in scope agreements/statements of work.
Web sites undergoing re-architecture/new
navigational design to be evaluated for multiple
language capability/layout, and recommendations
will be made as to best options for each site to
develop most comprehensive/consistent layout for
international usage. Assumes stakeholder acceptance
of layout recommendations.
</TABLE>
Combined
Page 2
<PAGE> 24
<TABLE>
<S> <C> <C> <C>
Ensure that all web sites and applications provided
under the Agreement have overall page layout design
of "top-left anchor" where appropriate and approved
by Stakeholder to adhere to the DC Corp corporate
standard for MY 2001.
For all web sites and applications provided under
this Agreement, adhere to DC Corp then-current
published Web Standards, including as modified from
time to time by DC Corp or otherwise upon
recommendations from Organic under this Agreement.
(The 1998 Web Standards have been made available to
Organic).
Section 4 Infrastructure: Design-Define how DC Corp's internal operations
systems and databases will integrate with
Stakeholder web sites, applications or databases;
and develop technical specifications as necessary.
Build/Test/Pilot/Launch-Create each infrastructure
component, perform standard Organic testing to
ensure compliance with its specifications, conduct
a pilot test when appropriate and funded by the
stakeholder, and migrate into production in the
timeframe agreed upon with the applicable
Stakeholder
Ensure that all infrastructure components provided
under the Agreement can be used internationally
(for example, double-byte enabled). All new
software applications will be developed for
compatibility with double-byte character
databases/data to be provided by DC. International
web sites to be developed in dual language where
identified in scope agreements/statements of work.
Web sites undergoing re-architecture/new
navigational design to be evaluated for multiple
language capability/layout, and recommendations
will be made as to best options for each site to
develop most comprehensive/consistent layout for
international usage. Assumes stakeholder acceptance
of layout recommendations.
Create Proof of Concepts as required by specific
project scope.
For each infrastructure component provided under this
Agreement, adhere to DCCorp' then-current published Web
Standards, including as modified from time to time by DC
Corp or otherwise upon recommendations from Organic under
this Agreement. (The 1998 Web Standards have been made
available to Organic).
Section 5 Database: Design-Define the database structure,
relationships, rules or other constraints; develop
technical specifications as necessary that
integrate with all present and future onsite and
offsite database functions
Build/Test/Load/Pilot/Launch-Create the database
and components necessary for data access, conduct
standard Organic testing to ensure compliance with
specifications, load the database, conduct a pilot
test when appropriate and funded by the
Stakeholder, and migrate the database into
production in the timeframe agreed upon with the
Stakeholder(s).
Coordinate Stakeholder requests regarding database
use, enhancement or potential need for a new
database with DC Corp's Web connect Integration
Manager for final approval.
</TABLE>
Combined
Page 3
<PAGE> 25
<TABLE>
<S> <C> <C> <C>
If DC Corp's Web Connect Integration Manager
approves a new database, ensure that each new
database is integrated with all present and future
onsite and offsite database functions. Costs for
integration of new databases into existing systems
is outside the scope of this agreement.
Create Proof of Concepts as required by specific
project scope.
For each database development or enhancement
provided under this Agreement, adhere to DC Corp's
then-current published Web Standards, including as
modified from time to time by DC Corp or otherwise
upon recommendations from Organic under this
Agreement. (The 1998 Web Standards have been made
available to Organic).
Section 6 Support/Maintenance - Design, build, test, pilot and launch ongoing
Software: repair and/or bug fixes after the initial
production rollout of each web site, application,
infrastructure component, universal application
("universals"), database, or other developments, as
needed to adhere to the original agreed-upon
project specifications within a reasonable amount
of time following notification of issue.
Section 7 Data Maintenance - Content Create-Create data or other content as requested by
Stakeholders. (Data is usually created by DC Corp
and its other advertising agencies.)
Maintenance- Update, maintain and refresh data and
other content within the confines of the specific
projects outlined in Category 9.
Section 8 Creative: Create-Create data or other content as requested by
Stakeholders. (Data is usually created by DC Corp and its
other advertising agencies.)
Create Proof of Concepts as required by specific
project scope.
Section 9 Stakeholders and their
Anticipated Services and
Deliverables:
Universals Accelerated Enhanced Develop Enhanced Consumer Experience on the Dodge, $ 950,000
Consumer Experience Chrysler, Plymouth and Jeep web sites that will
(Includes Dealer Locator, more seamlessly integrate the following universal
Comp/Comps, Incentives and applications in a single user session: Dealer
P&E re-architecture) Locator, Competitive Comparisons, Incentives and
P&E.
Fulfillment Maint Perform routine maintenance of Fulfillment $ 95,000
application limited to minor template modification
and necessary application repair to application as
needed. Excludes new functionality.
Fulfillment Migration Migrate fulfillment application from Oracle $ 53,000
platform to IBM UDB. $50,000 Dealer Locator Maint
Perform routine maintenance of current RR-developed
Dealer Locator application limited to minor
template modification and necessary application
repair to application as needed. Excludes new
functionality.
P/E Maint Perform routine maintenance of Price and Equip $ 115,000
application limited to minor template modification
and necessary application repair to application as
needed. Includes functionality modification to
display both 1999 model and 2000 model pricing.
</TABLE>
Combined
Page 4
<PAGE> 26
<TABLE>
<S> <C> <C> <C>
Incentives maint Perform routine maintenance of Incentives $ 75,000
application limited to minor template modification
and necessary application repair to application as
needed. Excludes new functionality.
Links/Disclaimer Perform routine maintenance of Links/Disclaimer $ 17,500
application limited to minor template modification
and necessary application repair to application as
needed. Excludes new functionality.
Competitive Comparison Perform routine maintenance of Competitive $ 28,000
Maintenance Comparison application limited to minor template
modification and necessary application repair to
application as needed. Excludes new functionality.
Dealer Locator New User Develop customer user interface for web use. DCIT $ 30,000
Interface to provide engineering of Dealer Locator
application, to work in conjunction with Map Info.
Oracle to UDB Conversion See Detailed Statement of Work, Oracle Migration to $ 335,000
DB2 December 15, 1999
UAMS User Access See Detailed Statement of Work, User Access Management $ 255,000
Management System System for Daimler Chrysler July 7, 1999
(Generic Sign-up)
Car Colors Car Colors 00MY and Car Perform additions and/or modification to Brand $ 153,248
Colors Maintenance vehicle images relative to car color availability
as needed. Images to be placed into a central
repository for use by all appropriate venues.
Excludes all placement of images into specific
sites, which would be covered under the appropriate
site maintenance project.
BATS Maintenance Perform routine maintenance of BATS application $ 20,000
limited to minor template modification and
necessary application repair to application as
needed. Excludes new functionality.
BATS Upgrade Modification to BATS to integrate with Andromedia $ 25,000
banner measurement
Evaluate Alternatives to Included in Interactive Marketing Strategy
BATS
Corporate Site Corporate Site Three Page Design and develop static page refresh of three $ 270,000
Refresh and New Site Design core template pages. Discovery and Planning for
Discovery/Planning Corporate Site Redesign.
Corporate site search Discovery and evaluation of a Yahoo-type advanced $ 25,000
engine discovery/evaluation search engine that integrates information from all
of DC Corp's sites.
Corporate Site, Intranet Refresh creative of Corporate Intranet to support $ 45,365
Day 366 (One Year Anniversary.)
Mall of America Mall of America Banner Ads Banner ad development for Mall of America. $ 12,500
Automobility Automobility Site Update Perform routine maintenance to the site, up to and $ 35,429
(Includes Automobility including creation of the Automobility Adaptive
Conversion Locator and Equipment Locator, minor content replacement or
Automobility Maint) repair, graphic image replacement or repair,
technical repair, or limited enhancements
considered by Organic to be routine maintenance.
Automobility 2000 Discovery Discovery into 2000 upgrade/updates to Automobility $ 15,000
site.
BYDV Build Your Dream Vehicle See Detailed Statement of Work, Build Your Dream $ 70,000
Vehicle Website July 6, 1999
</TABLE>
Combined
Page 5
<PAGE> 27
<TABLE>
<S> <C> <C> <C>
College Grad College Grad Site Update Redesign of the College Grad Site to increase $ 130,000
and Maintenance general awareness of the College Grad program.
Brandize College Grad Incentive Program within the
brand sites through implementation of new College
Grad/Brand pages. Perform routine maintenance to
the site, up to and including minor content
replacement or repair, graphic image replacement or
repair, technical repair, or limited enhancements
considered by Organic to be routing maintenance.
College Grad 2000 Discovery Discovery into 2000 upgrade/updates to College Grad $ 16,750
site.
Aviation Aviation New Look and Feel, See Statement of Work. Perform routine maintenance $ 38,600
Content to the site, up to and including graphic image
repair and technical repair. Does not include
additional content or content modifications after
planned launch of 11/1/99.
Canada Canada Content Maintenance Perform routine maintenance to the site, up to and $ 100,000
(10/1/99 - 12/31/99) including minor content replacement or repair,
graphic image replacement or repair, technical
repair, or limited enhancements considered by
Organic to be routine maintenance.
Canada PT Cruiser Modify domestic PT Cruiser static content for use $ 30,000
in Canadian site.
Canada Content Promotion/ Assemble, provide technical QA, and promote content $ 55,000
Assembly (of RR Windsor revisions/maintenance of content created by RR
Content 3/15/99 - 9/30/99) Windsor/Cyberplex through 9/30/99
Canada Financial Discovery Modification of domestic Estimator for Canadian $ 17,500
use, Modification of domestic Credit Application
for Canadian use, Creation of database table to
manage e-mail addresses, Modification of e-mail
template with new e-mail address, Porting of vendor
content to DEV environment for integration with
engineering components, Establishing site
structures on DEV, QA, STATUS and PRODUCTION
environments, Integration of design/html components
with engineering components, Porting integrated
content to DCIT for launch, Quality Assurance
Testing. Discovery Phase Only
Canada General Discovery Conduct discovery phase for major stakeholders, $ 192,500
including brands, Mopar, Service and Parts, Fleet,
and Universal applications
Canada Price & Equip See Detailed Statement of Work, Daimler Chrysler $ 70,588
(2 tier launch) Canada Price and Equipment October 3, 1999
Canada Dealer Locator New Develop customer user interface for web use. DCIT $ 18,500
User Interface to provide engineering of Dealer Locator
application, to work in conjunction with Map Info.
Canada GAQ Develop GAQ application utilizing business rules $ 132,000
specific to Canadian market, leveraging concurrent
development with domestic GAQ, utilizing three tier
architecture.
CFC CFC Integration Modify P&E user interface on all brand sites to $ 60,000
more prominently display link to CFC web site.
CFC I-Quote output See Detailed Statement of Work, DaimlerChrylser $ 53,000
Financial Services I-Quote "Account Payoff" module
July 7, 1999
</TABLE>
Combined
Page 6
<PAGE> 28
<TABLE>
<S> <C> <C> <C>
CFC 00MY Update Discovery Discovery and Planning Only -- Changing name and $ 80,000
and Planning logo throughout site, consolidate copy into a more
concise layout, partially restructure navigation to
provide ease of use/increased usage of key areas.
CFC Credit Application See Detailed Statement of Work, DaimlerChrysler $ 225,000
Financial Services "I-Credit" Online Credit
Application module October 18, 1999
CFC Maintenance Perform routine maintenance to the site, up to and $ 143,000
including minor content replacement or repair,
graphic image replacement or repair, technical
repair, or limited enhancements considered by
Organic to be routine maintenance.
Chrysler/Plymouth Chrysler Brand 00MY Update See Detailed Statement of Work, DaimlerChrysler $ 450,000
2000 MY Chrysler Brand Web Site June 24, 1999
Chrysler Brand Maintenance Perform routine maintenance to the site, up to and $ 240,000
including minor content replacement or repair,
graphic image replacement or repair, technical
repair, or limited enhancements considered by
Organic to be routine maintenance. Chrysler
Maintenance includes proposed enhancements to the
PT Cruiser site, coordinate Webspot promotions, and
develop required electronic advertising banners.
Enhance PT Crusiser site Included in Chrysler Maintenance.
Autoshow support sites Perform modifications and updates to the Chrysler $ 60,000
(new launches) and Plymouth web sites for auto show support (2001
MY Vehicle Launch).
Coordinate Webspot Included in Chrysler Maintenance.
promotions
Develop Banner Ads Included in Chrysler Maintenance.
Chrysler Brand 01MY Update Site refreshment and update of content for 2001MY. $ 460,000
(Partial)
Plymouth Plymouth 00MY Update See Detailed Statement of Work, DaimlerChrysler $ 445,000
2000 MY Plymouth Brand Web Site June 24, 1999
Plymouth Maintenance Perform routine maintenance to the site, up to and $ 205,000
(3-15-99 thru 12/31/99) including minor content replacement or repair,
graphic image replacement or repair, technical
repair, or limited enhancements considered by
Organic to be routine maintenance. Plymouth
Maintenance includes coordination of Webspot
promotions, and development of required electronic
advertising banners.
Coordinate Webspot Included in Plymouth Maintenance.
promotions
Develop Banner Ads Included in Plymouth Maintenance.
DCA DCA Phase I See Detailed Statement of Work, DaimlerChrysler $ 265,000
Academy (DCA) Web Site Programming for
DaimlerChrysler April 14, 1999
DCA Phase II Included in DCA Phase 1 $ 66,000
Dodge Dodge 00MY Update See Detailed Statement of Work, DaimlerChrysler $ 65,000
2000 MY Dodge Brand Web Site July 19, 1999
Dodge Business Link- See Detailed Statement of Work, BusinessLink $ 80,000
Consumer Electronic Communications Plan for Dodge May 17,
1999
</TABLE>
Combined
Page 7
<PAGE> 29
<TABLE>
<S> <C> <C> <C>
Dodge Maintenance Perform routine maintenance to the site, up to and $ 295,000
including minor content replacement or repair,
graphic image replacement or repair, technical
repair, or limited enhancements considered by
Organic to be routine maintenance. Dodge
Maintenance includes Dodge Islands of Adventure,
Dodge Animal House.com, Dodge online links, Dodge
Concept Vehicles, coordination of Webspot
promotions, and development of required electronic
advertising banners.
Dodge Quad Cab See Quad Cab Customer Contact Plan $ 180,000
Dodge Banner Ads Included in Dodge Maintenance.
Dodge Islands of Adventure Included in Dodge Maintenance.
Dodge Animal house.com Included in Dodge Maintenance.
Dodge online links Included in Dodge Maintenance.
Dodge Car Colors Included in Car Colors.
An 84 Screen Saver Included in Quad Cab.
Dodge Concept Vehicles Included in Dodge Maintenance.
Dodge email Design and develop up to twelve outbound e-mail $ 45,000
communications to distribution list provided by DC
CRM systems.
Dodge catalog strategy Develop a strategy for an online eCatalog system. $ 30,000
Dodge Ecommerce Develop customer user interface for e-commerce $ 60,000
application for Dodge based upon existing DC/IBM
back end solution.
Dodge Webcast See Detailed Statement of Work, Dodge Different $ 49,688
Webcast for Dodge September 23, 1999
Dodge NHL Auction See Detailed Statement of Work, DodgeNHLAuction.com $ 244,500
December 23, 1999
Five Star Five Star Maintenance Perform routine maintenance to the site, up to and $ 15,000
including minor content replacement or repair,
graphic image replacement or repair, technical
repair, or limited enhancements considered by
Organic to be routine maintenance.
Five Star Training Tracker Perform routine maintenance to the site, up to and $ 30,000
Maint/Enhancements including minor content replacement or repair,
graphic image replacement or repair, technical
repair, or limited enhancements considered by
Organic to be routine maintenance.
Five Star Consumer See Detailed Statement of Work, Five Star Consumer $ 20,000
Enhancements Web Site June 30, 1999
Five Star Dealer Enhance the dealer site by adding expanded $ 60,000
Enhancements requirements section and integrating performance
tracking, forms download, training analysis and
workshop status, rewards and recognition,
advertising, e-mail, and link to Get a Quote.
Fleet Fleet Strategic Direction/ See Detailed Statement of Work, Fleet Statement of $ 30,000
Discovery Work - Discovery Phase July 8, 1999
Fleet Operations Included in Fleet Strategic Direction/Discovery $ 170,000
Enhancements
International International Coordination Development of international guidelines and $ 250,000
and Communication standards to include U.S. Maint. Of communication
plan. Creation of international markets metasite
and coordination tool. Excludes any outside costs
for legal or other consulting services relative to
privacy statement and/or data ownership/transport
issues.
</TABLE>
Combined
Page 8
<PAGE> 30
<TABLE>
<S> <C> <C> <C>
International AMESA AMESA Phase II Site Launch Build market specific web content expanding vehicle $ 130,000
content for seven major markets.
AMESA Maintenance Perform routine maintenance to the site, up to and $ 30,000
including minor content replacement or repair,
graphic image replacement or repair, technical
repair, or limited enhancements considered by
Organic to be routine maintenance. Includes monthly
update of in-market Dealer lists; electronic dealer
data to be supplied by market.
AMESA Neon 2000 Launch See Detailed Statement of Work, DaimlerChrysler $ 71,500
AMESA Regions Chrysler PL2000 Neon Update June 27,
1999
AMESA WJ Launch Develop WJ vehicle content for seven major markets $ 66,000
following existing Phase II template design.
International APO APO Phase II Site Build market specific web content expanding vehicle $ 100,000
Launch/Database content for four major markets.
APO Maintenance Perform routine maintenance to the site, up to and $ 30,000
including minor content replacement or repair,
graphic image replacement or repair, technical
repair, or limited enhancements considered by
Organic to be routine maintenance. Includes monthly
update of in-market Dealer lists; electronic dealer
data to be supplied by market.
APO Neon 2000 Launch See Detailed Statement of Work, DaimlerChrysler APO $ 27,500
Regions Chrysler PL2000 Neon Update June 27, 1999
APO WJ Launch Develop WJ vehicle content for four major markets $ 38,500
following existing Phase II template design.
International In Market Strategy and Research and create integrated, market-based plans $ 100,000
Europe Research that include, but are not limited to, short-term
and long-term strategies, technical imperatives,
and business imperatives.
Europe e-mail Fulfillment Capture handraiser names/email/ and CRM questions $ 12,500
in exchange for catalogs and/or incentives and/or
additional information. A French and English
version will be offered.
Europe PT Cruiser Leverage the 1999 domestic PT Cruiser site and $ 6,500
develop a PT Cruiser gateway for Germany, France,
Austria, Belgium, Netherlands, Italy, U.K., Spain,
Norway, Sweden, and Switzerland.
</TABLE>
Combined
Page 9
<PAGE> 31
<TABLE>
<S> <C> <C> <C>
International Mopar International Mopar Sites This project will introduce the International $ 27,800
Jeep/Chrysler/Dodge community to the
Mopar brand.
Asia Pacific
a. Australia - English(*)
b. Taiwan - Simplified Chinese(*)
c. Japan - Japanese
AMESA
a. Argentina - Spanish
b. Brazil - Portuguese(*)
c. Venezuela - Spanish
e. South Africa.
Jeep Jeep Camp Jeep (Phase 1) Develop Jeep web site content promoting the Camp $ 80,000
Jeep event.
Camp Jeep Phase 2 Develop Jeep web site content highlighting a $ 60,000
retrospective of the 1999 Camp Jeep event.
Jeep Site Maintenance Perform routine maintenance to the site, up to and $ 305,000
including minor content replacement or repair,
graphic image replacement or repair, technical
repair, or limited enhancements considered by
Organic to be routine maintenance. Jeep Maintenance
includes upgrade to multi-media showcase section,
upgrade to heritage section, update to peak driving
section, upgrade to Jeep 101, coordination of
Webspot promotions, and development of required
electronic advertising banners.
Jeep 00MY Update Develop and implement 2000MY Jeep Brand Web Site $ 630,000
refresh and changes.
Jeep Ecommerce Develop customer user interface for e-commerce $ 60,000
application for Jeep Provisions. Includes updating
of product information for 00MY line.
Jeep Jamboree Extend the Jeep Jamboree section within About Jeep $ 118,400
and provide additional functionality for Jeep
enthusiasts. Build new Jeep Jamboree site/section.
Jeep Brand 01MY Update Site refreshment and update of content for 2001MY. $ 750,000
(Partial)
Mopar Mopar Accessories Maint Perform routine maintenance to the site, up to and $ 41,800
including minor content replacement or repair,
graphic image replacement or repair, technical
repair, or limited enhancements considered by
Organic to be routine maintenance.
Mopar Maintenance Products Develop new section of Mopar site to include $ 100,000
display of maintenance products, national
promotions, maintenance schedule, vehicle care
products, and tips on how to maintain vehicle
integrity.
Mopar Accessories 00MY Design and develop new Mopar Accessories templates $ 235,000
consistent with the 00MY brand sites, one time data
pull of approx. 500 accessories.
Mopar Accessories Modifications to the Mopar Accessories site which $ 350,000
Re-architecture will be necessitated by the re-architecture of
applications to a three tier format.
Mopar Retail Service Develop and implement new segment (point of sale $ 50,000
Marketing coupon program)
</TABLE>
Combined
Page 10
<PAGE> 32
<TABLE>
<S> <C> <C> <C>
Mopar Wholesale Marketing Discovery only - completed. Planning/Prod/Launch $ 32,000
postponed to 2000. Develop and implement new
segment (point of sale coupon program)
Mopar "Get-An-Accessory" Discovery and preliminary planning for development $ 70,000
discovery and planning of an application that will allow consumers to
configure accessory purchase in conjunction with
GAQ process.
Mopar Collision Repair Develop a new site segment and update Collision $ 55,000
Repair content to coincide with new marketing
strategy.
PSE PSE Site Maint Perform routine maintenance to the site, up to and $ 27,500
including minor content replacement or repair,
graphic image replacement or repair, technical
repair, or limited enhancements considered by
Organic to be routine maintenance. Includes
quarterly update of product and pricing info.
Retail Strategies GAQ Maintenance Perform ongoing maintenance, updates, reporting and $ 425,000
GAQ planning. Integrate self editing drop boxes on Step
1 - vehicle config. Add questions to become CRM
compliant. Begin to plan/develop links to P&E,
DCFS, etc.. Assist in development of Best Practices
training with DCA. Co-develop/deliver measurement
tool with DCIT and MSX, Plan next generation Dealer
Interface. Coordinate with PentaCom for GAQ media
plan, and Data integration into IMC/COIN format.
GAQ Re Architect See Detailed Statement of Work DaimlerChrsyler $ 675,000
GetaQuote Rearchitecture Project July 29, 1999
GAQ Phase II Enhancements Investigate, define and prioritize Phase II $ 247,500
enhancements for 4th quarter cy99.
Dealer Leads Develop web based dealer lead application to work $ 324,500
in conjunction with Siebel and IMCC databases.
Dealer Dealer Web Network Vendor Evaluation and discovery activities $ 120,000
Discovery
Owner Owner Discovery Discovery of ownership requirements and processes, $ 550,000
features, functions and applications; Benchmarking
competitive and other sites; Identify portal or
channel partners for test sites; Focus groups with
owners, customers and dealers; Budget, schedule and
SOW development for pilot site development.
Base Pages Dealer Base Pages Perform routine maintenance to the site, up to and $ 35,000
Maintenance including minor content replacement or repair,
graphic image replacement or repair, technical
repair, or limited enhancements considered by
Organic to be routine maintenance.
Dealer Base Pages Enhance dealer pages. Integrate new dealer $ 25,888
Enhancements/Map Info locator/map info into process, and Work Dealer Sites
into Ownership Process/Corporate - Brand Sites.
Service Contracts Service Contracts Perform routine maintenance to the site, up to and $ 12,500
Maintenance including minor content replacement or repair,
graphic image replacement or repair, technical
repair, or limited enhancements considered by
Organic to be routine maintenance.
Service Contracts Discovery See Detailed Statement of Work, Service Contracts $ 24,000
Statement of Work - Discovery Phase June 7, 1999
Service Contracts Site Redesign and enhance existing Service Contracts $ 136,000
Redesign and Enhancements site as defined through discovery phase outlined
above.
</TABLE>
Combined
Page 11
<PAGE> 33
<TABLE>
<S> <C> <C> <C>
Tech Authority Tech Authority Ecommerce Modify the internally created site to use the DC $ 97,000
Corp Ecommerce backbone.
Vendor Selection and Web Includes participation in the vendor selection $ 400,000
Self-Service, Web Mail and process and the development and launch of the Web
Base Infrastructure. Self-Service web site. Discovery and planning for
the Web Mail and Base Infrastructure pieces are
included in this amount. The balance of this work
will need to be completed as a part of next year's
budget.
Kiosk Kiosk Next Gen and April See Detailed Statement of Work, Kiosk Next Gen and $ 226,000
April
Kiosk July Update See Detailed Statement of Work, Multi-Purpose Kiosk $ 260,000
Program (MPK) 1999 Calendar Year Maintenance and
Support July Release for DaimlerChrysler June 2,
1999
Kiosk 2000MY Creative Provide creative/assets for 2000MY Kiosk $ 200,000
EPIC EPIC Interface See Detailed Statement of Work, Electronic Product $ 28,250
Information Center (EPIC) Creative Design for
DaimlerChrysler June 17, 1999
TOTAL $ 16,484,306
</TABLE>
Combined
Page 12
<PAGE> 34
EXHIBIT B
(PERFORMANCE CRITERIA)
22.
<PAGE> 35
EXHIBIT C
(198 PROCEDURES)
23.
<PAGE> 36
GEN007: Advertising Legal Review Requirements
CPG GEN007 - Advertising Legal Review Requirements - Formerly CP #198
Revision Date: 06/08/95 Issue Date:
Compliance with the requirement to review and assure the accuracy of all
statements and representations used in advertising.
1.0 PURPOSE
This procedure sets forth the methods to be used to review the Corporation's
advertising in order to assure that any statements and representations made in
advertising are accurate and properly substantiated.
2.0 ORGANIZATIONS AFFECTED
This procedure applies to all activities with the Corporation that are
involved with the development and review of advertising. It also applies to
the advertising agencies employed by the Corporation to develop, create and
implement advertising.
Specific organizations affected include:
Controller's Office
Engineering
Environmental & Energy Affairs
Fleet Operations
Marketing and Communications
MOPAR Parts
Office of General Counsel
Product Design Office
Product Planning
Vehicle Compliance & Safety Affairs
Warranty
3.0 DEFINITION - Advertising
Advertising is defined as a commercial message of any kind whether in print
(e.g. newspaper, magazine, leaflet), broadcast (e.g. television, radio or public
address systems), or electronic media, and sales promotion and merchandising
materials (e.g. direct mail, catalog or interior or exterior dealership signage
or display), which are shown to or otherwise made available to a consumer.
The definition of advertising does not include press releases, and speeches.
However, any material that is intended to convey a product message apart from
its main purpose must be reviewed as though it were advertising.
For purposes of this procedure, the term advertising does not include any legal
notices.
4.0 GENERAL INFORMATION
4.1 General Information
The law requires that advertising materials be based only upon information
<PAGE> 37
that is true and that any statements or representations be substantiated prior
to being made.
Responsibility for the review of the advertising of the various corporate
activities to assure compliance with the foregoing is listed on Exhibit 6.1,
except for personnel advertising for employment purposes.
4.2 Providing Information to Advertising Agencies
The responsible advertising or merchandising manager arranges for the agency to
obtain from various corporate sources information that may be of value in
creating advertising copy. The advertising agency may also obtain information
from independent sources, including data on competitive product and performance
results.
4.3 Compilation of Supporting Data
Certain claims that are to be used may require a great deal of data and
analysis. The advertising agency will coordinate the compilation of the
supporting documents for such claims, and will advise the advertising or
merchandising manager which claims have been cleared for use.
5.0 INSTRUCTIONS
5.1 Circulating Advertising Material for Review
5.1.1 Prior to and during each model year, the advertising agencies will request
corporate information sources to provide the kinds of information that can be
utilized as references in the development of advertising copy and claims. The
advertising agencies will circulate the copy and/or claims developed for use
among the affected activities, including those areas which provided the initial
source of information being utilized; the advertising agencies will include a
form entitled "Request for Clearance of Advertising Claims" to obtain the
signatures verifying that the source of the information has the data to support
the claim (i.e. that the source of the information has a reasonable basis,
including test data, upon which to verify that the claim is true).
5.1.2 Prior to submitting advertising material to the appropriate department for
review, the advertising agency will cross-reference each claim with the source
of material upon which it is based. A "Request for Clearance of Advertising
Claims" form will be addressed to each of the areas that provided the
information on which the claims are based. The text containing the claims, which
are of concern to each reviewer, will be circled upon his/her copy of the
advertisement and reproduced copies of documents from which the claim is derived
will be attached. (The copy submitted to the Office of the General Counsel will
have all claims circled.) The request for clearance form will list the page
numbers of the copy that contain claims or concerns to the particular reviewer.
In addition to specific claims review, information copies of the advertisements
are also to be provided to the Engineering Office, Product Design Office and
Product Planning Office and Vehicle Compliance & Safety Affairs.
5.1.3 The approval of a claim at one point in time during the model year
<PAGE> 38
will not require the claim to be resubmitted for approval at a later date, if
the advertising department has a reasonable basis to determine that the
substantiation for the prior approval remains. However, the claim must be
resubmitted to the Office of General Counsel (preferably directed to the
attorney who initially cleared the claim for use) indicating the desire to reuse
the claim as well as any new circumstances that might affect the claim.
The standard of review may vary according to the intended use of the
advertisement. A statement made in a salesperson training film may be acceptable
for salespersons, but not for consumers. Thus, approval of an advertisement
claim in one instance may not mean that the claim is approved for all purposes -
this review procedure must be conducted again.
5.1.4 Advertising agencies will use no claim, comparison, or other statement of
fact that is not based upon documented information, unless they have made
arrangements in advance to have the supporting data developed before the
advertisement is circulated for clearance.
5.1.5 The advertising agency will establish a "reply required date" and note it
upon the "Request for Clearance of Advertising" forms. The "reply required date"
will be no less than 5 business days, unless the advertising or merchandising
manager submits a special request for a shorter review period.
5.1.6 Any information that is preliminary in nature, including any engineering
preview books, must be so identified and can not be used as the basis of any
advertising claims.
5.2 Review of Proposed Advertising Material
5.2.1 Each area that reviews proposed advertising material (as set forth Exhibit
6.2) will verify it has sufficient information in its files to substantiate the
documents the agency used as a basis for the claim. The reviewer's signature
opposite the page number and the "Request for Clearance of Advertising" form
signifies that the person signing will be able to provide data to support a
claim if requested. When reviewers are not able to support a claim because of
its content or context, this should be so noted on the Request for Clearance
Form.
For all Automotive Advertising
5.2.1.1 The Engineering Office reviews any claim or statement of fact which is
based upon documents provided by or information obtained from that office. This
information may include but is not limited to the following:
AAMA specifications
Design information
Engineering feature books
Engineering standards
Licensing data
Test data
5.2.1.2 The Product Planning Office reviews all claims to assure the model
applicability of styling and engineering features, the appropriateness of
product content and merchandising emphasis, and the proper use of the
<PAGE> 39
terminology used to describe product concepts (other than engineering
nomenclature).
5.2.1.3 The Product Design Office reviews advertising material for accurate
graphic or verbal description of styling features, accents or other styling
characteristics.
5.2.1.4 The Vehicle Compliance and Safety Affairs Office reviews in the case
of any statements related to vehicle safety or emissions production or other
regulatory compliance requirements.
5.2.1.5 The Engineering Office reviews in the case of any statements related
to manufacturing operations or vehicle safety compliance as well as claims
related to quality practices or experiences.
5.2.1.6 Subsidiary operations (e.g. Chrysler Canada Ltd.) reviews in the
case of any statements related to subsidiary operations.
5.2.1.7 Controller's Office Product and Cost Analysis reviews for approval and
provides documentation for all claims related to price implications and
validates these claims for accuracy indicating any restrictions as to timing
for a particular ad.
5.2.1.8 The Service Division reviews for approval of all service-oriented
advertising claims or advertising claims related to warranty practices.
5.2.1.9 The Parts Division reviews for approval of any MOPAR parts claims.
For All Automotive and Non-Automotive Advertising
5.2.1.10 Advertising material containing references of a general nature not
related directly to any of the above or to any specific corporate activity is
reviewed by the responsible advertising manager. He/she is responsible for the
clearance of all claims involving comparisons with competitive products when
the competitive data is obtained from a non-corporate source.
5.2.1.11 Office of General Counsel reviews all advertising for apparent legal
flaws and provides opinions as to whether all of the material that might be
considered a claim is identified and whether the substantiation is acceptable.
They also comment upon the nature and degree of risk involved in each
advertisement.
5.2.2 Immediately upon receiving a "Request for Clearance of Advertising"
form, reviewers should determine if they will be able to meet the "reply
required date." If the date indicated cannot be met, the advertising or
merchandising manager should be contacted so that suitable alternate
arrangements can be made.
5.2.3 Upon completion of the reviews described above, the responsible
advertising or merchandising manager reviews the comments with the agency and
provides guidance relative to the resolution of the comments.
Each advertising agency is responsible for maintaining in numerical order a
copy of each approved advertisement along with all signed Request for
Clearance forms. Each of the reviewers of the advertising material must
maintain files of the data used to support their signed Request for
<PAGE> 40
Clearance forms.
5.3 Final Review
Upon obtaining final approval from all affected activities, the advertising
agency reviews the complete file with the advertising or merchandising
manager. A Summary of Claim Reviews sheet is used for this purpose. Prior to
authorizing the use of the ad, the advertising or merchandising department
determines that signed clearances have been obtained from all the activities
referenced above and that signed Request for Clearance forms are available in
the advertising agency office files; this is accomplished by reviewing a
Summary of Claim Reviews sheet cross-referenced to the proof of the
advertisement. The advertising or merchandising manager authorizes in writing
the use of the advertising material based upon the final review.
5.4 Non-Automotive Advertising
All other advertising must be subject to reviews similar to car and truck
advertising. Activity heads responsible for such advertising must assure that
adequate evidence is available to support all claims, comparisons, and other
statements of fact. Local procedures must be developed that achieve results
comparable to the method described here. This is particularly important in the
case of advertising which is for the purpose of seeking new dealers or
distributors for our various products.
5.5 Retention Requirements
Each of the reviewers of advertising material must maintain files of Request
for Clearance forms in advertisement number order (internal agency number).
Each advertising agency is responsible for maintaining in numerical order a
copy of each approved advertisement along with all signed Request for
Clearance forms.
5.6 Conflicts or Change of Procedures
Any changes to the requirements contained in this procedure must be reviewed
with the Office of the General Counsel prior to its implementation or use. Any
other concerns involving this procedure should also be reviewed with the
Office of the General Counsel.
6.0 Exhibits
6.1 Advertising and Merchandising Departments Having Responsibility for
Compliance
6.2 Chart of Responsibilities for the Content of Automotive Product
Advertising Claims
<PAGE> 1
EXHIBIT 21.1
<TABLE>
<CAPTION>
<S> <C>
Name Jurisdiction
- ---- ------------
Organic Media, Inc. Delaware
Organic.com Pte Ltd. Singapore
Organic Online, Ltd. United Kingdom
Organic Brasil Comunicacao
Interativa Ltda Brazil
Organic Online Canada Canada
</TABLE>
<PAGE> 1
Exhibit 23.2
CONSENT OF PRICEWATERHOUSECOOPERS, LLP, INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated November 22, 1999 relating to the financial statements of Organic,
Inc. which appear in such Registration Statement. We also consent to the
reference to us under the heading "Experts" in such Registration Statement.
/S/ PRICEWATERHOUSECOOPERS LLP
- -----------------------------------------
San Francisco, California
February 8, 2000
