-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O1RW28TtbVQ8LijyhYOzlV/ol/HbMA7afV+4eTC3j7zLSDnK60WdnTkZ4iofrlx2 D5rwVgcCVHJyD/tbwuNmew== 0000895345-99-000147.txt : 19990331 0000895345-99-000147.hdr.sgml : 19990331 ACCESSION NUMBER: 0000895345-99-000147 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: THEGLOBE COM INC CENTRAL INDEX KEY: 0001066684 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ADVERTISING [7310] IRS NUMBER: 141781422 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-25053 FILM NUMBER: 99577604 BUSINESS ADDRESS: STREET 1: 31 WEST 21ST STREET CITY: NEW YORK STATE: NY ZIP: 10010 BUSINESS PHONE: 2128860800 MAIL ADDRESS: STREET 1: 31 WEST 21ST STREET CITY: NEW YORK STATE: NY ZIP: 10010 10-K 1 -------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 COMMISSION FILE NO.: 0-25053 THEGLOBE.COM, INC. (Exact name of registrant as specified in its charter) DELAWARE 14-1781422 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 31 WEST 21ST STREET NEW YORK, NEW YORK 10010 (Address of principal executive offices) (Zip Code) (212) 886-0800 (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Common Stock, par value $.001 per share Preferred Stock Purchase Rights ----------------- Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [X]. Aggregate market value of the voting stock held by non-affiliates of the registrant as of the close of business on March 1, 1999: $264,943,350.* Common Stock outstanding at March 1, 1999: 10,661,327 shares. DOCUMENTS INCORPORATED BY REFERENCE ----------------------------------- The information required by Part III of this report, to the extent not set forth herein, is incorporated by reference from the registrant's definitive proxy statement relating to the annual meeting of stockholders to be held in 1999, which definitive proxy statement shall be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this Report relates. * Includes voting stock held by third parties which may be deemed to be beneficially owned by affiliates, but for which such affiliates have disclaimed beneficial ownership. - --------------------------------------------------------------------------- THEGLOBE.COM, INC. 1998 ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS PART I Item 1. Business........................................................1 Item 2. Properties.....................................................14 Item 3. Legal Proceedings..............................................15 Item 4. Submission of Matters to a Vote of Security Holders............15 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters............................................16 Item 6. Selected Financial Data........................................17 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............................18 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.....40 Item 8. Financial Statements and Supplementary Data....................40 Item 9. Changes in and Disagreements with Accountants and Accounting and Financial Disclosure............................57 PART III Item 10. Directors and Executive Officers of the Registrant.............58 Item 11. Executive Compensation.........................................58 Item 12. Security Ownership of Certain Beneficial Owners and Management.....................................................58 Item 13. Certain Relationships and Related Transactions.................58 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................................................59 SIGNATURES...............................................................61 PART I ITEM 1. BUSINESS OVERVIEW theglobe.com is one of the world's leading online communities with nearly 2.5 million members in the United States and abroad. In December 1998, over 9.3 million unique users visited our web site. Our web site is a destination on the Internet where users are able to personalize their online experience by publishing their own content and interacting with others having similar interests. We facilitate this interaction by providing various free services, including home page building, discussion forums, chat rooms, e-mail and electronic commerce. Additionally, we provide our users with news, business information, real time stock quotes, weather, movie and music reviews, multi-player gaming and personals. By satisfying our users' personal and practical needs, we seek to become our users' online home. We generate revenues primarily by selling advertisements, sponsorship placements within our site, development fees and, to a lesser extent, from electronic commerce revenues and the sale of membership subscriptions for enhanced services. In the last three months of 1998, we had approximately 147 advertisers, including Coca Cola, Dunkin' Donuts, J. Crew, Polygram, Sony, 3Com and Visa. In February 1999, we acquired Azazz.com, an online retail store which sells a variety of name brand products directly to consumers. We began integrating Azazz into our site in February 1999 and expect to begin to generate additional revenues from electronic commerce in the second quarter of 1999. Since our founding, we have experienced strong growth. Over 9.3 million unique users visited our site in December 1998, according to ABC Interactive. Unique users are the actual number of users who access our site. Members are users who register with us and provide personal information to us. Approximately 40% of our monthly traffic originates from abroad, reflecting our site's international appeal. THEGLOBE.COM Todd V. Krizelman and Stephan J. Paternot began our company to take advantage of the demand for online destinations that allow users to develop their own identities and establish relationships with users with similar interests. We organized our community in a hierarchy modeled after the real world. Our site has ten "Themes of Interest": o Arts o News o Business o Romance o Entertainment o Sports o Life o Technology o Metro o Travel Themes of Interest are subdivided into 24 "Cities," which are further divided into 75 "Districts." Within each District, members have the ability to create or join "Interest Groups," our smallest form of community. As of December 31, 1998, there were over 325 Interest Groups. Any member may propose an Interest Group, but an Interest Group will not be activated on the site until it receives sufficient votes from other members. We do not limit the number of communities which our members can join and our members are free to leave an Interest Group at any time. Because of this, the communities are dynamic and evolve as member interests change. Members of a community elect community leaders to manage communities, highlight member content, communicate directly to constituents and organize events. Within Interest Groups, our members can access a collection of services to generate content, including chat, open forums and e-mail. Member-created content within Interest Groups satisfies users' desires for topic specific information, conversation and debate. Members vote and generate content for communities. We believe our member-created content helps us attract a large audience of users. As these users become familiar with our site, we believe that we have a greater ability to convert them into members. The unique community focus of our site offers us several advantages that include: o Member Loyalty. Because we provide a homepage for our members, members develop loyalty to our site and to the communities in which they participate. We believe that this translates into more frequent usage by members and longer stays at our site. o Member-Developed Content. Users develop the majority of the content on our site on a voluntary basis for the benefit of all of our users. As a result, we avoid some of the costs associated with content development. o Targeted Advertising. We allow advertisers to target their advertisements based on both demographic information and affinity group affiliations. Our volume of user traffic, frequency and average length of use also draw advertisers to our site. Our ability to reach users across a wide variety of interest areas has made our site attractive to technology companies and traditional consumer product and service companies. As of December 31, 1998, approximately 70% of our advertisers were branded consumer product and service companies. OUR BUSINESS STRATEGY Our goal is to be the leading online community site. We seek to attain this goal through the following key strategies: Improve User Experience. We will continue efforts to improve user experience on our site by: o launching new services to enhance our community; o personalizing our site to the preferences of individual members; o simplifying user interfaces and otherwise improving the ease of use; o improving customer support; o developing loyalty programs to reward members for increased usage; o expanding the suite of personal publishing/web site building tools; and o creating additional opportunities for participating in existing affinity groups and expanding the number of affinity groups. Develop Brand Identity and Awareness. We intend to expand our presence as a mass market site by building brand awareness. We plan to continue to allocate a significant portion of our resources to develop our brand in the same fashion as traditional consumer product and service companies. We believe that establishing brand awareness among consumers is instrumental in attracting new members to our site. It may also attract media buyers who tend to favor well-known and trusted companies. Further Develop Electronic Commerce. We intend to increase our electronic commerce revenues by (1) selling select products directly to consumers through the integration of Azazz into our web site and (2) indirectly selling products to consumers through increasing the number of electronic commerce partners who establish virtual storefronts in theglobe.com Marketplace. We plan to re-launch our Marketplace area in the second quarter of 1999. We believe that integrating Azazz with our existing electronic commerce business should enhance our users' overall shopping experience. The acquisition enables us to directly offer a broad array of products, attractive prices and premium customer service. In particular, we will differentiate ourselves from competitors by offering Azazz's "personal shopper" application which enables customers to communicate directly with a live customer service representative during each step of the online shopping process. Acquisition, Joint Venture and Alliance Strategy. We review acquisition candidates and joint ventures in the ordinary course of business, some of which may be material. We are currently in negotiations with third parties for various transactions. These transactions may or may not be consummated. Our focus is to seek transactions that would complement our existing business, increase our traffic, augment the distribution of our community, enhance our technological capabilities or increase our electronic commerce revenues. Expand Globally. We believe that significant opportunities exist to capitalize on the growth of the Internet internationally. We are pursuing strategic relationships with international companies to exploit cross-marketing, co-branding and promotional opportunities. We believe that users outside of the United States generate approximately 40% of our traffic. Users outside of the United States are able to communicate and publish on our site in their own languages. We have also received prominent press coverage in Europe, Asia and Australia. Enhance Membership Services. We offer additional Internet services, including increased storage space for building home pages, through our gold and platinum membership programs. To attract a wider subscriber base, we intend to develop new membership programs offering premium content, shopping clubs and entertainment services. OUR PRODUCTS AND SERVICES We provide users with the following products and services: Free Services. We provide a range of free services to our members including: o business and technology news, o real-time stock quotes and portfolio services, o "my globe" personalized home pages, o classified listings, o a marketplace where members can purchase a variety of products and services, o home page building, o discussion forums, o chat rooms and o e-mail. By satisfying our users' personal and practical needs, we seek to become our users' online home. Our primary revenue source is the sale of advertising, with additional revenues generated through electronic commerce and the sale of membership subscriptions for enhanced services. We derive electronic commerce revenues in theglobe.com Marketplace through merchandise sales by partners, and, beginning in the second quarter of 1999, from direct merchandise sales. We believe that the addition of Azzaz's broad array of products, attractive prices and premium customer service to our Marketplace will significantly enhance the shopping experience for our millions of monthly users. Premier Partners. We have relationships with premier partners who pay a fixed monthly fee, generally from $5,000 to $100,000 per month, and often a percentage of sales, to receive prominent placement in our Marketplace and on our site. Premier partner agreements typically run for a period of six months to three years. In some instances, premier partners pay us a share of the sales over a particular threshold amount from users directed to them from our site. Premier partners include: o Lowestfare.com. Lowestfare.com offers discounted airline, car and hotel reservations, vacation packages and cruises. Lowestfare.com has entered into a three-year agreement with us to be our exclusive provider of travel-related services. They also provide us with content, including weather, mapping, destination information and voice response e-mail. We provide Lowestfare.com with advertising and Marketplace exposure. o Republic Industries. Republic Industries owns the largest chain of new vehicle dealerships in the United States and operates a chain of used car megastores under the AutoNation USA brand name. We provide AutoNation preferred placement in our auto category under a three-year agreement. o Cyberian Outpost. Cyberian Outpost sells computer hardware, software and accessories directly to consumers online. We have entered into a six month arrangement with Cyberian Outpost to be our exclusive online computer hardware retailer. o RSL Communications. We have a one-year arrangement with RSL for Internet telephony services. Member Subscriptions. We offer additional Internet services through our Gold and Platinum membership packages. For example, these packages provide additional storage space and the ability to host limited commercial activity. The subscriptions cost $4.95 or $9.95 monthly, depending on the level of service. CORPORATE ALLIANCES AND RELATIONSHIPS We have a number of relationships with partners and content providers to provide our users with a full suite of web services. These arrangements provide us with a cost-effective method for increasing our services without incurring significant capital expenditures. Examples include: o Business and Finance. By providing free real-time stock quotes, stock screening analysis and portfolio tools from the Thomson Financial Network and stock market editorial analysis and daily articles from CBS MarketWatch, we are able to assist our users in planning and tracking their investment decisions. o Entertainment. Through entertainment news and gossip from E! Online and music reviews and commentary from SonicNet, we offer our users multiple viewpoints on the latest events in the entertainment industry. o Online Calendar and Address Book. We license Visto's Briefcase application for use on our site which permits our users to manage all of their appointments and contact information through our site. o Other Key Services. We provide sports highlights and scores from Fox Sports, employment, real estate and automobile classified listings from Classified Warehouse and weather forecasts from AccuWeather. ADVERTISING CUSTOMERS With over 9.3 million unique users as of December 1998, and nearly 2.5 million members in the United States and abroad, we have attracted mass market consumer product companies as well as technology-related businesses to advertise on our site. We believe that our community site is well positioned to capture a portion of the growing number of consumer product and service companies advertising online. Our advertising clients enter into short term agreements, which typically last one to three months. Our clients generally receive a guaranteed number of impressions for a fixed fee. In 1998, no single advertiser accounted for more than 10% of total revenues and approximately 70% of our advertisers were repeat customers. In the last three months of 1998, approximately 147 advertising clients advertised on our site. Some of our advertising clients include: American Express Hilton Lee Jeans Polygram AT&T Intel Levi's Sony BellSouth J. Crew Microsoft 3Com Coca Cola Kellogg's Brands Office Depot USWest Dunkin' Donuts Kodak Pepsi Visa ADVERTISING SALES AND DESIGN We seek to distinguish ourselves from our competition by creating unique advertising and sponsorship opportunities designed to build brand loyalty for our corporate sponsors by seamlessly integrating their advertising messages into our content. We can deliver advertising to specific targets within our site's themed content areas, allowing advertisers to single out and effectively deliver their messages to their respective target audiences. For example, a company can target an advertisement solely to males or females over 24 years of age coming to our Business Theme area from Latin America. We believe that sophisticated targeting is a critical element for capturing worldwide advertising budgets for the Internet. Additionally, we intend to expand the amount and type of demographic information we collect from our members, which will allow us to offer more specific data to our advertising clients. While our competition generally provides banner advertising as its primary advertising option, we offer an assortment of advertising options for our clients. We work with our advertising customers to meet their needs. We offer advertisers: o Banner advertising o Sweepstakes o Button advertising o Content development o Text links o Affinity packages for advertising partners o Pop-up advertisements o Direct marketing and lead generation, if users have opted in to these programs o Log out links to full page o Market research for advertisements advertising campaigns o Various sponsorship programs We have an internal sales organization of approximately 25 professionals. These professionals focus on both selling advertisements on our web site and developing long-term strategic relationships with clients. A significant portion of our sales personnel's income is commission based. We have sales offices in New York City, Chicago and San Francisco and intend to open additional sales offices in selected markets around the world. MARKETING AND PROMOTIONS In 1998, we committed approximately $7.3 million to advertising in traditional offline media and in online media. In March 1998, we launched our advertising campaign through television, print, billboards, buses, telephone kiosks, online media, and other marketing efforts. These efforts were aimed at: o generating additional traffic to our site, o building and defining a desirable online destination in the minds of present and potential online consumers, and o creating a strong and viable brand within the Internet and advertising industries. We intend to continue to commit a significant part of our budget to marketing our brand. TECHNOLOGY Our strategy is to operate our business through the application of existing technologies. The various features of our online environment are implemented using a combination of off-the-shelf and proprietary software components. Whenever possible, we favor licensing and integrating "best-of-breed" technology from industry leaders, including Oracle, Sun Microsystems and Microsoft. We believe that this component approach is more manageable, reliable and scalable than single-source solutions. In addition, our emphasis on commercial components accelerates our development time. We believe that this is an advantage in our rapidly evolving market. In addition to being scalable, our system has many redundancies, which benefit us if part of our system is down. Our servers are connected to the Internet through a combination of links provided through three separate carriers, AppliedTheory, UUNET and AT&T. This approach to connectivity allows us to continue operations in the event of a failure in any carrier. We plan to continue to upgrade our systems as necessary for our business plan. Our system allows us to roll out upgrades incrementally on an as-needed basis. To efficiently manage our system, we have developed highly automated methods of monitoring the performance of each system component. If any subsystem fails, the failed subsystem is taken out of service and requests are distributed among the remaining operational systems. We have also developed tools to perform routine management tasks such as log processing and content updates in an automated, remote-controlled fashion. We believe that our investment in automation lessens the need for the additional personnel that would otherwise be required to support the system as it grows. In the fourth quarter of 1998, we relocated our data processing systems and servers to the New York Teleport in Staten Island, New York under a three year lease with Telehouse International Corporation. The New York Teleport facility provides security, electricity and premises for our systems. More than 90% of our web site traffic is handled through this facility. The facility has four independent battery-operated power supplies, as well as four independent diesel generators designed to provide power to these systems within seconds of a power surge. If required, the diesel generators can supply the data center's power for several days. Telehouse International Corporation does not guarantee that our Internet access will be uninterrupted, error-free or secure. We maintain additional server equipment at Exodus Communications, Inc.'s facility in Seattle, Washington. Exodus provides and manages power, environmentals and connectivity to the Internet through multiple links on a 24 hour-a-day, seven days per week basis. Exodus does not guarantee that our Internet access will be uninterrupted, error-free or secure. COMPETITION The market for members, users and Internet advertising among web sites is new and rapidly evolving. We expect the intense competition for members, users and advertisers, as well as competition in the electronic commerce market, to increase significantly. Barriers to entry are relatively insubstantial and we face competitive pressures from many additional companies both in the United States and abroad. See "Risk Factors - Competition for members, users and advertisers, as well as competition in the electronic commerce market, is intense and is expected to increase significantly." All types of web sites compete for users. Competitor web sites include community sites, as well as "gateway" or "portal" sites and various other types of web sites. We believe that the principal competitive factors in attracting users to a site are: o functionality of the web site, o brand recognition, o member affinity and loyalty, o broad demographic focus, o open access for visitors, o critical mass of users, particularly for community-type sites, and o services for users. We compete for users, advertisers and electronic commerce customers with: o other online community web sites, such as GeoCities, which has agreed to be acquired by Yahoo!, Tripod and AngelFire, subsidiaries of Lycos, and Xoom.com, o search engines and other Internet "portal" companies, such as Excite, InfoSeek, Lycos and Yahoo!, o online content web sites, such as CNET, ESPN.com and ZDNet.com, o publishers and distributors of television, radio and print, such as CBS, NBC and CNN/Time Warner, o general purpose consumer online services, such as America Online and Microsoft Network, o web sites maintained by Internet service providers, such as AT&T WorldNet, EarthLink and MindSpring, and o electronic commerce web sites, such as Amazon.com, Etoys and CDNow. Many of our existing competitors, as well as a number of potential new competitors, have the following advantages: o longer operating histories in the Internet market; o greater name recognition; o larger customer bases; and o significantly greater financial, technical, and marketing resources. In addition, providers of Internet tools and services, including community-type sites, may be acquired by, receive investments from, or enter into other commercial relationships with larger, well-established and well-financed companies, such as Microsoft and America Online. For example, Excite has agreed to be acquired by @Home, America Online acquired Netscape and Lycos announced a transaction with USA Network and Ticketmaster Citysearch Online. In addition, there has been other significant consolidation in the industry. This consolidation may continue in the future. We could face increased competition in the future from traditional media companies, including cable, newspaper, magazine, television and radio companies. A number of these large traditional media companies, including Disney, CBS and NBC, have been active in Internet related activities. Many of our competitors, including other community sites, have announced that they are contemplating developing Internet navigation services and are attempting to become "gateway" or "portal" sites through which users may enter the web. In the event these companies develop successful "portal" sites, we could lose a substantial portion of our user traffic. Furthermore, many non-community sites are seeking to develop community aspects in their sites. Web browsers offered by Netscape and Microsoft also increasingly incorporate prominent search buttons that direct traffic to competing services. These features could make it more difficult for Internet users to find and use our product and services. In the future, Netscape, Microsoft and other browser suppliers may also more tightly integrate products and services similar to ours into their browsers or their browsers' pre-set home page. Additionally, entities that sponsor or maintain high-traffic web sites or that provide an initial point of entry for Internet viewers, such as the Regional Bell Operating Companies, cable companies or Internet Service Providers, such as Microsoft and America Online, offer and can be expected to consider further development, acquisition or licensing of Internet search and navigation functions that compete with us. These competitors could also take actions that make it more difficult for viewers to find and use our products and services. We believe that the number of Internet companies relying on Internet-based advertising revenue, as well as the number of advertisers on the Internet and the number of users, will increase substantially in the future. We believe that the principal competitive factors in attracting advertisers include the following: o amount of traffic on a web site, o brand recognition, o customer service, o the demographics of members and users of a web site, o the ability to offer targeted audiences, and o the overall cost effectiveness of the advertising medium offered. In addition, many of our current advertising customers and strategic partners have established collaborative relationships with some of our existing and potential competitors. Accordingly, we will likely face increased competition. We also compete with traditional advertising media, including television, radio, cable and print for a share of advertisers' total advertising budgets. This will result in increased pricing pressures on our advertising rates, which could have a material adverse effect on us. See "Risk Factors--We rely substantially on advertising revenues." Additionally, the electronic commerce market is new and rapidly evolving, and we expect the intense competition among electronic commerce merchants to increase significantly. We generate substantially all of our electronic commerce revenues from our electronic commerce partners in our Marketplace. In the future, we expect to generate electronic commerce revenues through our Azazz acquisition. Because the Internet allows consumers to easily compare prices of similar products or services on competing web sites and there are low barriers to entry for potential competitors, gross margins for electronic commerce transactions may narrow further in the future. Competition among Internet retailers or among our electronic commerce partners may have a material adverse effect on our ability to generate revenues through electronic commerce transactions or from these electronic commerce partners. INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS We regard substantial elements of our site and underlying technology as proprietary. We attempt to protect them by relying on intellectual property laws. We also generally enter into confidentiality agreements with our employees and consultants and in connection with our license agreements with third parties. We also seek to control access to and distribution of our technology, documentation and other proprietary information. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use our proprietary information without authorization or to develop similar technology independently. We pursue the registration of our trademarks in the United States and internationally. Our efforts include: o the registration of a United States trademark for the globe, o the filing of United States trademark applications for theglobe.com, theglobe.com logo, TGLO, A Whole New Life Awaits You, globeDirect and globeStores, o the submission of trademark applications for theglobe.com logo in Australia, Brazil, Canada, China, the European Union, Hong Kong, Israel, Japan, New Zealand, Norway, Russian Federation, Singapore, South Africa, Switzerland and Taiwan, and o the submission of trademark applications for A Whole New Life Awaits You in the European Union and Switzerland. Effective trademark, service mark, copyright and trade secret protection may not be available in every country in which our services are distributed or made available through the Internet. Policing unauthorized use of our proprietary information is difficult. See "Risk Factors--We rely on intellectual property and proprietary rights." GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES We are subject to laws and regulations that are applicable to various Internet activities. There are many legislative and regulatory proposals under consideration by federal, state, local and foreign governments and agencies, including matters relating to: o online content, o Internet privacy, o Internet taxation, o access charges, o liability for information retrieved from or transmitted over the Internet, o domain names, and o jurisdiction. New regulations may increase our costs of compliance and doing business, decrease the growth in Internet use and decrease the demand for our services or otherwise have a material adverse effect on our business. Online Content. Online content restrictions cover many areas, including indecent or obscene content and gambling. Several federal and state statutes prohibit the transmission of indecent or obscene information and content, including sexually explicit information and content. The constitutionality of some of these statues is unclear at this time. For example, in 1997 the Supreme Court of the United States held that selected parts of the federal Communications Decency Act of 1996 governing indecent and patently offensive content were unconstitutional. Many other provisions of the Communications Decency Act, including those relating to obscenity, however, remain in effect. Prior to the Supreme Court's decision, a federal district court in New York held that some provisions of the New York penal law modeled on the Communications Decency Act violated the Constitution. A companion provision of that law, however, was subsequently upheld. Since the Supreme Court's decision, a federal district court in New Mexico held that a provision of the New Mexico penal law purporting to make it unlawful to disseminate over the Internet information that is harmful to minors violated the Constitution. The Child Online Protection Act became effective on November 20, 1998. It requires web sites engaged in the business of the commercial distribution of material that is deemed to be obscene or harmful to minors to restrict minors' access to this material. However, the Child Online Protection Act exempts from liability telecommunications carriers, Internet service providers and companies involved in the transmission, storage, retrieval, hosting, formatting or translation of third-party communications where these companies do not select or alter the third-party material. On February 1, 1999, a federal district court in Pennsylvania entered a preliminary injunction preventing enforcement of the harmful-to-minors portion of the act. The provisions of the act relating to obscenity, however, remain in effect. We cannot predict the ultimate outcome or effect of this litigation or the effect that the Child Online Protection Act may have on our business. The U.S. Department of Justice and some state Attorneys General have intensified their efforts in taking action against businesses that operate Internet gambling activities. In the last Congress, the Senate passed the Internet Gambling Prohibition Act, which, if enacted, would have prohibited placing or receiving a bet via the Internet in any state. A similar bill has been introduced in the current Congress. We cannot predict whether similar legislation will be enacted in the current Congress. Even in the absence of new legislation directed specifically at Internet-based gambling, existing federal and state statutes generally criminalize these activities. During 1998, online gambling advertisers accounted for under ten percent of our advertising revenues. The enactment of any legislation in the United States or abroad that limits or prevents businesses from operating online gambling would likely have an adverse effect on our advertising revenue. Some states, including New York and California, have enacted laws or adopted regulations that expressly or as a matter of judicial interpretation apply various consumer fraud and false advertising requirements to parties who conduct business over the Internet. The constitutionality and the enforceability of some of these statutes is unclear at this time. For example, in 1997, a federal district court held that a Georgia criminal statute violated the Constitution when it prohibited Internet transmissions that falsely identify the sender or use trade names or logos that would falsely state or imply that the sender was legally authorized to use them. Internet Privacy. In October 1998, the Children's Online Privacy Protection Act was signed into law, which directs the FTC to develop regulations for the collection of data from children by commercial web site operators. Separately, the Federal Trade Commission Act prohibits unfair and deceptive practices in and affecting commerce. The FTC Act authorizes the FTC to seek injunctive and other relief for violations of the FTC Act, and provides a basis for government enforcement of fair information practices. For instance, failure to comply with a stated privacy policy may constitute a deceptive practice in some circumstances and the FTC would have authority to pursue the remedies available under the Act for any violations. Furthermore, in some circumstances, information practices may be inherently deceptive or unfair, regardless of whether the entity has publicly adopted any privacy policies. Some industry groups have proposed, or are in the process of proposing, various voluntary standards regarding the treatment of data collected over the Internet. In order to improve user and member confidence in our privacy policies, we may incur expenses in obtaining the endorsement of industry groups or in altering our current policies to comply with these standards. We cannot assure you that the adoption of voluntary standards will preclude any legislative or administrative body from taking governmental action regarding Internet privacy. In June 1998, the FTC released a report analyzing the effectiveness of self-regulation as a means of protecting consumer privacy on the Internet. The report concluded that industry self-regulation had not been adequate. The report listed four core information practices that the FTC believes must be part of any privacy protection effort: notice, choice, access and security. The FTC has indicated that in the absence of effective self-regulation, it may support federal legislation to address consumer privacy concerns. We cannot assure you that the FTC's actions in this area will not adversely affect our ability to collect demographic and personal information from members, which could have an adverse affect on our ability to attract advertisers. This could have a material adverse effect on us. The FTC has begun investigations into the privacy practices of companies that collect information on the Internet. For example, on August 13, 1998, the FTC announced that it had entered into a proposed consent order with one of our competitors. In its complaint, the FTC alleged that this competitor engaged in three deceptive practices. First, the FTC alleged that the company falsely represented that the personal identifying information it collects through its membership application form is used only to provide members the specific offers and products or services they request. Second, the FTC alleged that the competitor falsely represented that the "optional information" it collects through the application form is not disclosed to third parties without the member's permission. Third, the FTC alleged that the competitor had falsely represented that it collected and maintained the information provided by children who joined various neighborhoods on its site, when in fact the undisclosed third parties actually collected and maintained the information. Without admitting that these allegations are correct, the competitor agreed in a consent order made final by the FTC on February 12, 1999, among other things, to post a clear and prominent privacy statement on its home page and each location where information is collected, disclosing the information collected, the purpose to which the information would be used, the persons to whom the information would be released, and the methods by which subscribers could access and remove the information. The competitor also agreed to obtain express parental consent before collecting information from children 12 and under and to notify individuals from whom it previously collected personal information and offer them the opportunity to have that information deleted. Finally, the competitor agreed to post, for five years, a clear and prominent hyperlink within its privacy statement directing visitors to the FTC's site to view educational material on privacy. The final order also contained an additional provision added during the public comment period, permitting the competitor to collect or use personal information from children to the extent permitted by the Children's Online Privacy Protection Act or by regulations or guides issued under that act. We are continuing to review our practices in light of the recent FTC activity and the enactment of the Children's Online Privacy Protection Act. However, we cannot predict the exact form of the regulations that the FTC may adopt. Accordingly, we cannot assure you that our current practices will comply with the regulatory scheme which the FTC ultimately adopts or that we will not have to make significant changes to comply with such laws. We include statements about user privacy in our user agreement with new members. The current user agreement states that our members should not have an expectation of privacy in their accounts and that the government or third parties may force us to disclose member e-mail under some circumstances, or that third parties may unlawfully intercept private communications. Additionally, the user agreement states that we may make our database of user information available to other parties for promotions of and solicitations for their goods or services. In the user agreement, each member expressly consents to disclosure of personally identifiable information. We also inform each member that he or she has the ability to remove their personal information or update selected personal information from the information made available to third parties. Regardless of the user agreement, we could be required under several privacy statutes and regulations, including the Electronic Communications Privacy Act of 1986, to disclose information about users in a variety of contexts including pursuant to a subpoena or court order. At the international level, the European Union adopted a directive that requires EU member countries to impose restrictions on the collection and use of personal data, effective October 25, 1998. Among other provisions, the directive generally requires member countries to prevent the transfer of personally-identifiable data to countries that do not offer equivalent privacy protections. At present, the EU has indicated that the United States does not provide protections equivalent to that of the directive. The directive could, among other things, affect United States companies that collect information over the Internet from individuals in EU member countries, and may impose restrictions that are more stringent than current Internet privacy standards in the United States. In response to the directive, on November 4, 1998, the U.S. Department of Commerce published for comment a set of safe harbor principles regarding privacy protection for personally identifiable data. The Commerce Department proposed that organizations that come within the safe harbor would be presumed to maintain an adequate level of privacy protection and could continue to receive personal data transfers from EU member countries. The draft safe harbor provides for: o notice regarding the organization's intended use of personal data, o the opportunity for an individual to choose how the organization or a third party will use personal information, o requirements regarding the security and integrity of personal data and access by an individual to data regarding that individual, and o mechanisms for ensuring an organization's compliance with the privacy principles. The Commerce Department and the EU are engaged in ongoing discussions about the application of the directive to United States companies. The Commerce Department has indicated that it hopes to complete an agreement with the EU by June 21, 1999. We cannot assure you that this directive will not materially adversely affect our business. Any additional legislation or regulations relating to consumer privacy or the application or interpretation of existing laws and regulations could affect the way in which we are allowed to conduct our business, especially those aspects that contemplate the collection or use of our members' personal information. Internet Taxation. Governments at the federal, state and local level, and some foreign governments, have made a number of proposals that would impose additional taxes on the sale of goods and services and various other Internet activities. In 1998, the federal Internet Tax Freedom Act was signed into law, placing a three-year moratorium on state and local taxes on Internet access and on multiple or discriminatory taxes on electronic commerce. However, this moratorium exempts existing state or local laws. The statute also creates a commission to study several Internet taxation issues. We cannot assure you that future laws imposing taxes or other regulations on Internet commerce would not substantially impair the growth of Internet commerce and as a result materially adversely affect our business. The Clinton Administration has stated that the United States will advocate in the World Trade Organization and other appropriate international organizations that the Internet be declared a tariff-free environment whenever it is used to deliver products and services. In addition, the Clinton Administration has stated that the government should impose no new taxes on Internet commerce, but rather that taxation should be consistent with established principles of international taxation, should avoid inconsistent national tax jurisdictions and double taxation and should be simple to administer and easy to understand. However, we cannot assure you that foreign countries will not seek to tax Internet transactions. Access Charges. Several telecommunications carriers are supporting regulation of the Internet by the FCC in the same manner that the FCC regulates other telecommunications services. These carriers have alleged that the growing popularity and use of the Internet has burdened the existing telecommunications infrastructure, resulting in interruptions in phone service. Incumbent local exchange telephone carriers have in the past petitioned the FCC to regulate Internet service providers in a manner similar to long-distance telephone carriers and to impose interstate access charges on Internet service providers. In May 1997, however, the FCC confirmed that Internet service providers will continue to be exempt from interstate access charges. In August 1998, the Eighth Circuit Court of Appeals upheld the FCC's authority to maintain the exemption. On February 25, 1999, the FCC adopted an order concerning payment by incumbent local exchange carriers of reciprocal compensation for dial-up calls to Internet service providers that obtain their local telephone service from competitive local exchange carriers. The FCC found that Internet traffic is largely interstate, and therefore subject to the FCC's jurisdiction, because end user calls to Internet service providers do not terminate at the Internet service providers' servers, but continue to Internet locations that often are outside the state or country in which the call originates. Although the FCC stated that the order does not require Internet service providers to pay access charges for calls placed through their services, the order does provide further support for a possible, ultimate finding that access charges must be paid for at least some categories of Internet services, such as Internet-based voice telephony. If the FCC were to withdraw the exemption or take other action responding to telecommunications carrier concerns, the costs of communicating through the Internet could increase substantially, potentially slowing the growth in Internet use. This could decrease demand for our services or increase our cost of doing business. Liability for Information Retrieved from or Transmitted over the Internet. Materials may be downloaded and publicly distributed over the Internet by the Internet services operated or facilitated by us or by the Internet access providers with which we have relationships. These third-party activities could result in potential claims against us for defamation, negligence, copyright or trademark infringement or other claims based on the nature and content of these materials. The Communications Decency Act of 1996 provides that no provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider. Future legislation or regulations or court decisions may hold us liable for listings accessible through our web site, for content and materials posted by members on their respective personal web pages, for hyperlinks from or to the personal web pages of members, or through content and materials posted in our chat rooms or bulletin boards. Liability might arise from claims alleging that, by directly or indirectly providing hyperlinks to web sites operated by third parties or by providing hosting services for members' sites, we are liable for copyright or trademark infringement or other wrongful actions by these third parties. If any material on our web site contains informational errors, someone might sue us for losses incurred in reliance on the erroneous information. We attempt to reduce our exposure to potential liability through, among other things, provisions in member agreements, user policies, insurance and disclaimers. However, the enforceability and effectiveness of these measures are uncertain. In October 1998, the Digital Millennium Copyright Act, whose Title II contains the Internet Copyright Infringement Liability Clarification Act, was signed into law. This statute provides that, under some circumstances, a service provider would not be liable for any monetary relief, and would be subject to limited injunctive relief, for claims of infringement, based on copyright materials transmitted by users over its digital communications network or stored on its systems or under the control of or connected to its systems. This statute also provides that, under some circumstances, a service provider would not be liable for any claim if the service provider acted in good faith to remove access to the infringing material. With respect to infringement caused by storing material on a system or network, in order to benefit from the protections of the act, a service provider must appoint a designated agent to receive notifications of claimed infringement and must provide information about that agent to the U.S. Copyright Office and to the public in a publicly accessible place on the service. We have appointed a designated agent, have provided that information to the Copyright Office, and made it available to the public on our site. A third party provides our e-mail service. This relationship exposes us to potential claims, including claims resulting from unsolicited e-mail or "spamming," lost or misdirected messages, illegal or fraudulent use of e-mail or interruptions or delays in e-mail service. Some states have adopted laws that address spamming. Other states, including New York, are considering, or have considered, similar legislation. For example, California has adopted a law permitting electronic mail service providers to sue parties who initiate unsolicited commercial messages in violation of its e-mail policy, if the initiator has notice of that policy. California also requires unsolicited e-mail advertisements to include opt-out instructions with a toll-free telephone number or a valid return address in the e-mail and requires senders of unsolicited e-mail advertisements to honor opt-out requests. California also imposes criminal penalties on parties who knowingly use Internet domain name of another party to send one or more messages where such messages damage or cause damage to a computer, computer system, or computer network. Similarly, the Virginia legislature has passed, and the governor is considering signing a bill that, if adopted, would make it a crime to send unsolicited bulk e-mail containing false message headers or to sell software designed to do so and would impose civil penalties for injuries caused by unsolicited bulk e-mail. Washington has adopted a law that allows recipients of unsolicited e-mail containing false headers and misleading subject lines to bring lawsuits seeking damages of up to $500.00 for unsolicited commercial e-mail messages. Potential liability for information disseminated through our systems could lead us to implement measures to reduce our exposure to liability. This could require the expenditure of substantial resources and limit the attractiveness of our services. We attempt to reduce our exposure to potential liability through, among other things, provisions in member agreements, user policies and disclaimers. However, the enforceability and effectiveness of these measures are uncertain. We sell products directly to consumers and we also enter into agreements with commerce partners and sponsors under which we are entitled to receive a share of the revenue from the purchase of goods and services through direct links from our site. These arrangements may expose us to additional legal risks, including potential liabilities to consumers by virtue of our involvement in providing access to these products or services, even if we do not ourselves provide these products or services. Our agreements with these parties often provide that these parties will indemnify us against liabilities. However, we cannot assure you that this indemnification will be enforceable or adequate. Although we carry general liability insurance, our insurance may not cover all potential claims or liabilities to which we are exposed. Any imposition of liability that is not covered by insurance could have a material adverse effect on our business. The increased attention on liability issues relating to information retrieved or transmitted over the Internet and legislative and administrative proposals in this area could decrease the growth of Internet use. This could decrease the demand for our services. We may also incur significant costs in investigating and defending against these claims. Domain Names. Domain names are the user's Internet addresses. Domain names have been the subject of significant trademark litigation in the United States. We have registered the domain names "theglobe.com," "shop.theglobe.com," "tglo.com" and "azazz.com." We cannot assure you that third parties will not bring claims for infringement against us for the use of these names. Moreover, because domain names derive value from the individual's ability to remember the names, we cannot assure you that our domain names will not lose their value if, for example, users begin to rely on mechanisms other than domain names to access online resources. The current system for registering, allocating and managing domain names has been the subject of litigation and proposed regulatory reform. We cannot assure you that our domain names will not lose their value, or that we will not have to obtain entirely new domain names in addition to or in place of our current domain names. Jurisdiction. Our facilities are located primarily in New York. However, due to the global reach of the Internet it is possible that the governments of other states and foreign countries might attempt to regulate Internet activity and our transmissions. They may take action against us for violations of their laws. We cannot assure you that violations of these laws will not be alleged or charged by state or foreign governments and that these laws will not be modified, or new laws enacted, in the future. Any actions of this type could have a material adverse effect on our business. EMPLOYEES As of December 31, 1998, we had approximately 120 full-time employees, including approximately 25 in sales and marketing, 55 in production, 30 in finance and administration and 10 in technology. Our future success depends, in part, on our ability to continue to attract, retain and motivate highly qualified technical and management personnel. Competition for these persons is intense. From time to time, we also employ independent contractors to support our research and development, marketing, sales and support and administrative organizations. Our employees are not represented by any collective bargaining unit and we have never experienced a work stoppage. We believe that our relations with our employees are good. ITEM 2. PROPERTIES Our headquarters are located in a leased facility in New York City and consist of approximately 20,000 square feet of office space, a majority of which is under a lease with approximately six months remaining. Our principal web server equipment and operations are maintained by our personnel at the New York Teleport facility in Staten Island, New York under a Data Center Space Lease with Telehouse International Corporation of America for 2,800 square feet of commercial space for a term of three years. Additional web server equipment relating to our electronic commerce business is located with and maintained by Exodus Communications, Inc. in Seattle, Washington. We have also entered into two six-month leases for a total of 3,943 square feet of office space in New York City. We intend to relocate our headquarters in the second quarter of 1999 to a larger facility and have entered into a fifteen-year lease for approximately 47,000 square feet of commercial space in New York City for this purpose. We lease approximately 1,200 square feet of office space in San Francisco for our West Coast sales office. In connection with our acquisition of Azazz, we assumed a month-to-month lease for approximately 4,000 square feet of office space in Kirkland, Washington. We believe that additional commercial space will be available for lease at market rates. ITEM 3. LEGAL PROCEEDINGS From time to time we are named in claims arising in the ordinary course of business. Currently, no legal proceedings or claims are pending against or involve us that, in the opinion of management, could reasonably be expected to have a material adverse effect on us. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted for a vote of our stockholders during the fourth quarter of the year ended December 31, 1998. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION Our common stock trades on the Nasdaq National Market under the Symbol "TGLO". The following table sets forth the range of high and low closing sales prices of our common stock for the period indicated: Fiscal Quarter Ended High Low -------------------------------- ------- ------- December 31, 1998 (commencing November 13, 1998) $63.500 $27.438 The market price of our common stock is highly volatile and fluctuates in response to a wide variety of factors. See "Risk Factors--Our stock price is volatile." HOLDERS On March 10, 1999, we had approximately 146 holders of record of common stock. This does not reflect persons or entities who hold their stock in nominee or "street" name through various brokerage firms. DIVIDENDS We have not paid any cash dividends on our common stock. We expect to invest any future earnings to finance growth, and therefore do not intend to pay dividends in the foreseeable future. Our board of directors will determine if we pay any future dividends. USE OF PROCEEDS From October 1, 1998 to December 31, 1998, we have used an aggregate of $4,064,887 which included net proceeds from our initial public offering for investments in our web site, including enhancements to our server and networking infrastructure and the functionality of our web site, and for general corporate purposes, including working capital, expansion of our sales and marketing capabilities and brand-name promotions. We have also used a portion of the remainder of such net proceeds for acquisitions of complementary businesses, services and technology. RECENT SALES OF UNREGISTERED SECURITIES During the period from October 1, 1998 through December 31, 1998, we granted an aggregate of 43,250 options to purchase common stock to our officers, directors and employees under our 1998 Stock Option Plan. These options had a weighted average exercise price equal to $19.92 per share of common stock. All of these option grants were made under the exemption from the registration requirements of Rule 701 of the Securities Act of 1933. ITEM 6. SELECTED FINANCIAL DATA The following selected financial data should be read in conjunction with the financial statements and the notes thereto and the information contained in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations."
(INCEPTION) THROUGH YEAR ENDED DECEMBER 31, DECEMBER 31, -------------------------------- ----------- 1998 1997 1996 1995 ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Revenues............................... $ 5,510 $ 770 $ 229 $ 27 Cost of revenues....................... 2,239 423 116 13 ---------- ---------- ---------- ----------- Gross profit........................... 3,271 347 113 14 Operating expenses: Sales and marketing.................. 9,299 1,248 276 1 Product development.................. 2,633 154 120 60 General and administrative........... 6,828 2,828 489 19 Non-recurring charge................... 1,370 -- -- -- ---------- ---------- ---------- ----------- Total Operating Expenses............... 20,130 4,230 885 80 ---------- ---------- ---------- ----------- Loss from operations................... (16,859) (3,883) (772) (66) ---------- ---------- ---------- ----------- Interest income (expense), net........ 892 335 22 -- ---------- ---------- ---------- ----------- Loss before provision for income taxes. (15,967) (3,548) (750) (66) ---------- ---------- ---------- ----------- Provision for income taxes............. 79 36 -- -- ---------- ---------- ---------- ----------- Net loss............................... $ (16,046) $ (3,584) $ (750) $ (66) ========== ========== ========== =========== Basic and diluted net loss per share (1) $ (6.74) $ (3.13) $ (0.67) $ (0.06) ========== ========== ========== =========== Weighted average shares outstanding used in basic and diluted per share calculation (1)...................... 2,381,140 1,146,773 1,125,000 1,125,000 ========== ========== ========== =========== DECEMBER 31, --------------------------------------------- 1998 1997 1996 1995 ---------- ---------- ---------- ----------- BALANCE SHEET DATA: Cash and cash equivalents and short- term investments..................... $ 30,149 $ 18,874 $ 757 $ 587 Working capital........................ 27,009 17,117 648 575 Total assets........................... 38,130 19,462 973 647 Capital lease obligations, excluding current installments................. 2,006 99 -- -- Total stockholders' equity............. 30,301 17,352 795 632 (1) Weighted average shares do not include any common stock equivalents because the inclusion of those common stock equivalents would have been anti-dilutive. See the financial statements and notes appearing elsewhere in this Form 10-K for the determination of shares used in computing basic and diluted loss per share.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management's Discussion and Analysis of Financial Condition and Results of Operations contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements can be identified by the use of predictive, future-tense or forward-looking terminology, such as "believes," "anticipates," "expects," "estimates," "plans," "may," "intends," "will," or similar terms. Investors are cautioned that any forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors described under "Risk Factors" and elsewhere in this report. The following discussion should be read together with the financial statements and notes to those statements included elsewhere in this report. OVERVIEW Our web site is one of the world's leading online communities with nearly 2.3 million members in the United States and abroad. In December 1998, over 9.3 million unique users visited our site. Our web site is a destination on the Internet where users are able to personalize their online experience by publishing their own content and interacting with others having similar interests. We facilitate this interaction by providing various free services, including home page building, discussion forums, chat rooms, e-mail and electronic commerce. Additionally, we provide our users with news, business information, real time stock quotes, weather, movie and music reviews, multi-player gaming and personals. By satisfying our users' personal and practical needs, we seek to become our users' online home. Our primary revenue source is the sale of advertising, with additional revenues generated through electronic commerce arrangements, development fees and the sale of membership service fees for enhanced services. We were incorporated in May 1995. For the period from inception through December 1995, we had minimal sales and our operating activities related primarily to the development of the necessary computer infrastructure and initial planning and development. Operating expenses in 1995 were minimal. During 1996, we continued the foregoing activities and also focused on recruiting personnel, raising capital and developing programs to attract and retain members. In 1997, we o moved our headquarters to New York City; o expanded our membership base from less than 250,000 to almost 1 million; o improved and upgraded our services; o expanded our production staff; o built an internal sales department; and o began active promotion of theglobe.com web site to increase market awareness. During 1998, revenues and operating expenses increased as we placed a greater emphasis on building our advertising revenues and memberships by expanding our sales force and promoting theglobe.com brand. To date, our revenues have been derived principally from the sale of advertisements and sponsorship placements within our site and, to a lesser extent, from subscription and electronic commerce revenues. Electronic commerce revenues have not been significant to date, but are expected to increase with the acquisition of Azazz, and as our existing electronic commerce arrangements grow and new arrangements are entered into. Advertising revenues constituted 89%, 77% and 95% of total revenues for the years ended December 31, 1998, 1997 and 1996. We sell a variety of advertising packages to clients, including banner advertisements, event sponsorship, and targeted and direct response advertisements. Our advertising revenues are derived principally from short-term advertising arrangements. These arrangements average one to three months. We generally guarantee a minimum number of impressions for a fixed fee. Advertising revenues are recognized ratably in the period in which the advertisement is displayed, if no significant company obligations remain and collection of the resulting receivable is probable. Payments received from advertisers before displaying their advertisements on our web site are recorded as deferred revenues and are recognized as revenue ratably when the advertisement is displayed. To the extent minimum guaranteed impression levels are not met, we defer recognition of the corresponding revenues until guaranteed levels are achieved. In addition to advertising revenues, we derive other revenues primarily from our membership service fees, electronic commerce revenue, development fees and sponsorship placements within our site. Subscription fees are recognized over the membership term. A number of recent arrangements with our premier electronic commerce partners provide us with a share of any sales resulting from direct links from the our web site. We recognize revenues from our share of the proceeds from our electronic commerce partners' sales upon notification from our partners of sales attributable to our web site. To date, revenues from electronic commerce arrangements have not been significant. In addition, in 1999 we began direct electronic commerce sales to users. We also earn additional revenue on sponsorship contracts for fees relating to the design, coordination, and integration of the customer's content and links. We recognize these development fees as revenue once the related activities have been performed. We incurred net losses of approximately $16.0 million in 1998, $3.6 million in 1997 and $750,200 in 1996. At December 31, 1998, we had an accumulated deficit of $20.4 million. We recorded deferred compensation of approximately $118,100 in 1998, $83,100 in 1997 and $25,000 in 1996 in connection with the grant of various stock options to employees, representing the difference between the deemed value of our common stock for accounting purposes and the exercise price of the options at the date of grant. This amount is presented as a reduction of stockholders' equity and is being amortized over the vesting period of the applicable options, generally three to five years. Amortization of deferred stock compensation is allocated to the general and administrative expense line identified on the statement of operations consistent with the classification of the related personnel. In addition, we incurred a charge of approximately $1.4 million to earnings in the third quarter of 1998 in connection with the transfer of warrants to acquire 225,000 shares of common stock by Dancing Bear Investments, Inc., which was our principal shareholder at the date of transfer, to some of our officers at approximately $2.91 per share. The amount of this non-cash charge was based on the difference between the fair market value of our stock at the date of transfer ($9.00 per share) and the exercise price of the warrant of approximately $2.91 per share. This expense was classified separately in the statement of operations as a non-recurring charge. RESULTS OF OPERATIONS Revenues. Revenues increased to approximately $5.5 million in 1998 as compared to $770,300 in 1997 and $229,400 in 1996. The year to year growth resulted from an increase in (1) the number of advertisers and the average commitment per advertiser, (2) our web site traffic, (3) the number of our sales people and (4) marketing and advertising expenditures. Advertising revenues were approximately $4.9 million or 89% of total revenues in 1998, $592,400 or 77% of total revenues in 1997 and $216,800 or 95% of total revenues in 1996. In 1998, we significantly increased our sales force and began a marketing campaign to promote theglobe.com web site. We anticipate that advertising revenues will continue to account for a substantial share of our total revenues for the foreseeable future. Other revenues were derived from membership service fees, development fees, electronic commerce revenue shares and sponsorship placements within our web site. At December 31, 1998, we had deferred revenues of approximately $673,600. Barter revenues were approximately 2% of total revenues for 1998, 22% for 1997 and 0% for 1996. Cost of Revenues. Cost of revenues consist primarily of Internet connection charges, web site equipment leasing costs, depreciation, maintenance, barter advertising expenses, staff costs and related expenses of operations personnel. Gross margins were 59% in 1998, 45% in 1997 and 49% in 1996. The increase in gross margin was primarily due to an increase in revenues relative to the increase in cost of revenues. The absolute dollar increase in cost of revenues was due to an increase in Internet connection costs to support the increase in web site traffic, as well as an increase in equipment costs, depreciation and staff costs required to support the expansion of our site and services. In addition, we recorded barter advertising expenses during 1998 and 1997, which was equivalent to the barter advertising revenues recorded in the same period. The gross margins exclusive of the barter transactions were 60% in 1998 and 57% in 1997. In 1996, we did not enter into any barter transactions. During the fourth quarter of 1998, we moved our web site hosting functions to a separate facility in Staten Island, New York. The new facility will allow us to support our expanded services and content. Sales and Marketing Expenses. Sales and marketing expenses consist primarily of salaries and related expenses of sales and marketing personnel, commissions, advertising and public relations expenses. Sales and marketing expenses were approximately $9.3 million or 169% of total revenues in 1998, $1.2 million or 162% of total revenues in 1997, and $275,900 or 120% of total revenues in 1996. The year-to-year increase in sales and marketing expenses was primarily attributable to expansion of our online and print advertising, public relations and other promotional expenditures, as well as increased sales and marketing personnel and related expenses required to implement our marketing strategy. Sales and marketing expenses also increased as a result of our decision to shift our advertising to an internal sales department in the second quarter of 1997. Product Development Expenses. Product development expenses include professional fees, staff costs and related expenses associated with the development, testing and upgrades to our web site as well as expenses related to its editorial content and community management and support. Product development expenses were approximately $2.6 million or 48% of total revenues in 1998, $153,700 or 20% of total revenues in 1997, and $120,000 or 52% of total revenues in 1996. The increase in absolute dollars in product development expenses was primarily attributable to increased staffing levels required to support our web site and to enhance its content and features. Product development expenses also increased as a result of the launch of our web site redesign in November 1998. We intend to continue recruiting and hiring experienced product development personnel and to make additional investments in product development. General and Administrative Expenses. General and administrative expenses consist primarily of salaries and related costs for general corporate functions, including finance, human resources, facilities and legal, along with professional fees and bad debt expense and other corporate expenses. General and administrative expenses were approximately $6.8 million or 124% of total revenues in 1998, $2.8 million or 367% of total revenues in 1997, and $489,100 or 213% of total revenues in 1996. The absolute dollar increase in these expenses was primarily due to increased salaries and related expenses associated with our management's employment contracts, hiring of additional personnel, and increases in professional fees and travel. The increased salaries also reflect the highly competitive nature of hiring in the new media industry. We expect that we will incur additional general and administrative expenses as we hire additional personnel and incur additional costs related to the growth of our business and operation as a public company, including directors' and officers' liability insurance, investor relations programs and professional service fees. Accordingly, we anticipate that general and administrative expenses will continue to increase in absolute dollars. Non-recurring charges. We recorded a non-recurring, non-cash charge of approximately $1.4 million in the third quarter of 1998. This charge was in connection with the transfer of outstanding warrants to acquire 225,000 shares of common stock by Dancing Bear Investments, which was our principal shareholder at the time of the transfer, to some of our officers. There was no similar charge in 1997 or 1996. Other Income (expense). Other income (expense) includes interest income from our cash and investments, interest expenses related to our capital lease obligations, and realized gains and losses from sale of short-term investments. The year-to-year increase in interest and dividend income was due to a higher average cash, cash equivalent and investment balance as a result of the proceeds received from the issuance of shares of our preferred stock in the third quarter of 1997, and the issuance of common stock in connection with our initial public offering in November 1998. Interest and other expense increased in 1998 due to new capital lease obligations. We entered into our first capital lease in late December 1997. As a result, interest expense from capital lease obligations did not begin until 1998. Income Taxes. Income taxes were approximately $78,900 in 1998, $36,100 in 1997 and -0- in 1996. These income taxes were based solely on state and local taxes on business and investment capital. These taxes increased from year to year due to an increase in our average equity balance. The average equity balance increased as a result of the proceeds received from our issuance of shares of preferred stock in the third quarter of 1997, and our issuance of common stock in connection with our initial public offering in November 1998. Our effective tax rate differs from the statutory federal income tax rate, primarily as a result of the uncertainty regarding our ability to utilize net operating loss carryforwards. Due to the uncertainty surrounding the timing or realization of the benefits of our net operating loss carryforwards in future tax returns, we have placed a 100% valuation allowance against our deferred tax assets. As of December 31, 1998, we had approximately $29.2 million of federal and state net operating loss carryforwards for tax reporting purposes available to offset future taxable income. Our federal net operating loss carryforwards will expire beginning in 2001 through 2018, if not utilized. The Tax Reform Act of 1986 imposes substantial restrictions on the utilization of net operating losses and tax credits in the event of an "ownership change" of a corporation. Due to the change in our ownership interests in the third quarter of 1997, as defined in the Internal Revenue Code, future utilization of our net operating loss carryforwards will be affected by limitations or annual restrictions. LIQUIDITY AND CAPITAL RESOURCES As of December 31, 1998, we had approximately $29.3 million in cash and cash equivalents and approximately $898,500 in marketable securities. Net cash used in operating activities was approximately $13.5 million in 1998, $1.9 million in 1997 and $601,600 in 1996. The increase in net cash used in 1998 resulted primarily from an increase in our expenses which resulted in increased net operating losses. In addition we had a higher level of receivables due to increased revenues and an increase in prepaid expenses. These items were partially offset by an increase in accounts payable and deferred revenues. The 1997 increase in net cash used was primarily due to an increase in net operating loss and a higher account receivable balance. These items were partially offset by the timing of payments associated with our 1997 accrued bonuses paid in the first quarter of 1998, as well as an increase in accounts payable and accrued expenses. Net cash provided (used) in investing activities was approximately $9.6 million in 1998, $(13.2) million in 1997 and $(138,300) in 1996. Net cash provided by investing activities in 1998 was primarily related to the sales of short-term investments to finance our working capital needs. These sales were partially offset by approximately $1.7 million in security deposits required for capital leases and the purchase of property and equipment in connection with the build out of our infrastructure. Net cash used in investing activities in 1997 was primarily related to the purchase of securities with the proceeds from our private placement in the third quarter of 1997. Cash used in investing activities in 1996 was related to the purchase of property and equipment. Net cash provided by financing activities was approximately $27.2 million in 1998, $20.2 million in 1997 and $910,000 in 1996. Net cash provided by financing activities during 1998 consisted primarily of $27.3 million from the issuance of 3,481,667 shares of common stock in connection with our initial public offering in November 1998. The net cash provided by financing activities in 1997 consisted primarily of approximately $20.3 million from preferred stock issuances. These amounts were partially offset by approximately $130,500 in financing costs related to the private placements. The approximately $910,000 of net cash provided in 1996 was from our private placements of preferred stock. On February 1, 1999, we purchased factorymall.com, inc., a leading interactive department store. We expect to invest an aggregate of up to approximately $3.8 million of working capital in 1999 to support the future operations of factorymall.com, inc. Our capital requirements depend on numerous factors, including market acceptance of our services, the amount of resources we devote to investments in our web site, the resources we devote to marketing and selling our services and our brand promotions and other factors. We have experienced a substantial increase in our capital expenditures and lease arrangements since our inception consistent with the growth in our operations and staffing, and we anticipate that this will continue for the foreseeable future. Additionally, we will continue to evaluate possible investments in businesses, products and technologies, and we plan to expand our sales force. We believe that our current cash and cash equivalents, which primarily resulted from our initial public offering, together with cash flows will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for our existing business for at least 12 months. However, we may need to raise additional funds during 1999 to obtain or operate any acquired businesses or joint venture arrangements. See "Risk Factors -- We may need to raise additional funds, including through the issuance of debt." IMPACT OF THE YEAR 2000 The Year 2000 issue is the potential for system and processing failures of date-related data and the result of computer-controlled systems using two digits rather than four to define the applicable year. For example, computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the Year 2000. This could result in system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices or engage in similar normal business activities. State of Readiness. We may be affected by Year 2000 issues related to non-compliant information technology systems or non-information technology systems operated by us or by third parties. We have substantially completed an assessment of our internal and external third-party information technology systems and non-information technology systems and a test of the information technology systems that support our web site. At this point in our assessment and testing, we are not aware of any Year 2000 problems relating to systems we or third parties operate that would have a material effect on our business or financial condition, without taking into account our efforts to avoid these problems. However, we cannot assure you that there will be no Year 2000 problems Our information technology systems consist of software developed either in-house or purchased from third parties, and hardware purchased from vendors. We have contacted our principal vendors of hardware and software. All of those contacted vendors have notified us that the hardware and software that they supplied to us is Year 2000 compliant. We have also substantially completed an assessment of our non-information technology systems which we have identified as possibly having Year 2000 issues. At this point in our assessment, we are not aware of any Year 2000 problems relating to these systems which would have a material effect on our business or financial condition, without taking into account our efforts to avoid these problems. Our information technology systems and other business resources rely on information technology systems and non-information technology systems provided by service providers and therefore may be vulnerable to those service providers' failure to remediate their own Year 2000 issues. These service providers include those for our network and e-mail services and landlords for our leased office spaces. We have contacted these principal service providers and we have been notified that the information technology and non-information technology systems which they provide to us are Year 2000 compliant. Cost. Based on our assessment to date, we do not anticipate that costs associated with remediating our non-compliant systems will be material. Risks. To the extent that our assessment is finalized without identifying any material non-compliant information technology or non-information technology systems operated by us or by third parties, the most reasonably likely worst case Year 2000 scenario is the failure of one or more of our vendors of hardware or software or one or more providers of non-information technology systems to properly identify any Year 2000 compliance issues and remediate any issues before the end of the second quarter of 1999. A failure could prevent us from operating our business, prevent users from accessing our web site or change the behavior of advertising customers or persons accessing our web site. We believe that the primary business risks, in the event of a failure, would include but not be limited to: o lost advertising revenues, o increased operating costs, o loss of customers or persons accessing our web site, o other business interruptions of a material nature, and o claims of mismanagement, misrepresentation, or breach of contract. Contingency Plan. As discussed above, we are engaged in an ongoing Year 2000 assessment and testing. Following the completion of the assessment, we plan to conduct a full-scale Year 2000 simulation of our information technology systems by the end of the second quarter of 1999. The results of this simulation and our assessment will be taken into account in determining the nature and extent of any contingency plans. EFFECTS OF INFLATION Due to relatively low levels of inflation in 1996, 1997 and 1998, inflation has not had a significant effect on our results of operations since inception. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS We adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income" as of January 1, 1998. SFAS No. 130 requires us to report in our financial statements, in addition to our net income (loss), comprehensive income (loss), which includes all changes in equity during a period from non-owner sources including, as applicable, foreign currency items, minimum pension liability adjustments and unrealized gains and losses on investments in debt and equity securities. We adopted SFAS 130 as of December 31, 1997 and have presented comprehensive income for all periods presented in the Statement of Shareholders' Equity. In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 131, "Disclosure About Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments. It also establishes standards for related disclosures about products and services, geographic areas and major customers. SFAS No. 131 is effective for fiscal years beginning after December 15, 1997. We have determined that we do not have any separately reportable business segments. In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use", which establishes guidelines for the accounting for the costs of all computer software developed or obtained for internal use. We adopted SOP 98-1 effective for the year ended December 31, 1998. The adoption of SOP 98-1 is not expected to have a material impact on our financial statements. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including derivative instruments embedded in other contracts, and for hedging activities. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. The statement is not expected to affect us as we do not have any derivative instruments or hedging activities. RISK FACTORS In addition to the other information in this report, the following factors should be carefully considered in evaluating our business and prospects. OUR LIMITED OPERATING HISTORY MAKES FINANCIAL FORECASTING DIFFICULT. theglobe was founded in May 1995. Accordingly, we have a limited operating history for you to use in evaluating us and our prospects. Our prospects should be considered in light of the risks encountered by companies in the early stages of development, particularly companies operating in new and rapidly evolving markets like the Internet. We may not successfully address these risks. For example, we may not be able to: o maintain and increase levels of user and member traffic on our web site; o maintain and increase the percentage of our advertising inventory sold; o adapt to meet changes in our markets and competitive developments; o develop or acquire content for our services; o generate electronic commerce-related revenues; and o identify, attract, retain and motivate qualified personnel. REVENUE GROWTH IN PRIOR PERIODS MAY NOT BE INDICATIVE OF FUTURE GROWTH. We achieved significant revenue growth in 1998. Our limited operating history makes prediction of future growth difficult. Accurate predictions of future growth are also difficult because of the rapid changes in our markets. Accordingly, investors should not rely on past revenue growth rates as a prediction of future growth. WE ANTICIPATE INCREASED OPERATING EXPENSES AND EXPECT TO CONTINUE TO INCUR LOSSES. To date, we have not been profitable, and we expect that we will continue to incur net losses for the foreseeable future. We had net losses of approximately $750,200 for 1996, $3.6 million for 1997, and $16.0 million for 1998. As of December 31, 1998, we had an accumulated deficit of approximately $20.4 million. The principal causes of our losses are likely to continue to be: o increased general and administrative expenses; o costs resulting from enhancement of our services; o significant increases in operating expenses in the next several years, especially in the areas of sales and marketing; o increased expenses necessary to maintain and develop brand identity; o growth of our sales force; o expansion of our business facilities; and o failure to generate sufficient revenue in light of increased costs. We will need to generate significantly increased revenues to achieve profitability, particularly if we are unable to adjust our expenses in light of any earnings shortfall. We cannot assure you that we will ever achieve or sustain profitability. OUR QUARTERLY OPERATING RESULTS FLUCTUATE AND VARY BY SEASON. Our quarterly revenues, expenses and operating results have varied significantly in the past and are likely to vary significantly from quarter to quarter in the future. As a result, quarter to quarter comparisons of our revenues and operating results may not be meaningful. In addition, due to our limited operating history and our new and unproven business model, we cannot predict our future revenues or results of operations accurately. It is likely that in one or more future quarters our operating results will fall below the expectation of securities analysts and investors. If this happens, the trading price of our common stock would almost certainly be materially and adversely affected. The factors which will cause our quarterly operating results to fluctuate include: o the level of traffic on our web site; o the overall demand for Internet advertising and electronic commerce; o the addition or loss of advertisers and electronic commerce partners on our web site; o usage of the Internet; o seasonal trends in advertising and electronic commerce sales and member usage; o capital expenditures and other costs relating to the expansion of our operations; o the incurrence of costs relating to acquisitions; and o the timing and profitability of acquisitions, joint ventures and strategic alliances. We derive a substantial portion of our revenues from the sale of advertising under short-term contracts. These contracts average one to three months in length. As a result, our quarterly revenues and operating results are, to a significant extent, dependent on advertising revenues from contracts entered into within the quarter, and on our ability to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. We believe that advertising sales in traditional media, such as television and radio, generally are lower in the first and third calendar quarters. If the Internet transitions from an emerging to a more developed form of media, these same patterns may develop in Internet advertising sales. Internet advertising expenditures may also develop a different seasonality pattern. Traffic levels on our site and the Internet have typically declined during the summer and year-end vacation and holiday periods. In addition to selling advertising, an increasing portion of our revenues may be generated from electronic commerce through our Azazz subsidiary. We also have existing electronic commerce arrangements with third parties for the sale of merchandise on our web site which are terminable upon short notice. As a result, our revenues from electronic commerce may fluctuate significantly from period to period depending on the level of demand for electronic commerce on our site and the continuation of our electronic commerce arrangements. WE DEPEND ON OUR MEMBERS FOR CONTENT AND PROMOTION. We depend substantially upon member involvement for content and word-of-mouth promotion. Particularly, we depend upon the voluntary efforts of some highly motivated members who are most active in developing content to attract other Internet users to our site. This member involvement reduces the need for us to spend funds on content development and site promotion. However, we cannot assure you that these members will continue to effectively generate significant content or promote our site. Our business may be materially and adversely affected if our most highly active members become dissatisfied with our services or our focus on the commercialization of those services or for any other reason stop generating content that effectively promotes our site. OUR BUSINESS MODEL IS NEW AND UNPROVEN. Our business model is new and relatively unproven. This model depends upon our ability to obtain more than one type of revenue source by using our community platform. To be successful, we must, among other things, develop and market products and services that achieve broad market acceptance by our users, advertisers and electronic commerce vendors. We must also market products directly to users and have users purchase products through our site. We cannot assure you that any Internet community, including our site, will achieve broad market acceptance. We also cannot assure you that our business model will be successful, that it will sustain revenue growth or that it will be profitable. Additionally, the market for our products and services is new, rapidly developing and characterized by an increasing number of market entrants. As is typical of most new and rapidly evolving markets, demand and market acceptance for recently introduced products and services are highly uncertain and risky. Moreover, because this market is new and rapidly evolving, we cannot predict our future growth rate, if any. If this market fails to develop, develops more slowly than expected or becomes saturated with competitors, or if our products and services do not achieve or sustain market acceptance, our business would be materially and adversely affected. WE MAY BE UNSUCCESSFUL IN DEVELOPING BRAND AWARENESS; BRAND IDENTITY IS CRITICAL TO US. We believe that establishing and maintaining awareness of "theglobe.com" brand name is critical to attracting and expanding our member base, the traffic on our web site and advertising and electronic commerce relationships. If we fail to promote and maintain our brand or our brand value is diluted, our business, operating results and financial condition could be materially adversely affected. The importance of brand recognition will increase because low barriers to entry continue to result in an increased number of web sites. To promote our brand, we may be required to continue to increase our financial commitment to creating and maintaining brand awareness. We may not generate a corresponding increase in revenues to justify these costs. Additionally, if members, other Internet users, advertisers and customers do not perceive our community experience to be of high quality, or if we introduce new services or enter into new business ventures that are not favorably received by these parties, the value of our brand could be diluted. WE RELY SUBSTANTIALLY ON ADVERTISING REVENUES. We derive a substantial portion of our revenues from the sale of advertisements on our web site. We expect to continue to do so for the foreseeable future. During 1998, advertising revenues represented 89% of our net revenues. Our business model and revenues are highly dependent on the amount of traffic on our site. The level of traffic on our site determines the amount of advertising inventory we can sell. Our ability to generate significant advertising revenues depends, in part, on our ability to create new advertising programs without diluting the perceived value of our existing programs. Our ability to generate advertising revenues will also depend, in part, on the following: o advertisers' acceptance of the Internet as an attractive and sustainable medium; o advertisers' willingness to pay for advertising on the Internet at current rates; o the development of a large base of users of our products and services; o our level of traffic; o the effective development of web site content that attracts users having demographic characteristics attractive to advertisers; and o price competition among web sites. We cannot assure you that the market for Internet advertising will continue to emerge or become sustainable. If the Internet advertising market develops slower than we expect our business performance would be materially adversely affected. To date, substantially all our advertising contracts have been for terms averaging one to three months in length, with relatively few longer term advertising contracts. Additionally, our advertising customers may object to the placement of their advertisements on some members' personal homepages, the content of which they deem undesirable. For any of the foregoing reasons, we cannot assure you that our current advertisers will continue to purchase advertisements on our site. We also compete with traditional advertising media, including television, radio, cable and print, for a share of advertisers' total advertising budgets. This will result in increased pricing pressures on our advertising rates, which could have a material adverse effect on us. WE RELY ON THIRD PARTIES OVER WHOM WE HAVE LIMITED CONTROL TO MANAGE THE PLACEMENT OF ADVERTISING ON OUR WEB SITE. The process of managing advertising within a large, high-traffic web site such as ours is an increasingly important and complex task. We license our advertising management system from DoubleClick, Inc. under an agreement expiring April 15, 2000. DoubleClick may terminate the agreement upon 30 days' notice (1) if we breach the agreement or (2) if DoubleClick reasonably determines that we have used their advertising management system in a manner that could damage their technology or which reflects unfavorably on DoubleClick's reputation. No assurance can be given that DoubleClick would not terminate the agreement. Any termination and replacement of DoubleClick's service could disrupt our ability to manage our advertising operations. Additionally, we have entered into a contract with Engage Technologies, Inc. for the license of proprietary software to manage the placement of advertisement on our web site. This software is still being implemented and our relationship under the contract has not yet been material. There can be no assurance that this software will effectively manage the placement of advertisements on our web site and that errors will not occur. To the extent that we encounter system failures or material difficulties in the operation of our advertising management systems, we may o be unable to deliver banner advertisements and sponsorships through our site; and o be required to provide additional impressions to our advertisers after the contract term. Our obligations to provide additional impressions would displace saleable advertising inventory. This would reduce revenues and could have a material adverse effect on us. WE DEPEND SUBSTANTIALLY ON OUR KEY PERSONNEL. Our performance is substantially dependent on the continued service of our senior management and key technical personnel, all of whom have only worked together for a short time. In particular, our success depends on the continued efforts of our senior management team, especially our Co-Chief Executive Officers, Co-Presidents, and co-founders, Todd V. Krizelman and Stephan J. Paternot. We do not carry key person life insurance on any of our personnel. The loss of the services of any of our executive officers or other key employees would likely have a material adverse effect on our business. WE DEPEND ON HIGHLY QUALIFIED TECHNICAL AND MANAGERIAL PERSONNEL. Our future success also depends on our continuing ability to attract, retain and motivate highly qualified technical and managerial personnel. Our business plan requires us to increase our employee base significantly over the next 12 months. Competition for employees in our industry is intense. We may be unable to attract, assimilate or retain highly qualified technical and managerial personnel in the future. Wages for managerial and technical employees are increasing and are expected to continue to increase in the future. We have from time to time in the past experienced, and we expect to continue to experience in the future, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. If we are unable to attract and retain the technical and managerial personnel necessary to support the growth of our business, our business would likely be materially and adversely affected. WE MAY NOT EFFECTIVELY MANAGE OUR GROWTH; OUR MANAGEMENT TEAM IS INEXPERIENCED IN THE MANAGEMENT OF A LARGE PUBLIC COMPANY. Our recent growth has placed significant strains on our resources. To manage our future growth, we must continue to implement and improve our operational and financial software systems and expand and train our employee base. Some of our key employees were hired during 1998, including our Chief Operating Officer, who joined us in August 1998 and our Chief Financial Officer, who joined us in July 1998. In addition, our Director of Marketing, Director of Advertising Sales, General Counsel, Director of Business Development, Director of Communications and Director of Human Resources each have been with us for less than two years. Furthermore, the members of our current senior management, other than the Chairman, have not had any previous experience managing a public company or a large operating company. Accordingly, we cannot assure you that: o we will be able to effectively manage the expansion of our operations; o our key employees will be able to work together effectively as a team to successfully manage our growth; o we will be able to hire, train and manage our growing employee base; o our systems, procedures or controls will be adequate to support our operations; and o our management will be able to achieve the rapid execution necessary to fully exploit the market opportunity for our products and services. Our inability to manage growth effectively could have a material adverse effect on our business. OUR CHAIRMAN AND VICE PRESIDENT OF CORPORATE DEVELOPMENT HAVE OTHER INTERESTS AND TIME COMMITMENTS; WE HAVE CONFLICTS OF INTEREST WITH SOME OF OUR DIRECTORS. Because our Chairman and our Vice President of Corporate Development are officers or employees of other companies, we will have to compete for their time. Michael S. Egan is our Chairman. Mr. Egan serves as the Chairman of our board of directors and as an executive officer with primary responsibility for day-to-day strategic planning and financing arrangements. Mr. Egan also is the controlling investor of Dancing Bear Investments, an entity controlled by Mr. Egan, which is our majority stockholder. Edward A. Cespedes is our Vice President of Corporate Development with primary responsibility for corporate development opportunities including mergers and acquisitions. Mr. Cespedes also serves as a Managing Director of Dancing Bear Investments. Messrs. Egan and Cespedes have not committed to devote any specific percentage of their business time with us. Accordingly, we compete with Dancing Bear Investments and related entities for their time. We have begun advertising electronic commerce arrangements with entities controlled by Mr. Egan and by Republic Industries, Inc., an entity affiliated with H. Wayne Huizenga, one of our directors. These arrangements were not the result of arm's-length negotiations, but we believe that the terms of these arrangements are on comparable terms as if they were entered into with unaffiliated third parties. Due to their relationships with their related entities, Messrs. Egan, Cespedes and Huizenga will have an inherent conflict of interest in making any decision related to transactions between their related entities and us. We intend to review related party transactions in the future on a case-by-case basis. WE MAY NOT BE ABLE TO KEEP UP WITH RAPID TECHNOLOGICAL AND OTHER CHANGES. The markets in which we compete are characterized by: o rapidly changing technology, o evolving industry standards, o frequent new service and product announcements, introductions and enhancements, and o changing consumer demands. We may not be able to keep up with these rapid changes. In addition, these market characteristics are heightened by the emerging nature of the Internet and the apparent need of companies from varying industries to offer Internet-based products and services. As a result, our future success depends on our ability to adapt to rapidly changing technologies and standards. We will also need to continually improve the performance, features and reliability of our services in response to competitive services and product offerings and the evolving demands of the marketplace. In addition, the widespread adoption of new Internet, networking or telecommunications technologies or other technological changes could require us to incur substantial expenditures to modify our services or infrastructure and could fundamentally affect the nature of our business. WE HAVE CAPACITY CONSTRAINT AND SYSTEM DEVELOPMENT RISKS. A key element of our strategy is to generate a high volume of user traffic. Our ability to attract advertisers and to achieve market acceptance of our products and services and our reputation depend significantly upon the performance of our network infrastructure, including our server, hardware and software. Any system failure, including network, software or hardware failure, that causes an interruption in our service or a decrease in responsiveness of our web site could result in reduced traffic and reduced revenue, and could impair our reputation. Our web site must accommodate a high volume of traffic and deliver frequently updated information. Our web site has in the past and may in the future experience slower response times for a variety of reasons, including system failures and an increase in the volume of user traffic on our web site. Accordingly, we face risks related to our ability to accommodate our expected customer levels while maintaining superior performance. In addition, slower response time may result in fewer users at our site or users spending less time at our site. This would decrease the amount of inventory available for sale to advertisers. Accordingly, any failure of our server and networking systems to handle current or higher volumes of traffic at sufficient response times would have a material adverse effect on our business. In the fourth quarter of 1998, we moved our principal server to the New York Teleport facility in Staten Island, New York under a lease with Telehouse International Corporation of America. More than 90% of our web site traffic is handled through this facility. Telehouse International does not guarantee that our Internet access will be uninterrupted, error-free or secure. Additionally, we maintain computer hardware, servers and operations relating to our Azazz business in Seattle, Washington which are hosted by Exodus Communications, Inc. Although Exodus provides comprehensive facilities management services, including human and technical monitoring of all production servers 24 hours-per-day, seven days-per-week, Exodus does not guarantee that our Internet access will be uninterrupted, error-free or secure. Our operations depend on the ability to protect our systems against damage from unexpected events, including fire, power loss, water damage, telecommunications failures, and vandalism. Any disruption in our Internet access could have a material adverse effect on us. In addition, computer viruses, electronic break-ins or other similar disruptive problems could also materially adversely affect our web site. Our reputation and theglobe.com brand could be materially and adversely affected by any problems to our site. Our insurance policies may not adequately compensate us for any losses that may occur due to any failures or interruptions in our systems. We do not presently have any secondary off-site systems or a formal disaster recovery plan. In addition, our users depend on Internet service providers, online service providers and other web site operators for access to our web sites. Many of them have experienced significant outages in the past, and could experience outages, delays and other difficulties due to system failures unrelated to our systems. Moreover, the Internet infrastructure may not be able to support continued growth in its use. Furthermore, we depend on hardware suppliers for prompt delivery, installation and service of equipment used to deliver our products and services. Any of these problems could materially adversely affect our business. HACKERS MAY ATTEMPT TO PENETRATE OUR SECURITY SYSTEM; ONLINE SECURITY BREACHES COULD HARM OUR BUSINESS. Consumer and supplier confidence in our web site depends on maintaining relevant security features. Substantial or ongoing security breaches on our system or other Internet-based systems could significantly harm our business. We incur substantial expenses protecting against and remedying security breaches. Security breaches also could damage our reputation and expose us to a risk of loss or litigation. Experienced programmers or "hackers" have successfully penetrated our system and we expect that these attempts will continue to occur from time to time. Because a hacker who is able to penetrate our network security could misappropriate proprietary information or cause interruptions in our products and services, we may have to expend significant capital and resources to protect against or to alleviate problems caused by these hackers. Additionally, we may not have a timely remedy against a hacker who is able to penetrate our network security. Such security breaches could materially adversely affect our company. In addition, the transmission of computer viruses resulting from hackers or otherwise could expose us to significant liability. Our insurance policies carry low coverage limits, which may not be adequate to reimburse us for losses caused by security breaches. We also face risks associated with security breaches affecting third parties with whom we have relationships. COMPETITION FOR MEMBERS, USERS AND ADVERTISERS, AS WELL AS COMPETITION IN THE ELECTRONIC COMMERCE MARKET IS INTENSE AND IS EXPECTED TO INCREASE SIGNIFICANTLY. The market for members, users and Internet advertising among web sites is new and rapidly evolving. Competition for members, users and advertisers, as well as competition in the electronic commerce market, is intense and is expected to increase significantly. Barriers to entry are relatively insubstantial and we believe we will face competitive pressures from many additional companies both in the United States and abroad. Accordingly, pricing pressure on advertising rates will increase in the future which could have a material adverse effect on us. All types of web sites compete for users. Competitor web sites include community sites, as well as "gateway" or "portal" sites and various other types of web sites. We believe that the principal competitive factors, in attracting users to a site are: o functionality of the web site, o brand recognition, o member affinity and loyalty, o broad demographic focus, o open access for visitors, o critical mass of users, particularly for community-type sites, and o services for users. We compete for users, advertisers and electronic commerce marketers with the following types of companies: o other online community web sites, such as GeoCities, which has agreed to be acquired by Yahoo!, Tripod and AngelFire, subsidiaries of Lycos, and Xoom.com, o search engines and other Internet "portal" companies, such as Excite, InfoSeek, Lycos and Yahoo!, o online content web sites, such as CNET, ESPN.com and ZDNet.com, o publishers and distributors of television, radio and print, such as CBS, NBC and CNN/Time Warner, o general purpose consumer online services, such as America Online and Microsoft Network, o web sites maintained by Internet service providers, such as AT&T WorldNet, EarthLink and MindSpring, and o electronic commerce web sites, such as Amazon.com, Etoys and CDNow. Additional competitive factors specific to attracting advertisers include the ability to offer targeted audiences and the overall cost effectiveness of the advertising medium we offer. We will also need to continue to increase significantly our user base and traffic to compete effectively. Many of our competitors, including other community sites, have announced that they are contemplating developing Internet navigation services and are attempting to become "gateway" or "portal" sites through which users may enter the web. In the event these companies develop successful "portal" sites, we could lose a substantial portion of our user traffic. Furthermore, many non-community sites are seeking to develop community aspects in their sites. Many of our existing and potential competitors, including companies operating web directories and search engines, and traditional media companies, have the following advantages: o longer operating histories in the Internet market; o greater name recognition; o larger customer bases; and o significantly greater financial, technical and marketing resources. In addition, providers of Internet tools and services, including community-type sites, may be acquired by, receive investments from, or enter into other commercial relationships with larger, well-established and well-financed companies, such as Microsoft and America Online. For example, Excite has agreed to be acquired by @Home, America Online acquired Netscape and Lycos announced a transaction with USA Network and Ticketmaster Citysearch Online. In addition, there has been other significant consolidation in the industry. This consolidation may continue in the future. We could face increased competition in the future from traditional media companies, including cable, newspaper, magazine, television and radio companies. A number of these large traditional media companies, including Disney, CBS and NBC, have been active in Internet related activities. Those competitors may be able to undertake more extensive marketing campaigns for their brands and services, adopt more aggressive advertising pricing policies and make more attractive offers to potential employees, distribution partners, electronic commerce companies, advertisers and third-party content providers. Furthermore, our existing and potential competitors may develop sites that are equal or superior in quality to, or that achieve greater market acceptance than, our site. We cannot assure you that advertisers may not perceive our competitors' sites as more desirable than ours. To compete with other web sites, we plan to develop and introduce new features and functions, such as increased capabilities for user personalization and interactivity. We also plan to develop and introduce new products and services, such as new content targeted for specific user groups with particular demographic and geographic characteristics. These improvements will require us to spend significant funds and may require the development or licensing of increasingly complex technologies. Enhancements of or improvements to our web site may contain undetected programming errors that require significant design modifications, resulting in a loss of customer confidence and user support and a decrease in the value of our brand name. Our failure to effectively develop and produce new features, functions, products and services could affect our ability to compete with other web sites. This could have a material adverse effect on us. Web browsers offered by Netscape and Microsoft also increasingly incorporate prominent search buttons that direct traffic to competing services. These features could make it more difficult for Internet users to find and use our product and services. In the future, Netscape, Microsoft and other browser suppliers may also more tightly integrate products and services similar to ours into their browsers or their browsers' pre-set home page. Additionally, entities that sponsor or maintain high-traffic web sites or that provide an initial point of entry for Internet viewers, such as the Regional Bell Operating Companies, cable companies or Internet Service Providers, such as Microsoft and America Online, offer and can be expected to consider further development, acquisition or licensing of Internet search and navigation functions that compete with us. These competitors could also take actions that make it more difficult for viewers to find and use our products and services. Additionally, the electronic commerce market is new and rapidly evolving, and we expect competition among electronic commerce merchants to increase significantly. Because the Internet allows consumers to easily compare prices of similar products or services on competing web sites and there are low barriers to entry for potential competitors, gross margins for electronic commerce transactions may narrow in the future. Many of the products that we sell on our web site may be sold by the maker of the product directly or by other web sites. Competition among Internet retailers, our electronic commerce partners and product makers may have a material adverse effect on our ability to generate revenues through electronic commerce transactions or from these electronic commerce partners. See also "Business--Competition." WE DEPEND ON THE CONTINUED GROWTH IN THE USE AND COMMERCIAL VIABILITY OF THE WEB. Our market is new and rapidly evolving. Our business is substantially dependent upon the continued rapid growth in the use of the Internet and electronic commerce on the Internet becoming more widespread. Commercial use of the Internet is relatively new. Web usage may be inhibited for a number of reasons, including: o inadequate network infrastructure; o security and authentication concerns with respect to transmission over the Internet of confidential information, including credit card numbers, or other personal information; o ease of access; o inconsistent quality of service; o availability of cost-effective, high-speed service; and o bandwidth availability. If the Internet develops as a commercial medium more slowly than we expect, it will adversely affect our business. Additionally, if web usage grows, the Internet infrastructure may not be able to support the demands placed on it by this growth or its performance and reliability may decline. Web sites have experienced interruptions in their service as a result of outages and other delays occurring throughout the Internet network infrastructure. If these outages or delays frequently occur in the future, web usage, as well as usage of our web site, could grow more slowly or decline. Also, the Internet's commercial viability may be significantly hampered due to: o delays in the development or adoption of new operating and technical standards and performance improvements required to handle increased levels of activity, o increased government regulation, and o insufficient availability of telecommunications services which could result in slower response times and adversely affect usage of the Internet. WE MAY BE MATERIALLY ADVERSELY AFFECTED IF ELECTRONIC COMMERCE DOES NOT BECOME A VIABLE SOURCE OF SIGNIFICANT REVENUES FOR THEGLOBE.COM. IN ADDITION, OUR ELECTRONIC COMMERCE BUSINESS MAY RESULT IN SIGNIFICANT LIABILITY CLAIMS AGAINST US. In the first quarter of 1999, we acquired Azazz, which is a direct marketer of products over the Internet. However, we have limited experience in the sale of products online and the development of relationships with manufacturers and suppliers of these products. We also face many uncertainties which may affect our ability to generate electronic commerce revenues, including: o our ability to obtain new customers at a reasonable cost, retain existing customers and encourage repeat purchases; o the likelihood that both online and retail purchasing trends may rapidly change; o the level of product returns; o merchandise shipping costs and delivery times; o our ability to manage inventory levels; o our ability to secure and maintain relationships with vendors; o the possibility that our vendors may sell their products through other sites; and o intense competition for electronic commerce revenues. Accordingly, we cannot assure you that electronic commerce transactions will provide a significant or sustainable source of revenues or profits. Additionally, due to the ability of consumers to easily compare prices of similar products or services on competing web sites, gross margins for electronic commerce transactions may narrow in the future and, accordingly, our revenues and profits from electronic commerce arrangements may be materially negatively impacted. If use of the Internet for electronic commerce does not continue to grow, our business and financial condition would be materially and adversely affected. Additionally, consumers may sue us if any of the products that we sell are defective, fail to perform properly or injure the user. Some of our agreements with manufacturers contain provisions intended to limit our exposure to liability claims. However, these limitations may not prevent all potential claims. Liability claims could require us to spend significant time and money in litigation or to pay significant damages. As a result, any claims, whether or not successful, could seriously damage our reputation and our business. INTERNET ADVERTISING MAY NOT PROVE AS EFFECTIVE AS TRADITIONAL MEDIA. The Internet advertising market is new and rapidly evolving. We cannot yet gauge its effectiveness as compared to traditional advertising media. Many of our current or potential advertising partners have little or no experience using the Internet for advertising purposes and they have allocated only a limited portion of their advertising budgets to Internet advertising. The adoption of Internet advertising, particularly by those entities that have historically relied upon traditional media, requires the acceptance of a new way of conducting business, exchanging information and advertising products and services. Advertisers that have traditionally relied upon other advertising media may be reluctant to advertise on the Internet or find it less effective. No standards have been widely accepted to measure the effectiveness of Internet advertising or to measure the demographics of our user base. Additionally, no standards have been widely accepted to measure the number of members, unique users or page views related to a particular site. We cannot assure you that any standards will become available in the future or that standards will accurately measure our users. If standards do not develop, advertisers may not advertise on the Internet. In addition, we depend on third parties to provide these measurement services. These measurements are often based on sampling techniques or other imprecise measures and may materially differ from our estimates. We cannot assure you that advertisers will accept our or other parties' measurements. The rejection by advertisers of these measurements could have a material adverse effect on our business and financial condition. The sale of Internet advertising is subject to intense competition that has resulted in a wide variety of pricing models, rate quotes and advertising services. This competition has resulted in a wide variety of advertising pricing models. For example, advertising rates may be based on the number of user requests for additional information made by clicking on the advertisement, known as "click throughs," or on the number of times an advertisement is displayed to a user, known as "impressions." Our contracts with advertisers typically guarantee the advertiser a minimum number of impressions. To the extent that minimum impression levels are not achieved for any reason, including the failure to obtain the expected traffic, our contracts with advertisers may require us to provide additional impressions after the contract term, which may adversely affect the availability of our advertising inventory. This could have a material adverse effect on us. Our revenues could be materially adversely affected if we are unable to adapt to other pricing models for Internet advertising if they are adopted. It is difficult to predict which, if any, pricing models for Internet advertising will emerge as the industry standard. This makes it difficult to project our future advertising rates and revenues. Additionally, it is possible that Internet access providers may, in the future, act to block or limit various types of advertising or direct solicitations, whether at their own behest or at the request of users. Moreover, "filter" software programs that limit or prevent advertising from being delivered to an Internet user's computer are available. Widespread adoption of this software could adversely affect the commercial viability of Internet advertising. WE DEPEND ON THIRD PARTIES TO INCREASE TRAFFIC ON OUR SITE AND TO PROVIDE SOFTWARE AND PRODUCTS. We are dependent on various web sites that provide direct links to our site. These web sites may not attract significant numbers of users and we may not receive a significant number of additional users from these relationships. We also enter into agreements with advertisers, electronic commerce marketers or other third-party web sites that require us to exclusively feature these parties in particular areas or on particular pages of our site. These exclusivity agreements may limit our ability to enter into other relationships. Our agreements with third party sites do not require future minimum commitments to use our services or provide access to our site and may be terminated at the convenience of the other party. Moreover, we do not have agreements with a majority of the web sites that provide links to our site. These sites may terminate their links at any time. Many companies we may pursue for strategic relationships offer competing services. As a result, these competitors may be reluctant to enter into strategic relationships with us. Our business could be materially adversely affected if we do not establish and maintain strategic relationships on commercially reasonable terms or if any of our strategic relationships do not result in increased traffic on our web site. Additionally, we cannot assure you that we will be able to maintain relationships with third parties that supply us with software or products that are crucial to our success, or that these software or products will be able to sustain any third-party claims or rights against their use. Furthermore, we cannot assure you that the software, services or products of those companies that provide access or links to our services or products will achieve market acceptance or commercial success. Accordingly, we cannot assure you that our existing relationships will result in sustained business partnerships, successful service or product offerings or the generation of significant revenues for us. WE MAY NEED TO RAISE ADDITIONAL FUNDS, INCLUDING THROUGH THE ISSUANCE OF DEBT. We believe that our current cash and cash equivalents, which primarily resulted from our initial public offering, together with cash flows, will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for our existing business for at least twelve months. We expect that we will continue to experience negative operating cash flow for the foreseeable future as a result of significant spending on advertising and infrastructure. Accordingly, we may need to raise additional funds in a timely manner in order to: o fund our anticipated expansion; o develop new or enhanced services or products; o respond to competitive pressures; o acquire complementary products, businesses or technologies; and o enter into joint ventures. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders will be reduced. Stockholders may experience additional dilution and these securities may have rights senior to those of the holders of our common stock. We do not have any contractual restrictions on our ability to incur debt. Any indebtedness could contain covenants which restrict our operations. We cannot assure you that additional financing will be available on terms favorable to us, or at all. If adequate funds are not available or are not available on acceptable terms, our business could be materially adverse effected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." OUR ACQUISITIONS OR JOINT VENTURES ENTAIL NUMEROUS RISKS AND UNCERTAINTIES. As part of our business strategy, we expect to review acquisition prospects or joint ventures that would complement our existing business, increase our traffic, augment the distribution of our community, enhance our technological capabilities or increase our electronic commerce revenues. On February 1, 1999, we acquired Azazz.com to develop electronic commerce retailing on our site. We are currently in negotiations with third parties for various transactions. These transactions may or may not be consummated. Our future acquisitions or joint ventures could result in numerous risks and uncertainties, including: o potentially dilutive issuances of equity securities, which may be freely tradable in the public market; o large and immediate write-offs; o the incurrence of debt and contingent liabilities or amortization expenses related to goodwill and other intangible assets; o difficulties in the assimilation of operations, personnel, technologies, products and information systems of the acquired companies; o the diversion of management's attention from other business concerns; o the risks of entering geographic and business markets in which we have no or limited prior experience such as e-commerce retailing; and o the risk that the acquired business will not perform as expected. WE RELY ON INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS. We regard substantial elements of our web site and underlying technology as proprietary and attempt to protect them by relying on intellectual property laws and restrictions on disclosure. We also generally enter into confidentiality agreements with our employees and consultants. In connection with our license agreements with third parties we generally seek to control access to and distribution of our technology and other proprietary information. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use our proprietary information without authorization or to develop similar technology independently. Thus we cannot assure you that the steps taken by us will prevent misappropriation or infringement of our proprietary information which could have a material adverse effect on our business. In addition, our competitors may independently develop similar technology, duplicate our products or design around our intellectual property rights. We pursue the registration of our trademarks in the United States and internationally. However, effective trademark and other intellectual property protection may not be available in every country in which our services are distributed or made available through the Internet. Policing unauthorized use of our proprietary information is difficult. Legal standards relating to the validity, enforceability and scope of protection of proprietary rights in Internet-related businesses are also uncertain and still evolving. We cannot assure you about the future viability or value of any of our proprietary rights. Litigation may be necessary in the future to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others. Furthermore, we cannot assure you that our business activities will not infringe upon the proprietary rights of others, or that other parties will not assert infringement claims against us, including claims related to providing hyperlinks to web sites operated by third parties or providing advertising on a keyword basis that links a specific search term entered by a user to the appearance of a particular advertisement. Moreover, from time to time, third parties may assert claims of alleged infringement by us or our members of their intellectual property rights. Any litigation claims or counterclaims could impair our business because they could: o be time-consuming; o result in costly litigation; o subject us to significant liability for damages; o result in invalidation of our proprietary rights; o divert management's attention; o cause product release delays; or o require us to redesign our products or require us to enter into royalty or licensing agreements that may not be available on terms acceptable to us, or at all. We license from third parties various technologies incorporated into our site. As we continue to introduce new services that incorporate new technologies, we may be required to license additional technology from others. We cannot assure you that these third-party technology licenses will continue to be available to us on commercially reasonable terms. Additionally, we cannot assure you that the third parties from which we license our technology will be able to defend our proprietary rights successfully against claims of infringement. As a result, our inability to obtain any of these technology licenses could result in delays or reductions in the introduction of new services or could adversely affect the performance of our existing services until equivalent technology can be identified, licensed and integrated. We own the Internet domain names "theglobe.com", "shop.theglobe.com", "tglo.com" and "azazz.com." The regulation of domain names in the United States and in foreign countries may change. Regulatory bodies could establish additional top-level domains, appoint additional domain name registrars or modify the requirements for holding domain names, any or all of which may dilute the strength of our names. We may not acquire or maintain the "theglobe.com," "shop.theglobe.com," "tglo.com" and "azazz.com" domain names in all of the countries in which our web site may be accessed, or for any or all of the top-level domain names that may be introduced. The relationship between regulations governing domain names and laws protecting proprietary rights is unclear. Therefore, we may not be able to prevent third parties from acquiring domain names that infringe or otherwise decrease the value of our trademarks and other proprietary rights. See "Business--Intellectual Property and Proprietary Rights." WE MAY FACE INCREASED GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES IN OUR INDUSTRY. There are an increasing number of federal, state, local and foreign laws and regulations pertaining to the Internet. In addition, a number of federal, state, local and foreign legislative and regulatory proposals are under consideration. Laws or regulations may be adopted with respect to the Internet relating to liability for information retrieved from or transmitted over the Internet, online content regulation, user privacy and quality of products and services. Changes in tax laws relating to electronic commerce could materially effect our business. Moreover, the applicability to the Internet of existing laws governing issues such as intellectual property ownership and infringement, copyright, trademark, trade secret, obscenity, libel, employment and personal privacy is uncertain and developing. Any new legislation or regulation, or the application or interpretation of existing laws or regulations, may decrease the growth in the use of the Internet, may impose additional burdens on electronic commerce or may alter how we do business. This could decrease the demand for our services, increase our cost of doing business, increase the costs of products sold through the Internet or otherwise have a material adverse effect on our business, results of operations and financial condition. See "Business -- Government Regulation and Legal Uncertainties." WE MAY BE EXPOSED TO LIABILITY FOR INFORMATION RETRIEVED FROM OR TRANSMITTED OVER THE INTERNET OR FOR PRODUCTS SOLD OVER THE INTERNET. Users may access content on our web site or the web sites of our distribution partners through web site links or other means, and they may download content and subsequently transmit this content to others over the Internet. This could result in claims against us based on a variety of theories, including defamation, obscenity, negligence, copyright, trademark infringement or the wrongful actions of third parties. Other theories may be brought based on the nature, publication and distribution of our content or based on errors or false or misleading information provided on our web site. Claims have been brought against online services in the past and we have received inquiries from third parties regarding these matters. The claims could be material in the future. We could also be exposed to liability for third party content posted by members on their personal web pages or by users in our chat rooms or on our bulletin boards. Additionally, we offer e-mail service, which a third party provides. The e-mail service may expose us to potential liabilities or claims resulting from unsolicited e-mail, lost or misdirected messages, fraudulent use of e-mail or delays in e-mail service. We also enter into agreements with commerce partners and sponsors under which we are entitled to receive a share of any revenue from the purchase of goods and services through direct links from our site. After the Azazz acquisition in February 1999, we also began selling products directly to consumers. Those arrangements may expose us to additional legal risks, regulations by local, state, federal and foreign authorities and potential liabilities to consumers of these products and services, even if we do not ourselves provide these products or services. We cannot assure you that any indemnification provided to us in our agreements with these parties will be adequate. Even if these claims do not result in our liability, we could incur significant costs in investigating and defending against these claims. The imposition of potential liability for information carried on or disseminated through our systems could require us to implement measures to reduce our exposure to liability. Those measures may require the expenditure of substantial resources and limit the attractiveness of our services. Additionally, our insurance policies may not cover all potential liabilities to which we are exposed. WE MAY HAVE TROUBLE EXPANDING INTERNATIONALLY. A part of our strategy is to expand into foreign markets. There can be no assurance that the Internet or our community model will become widely accepted for advertising and electronic commerce in any international markets. To expand overseas we intend to seek to enter into relationships with foreign business partners. This strategy contains risks, including: o we may experience difficulty in managing international operations because of distance, as well as language and cultural differences; o we or our future foreign business associates may not be able to successfully market and operate our services in foreign markets; o because of substantial anticipated competition, it will be necessary to implement our business strategy quickly in international markets to obtain a significant share of the market; and o we do not have the content or services necessary to substantially expand our operations in many foreign markets. We will unlikely be able to significantly penetrate these markets unless we gain the relevant content, either through partnerships, other business arrangements or possibly acquisitions with content-providers in these markets. There are also risks inherent in doing business on an international level, including: o unexpected changes in regulatory requirements; o trade barriers; o difficulties in staffing and managing foreign operations; o fluctuations in currency exchange rates and the introduction of the euro; o longer payment cycles in general; o problems in collecting accounts receivable; o difficulty in enforcing contracts; o political and economic instability; o seasonal reductions in business activity in certain other parts of the world; and o potentially adverse tax consequences. VARIOUS STOCKHOLDERS, INDIVIDUALLY OR IN THE AGGREGATE, MAY CONTROL US. Michael S. Egan, our Chairman, beneficially owns or controls, directly or indirectly, 6,123,024 shares of our common stock which in the aggregate represents approximately 47.8% of the outstanding shares of our common stock. Todd V. Krizelman and Stephen J. Paternot, our Co-Chief Executive Officers and Co-Presidents, collectively, beneficially own 15.2% of our common stock. Messrs. Egan, Krizelman, Paternot and Edward A. Cespedes and Rosalie V. Arthur, each of whom is a director of our company, have entered into a stockholders' agreement. As a result of the stockholders' agreement, Mr. Egan has agreed to vote for up to two nominees of Messrs. Krizelman and Paternot to the board of directors and Messrs. Krizelman and Paternot have agreed to vote for the nominees of Mr. Egan to the board, which will be up to five directors. Consequently, Mr. Egan, Krizelman and Paternot control the ability to elect a majority of our directors. In addition, collectively Messrs. Egan, Krizelman and Paternot have the ability to control the outcome of all issues submitted to a vote of our stockholders requiring majority approval. Additionally, each party other than Mr. Egan has granted an irrevocable proxy with respect to all matters subject to a stockholder vote to Dancing Bear Investments, Inc., an entity controlled by Mr. Egan, for any shares held by that party received upon the exercise of outstanding warrants for 225,000 shares of our common stock. The stockholders' agreement also provides for tag-along and drag-along rights in connection with any private sale of these securities. THE YEAR 2000 ISSUE MAY AFFECT OUR OPERATIONS. Year 2000 issues related to non-compliant information technology systems or non-information technology systems operated by us or by third parties may affect us. We have substantially completed an assessment of our internal and external third-party information technology systems and non-information technology systems and a test of the information technology systems that support our web site. At this point in our assessment and testing, we are not aware of any Year 2000 problems relating to systems operated by us or by third parties that would have a material effect on our business, without taking into account our efforts to avoid these problems. Based on our assessment to date, we do not anticipate that costs associated with remediating our non-compliant information technology systems or non-information technology systems will be material, although we cannot assure you that this will be the case. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Impact of the Year 2000." To the extent that we finalize our assessment without identifying any material non-compliant information technology systems operated by us or by third parties, the most reasonably likely worst case Year 2000 scenario is the failure of one or more of our vendors of hardware or software or one or more providers of non-information technology systems to properly identify any Year 2000 compliance issues and remediate any issues before December 31, 1999. A failure could prevent us from operating our business, prevent users from accessing our web site, or change the behavior of advertising customers or persons accessing our web site. We believe that the primary business risks, in the event of a failure, would include, but not be limited to: o lost advertising revenues; o increased operating costs; o loss of customers or persons accessing our web site; o other business interruptions of a material nature; and o claims of mismanagement, misrepresentation, or breach of contract. Any of these risks could have a material adverse effect on our business. OUR STOCK PRICE IS VOLATILE. The trading price of our common stock has been volatile and may continue to be volatile in response to various factors, including: o quarterly variations in our operating results; o competitive announcements; o changes in financial estimates by securities analysts; o the operating and stock price performance of other companies that investors may deem comparable to us; and o news relating to trends in our markets. The stock market has experienced significant price and volume fluctuations, and the market prices of technology companies, particularly Internet-related companies, have been highly volatile. In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been instituted against a company. Litigation, if instituted, whether or not successful, could result in substantial costs and a diversion of management's attention and resources, which would have a material adverse effect on our business. THE SALE OF SHARES ELIGIBLE FOR FUTURE SALE IN THE OPEN MARKET COULD DEPRESS OUR STOCK PRICE. Sales of significant amounts of common stock in the public market in the future or the perception that sales will occur could materially and adversely affect the market price of the common stock or our future ability to raise capital through an offering of our equity securities. There are 6,495,840 shares of common stock held by our stockholders that are "restricted securities," as that term is defined in Rule 144 of the Securities Act of 1933. 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 under the Securities Act. In connection with our initial public offering, all of our directors, officers and the holders of a substantial portion of our stock agreed, with exceptions, that they will not sell any common stock without the prior consent of Bear, Stearns & Co. Inc. before May 12, 1999. Following this date, approximately 1,133,380 shares of the restricted securities will be immediately eligible for sale in the public market under Rule 144 without volume limitation or further registration under the Securities Act, not including approximately 5,362,460 shares held by our "affiliates", within the meaning of the Securities Act. These 5,362,640 shares will be eligible for public sale subject to volume limitation. There are outstanding options to purchase 1,711,843 shares of common stock which are eligible for sale in the public market from time to time depending on vesting and the expiration of lock-up agreements. The issuance of these securities are registered under the Securities Act. In addition, there are outstanding warrants to purchase up to 2,023,009 shares of our common stock upon exercise. Substantially all of our stockholders holding restricted securities, including shares issuable upon the exercise of warrants to purchase our common stock, are entitled to registration rights under various conditions. In the near future we intend to file a Form S-8 registration statement under the Securities Act to register 41,017 shares of common stock issuable upon the exercise of options assumed in connection with the acquisition of Azazz. The registration statement is expected to become effective immediately upon filing and shares covered by that registration statement will be eligible for sale in the public markets. We also intend to file a registration statement for the 343,916 shares of common stock issued to acquire Azazz pursuant to a registration rights agreement. ANTI-TAKEOVER PROVISIONS AFFECTING US COULD PREVENT OR DELAY A CHANGE OF CONTROL. Provisions of our charter, by-laws and stockholder rights plan and provisions of applicable Delaware law may discourage, delay or prevent a merger or other change of control that a stockholder may consider favorable. Our board of directors has the authority to issue up to three million additional shares of preferred stock and to determine the price and the terms, including preferences and voting rights, of those shares without stockholder approval. Although we have no current plans to issue additional shares of our preferred stock, any issuance could: o have the effect of delaying, deferring or preventing a change in control of our company; o discourage bids of our common stock at a premium over the market price; or o adversely affect the market price of, and the voting and other rights of the holders of, our common stock. We must follow Delaware laws that could have the effect of delaying, deterring or preventing a change in control of our company. One of these laws prohibits us from engaging in a business combination with any interested stockholder for a period of three years from the date the person became an interested stockholder, unless various conditions are met. In addition, provisions of our charter and by-laws, and the significant amount of common stock held by our executive officers, directors and affiliates, could together have the effect of discouraging potential takeover attempts or making it more difficult for stockholders to change management. WE DO NOT EXPECT TO PAY CASH DIVIDENDS. We do not anticipate paying any cash dividends in the foreseeable future. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS PAGE Independent Auditors' Report 41 Balance Sheets as of December 31, 1998 and 1997 42 Statements of Operations for each of the three years in the period ended December 31, 1998 43 Statements of Stockholders' Equity for each of the three years in the period ended December 31, 1998 44 Statements of Cash Flows for each of the three years in the period ended December 31, 1998 45 Notes to Financial Statements 46 Financial Statement Schedules: II - Valuation and Qualifying Accounts for each of the three years in the period ended December 31, 1998 Exhibit 99.1 All other schedules are omitted because they are not applicable or the required information is shown in the Financial Statements or Notes thereto. INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders theglobe.com, inc.: We have audited the accompanying balance sheets of theglobe.com, inc. as of December 31, 1998 and 1997, and the related statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1998. In connection with our audits of the financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of theglobe.com, inc. as of December 31, 1998 and 1997, and the results of its operations and cash flows for each of the years in the three-year period ended December 31, 1998 in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly, in all respects, the information set forth therein. /s/ KPMG LLP New York, New York February 20, 1999
THEGLOBE.COM, INC. BALANCE SHEETS DECEMBER 31, ------------------------ 1998 1997 ------------ ----------- ASSETS Current assets: Cash and cash equivalents.................................... $29,250,572 $5,871,291 Short-term investments....................................... 898,546 13,003,173 Accounts receivable, less allowance for doubtful accounts of $300,136 and $12,000 in 1998 and 1997, respectively........ 2,004,875 254,209 Prepaids and other current assets............................ 678,831 -- ------------ ----------- Total current assets..................................... 32,832,824 19,128,673 Property and equipment, net...................................... 3,562,559 325,842 Restricted investments........................................... 1,734,495 -- Other assets..................................................... -- 7,657 ------------ ----------- Total assets............................................. $38,129,878 $19,462,172 ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable............................................. $ 2,614,445 $ 396,380 Accrued expense.............................................. 817,463 325,454 Accrued compensation......................................... 691,279 1,148,999 Deferred revenue............................................. 673,616 113,290 Current installments of obligations under capital leases..... 1,026,728 27,174 ------------ ----------- Total current liabilities................................ 5,823,531 2,011,297 Obligations under capital leases, excluding current installments. 2,005,724 98,826 Stockholders' equity: Preferred Stock, 3,000,000 shares authorized: Convertible preferred stock, Series A through E, $0.001 par value; 2,900,001 shares authorized; -0- and 1,449,995.5, shares issued and outstanding at December 31, 1998 and 1997, respectively; aggregate liquidation preference of -0- and $21,886,110 at December 31, 1998 and 1997, respectively........ -- 1,450 Common stock, $0.001 par value; 100,000,000 shares authorized; 10,312,256 and 1,154,271 shares issued and outstanding at December 31, 1998 and 1997 respectively........................ 10,312 1,154 Additional paid-in capital....................................... 50,914,494 21,866,965 Deferred compensation............................................ (128,251) (76,033) Net unrealized loss on securities................................ (50,006) (41,201) Accumulated deficit.............................................. (20,445,926) (4,400,286) ------------ ----------- Total stockholders' equity............................... 30,300,623 17,352,049 Commitments...................................................... ------------ ----------- Total liabilities and stockholders' equity............... $38,129,878 $19,462,172 ============ =========== See accompanying notes to financial statements.
THEGLOBE.COM, INC. STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, ------------------------------------- 1998 1997 1996 ------------ ------------ ----------- Revenues........................................ $ 5,509,818 $ 770,293 $ 229,363 Cost of revenues................................ 2,238,871 423,706 116,780 ------------ ------------ ----------- Gross profit............................ 3,270,947 346,587 112,583 Operating expenses: Sales and marketing......................... 9,298,683 1,248,349 275,947 Product development......................... 2,632,613 153,667 120,000 General and administrative.................. 6,828,134 2,827,591 489,073 Non-recurring charge........................ 1,370,250 -- -- ------------ ------------ ----------- Loss from operations.................... (16,858,733) (3,883,020) (772,437) ------------ ------------ ----------- Other income (expense): Interest and dividend income................ 1,083,400 334,720 25,966 Interest and other expense.................. (191,389) -- (3,709) ------------ ------------ ----------- Total other income (expense), net....... 892,011 334,720 22,257 ------------ ------------ ----------- Loss before provision for income taxes.. (15,966,722) (3,548,300) (750,180) ------------ ------------ ----------- Provision for income taxes...................... 78,918 36,100 -- ------------ ------------ ----------- Net loss................................ $(16,045,640) $(3,584,400) $(750,180) ============ ============ =========== Basic and diluted net loss per share............ $ (6.74) $ (3.13) $ (0.67) ============ ============ =========== Weighted average basic and diluted shares outstanding.................................... 2,381,140 1,146,773 1,125,000 ============ ============ =========== See accompanying notes to financial statements.
THEGLOBE.COM, INC. STATEMENTS OF STOCKHOLDERS' EQUITY ADDITIONAL OTHER TOTAL CONVERTIBLE PAID-IN DEFERRED COMPENSATION ACCUMULATED STOCKHODLERS' PREFERRED STOCK COMMON STOCK CAPITAL COMPENSATION LOSS DEFICIT EQUITY ----------------------- ---------------------- ---------- ------------ ------------ ----------- ------------- SHARES AMOUNTS SHARES AMOUNTS ------ ------- ------ ------- Balance as of December 31, 1995.. 1,134,910 $1,135 1,125,000 $1,125 $695,163 $ -- $ -- $(65,706) $631,717 Net loss............. -- -- -- -- -- -- -- (750,180) (750,180) ------------- Comprehensive loss... (750,180) ------------- Issuance of Series B convertible preferred stock.... 23,810 24 -- -- 24,961 -- -- -- 24,985 Issuance of Series C convertible preferred stock.... 221,250 221 -- -- 884,749 -- -- -- 884,970 Deferred compensation -- -- -- -- 25,053 (25,053) -- -- -- Amortization of deferred compensation....... -- -- -- -- -- 4,000 -- -- 4,000 ----------- ----------- ----------- ---------- ---------- ------------ ------------ ----------- ------------- Balance at December 31, 1996........... 1,379,970 1,380 1,125,000 1,125 1,629,926 (21,053) -- (815,886) 795,492 Net loss............. -- -- -- -- -- -- -- (3,584,400) (3,584,400) Net unrealized loss on securities...... -- -- -- -- -- -- (41,201) -- (41,201) ------------- Comprehensive loss... (3,625,601) Issuance of Series C convertible preferred stock.... 70,000 70 -- -- 279,930 -- -- -- 280,000 Exercise of stock options............ -- -- 29,271 29 4,478 -- -- -- 4,507 Issuance of Series D convertible preferred stock, net of expense of $130,464........... 25.5 -- -- -- 19,869,536 -- -- -- 19,869,536 Deferred compensation -- -- -- -- 83,095 (83,095) -- -- -- Amortization of deferred compensation....... -- -- -- -- -- 28,115 -- -- 28,115 ----------- ----------- ----------- ---------- ---------- ------------ ------------ ----------- ------------- Balance at December 31, 1997.. 1,449,995.5 1,450 1,154,271 1,154 21,866,965 (76,033) (41,201) (4,400,286) 17,352,049 Net loss............. -- -- -- -- -- -- -- (16,045,640) (16,045,640) Change in net unrealized loss on securities......... -- -- -- -- -- -- (8,805) -- (8,805) ------------- Comprehensive loss... (16,054,445) ------------- Deferred compensation -- -- -- -- 118,125 (118,125) -- -- -- Amortization of deferred compensation....... -- -- -- -- -- 65,907 -- -- 65,907 Exercise of stock options............ -- -- 199,083 199 254,818 -- -- -- 255,017 Conversion of preferred stock in connection with the Company's IPO...... (1,449,995) (1,450) 5,473,735 5,474 (4,024) -- -- -- -- Issuance of Common Stock in connection for services....... -- -- 3,500 3 31,497 -- -- -- 31,500 Issuance of common stock in connection with the Company's IPO, net of issuance costs of $4,054,658......... -- -- 3,481,667 3,482 27,276,863 -- -- -- 27,280,345 Transfer of warrants from significant shareholder to officers........... -- -- -- -- 1,370,250 -- -- -- 1,370,250 ----------- ----------- ----------- ---------- ---------- ------------ ------------ ----------- ------------- Balance at December 31, 1998 -- $ -- 10,312,256 $10,312 $50,914,494 $(128,251) $(50,006)$(20,445,926) $30,300,623 =========== =========== =========== ========== ========== ============ ============ =========== ============= See accompanying notes to financial statements.
THEGLOBE.COM, INC. STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, ----------------------------------------- 1998 1997 1996 ------------ ----------- ------------- Cash flows from operating activities: Net loss....................................... $ (16,045,640) $(3,584,400) $(750,180) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization.............. 715,410 60,210 47,595 Transfer of stock warrants from significant shareholder to officers.................. 1,370,250 -- -- Issuance of common stock for services...... 31,500 -- -- Amortization of deferred compensation...... 65,907 28,115 4,000 Changes in operating assets and liabilities: Accounts receivable, net................... (1,750,666) (188,081) (63,103) Prepaids and other current assets.......... (678,831) 2,377 (2,377) Other assets............................... 7,657 -- -- Accounts payable........................... 2,218,065 265,902 120,684 Accrued expenses........................... 492,009 310,220 9,635 Accrued compensation....................... (457,720) 1,148,999 -- Deferred revenue........................... 560,326 81,146 32,144 -------------- ------------ ------------- Net cash used in operating activities........ (13,471,733) (1,875,512) (601,602) -------------- ------------ ------------- Cash flows from investing activities: Purchase of securities......................... -- (13,044,374) -- Proceeds from sale of securities............... 12,095,822 -- -- Purchases of property and equipment............ (730,359) (119,984) (138,309) Payment of security deposits................... (1,734,495) -- -- -------------- ------------ ------------- Net cash provided by (used in) investing activities................................. 9,630,968 (13,164,358) (138,309) -------------- ------------ ------------- Cash flows from financing activities: Payments under capital lease obligations....... (315,316) -- -- Proceeds from exercise of common stock options. 255,017 4,507 -- Net proceeds from issuance of common stock..... 27,280,345 -- -- Payment of financing costs..................... -- (130,464) -- Proceeds from issuance of convertible preferred Series A, B and C stock...................... -- 280,000 909,955 Proceeds from issuance of convertible preferred Series D stock............................... -- 20,000,000 -- -------------- ------------ ------------- Net cash provided by financing activities.. 27,220,046 20,154,043 909,955 -------------- ------------ ------------- Net change in cash and cash equivalents.... 23,379,281 5,114,173 170,044 Cash and cash equivalents at beginning of period. 5,871,291 757,118 587,074 -------------- ------------ ------------- Cash and cash equivalents at end of period....... $29,250,572 $5,871,291 $ 757,118 ============== ============ ============== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest..................................... $ 123,724 $ -- $ 3,709 ============== ============ ============== Income taxes................................. $ 69,890 $ -- $ -- ============== ============ ============== Supplemental disclosure of noncash transactions: Equipment acquired under capital leases........ $3,221,769 $ 126,000 $ -- ============== ============ ============== See accompanying notes to financial statements.
THEGLOBE.COM, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Description of Business theglobe.com, inc. (the "Company") was incorporated on May 1, 1995 (inception) and commenced operations on that date. theglobe.com is an online community with members and users in the United States and abroad. theglobe.com's users are able to personalize their online experience by publishing their own content and interacting with others having similar interests. The Company's primary revenue source is the sale of advertising, with additional revenues generated through electronic commerce arrangements, development fees and the sale of membership service fees for enhanced services. The Company's business is characterized by rapid technological change, new product development and evolving industry standards. Inherent in the Company's business are various risks and uncertainties, including its limited operating history, unproven business model and the limited history of commerce on the Internet. The Company's success may depend in part upon the emergence of the Internet as a communications medium, prospective product development efforts and the acceptance of the Company's solutions by the marketplace. (b) Initial Public Offerings On November 13, 1998, the Company completed an initial public offering and concurrent offering directly to certain investors in which it sold 3,481,667 shares of Common Stock, including 381,667 shares in connection with the exercise of the underwriters' over-allotment option, at $9.00 per share. Upon the closing of the offerings, all of the Company's preferred stock, par value $0.001 per share (the "Preferred Stock") automatically converted into an aggregate of 5,473,735 shares of Common Stock. Net proceeds from the offerings, after underwriting and placement agent fees of $2.0 million and offering costs of $2.0 million were $27.3 million. (c) 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 the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. (d) Cash and Cash Equivalents The Company considers all highly liquid securities with original maturities of three months or less to be cash equivalents. Cash equivalents at December 31, 1998 were approximately $2,955,044 and at December 31, 1997 were approximately $3,997,000, which consisted of corporate bonds and mutual funds. (e) Short-term Investments Short-term investments are classified as available-for-sale and are available to support current operations or to take advantage of other investment opportunities. These investments are corporate bonds, commercial paper and corporate bond funds which are stated at their estimated fair value based upon publicly available market quotes. Unrealized gains and losses are computed on the basis of specific identification and are included in stockholders' equity. Realized gains, realized losses and declines in value, judged to be other-than-temporary, are included in other income. There were no material gross realized gains or losses from sales of securities in the periods presented. The costs of securities sold are based on the specific-identification method and interest earned is included in interest income. As of December 31, 1998, the Company had gross unrealized losses of $50,006 from its short-term investments. As of December 31, 1997, the Company had gross unrealized losses of $41,678 and gross unrealized gains of $477 from its short-term investments. (f) Property and Equipment Property and equipment is stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets, generally ranging from three to five years. Equipment under capital leases is stated at the present value of minimum lease payments and is amortized using the straight-line method over the shorter of the lease term or the estimated useful lives of the assets. (g) Restricted Investments At December 31, 1998, restricted investments included security deposits held in certificates of deposit and other interest bearing accounts as collateral for certain capital lease equipment and office space leases. (h) Impairment of Long-Lived Assets The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. To date, no such impairment has been recorded. (i) Income Taxes The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in results of operations in the period that the tax change occurs. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. (j) Revenue Recognition The Company's revenues are derived principally from the sale of banner advertisements under short-term contracts. To date, the duration of the Company's advertising commitments has generally averaged from one to three months. Advertising revenues are recognized ratably in the period in which the advertisement is displayed, provided that no significant Company obligations remain and collection of the resulting receivable is probable. Company obligations typically include the guarantee of a minimum number of "impressions" or times that an advertisement appears in pages viewed by the users of the Company's online properties. The Company also derived other revenues from its membership service fees, electronic commerce revenue shares and sponsorship placements within the Company's site. Membership service fees are deferred and recognized ratably over the term of the subscription period. Revenues from the Company's share of proceeds from its electronic commerce partner's sales are recognized upon notification from its partners of sales attributable to the Company's site. The Company also earns additional revenue on sponsorship contracts for fees relating to the design, coordination, and integration of the customer's content and links. These development fees are recognized as revenue once the related activities have been performed. Other revenues accounted for 11% of revenues for the year ended December 31, 1998, 23% for 1997 and 5% for 1996. The Company trades advertisements on its web properties in exchange for advertisements on the Internet sites of other companies. Barter revenues and expenses are recorded at the fair market value of services provided or received, whichever is more determinable in the circumstances. Revenue from barter transactions is recognized as income when advertisements are delivered on the Company's web properties. Barter expense is recognized when the Company's advertisements are run on other companies' web sites, which is typically in the same period when the barter revenue is recognized. Barter revenues and expenses were approximately $103,000 for the year ended December 31, 1998, $166,500 for 1997 and $-0- for 1996. (k) Product Development Product development expenses include professional fees, staff costs and related expenses associated with the development, testing and upgrades to the Company's web site as well as expenses related to its editorial content and community management and support. Product development costs and enhancements to existing products are charged to operations as incurred. To date, completion of a working model of the Company's products and general release have substantially coincided. As a result, the Company has not capitalized any software development costs since such costs have not been significant. (l) Advertising Advertising costs are expensed as incurred. Advertising costs totaling $7.3 million for the year ended December 31, 1998, $1,057,606 for 1997 and $202,986 for 1996, are included in sales and marketing expenses in the Company's statements of operations. (m) Stock-Based Compensation The Company has adopted Statement of Financial Accounting Standard ("SFAS") No. 123, Accounting for Stock-Based Compensation, which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 allows entities to continue to apply the provisions of Accounting Principle Board ("APB") Opinion No. 25 and provide pro forma net earnings disclosures for employee stock option grants if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. (n) Net Loss Per Common Share The Company adopted SFAS No. 128, "Computation of Earnings Per Share," during the year ended December 31, 1997. In accordance with SFAS No. 128 and the SEC Staff Accounting Bulletin No. 98, basic earnings per share are computed using the weighted average number of common shares outstanding during the period. Common equivalent shares consist of the incremental common shares issuable upon the conversion of the Convertible Preferred Stock (using the if-converted method) and shares issuable upon the exercise of stock options and warrants (using the Treasury Stock method); common equivalent shares are excluded from the calculation if their effect is anti-dilutive. Pursuant to SEC Staff Accounting Bulletin No. 98, common stock and convertible preferred stock issued for nominal consideration, prior to the anticipated effective date of an IPO, are required to be included in the calculation of basic and diluted net loss per share, as if they were outstanding for all periods presented. To date, the Company has not had any issuances or grants for nominal consideration. Diluted loss per share has not been presented separately, as the outstanding stock options, warrants and contingent stock purchase warrants are anti-dilutive for each of the periods presented. Diluted net loss per common share for the year ended December 31, 1998, 1997 and 1996 does not include the effects of options to purchase 1,415,121, 721,979 and 342,049 shares of common stock, respectively; 2,023,009, 1,761,366 and -0- common stock warrants, respectively; and -0-, 4,953,327 and 1,379,970 shares of convertible preferred stock on an "as if" converted basis, respectively. (o) Fair Value of Financial Instruments The carrying amount of certain of the Company's financial instruments, including cash, short-term investment, accounts receivable, accounts payable and accrued expenses, approximate fair value because of their short maturities. The carrying amount of the Company's capital lease obligations approximate the fair value of such instruments based upon the implicit interest rate of the leases. (p) Recent Accounting Pronouncements In June 1997, the Financial Accounting Standards Board (the "FASB") issued SFAS No. 130, "Reporting Comprehensive Income." This statement establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income generally represents all changes in shareholders' equity during the period except those resulting from investments by, or distributions to, shareholders. SFAS No. 130 is effective for fiscal years beginning after December 15, 1997 and requires restatement of earlier periods presented. We adopted SFAS 130 as of December 31, 1997 and have presented comprehensive income for all periods presented in the Statement of Shareholders' Equity. In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of and Enterprise and Related Information." SFAS No. 131 establishes standards for the way that a public enterprise reports information about operating segments in annual financial statements, and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. SFAS No. 131 is effective for fiscal years beginning after December 15, 1997 and requires statement of earlier periods presented. The Company has determined that it does not have any separately reporting business segments. In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of Corporate Software Developed or Obtained for Internal Use", which establishes guidelines for the accounting for the costs of all computer software developed or obtained for internal use. We adopted SOP 98-1 effective for the year ended December 31, 1998. The adoption of SOP 98-1 is not expected to have a material impact on our financial statements. In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including derivative instruments embedded in other contracts, and for hedging activities. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. This statement does not apply to the Company as the Company currently does not have any derivative instruments or hedging activities. (q) Stock Split In May 1996, the Company authorized and implemented a ten-for-one common stock split. In August 1997, the Company authorized and implemented an additional ten-for-one preferred stock split. In September 1998, the Company authorized a one-for-two reverse stock split of all common and preferred stock. All share and per share information in the accompanying financial statements has been retroactively restated to reflect the effect of the stock splits and the reverse stock split. (2) CONCENTRATION OF CREDIT RISK Financial instruments which subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments and trade accounts receivable. The Company invests its cash and cash equivalents among a diverse group of issuers and instruments. The Company performs periodic evaluations of these investments. From time to time, the Company's cash balances with any one financial institution may exceed Federal Deposit Insurance Corporation insurance limits. The Company's customers are concentrated in the United States. The Company performs ongoing credit evaluations of its customers' financial condition and generally does not require collateral and establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of customers, historical trends and other information; to date, such losses have been within management's expectations. For the year ended December 31, 1998, there were no customers that accounted for over 10% of revenues generated by the Company, or of accounts receivable at December 31, 1998. For the year ended December 31, 1997, there were no customers that accounted for over 10% of revenues generated by the Company or of accounts receivable at December 31, 1997. For the year ended December 31, 1996, one customer accounted for approximately 71% of total revenues generated by the Company and 90% of accounts receivable at December 31, 1996. (3) PROPERTY AND EQUIPMENT Property and equipment consist of the following:
DECEMBER 31, DECEMBER 31, 1998 1997 ------------ ------------ Computer equipment, including assets under capital leases of $3,305,598, and $126,000, respectively........................ $4,298,702 $ 421,164 Furniture and fixtures, including assets under capital leases of $42,171, and $-0-, respectively............................... 88,819 14,230 ---------- --------- 4,387,521 435,394 Less accumulated depreciation and amortization, including amounts related to assets under capital leases of $460,988 and $-0-, respectively............................................ 824,962 109,552 ---------- --------- Total....................................................... $3,562,559 $ 325,842 ========== =========
(4) INCOME TAXES Income taxes for the year ended December 31, 1998 and 1997 are based solely on state and local taxes on business and investment capital. The Company did not incur any income taxes for the year ended December 31, 1996. The difference between the provision for income taxes computed at the statutory rate and the reported amount of tax expense (benefit) attributable to income before income taxes for the years ended December 31, 1998, 1997 and 1996 are as follows:
1998 1997 1996 ----------- ----------- ---------- Tax benefit at statutory rates................... $(5,588,353) $(1,218,695) $(257,781) Increase (reduction) in income taxes resulting from: State and local income taxes, net of Federal income tax benefit......................... (1,665,150) (458,817) (45,131) Meals and entertainment...................... 13,521 3,266 268 Other, net................................... (44,324) -- -- Valuation allowance adjustment............... 7,363,224 1,710,346 302,644 --------- --------- ------- $ 78,918 $ 36,100 $ -- ========= ========= =======
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1998 and 1997 are presented below. 1998 1997 Deferred tax assets: Net operating loss carryforwards........... $13,411,724 $2,018,635 Allowance for doubtful accounts............ 138,063 5,520 Depreciation............................... (27,600) -- Issuance of warrants....................... 630,315 -- Deferred compensation...................... 45,090 14,773 Other...................................... 96,600 -- ----------- ---------- Total gross deferred tax assets........ 14,294,192 2,038,928 Less valuation allowance....................... (14,294,192) (2,038,928) ----------- ---------- Net deferred tax assets................ $ -- $ -- =========== ========== Because of the Company's lack of earnings history, the deferred tax assets have been fully offset by a valuation allowance. The valuation allowance for deferred tax assets as of December 31, 1998 was $14,294,192 and as of December 31, 1997 was $2,038,928. The net change in the total valuation allowance for the year ended December 31, 1998 was $12,255,264 and $1,710,346 for 1997. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Of the total valuation allowance of $14,294,192, subsequently recognized tax benefits, if any, in the amount of $4,892,040 will be applied directly to contributed capital. At December 31, 1998, the Company had net operating loss carryforwards available for federal and state income tax purposes of $29.2 million. These carryforwards expire through 2018 for federal purposes and state purposes. Under Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), the utilization of net operating loss carryforwards may be limited under the change in stock ownership rules of the Code. As a result of ownership changes which occurred in August 1997, the Company's operating tax loss carryforwards and tax credit carryforwards are subject to these limitations. (5) CAPITALIZATION Authorized Shares In July 1998, the Company amended and restated its certificate of incorporation. As a result, the total number of shares which the Company is authorized to issue is 103,000,000 shares: 100,000,000 of these shares are Common Stock, each having a par value of $0.001; and 3,000,000 shares are Preferred Stock, each having a par value of $0.001. Common Stock The Company issued 199,083 and 29,271 shares of Common Stock in connection with the exercise of certain stock options in 1998 and 1997, respectively. In November 1998, the Company issued 3,481,667 shares of Common Stock in connection with its initial public offering and concurrent offering. Upon consummation of the offerings, all of the Company's outstanding Preferred Stock was converted into 5,473,735 shares of Common Stock. Convertible Preferred Stock As of December 31, 1997, the Company had five series of Convertible Preferred Stock (collectively "Preferred Stock") authorized and of which only four of the series were outstanding. The holders of the various series of Preferred Stock generally have the same rights and privileges. Each class of the Company's Preferred Stock is convertible into Common Stock, as defined below, and has rights and preferences which are generally more senior to the Company's Common Stock and are more fully described in the Company's amended and restated certificate of incorporation. In 1996, the Company completed a private placement of 221,250 shares of Series C Preferred Stock at $4.00 per share for an aggregate price of approximately $885,000, paid in cash. In April 1997, the Company amended the Series C Preferred Stock agreement in order to extend the above private placement of Series C Preferred Stock to April 15, 1997. In connection with this private placement, the Company issued an additional 70,000 shares of Series C Preferred Stock at $4.00 per share for an aggregate price of $280,000 in 1997. In August 1997, the Company authorized and issued 25.5 shares of Series D Preferred Stock for an aggregate cash amount of $20,000,000 in connection with the investment by Dancing Bear Investments, Inc., an entity controlled by the Chairman, which holds a majority interest in the Company. These shares constituted 51% of the fully diluted capital stock of the Company at the time of exercise, as defined. In addition to the Series D Preferred Stock, Dancing Bear Investments, Inc. also received warrants which provided the right to purchase up to 5 shares of Series E Preferred Stock representing 10% of the fully diluted capital stock of the Company at the time of exercise for an aggregate purchase price of $5,882,353, if exercised in total. In connection with the Dancing Bear investment, two officers and shareholders of the Company received $500,000 each as signing bonuses in connection with their employment agreements. Such amounts were accrued for at that time and were subsequently paid in the first quarter of 1998. The conversion rate of the Series A, B and C Preferred Stock, as defined in the original private placement agreements was the quotient obtained by dividing the applicable series' original issue price by the applicable series' conversion price. The original issue price and conversion price was $0.20 per share for Series A, $1.05 per share for Series B and $4 per share for Series C, as determined by negotiations among the parties. Each share of Series D and E Preferred Stock was convertible into an amount of common representing 1% of the fully diluted capital stock, as defined in the original private placement agreement. Such conversion features were determined by negotiations among the parties. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, as defined, on a pari passu basis, an amount equal to $0.20 per share for Series A, $1.05 per share for Series B, $4 per share for Series C, $784,314 per share for Series D and $1,176,471 per share for Series E, would be paid out of the assets of the Company available for distribution before any such payments would be made on any shares of the Company's common shares or any other capital stock of the Company other than the Preferred Stock, plus any declared but unpaid dividends. Upon consummation of the offerings, all of the Company's outstanding Preferred Stock was converted into 5,473,735 shares of Common Stock. The following table summarizes the Convertible Preferred Stock authorized, issued and outstanding and liquidation preferences:
PREFERRED SHARES EQUIVALENT SHARES OF ISSUED AND OUTSTANDING COMMON STOCK --------------------------------------- -------------------------- SHARES AUTHORIZED 1998 1997 1998 1997 ------------ ------------ ------------- ------------ ------------- Series A........................... 1,165,990 -- 582,995 -- 582,995 Series B........................... 1,151,450 -- 575,725 -- 575,725 Series C........................... 582,500 -- 291,250 -- 291,250 Series D........................... 51 -- 25.5 -- 3,503,357 Series E........................... 10 -- -- 2,023,009 1,761,366 ------------ ------------ ------------- ------------ ------------- 2,900,001 -- 1,449,995.5 2,023,009 6,714,693 ============ ============ ============= ============ =============
LIQUIDATION PREFERENCE LIQUIDATION PREFERENCE PER --------------------------- SHARE 1998 1997 ------------ ------------- ------------- Series A......................................... $ 0.20 -- 116,599 Series B......................................... $ 1.05 -- 604,511 Series C......................................... $ 4.00 -- 1,165,000 Series D......................................... $ 784,313.72 -- 20,000,000 Series E......................................... $1,176,470.60 -- -- ------------ ------------- ------------- -- 21,886,110 ============= =============
The number of common shares that the outstanding Series E Warrants are convertible into upon exercise became fixed as a result of the consummation of the offerings at 2,023,009 shares. These warrants are immediately exercisable at approximately $2.91 per share. (6) NON-RECURRING CHARGE The Company recorded a non-cash, non-recurring charge of $1,370,250 to earnings in the third quarter of 1998 in connection with the transfer of Series E Warrants to acquire 225,000 shares of Common Stock by Dancing Bear Investments, Inc. (the Company's principal shareholder at the date of transfer) to certain officers of the Company, at an exercise price of approximately $2.91 per share. The Company accounted for such transaction as if it were a compensatory plan adopted by the Company. Accordingly, such amount was recorded as a non-cash, non-recurring compensation expense in the Company's statement of operation for services provided by such officers to the Company with an offsetting increase to additional paid-in capital. The amount of such non-cash charge was based on the difference between the fair market value at the time of the transfer ($9 per share) and the exercise price per warrant of approximately $2.91 per share. (7) STOCK OPTION PLAN During 1995, the Company established the 1995 Stock Option Plan, which was amended (the "Amended Plan") by the Board of Directors in December 1996. Under the Amended Plan, the Board of Directors may issue incentive stock options or nonqualified stock options to purchase up to 666,000 common shares. Incentive stock options must be granted at the fair market value of the Company's Common Stock at the date the option is issued. Nonqualified stock options may be granted to officers, directors, other employees, consultants and advisors of the Company. The option price for nonqualified stock options shall be at least 85% of the fair market value of the Company's Common Stock. The granted options under the amended plan shall be for periods not to exceed ten years. Incentive options granted to stockholders who own greater than 10% of the total combined voting power of all classes of stock of the Company must be issued at 110% of the fair market value of the stock on the date the options are granted. In connection with the Dancing Bear Investments investment, the Company reserved an additional 125,000 shares of its common stock for issuance upon the exercise of options to be granted in the future under the Amended Plan. In July 1998, the Company's 1998 Stock Option Plan (the "1998 Plan") was adopted by the Board of Directors and approved by the stockholders of the Company. The 1998 Plan authorized the issuance of 1,200,000 shares of Common Stock, subject to adjustment as provided in the 1998 Plan. The 1998 Plan provides for the grant of "incentive stock options" intended to qualify under Section 422 of the Code and stock options which do not so qualify. The granting of incentive stock options is subject to limitation as set forth in the 1998 Plan. Directors, officers, employees and consultants of the Company and its subsidiaries are eligible to receive grants under the 1998 Plan. The per share weighted-average fair value of stock options granted during 1998, 1997 and 1996 was $8.03, $0.32 and $0.16, respectively, on the date of grant using the option-pricing method with the following weighted-average assumptions: 1996--risk-free interest rate 6.18%, and an expected life of two years; 1997--risk-free interest rate 6.00%, and an expected life of three years; 1998--risk-free interest rate 5.00%, and an expected life of four years, and a volatility of 150%. As permitted under the provisions of SFAS No. 123, and based on the historical lack of a public market for the Company's units, no factor for volatility has been reflected in the option pricing calculation for 1997 and 1996. The Company applies APB Opinion No. 25 in accounting for its Plan and, accordingly, compensation cost of $65,887, $28,115 and $4,000 has been recognized for its stock options granted below fair market value in 1998, 1997 and 1996, respectively, in the accompanying financial statements. Stock option activity during the periods indicated is as follows: WEIGHTED OPTIONS AVERAGE GRANTED EXERCISE PRICE ------------ -------------- Outstanding at December 31, 1995................. 175,000 $0.02 Granted.......................................... 167,049 $0.12 Exercised........................................ -- Canceled......................................... -- ------------ Outstanding at December 31, 1996................. 342,049 $0.06 Granted.......................................... 411,701 $0.74 Exercised........................................ (29,271) $0.16 Canceled......................................... (2,500) $0.82 ------------ Outstanding at December 31, 1997................. 721,979 $0.44 Granted.......................................... 917,550 $9.02 Exercised........................................ (202,583) $1.26 Canceled......................................... (21,825) $0.78 ------------ Outstanding at December 31, 1998................. 1,415,121 $5.85 ============ Vested at December 31, 1997........................ 397,983 ============ Vested at December 31, 1998........................ 347,173 ============ Options available at December 31, 1997............. 39,751 ============ Options available at December 31, 1998............. 344,025 ============ The following table summarizes information about stock options outstanding at December 31, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------------ ------------------------------ WEIGHTED AVERAGE WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERISE EXERCISE PRICE OUTSTANDING LIFE PRICE OUTSTANDING PRICE - ------------------- ------------- ------------- -------------- --------------- --------------- $0.02-$0.105 136,431 6.9 years $ 0.04 120,486 $ 0.03 $0.40-$0.70 327,840 8.4 $ 0.67 163,137 $ 0.67 $0.82-$2.78 109,550 9.0 $ 1.66 26,050 $ 0.82 $4.60-$9.00 819,050 9.6 $ 8.80 37,500 $ 9.00 $27.44-$40.44 22,250 9.9 $30.22 -- $ 0.00 ------------- --------------- 1,415,121 347,173 ============= ===============
At December 31, 1998, the range of exercise prices and weighted-average remaining contractual life of outstanding options was $0.02--$40.44 and 9.03 years, respectively. The Company applies APB No. 25 in accounting for its stock options granted to employees and accordingly, no compensation expense has been recognized in the financial statements (except for those options issued with exercise prices less than fair market value at date of grant). Had the Company determined compensation expense based on the fair value at the grant date for its stock options issued to employees under SFAS No. 123, the Company's net loss would have been adjusted to the pro forma amounts indicated below:
1998 1997 1996 ---- ---- ---- Net loss--as reported............................. $16,045,640 $3,584,400 $ 750,180 =========== ========== ========= Net loss--pro forma............................... $21,289,917 $3,621,373 $ 756,135 =========== ========== ========= Basic net loss per common share--as reported...... $ (6.74) $ (3.13) $ (0.67) =========== ========== ========= Basic net loss per common share--pro forma........ $ (8.94) $ (3.16) $ (0.67) =========== ========== =========
(8) COMMITMENTS (a) Office Leases The Company leases several facilities under noncancelable leases for varying periods through 2014. Rent expense for the operating leases was $424,494, $81,157 and $26,181 for the years ended December 31, 1998, 1997 and 1996, respectively. Future minimum payments under the various office operating leases are as follows: YEAR ENDED DECEMBER 31, AMOUNT - ------------------------ -------------- 1999................................................. $1,642,791 2000................................................. 1,645,080 2001................................................. 1,548,246 2002................................................. 1,361,579 2003................................................. 1,361,579 Thereafter........................................... 16,068,980 ----------- Total minimum lease payments................. $23,628,255 =========== (b) Equipment Leases The Company's lease obligations are collateralized by CDs and interest bearing accounts at December 31, 1998. Future minimum lease payments under noncancellable operating leases (with initial or remaining lease terms in excess of one year) and future minimum capital lease obligations as of December 31, 1998 are:
CAPITAL OPERATING YEAR ENDING DECEMBER 31, LEASES LEASES - ------------------------- ----------- ------------ 1999............................................................ $1,353,905 $ 25,158 2000............................................................ 1,316,604 13,073 2001............................................................ 936,191 9,060 2002............................................................ 19,992 7,567 2003............................................................ 1,666 -- ----------- ------------ Total minimum lease payments............................ $3,628,358 $ 54,858 =========== ============ Less amount representing interest (at rates ranging from 11% to 16.8%)........................................................ 595,906 ----------- Present value of minimum capital lease payments................. 3,032,452 ----------- Less current installments of obligation under capital leases.... 1,026,728 ----------- Obligations under capital leases, excluding current installments $2,005,724 ===========
(c) Employment Agreements The Company maintains employment agreements expiring in 2001 and 2002, with four executive officers of the Company. The employment agreements provide for minimum salary levels, incentive compensation and severance benefits, among other items. (9) RELATED PARTY TRANSACTIONS Certain officers and directors of the Company also serve as officers and directors of Dancing Bear Investments, Inc. The Company has entered into an electronic commerce contract with Republic Industries, Inc. ("Republic"), an entity affiliated with a Director of the Company, pursuant to which the Company has granted a right of first negotiation with respect to the exclusive right to engage in or conduct an automotive "clubsite" on theglobe.com web site through AutoNation, a subsidiary of Republic. Additionally, Republic has agreed to purchase advertising from the Company for a three-year period at a price which will be adjusted to match any more favorable advertising price quoted to a third party by the Company, excluding certain short-term advertising rates. In addition, the Company has entered into an electronic commerce arrangement with InteleTravel, an entity controlled by the Chairman of the Company, whereby the Company developed a web community for InteleTravel in order for its travel agents to conduct business through theglobe.com in exchange for access to InteleTravel customers for distribution of the Company's products and services. The Company believes that the terms of the foregoing arrangements are on comparable terms as if they were entered into with unaffiliated third parties. As of December 31, 1998, the Company received $83,300 and $265,000 from Republic and InteleTravel, respectively, in connection with these arrangements. STOCKHOLDERS' AGREEMENT The Chairman, the Co-Chief Executive Officers, a Vice President and a Director of the Company and Dancing Bear Investments, Inc. (an entity controlled by the Chairman) entered into a Stockholders' Agreement (the "Stockholders' Agreement") pursuant to which the Chairman and Dancing Bear Investments, Inc. or certain entities controlled by the Chairman and certain permitted transferees (the "Chairman Group") will agree to vote for certain nominees of the Co-Chief Executive Officers or certain entities controlled by the Co-Chief Executive Officers and certain permitted transferees (the "Co-Chief Executive Officer Groups") to the Board of Directors and the Co-Chief Executive Officer Groups will agree to vote for the Chairman Group's nominees to the Board, who will represent up to five members of the Board. Additionally, pursuant to the terms of the Stockholders' Agreement, the Co-Chief Executive Officers, a Vice President and a Director have granted an irrevocable proxy to Dancing Bear Investments, Inc. with respect to any shares that may be acquired by them pursuant to the exercise of outstanding Warrants transferred to each of them by Dancing Bear Investments, Inc. Such shares will be voted by Dancing Bear Investments, Inc., which is controlled by the Chairman, and will be subject to a right of first refusal in favor of Dancing Bear Investments, Inc. upon certain private transfers. The Stockholders' Agreement also provides that if the Chairman Group sells shares of Common Stock and Warrants representing 25% or more of the Company's outstanding Common Stock (including the Warrants) in any private sale after the Offerings, the Co-Chief Executive Officer Groups, a Vice President and a Director of the Company will be required to sell up to the same percentage of their shares as the Chairman Group sells. If either the Chairman Group sells shares of Common Stock or Warrants representing 25% or more of the Company's outstanding Common Stock (including the Warrants) or the Co-Chief Executive Officer Groups sell shares or Warrants representing 7% or more of the shares and Warrants of the Company in any private sale after the Offerings, each other party to the Stockholders' Agreement, including entities controlled by them and their permitted transferees, may, at their option, sell up to the same percentage of their shares. (10) SUBSEQUENT EVENTS On February 1, 1999, theglobe.com formed Nirvana Acquisition Corp. ("Merger Sub"), a Washington corporation and a wholly-owned subsidiary of theglobe.com. Merger Sub was merged with and into factorymall.com inc., a Washington corporation d/b/a Azazz ("factorymall"), with factorymall as the surviving corporation. The merger was effected pursuant to the Agreement and Plan of Merger, dated February 1, 1999, by and among theglobe.com, Merger Sub, and factorymall and certain shareholders thereof. As a result of the Merger, factorymall became a wholly-owned subsidiary of theglobe.com. factorymall operates Azazz, a leading interactive department store. The consideration payable by theglobe.com in connection with the merger consists of 307,000 newly issued shares of common stock, par value $0.001, of theglobe.com. In addition, options to purchase shares of factorymall's common stock, without par value, were exchanged for options to purchase approximately 41,017 shares of theglobe.com Common Stock. Warrants to purchase shares of factorymall Common Stock were exchanged for warrants to purchase approximately 9,405 shares of theglobe.com Common Stock. theglobe.com also assumed certain bonus obligations of factorymall triggered in connection with the Merger which will result in the issuance by theglobe.com of approximately 36,864 shares of theglobe.com Common Stock and payment by theglobe.com of approximately $451,232 in cash. The Company also incurred expenses of approximately $694,300 related to the Merger. The total purchase price for this transaction was $22,776,549. The difference between the fair market value of factorymall's assets and the purchase price will be accounted for as goodwill and will be amortized over three years. The Company's Employee Stock Purchase Plan ("ESPP") was adopted by the Board of Directors in February 1999. The ESPP will provide eligible employees of the Company the opportunity to apply a portion of their compensation to the purchase of shares of the Company at a 15% discount. Two hundred thousand (200,000) shares of authorized but unissued Company common stock will be reserved for issuance under the ESPP. The ESPP is subject to stockholder approval. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information called for by Part III, Item 10, regarding the Registrant's directors is included in the Company's Proxy Statement relating to the Company's annual meeting of stockholders to be held in May 1999, and is incorporated herein by reference. The information appears in the Proxy Statement under the caption "Election of Directors." The Proxy Statement will be filed within 120 days of December 31, 1998, the Company's year end. ITEM 11. EXECUTIVE COMPENSATION Information called for by Part III, Item 11, is included in the Company's Proxy Statement relating to the Company's annual meeting of stockholders to be held in May 1999, and is incorporated herein by reference. The information appears in the Proxy Statement under the caption "Executive Compensation." The Proxy Statement will be filed within 120 days of December 31, 1998, the Company's year end. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information called for by Part III, Item 12, is included in the Company's Proxy Statement relating to the Company's annual meeting of stockholders to be held in May 1999, and is incorporated herein by reference. The information appears in the Proxy Statement under the caption "Beneficial Ownership of Shares." The Proxy Statement will be filed within 120 days of December 31, 1998, the Company's year end. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding the Company's relationships and related transactions is available under "Certain Transactions" in the Company's Proxy Statement relating to the Company's annual meeting of stockholders to be held in May 1999, and is incorporated herein by reference. The Proxy Statement will be filed within 120 days of December 31, 1998, the Company's year end. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: (1) Financial Statements: See Index to Financial Statements at Item 8 on page 38 of this report. (2) Financial Statement Schedule: See Index to Financial Statements at Item 8 on page 38 of this report. (a)(3) EXHIBITS The following Exhibits are attached hereto and incorporated herein by reference: 2.1 Agreement and Plan of Merger dated as of February 1, 1999 by and among theglobe.com, inc., Nirvana Acquisition Corp., factorymall.com, inc. d/b/a Azazz, and certain selling stockholders thereof** 3.1 Form of Fourth Amended and Restated Certificate of Incorporation of the Company* 3.2 Form of By-Laws of the Company* 4.1 Second Amended and Restated Investor Rights Agreement among the Company and certain equity holders of the Company, dated as of August 13, 1997* 4.2 Amendment No.1 to Second Amended and Restated Investor Rights Agreement among the Company and certain equity holders of the Company, dated as of August 31, 1998 4.3 Registration Rights Agreement, dated as of September 1, 1998 4.4 Specimen certificate representing shares of Common Stock of the Company* 4.5 Amended and Restated Warrant to Acquire Shares of Common Stock* 4.6 Form of Rights Agreement, by and between the Company and American Stock Transfer & Trust Company as Rights Agent* 4.7 Registration Rights Agreement among the Company and certain equity holders of the Company, dated February 1, 1999 9.1 Stockholders' Agreement by and among Dancing Bear Investments, Inc., Michael Egan, Todd V. Krizelman, Stephan J. Paternot, Edward A. Cespedes and Rosalie V. Arthur, dated as of February 14, 1999 10.1 Employment Agreement dated August 13, 1997, by and between the Company and Todd V. Krizelman* 10.2 Employment Agreement dated August 13, 1997, by and between the Company and Stephan J. Paternot* 10.3 Employment Agreement dated July 13, 1998, by and between the Company and Francis T. Joyce* 10.4 Form of Indemnification Agreement between the Company and each of its Directors and Executive Officers* 10.5 Lease Agreement dated January 14, 1997 between the Company and Fifth Avenue West Associates L.P.* 10.6 Lease Agreement dated January 12, 1999 between the Company and Broadpine Realty Holding Company, Inc. 10.7 1998 Stock Option Plan 10.8 1995 Stock Option Plan* 10.9 D.A.R.T. Service Agreement dated April 15, 1997*+ 10.10 Amendment dated as of May 1, 1998, to original D.A.R.T. Service Agreement dated April 15, 1997*+ 10.11 License Agreement between the Company and Engage Technologies, Inc. dated October 31, 1998. ++ 10.12 Employment Agreement dated August 31, 1998, by and between the Company and Dean Daniels* 10.13 Agreement between the Company, Republic Industries, Inc., and Michael S. Egan, dated August 12, 1998, regarding the conduct of automotive clubsites on theglobe.com*+ 10.14 Data Center Space Lease between Telehouse International Corporation of America and the Company, dated August 24, 1998* 10.15 Travel Services Alliance Agreement between the Company and Lowestfare.com, dated as of September 15, 1998*+ 10.16 Form of Employee Stock Purchase Plan 11.1 Computation of Loss Per Share 23.1 Consent of KPMG LLP 23.2 Consent of ABC Interactive* 27.1 Financial Data Schedule 99.1 Valuation and Qualifying Accounts (b) REPORTS ON FORM 8-K No reports on Form 8-K were filed or required to be filed for the last quarter of the fiscal year. - ------------------------------ * Incorporated by reference from our registration statement on Form S-1 (Registration No.333-59751). ** Incorporated by reference from our report on Form 8-K filed on February 16, 1999. + Confidential treatment granted as to parts of this document. ++ Confidential treatment requested. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: March 29, 1999 theglobe.com, inc. By /s/ Todd V. Krizelman ------------------------------------------- TODD V. KRIZELMAN CO-CHIEF EXECUTIVE OFFICER AND CO-PRESIDENT Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated this 29th day of March, 1999. /s/ Michael S. Egan Chairman ------------------------- MICHAEL S. EGAN /s/ Todd V. Krizelman Co-Chief Executive Officer, ------------------------- Co-President and Director TODD V. KRIZELMAN /s/ Stephan J. Paternot Co-Chief Executive Officer, Co- ------------------------- President, Secretary and Director STEPHAN J. PATERNOT /s/ Francis T. J Vice President and Chief Financial ------------------------- Officer (Chief Accounting Officer) FRANCIS T. JOYCE /s/ Edward A. Cespedes Vice President of Corporate ------------------------- Development and Director EDWARD A CESPEDES /s/ Rosalie V. Arthur Director ------------------------- ROSALIE V. ARTHUR _________________________ Director HENRY C. DUQUES /s/ Robert M. Halperin Director ------------------------- ROBERT M. HALPERIN _________________________ Director DAVID A. HOROWITZ _________________________ Director H. WAYNE HUIZENGA EX-4.2 2 EXHIBIT 4.2 AMENDMENT NO. 1 TO SECOND AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT theglobe.com, inc. August 31, 1998 AMENDMENT NO. 1 TO SECOND AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT This AMENDMENT NO. 1 TO SECOND AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT (the "Amendment") is entered into as of the 31st day of August, 1998, by and among theglobe.com, inc., a Delaware corporation (the "Company"), and the Investors, as defined in the Second Amended and Restated Investor Rights Agreement (the "Agreement"). Capitalized items used herein and not otherwise defined shall have the meanings ascribed thereto in the Agreement. W I T N E S S E T H: ------------------- WHEREAS, the Investors hold registration and information rights pursuant to the Agreement; WHEREAS, pursuant to Section 2.10 of the Agreement, the holders of a majority in interest of the Registrable Securities desire to amend the provisions of Section 2 of the Agreement. NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: The first paragraph of Section 2.2 of the Agreement is hereby deleted in its entirety and is replaced with the following: 2.2 PIGGYBACK REGISTRATIONS. Except in connection with an Initial Offering, the Company shall notify all Holders in writing at least fifteen (15) days prior to the filing of any registration statement under the Securities Act for purposes of a public offering of securities (other than non-convertible debt securities) of the Company (excluding registration statements relating to employee benefit plans or with respect to corporate reorganizations or shares sold in connection with an acquisition, including other transactions under Rule 145 of the Securities Act) and will afford each such Holder an opportunity to include in such registration statement all or part of such Registrable Securities held by such Holder. Each Holder desiring to include in any such registration statement all or any part of the Registrable Securities held by it shall, within fifteen (15) days after the above-described notice from the Company, so notify the Company in writing. Such notice shall state the maximum number of Registrable Securities intended to be included in such registration and the intended method of disposition of the Registrable Securities by such Holder. If a Holder decides not to request inclusion of all of its Registrable Securities in any registration statement thereafter filed by the Company, such Holder shall nevertheless continue to have the right to include any Registrable Securities in any subsequent such registration statement or registration statements as may be filed by the Company with respect to offerings of its securities, all upon the terms and conditions set forth herein. Notwithstanding the foregoing, nothing in this Section 2.2 shall be deemed to convey upon any Holder the right to include in any registration statement filed in connection with an Initial Offering all or part of such Holder's Registrable Securities. Paragraph (a) of Section 2.2 of the Agreement is hereby deleted in its entirety and is replaced with the following: (a) UNDERWRITING. If the registration statement under which the Company gives notice under this Section 2.2 is for an underwritten offering, the Company shall so advise the Holders. In such event, the right of any such Holder to be included in a registration pursuant to this Section 2.2 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. Each Holder proposing to distribute its Registrable Securities through such underwriting shall enter into a custody agreement and power of attorney authorizing the Company to sell the Registrable Securities to be offered by such Holders and to execute on the Holder's behalf an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company. If any Holder is or will be unable to deliver any document reasonably required by the underwriters to register such Registrable Securities, then the Company shall have no obligation to include such Registrable Securities in such registration. Notwithstanding any other provision of the Agreement, if the underwriter determines in good faith that marketing factors require a limitation of the number of shares to be underwritten, the number of shares that may be included in the underwriting shall be allocated as follows: first, to the Company for its own account; second, to the holders under the Company's Registration Rights Agreement, dated as of August ____, 1998 (the "Registration Rights Agreement"), and Holders on a pro rata basis based on the total number of Registrable Securities held by such persons; and third, to any stockholder of the Company (other than a Holder or a holder under the Registration Rights Agreement) on a pro rata basis. No such reduction shall reduce the securities being offered by the Company for its own account to be included in the registration and underwriting. In no event will shares of any other selling stockholder be included in such registration which would reduce the number of shares which may be included by Holders without the written consent of Holders of not less than two-thirds (66 2/3%) of the Registrable Securities proposed to be sold in the offering. [Remainder of page intentionally left blank.] IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1 to Second Amended and Restated Investor Rights Agreement as of the date set forth above. theglobe.com, inc. Dancing Bear Investments, Inc. By: By: ------------------------------- ------------------------------ Todd V. Krizelman Name: Co-Chief Executive Officer and Title: Co-President Robert Halperin By: ------------------------------- Stephan J. Paternot Co-Chief Executive Officer, Co-President and Secretary ------------------------------ David Horowitz ------------------------------ EX-4.3 3 EXHIBIT 4.3 REGISTRATION RIGHTS AGREEMENT THEGLOBE.COM, INC SEPTEMBER 1, 1998 TABLE OF CONTENTS PAGE 1. DEFINITIONS...........................................................1 2. Registration..........................................................3 2.1 Piggyback Registrations.........................................3 2.2 Demand Registration.............................................4 2.3 Expenses of Registration........................................6 2.4 Obligations of the Company......................................6 2.5 Expiration of Registration Rights...............................10 2.6 Delay of Registration; Furnishing Information...................10 2.7 Indemnification.................................................10 2.8 Assignment of Registration Rights...............................12 2.9 Amendment of Registration Rights................................13 2.10 "Market Stand-Off" Agreement....................................13 2.11 Rule 144 Reporting..............................................13 3. INFORMATION RIGHTS....................................................14 3.1 Quarterly Reports...............................................14 3.2 Confidentiality.................................................14 4. GENERAL...............................................................15 4.1 Governing Law...................................................15 4.2 Survival........................................................15 4.3 Successors and Assigns..........................................15 4.4 Severability....................................................15 4.5 Amendment and Waiver............................................15 4.6 Delays or Omissions.............................................16 4.7 Notices.........................................................16 4.8 Attorneys' Fees.................................................16 4.9 Headings........................................................16 4.10 Entire Agreement................................................16 4.11 Counterparts....................................................16 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT, dated as of September 1, 1998 (this "Agreement"), by and among theglobe.com, inc., a Delaware corporation (the "Company"), Dancing Bear Investments, Inc. ("Egan"), Todd V. Krizelman ("Krizelman"), Stephan J. Paternot ("Paternot") and the persons listed on Exhibit A hereto (the "Series A Investors"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, Egan purchased from the Company fifty-one (51) shares of the Company's Series D Preferred Stock and a warrant to purchase ten (10) shares of the Company's Series E Preferred Stock (the "Warrant"), pursuant to a Stock Purchase Agreement dated August 13, 1997 (the "Stock Purchase Agreement"); WHEREAS, simultaneously therewith, Egan, the Company, the holders of Series B Preferred Stock ("Series B Holders") and the holders of Series C Preferred Stock ("Series C Holders," and together with the Series B Holders, the "Series B and C Holders") entered into a Second Amended and Restated Investor Rights Agreement, dated August 13, 1997 (the "Investor Rights Agreement"), which provides certain registration rights to Egan and the Series B and C Holders, such registration rights terminating three years after the date of the Initial Offering pursuant to Section 2.6 of such agreement (the "Termination"); WHEREAS, Krizelman and Paternot each own Common Stock of the Company, par value $0.001 per share ("Common Stock"), and do not possess registration rights; WHEREAS, the Series A Investors own Series A Preferred Stock, par value $0.001 per share, of the Company ("Series A Preferred Stock") and do not possess registration rights; WHEREAS, the parties hereto desire to provide certain registration rights, to be effective upon an Initial Offering (as defined herein), with respect to the Common Stock (i) held by Krizelman and Paternot, (ii) issued upon the conversion of Series A Preferred Stock held by each holder thereof, and (iii) issued upon conversion of the Series D Preferred Stock, Series E Preferred Stock or upon exercise of the Warrant held by Egan, following Termination of existing registration rights held by Egan. NOW, THEREFORE, in consideration of the market stand-off provisions contained herein restricting the sale of securites of the Company held by the parties hereto, amendment of the Warrant to be exercisable for a fixed number of shares of Common Stock following an Initial Offering, and the mutual promises, representations, warranties, covenants and conditions set forth in this Agreement, the parties hereto agree as follows: 1. DEFINITIONS. As used in this Agreement, the following terms shall have the following respective meanings: "COMMON STOCK" has the meaning given to it in the recitals hereto. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "HOLDER" means Krizelman, Paternot, Egan and the Series A Investors, and, pursuant to Section 2.8, their successors and assigns owning of record Registrable Securities that have not been sold to the public. "INITIAL OFFERING" means the Company's first firm commitment underwritten public offering of its Common Stock registered under the Securities Act raising gross proceeds for the Company in excess of Fifteen Million Dollars ($15,000,000). "INVESTOR RIGHTS AGREEMENT" has the meaning given to it in the recitals hereto. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement or document. "REGISTRABLE SECURITIES" means (i) Common Stock; (ii) Common Stock issued or issuable upon conversion of the Series A Preferred Stock; (iii) any Common Stock issued upon the conversion of any shares of Series D Preferred Stock; (iv) any Common Stock issued upon exercise of the Warrant (or upon the conversion of Series E Preferred Stock which was issued upon exercise of the Warrant); and (v) 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, such above-described securities. Notwithstanding the foregoing, Registrable Securities shall not include any securities that have been sold by a person to the public either pursuant to a registration statement or Rule 144 or any successor rule or sold in a private transaction in which the transferor's rights under Section 2 of this Agreement are not assigned. "REGISTRABLE SECURITIES THEN OUTSTANDING" shall be the number of shares determined by calculating the total number of shares of the Company's Common Stock that are Registrable Securities and either (i) are then issued and outstanding or (ii) are issuable pursuant to then exercisable or convertible securities. "REGISTRATION EXPENSES" means all expenses incurred by the Company in complying with Sections 2.1 and 2.2, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, reasonable fees and disbursements of a single special counsel for the Holders, blue sky fees and expenses and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company). "SECURITIES ACT" means the Securities Act of 1933, as amended. "SELLING EXPENSES" means all underwriting discounts and selling commissions applicable to the sale. "SERIES A INVESTORS" has the meaning given to it in the recitals hereto. "SERIES A PREFERRED STOCK" has the meaning given to it in the recitals hereto. "SERIES B HOLDERS" has the meaning given to it in the recitals hereto. "SERIES B PREFERRED STOCK" means shares of Series B Preferred Stock, par value $0.001 per share, of the Company. "SERIES B AND C HOLDERS" has the meaning given to it in the recitals hereto. "SERIES C HOLDERS" has the meaning given to it in the recitals hereto. "SERIES D PREFERRED STOCK" means the shares of Series D Preferred Stock, par value $0.001 per share, of the Company. "SERIES E PREFERRED STOCK" has the meaning given to it in the recitals hereto. "SEC" or "COMMISSION" means the Securities and Exchange Commission. "STOCK PURCHASE AGREEMENT" has the meaning given to it in the recitals hereto. "WARRANT" has the meaning given to it in the recitals hereto. 2. REGISTRATION. 2.1 PIGGYBACK REGISTRATIONS. Except in connection with an Initial Offering, the Company shall notify all Holders in writing at least fifteen (15) days prior to the filing of any registration statement under the Securities Act for purposes of a public offering of securities (other than non-convertible debt securities) of the Company (including, but not limited to, registration statements relating to secondary offerings of securities of the Company, but excluding registration statements relating to employee benefit plans or with respect to corporate reorganizations or shares sold in connection with an acquisition, including other transactions under Rule 145 of the Securities Act) and will afford each such Holder an opportunity to include in such registration statement all or part of such Registrable Securities held by such Holder. Each Holder desiring to include in any such registration statement all or any part of the Registrable Securities held by it shall, within fifteen (15) days after the above-described notice from the Company, so notify the Company in writing. Such notice shall state the maximum number of Registrable Securities intended to be included in such registration and the intended method of disposition of the Registrable Securities by such Holder. If a Holder decides not to request inclusion of all of its Registrable Securities in any registration statement thereafter filed by the Company, such Holder shall nevertheless continue to have the right to include any Registrable Securities in any subsequent such registration statement or registration statements as may be filed by the Company with respect to offerings of its securities, all upon the terms and conditions set forth herein. Notwithstanding the foregoing, nothing in this Section 2.1 shall be deemed to convey upon any Holder the right to include in any registration statement filed in connection with an Initial Offering all or part of such Holder's Registrable Securities. (a) UNDERWRITING. If the registration statement under which the Company gives notice under this Section 2.1 is for an underwritten offering, the Company shall so advise the Holders. In such event, the right of any such Holder to be included in a registration pursuant to this Section 2.1 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein; provided that each such Holder shall agree to reasonable limitations on the ability to withdraw from such underwriting. Each Holder proposing to distribute its Registrable Securities through such underwriting shall enter into a custody agreement and power of attorney, authorizing the Company to (i) sell the Registrable Securities to be offered by such Holders and (ii) execute on the Holder's behalf an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company. If any Holder is or will be unable to deliver any document reasonably required by the underwriters in connection with the sale of such Registrable Securities, including, but not limited to legal opinions and other closing certificates, then the Company shall have no obligation to include such Registrable Securities in such registration. Notwithstanding any other provision of the Agreement, if the underwriter determines in good faith that marketing factors require a limitation of the number of shares to be underwritten, the number of shares that may be included in the underwriting shall be allocated as follows: first, to the Company for its own account; second, to the holders under the Investor Rights Agreement and the Holders on a pro rata basis based on the total number of Registrable Securities held by such persons; and third, to any stockholder of the Company (other than a Holder or a holder under the Investor Rights Agreement) on a pro rata basis. No such reduction shall reduce the securities being offered by the Company for its own account to be included in the registration and underwriting. In no event will shares of any other selling stockholder be included in such registration which would reduce the number of shares which may be included by Holders, and holders under the Investor Rights Agreement, without the written consent of Holders, and holders under the Investor Rights Agreement of not less than two-thirds (66 2/3%) of the Registrable Securities proposed to be sold in the offering. (b) RIGHT TO TERMINATE REGISTRATION. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 2.1 prior to the effectiveness of such registration, whether or not any Holder has elected to include securities in such registration, in which event the Company shall give written notice to all Holders of record of Registrable Securities. The Registration Expenses of such withdrawn registration shall be borne by the Company in accordance with Section 2.3 hereof. (c) LIMIT ON NUMBER. The Company shall not have any further obligations under this Section 2.1 if the Company has already effected five (5) registrations for any Holders pursuant to this Section 2.1. No rights conveyed to a Holder in this Agreement shall be in duplication of any rights conveyed to a holder for the same Registrable Securities pursuant to the Investor Rights Agreement, and no such Holder shall be entitled to Demand or Piggyback Registration Rights under both such agreements for the same Registrable Securities. 2.2 DEMAND REGISTRATION. Subject to Section 2.2 (c), at any time and from time to time after the closing of an Initial Offering, the Holders of (x) twenty-five percent (25%) of all of the Registrable Securities or (y) fifty percent (50%) of the sum of the total number of Registrable Securities originally issued as Common Stock and the member of shares of Common Stock issuable in respect of the Series A Preferred Stock, shall have the right to require the Company to file a registration statement under the Securities Act covering all or part of their respective Registrable Securities, by delivering a written request therefor to the Company specifying the number of Registrable Securities to be included in such registration by such Holders and the intended method of distribution thereof. All requests pursuant to this Section 2.2 are referred to herein as "Demand Registration Requests," and the registrations requested are referred to herein as "Demand Registrations." As promptly as practicable, but no later than ten (10) days after receipt of a Demand Registration Request, 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 fifteen (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 2.2: (i) 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 of less than $5,000,000; or (ii) if the Company shall furnish to the Holders a certificate signed by the Chairman of the Board of Directors 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 to be effected at such time, in which event the Company shall have the right to defer the filing of the registration statement for a period of not more than one hundred twenty (120) days after receipt of the request of the Holder or Holders under this Section 2.2; provided that such right to delay a request shall be exercised by the Company no more than once in any one-year period, or (iii) if the Company has already effected four (4) Demand Registrations for the Holders pursuant to this Section 2.2; (iv) 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; or (v) if the registration statement with respect to a Demand Registration would be declared effective within a period of 180 days after the effective date of the registration statement pertaining to the Initial Offering or within a period of ninety days (90) after the effective date of the registration statement pertaining to subsequent public offerings (other than registration statements relating to employee benefit plans or Rule 145 transactions). (c) If the selling 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 this Section 2.2 and the Company shall include such information in the written notice referred to in Section 2.2(a). 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 selling Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by a majority in interest of the selling Holders (which underwriter or underwriters shall be reasonably acceptable to the Company). If any Holder is or will be unable to deliver any document reasonably required by the underwriters in connection with the sale of such Registrable Securities, including legal opinions and closing certificates, then the Company shall have no obligation to include such Registrable Securities in such registration. Notwithstanding any other provision of this Section 2.2, if the underwriter advises the Company that marketing factors require a limitation of the number of securities to be underwritten then the Company shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares that may be included in the underwriting shall be allocated to the Holders of such Registrable Securities (and to any holders of registrable securities making a concurrent Demand Registration Request pursuant to Section 2.2 of the Investor Rights Agreement) on a pro rata basis based on the number of Registrable Securities proposed to be registered by all such selling Holders. Any Registrable Securities excluded or withdrawn from such underwriting shall be withdrawn from the registration. 2.3 EXPENSES OF REGISTRATION. Except as specifically provided herein, all Registration Expenses incurred in connection with any registration under Section 2.1 or Section 2.2 shall be borne by the Company. All Selling Expenses incurred in connection with any registrations hereunder shall be borne by the holders of the securities so registered pro rata on the basis of the number of shares so registered. The Company shall not, however, be required to pay for expenses of any registration proceeding begun pursuant to Section 2.2, the request of which has been subsequently withdrawn by the requesting Holders unless (i) the withdrawal is based upon material adverse information concerning the Company of which such Holders were not aware at the time of such request, or (ii) the Holders of a majority of Registrable Securities agree to forfeit their right to one requested registration pursuant to Section 2.2, in which event such right shall be forfeited by all Holders. If the Holders are required to pay the Registration Expenses, such expenses shall be borne by the holders of securities (including Registrable Securities) requesting such registration in proportion to the number of shares for which registration was requested. If the Company is required to pay the Registration Expenses of a withdrawn offering pursuant to clause (i) above, then the Holders shall not forfeit their rights pursuant to Section 2.2 to a registration. 2.4 OBLIGATIONS OF THE COMPANY. Whenever required 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 all reasonable efforts to cause such registration statement to become effective and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to one hundred eighty (180) days or, if earlier, until the Holder or Holders have completed the distribution related thereto. (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 Securities Act with respect to the disposition of all securities covered by such registration statement. (c) Furnish (without charge) to the selling Holders such number of copies of the registration statement, each amendment and supplement thereto (in each case including all exhibits) and the prospectus included in such registration statement, including each preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (d) Use all reasonable 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. (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form of the managing underwriter(s) of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. (f) Promptly notify each Holder selling Registrable Securities, and every other holder of securities, if any, covered by such registration statement and each managing underwriter, if any: (i) when the registration statement, any pre-effective amendment, the prospectus or any prospectus supplement related thereto or post-effective amendment to the registration statement has been filed and, with respect to the registration statement or any post-effective amendment, when the same has become effective; (ii) of any request by the Commission or state securities authority for amendments or supplements to the registration statement or the prospectus related thereto or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the registration statement or the initiation of any proceedings for the purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of any Registrable Securities for sale under the securities or blue sky laws of any jurisdiction or the initiation of any proceeding for such purpose; and (v) of the existence of any fact of which the Company becomes aware which results in the registration statement, the prospectus related thereto or any document incorporated therein by reference containing an untrue statement of a material fact or omitting to state a material fact required to be stated therein or necessary to make any statement therein not misleading. (g) Furnish, at the request of a majority of the Holders participating in the registration, on the date that such Registrable Securities are delivered to the underwriters for sale, 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 as of such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to the managing underwriter in an underwritten public offering addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities, and (ii) a "cold comfort" letter dated as of 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 if permitted by applicable accounting standards, to the Holders requesting registration of Registrable Securities. (h) Comply with all applicable rules and regulations of the Commission, and make generally available to its security holders, as soon as reasonably practicable after the effective date of the registration statement (and in any event within 16 months thereafter), an earnings statement (which need not be audited) covering the period of at least twelve consecutive months beginning with the first day of the Company's first calendar quarter after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder. (i) (i) Cause all such Registrable Securities covered by such registration statement to be listed on the principal securities exchange on which similar securities issued by the Company are then listed (if any), if the listing of such Registrable Securities is then permitted under the rules of such exchange, or (ii) if no similar securities are then so listed, cause all such Registrable Securities to be listed on a national securities exchange, secure designation of all such Registrable Securities as a National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") "national market system security" within the meaning of Rule 11Aa2-1 of the Commission, secure NASDAQ authorization for such shares and, without limiting the generality of the foregoing, take all actions that may be reasonably required by the Company as the issuer of such Registrable Securities in order to facilitate the managing underwriter's arranging for the registration of at least two market makers as such with respect to such shares with the National Association of Securities Dealers, Inc. (j) Provide and cause to be maintained a transfer agent and registrar for all such Registrable Securities covered by such registration statement not later than the effective date of such registration statement. (k) Use its best efforts to obtain the withdrawal of any order suspending the effectiveness of the registration statement. (l) Provide a CUSIP number for all Registrable Securities, not later than the effective date of the registration statement. (m) Make reasonably available its employees and personnel and otherwise provide reasonable assistance to the underwriters (taking into account the needs of the Company's businesses and the requirements of the marketing process) in the marketing of Registrable Securities in any underwritten offering. (n) Promptly prior to the filing of any document which is to be incorporated by reference into the registration statement or the prospectus (after the initial filing of such registration statement) provide copies of such document to counsel to the selling Holders of Registrable Securities and to the managing underwriter, if any, and make the Company's representatives reasonably available for discussion of such document and make such changes in such document concerning the selling Holders prior to the filing thereof as counsel for such selling Holders or underwriters may reasonably request. (o) Cooperate with the selling Holders of Registrable Securities and the managing underwriter, if any, to facilitate the timely preparation and delivery of certificates not bearing any restrictive legends representing the Registrable Securities to be sold, and cause such Registrable Securities to be issued in such denominations and registered in such names in accordance with the underwriting agreement prior to any sale of Registrable Securities to the underwriters or, if not an underwritten offering, in accordance with the instructions of the selling Holders of Registrable Securities at least three business days prior to any sale of Registrable Securities. (p) Take all such other commercially reasonable actions as are necessary or advisable in order to expedite or facilitate the disposition of such Registrable Securities. The Company may require as a condition precedent to the Company's obligations under this Section 2.5 that each seller of Registrable Securities as to which any registration is being effected furnish the Company such information regarding such seller and the distribution of such securities as the Company may from time to time reasonably request provided that such information shall be used only in connection with such registration. Each Holder of Registrable Securities acknowledges that in connection with any underwritten offering, the underwriters may require an over-allotment option covering up to 15% of the shares of capital stock sold in the underwriter offering. The Company may at its option (a) provide the shares subject to the over-allotment option (provided that all of the Registrable Securities to be included in the underwriter offering are sold in the initial underwritten offering) or (b) determine that up to 15% of each Holder's Registrable Securities to be sold in the underwritten offering shall not be included in the initial underwriter offering but shall be reserved to satisfy the over-allotment option and the Holders of Registrable Securities hereby agree to take all actions reasonably necessary to comply with the Company's determination. Each Holder of Registrable Securities agrees that upon receipt of any notice from the Company of the happening of any event of the kind described in Section 2.4(f)(v), such Holder will discontinue such Holder's disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until such Holder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 2.4(f)(v) and, if so directed by the Company, will deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Holder's possession of the prospectus covering such Registrable Securities that was in effect at the time of receipt of such notice. In the event the Company shall give any such notice, the applicable period mentioned in Section 2.4(a) shall be extended by the number of days during such period from and including the date of the giving of such notice to and including the date when each seller of any Registrable Securities covered by such registration statement shall have received the copies of the supplemented or amended prospectus contemplated by Section 2.4(f). If any such registration statement or comparable statement under "blue sky" laws refers to any Holder by name or otherwise as the Holder of any securities of the Company, then such Holder shall have the right to require (i) the insertion therein of language, in form and substance satisfactory to such Holder and the Company, to the effect that the holding by such Holder of such securities is not to be construed as a recommendation by such Holder of the investment quality of the Company's securities covered thereby and that such holding does not imply that such Holder will assist in meeting any future financial requirements of the Company, or (ii) in the event that such reference to such Holder by name or otherwise is not in the judgment of the Company, as advised by counsel, required by the Securities Act or any similar federal statute or any state "blue sky" or securities law then in force, the deletion of the reference to such Holder. 2.5 EXPIRATION OF REGISTRATION RIGHTS. A Holder's registration rights shall expire if (i) the Company has completed its Initial Offering and is subject to the provisions of the Exchange Act, and (ii) all Registrable Securities held by and issued to such Holder may be sold under Rule 144 during any ninety (90) day period. 2.6 DELAY OF REGISTRATION; FURNISHING INFORMATION. (a) 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 2. (b) It shall be a condition precedent to the obligations of the Company to take any action pursuant to Section 2.1 or 2.2 that the selling Holders shall furnish to the Company such information regarding themselves, the Registrable Securities held by them and the intended method of disposition of such securities as shall be required to effect the registration of their Registrable Securities. 2.7 INDEMNIFICATION. In the event any Registrable Securities are included in a registration statement under Sections 2.1 or 2.2: (a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the partners, officers, directors and legal counsel of each Holder, any underwriter (as defined in the Securities Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange 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") by the Company: (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 Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law in connection with the offering covered by such registration statement; and the Company will reimburse each such Holder, partner, officer or director, underwriter or controlling person for 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 Section 2.7(a) 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 Company, which consent shall not be unreasonably withheld or delayed, 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 such Holder, partner, officer, director, underwriter or controlling person of such Holder. (b) To the extent permitted by law, each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration qualifications or compliance is being effected, indemnify and hold harmless the Company, each of its directors, its officers, and legal counsel and each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter and any other Holder selling securities under such registration statement or any of such other Holder's partners, directors or officers or any person who controls such Holder, against any losses, claims, damages or liabilities (joint or several) to which the Company or any such director, officer, controlling person, underwriter or other such Holder, or partner, director, officer or controlling person of such other Holder may become subject under the Securities Act, the Exchange 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 under an instrument duly executed by such Holder and stated to be specifically for use in connection with such registration; and each such Holder will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, underwriter or other Holder, or partner, officer, director or controlling person of such other Holder in connection with investigating or defending any such loss, claim, damage, liability or action if it is judicially determined that there was such a Violation; provided, however, that the indemnity agreement contained in this Section 2.7(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 or delayed; provided further, that in no event shall any indemnity under this Section 2.7 exceed the proceeds from the offering received by such Holder. (c) Promptly after receipt by an indemnified party under this Section 2.7 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 2.7, 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 shall have the right to retain its own 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 or conflicting defenses 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, if materially prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 2.7, but the omission to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 2.7. (d) If the indemnification provided for in this Section 2.7 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any losses, claims, damages or liabilities referred to herein, the indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall to the extent permitted by applicable law contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability 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 Violation(s) that resulted in such loss, claim, damage or liability, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by a court of law 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; provided that, in no event shall any contribution by a Holder hereunder exceed the proceeds from the offering received by such Holder. (e) The obligations of the Company and Holders under this Section 2.7 shall survive completion of any offering of Registrable Securities in a registration statement. No indemnifying party, in the defense of any such claim or litigation, shall, except with the consent of each indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. In the event any offering of Registrable Securities is underwritten, and the underwriting agreement provides for indemnification and/or contribution by the Company and the Holders offering securities thereunder, the indemnification and/or contribution obligations of the Company and the Holders hereunder shall in no event exceed the obligations of the parties set forth in such underwriting agreement. 2.8 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to register Registrable Securities pursuant to this Section 2 may be assigned by a Holder to a transferee or assignee of Registrable Securities which (i) is a Holder's family member or trust for the benefit of an individual Holder, or (ii) acquires at least ten thousand (10,000) shares of Registrable Securities prior to conversion to Common Stock or one hundred thousand (100,000) shares of Registrable Securities issued upon conversion of the Shares (as adjusted for stock splits, combinations and the like that occur after the original issuance of such shares); provided, however, (A) the transferor shall, within ten (10) days after such transfer, furnish to the Company 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, and (B) such transferee shall agree to be subject to all restrictions set forth in this Agreement; provided, further, that such transfer shall have been made in compliance with the Bylaws, as applicable. 2.9 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Section 2 may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the Holders of at least a majority in interest of the Registrable Securities. Any amendment or waiver effected in accordance with this Section 2.9 shall be binding upon each Holder and the Company. By acceptance of any benefits under this Section 2, Holders hereby agree to be bound by the provisions hereunder. 2.10 "MARKET STAND-OFF" AGREEMENT. If requested by the Company as the representative of the underwriters of Common Stock (or other securities) of the Company, each Holder shall not sell or otherwise transfer or dispose of any Shares of Common Stock (or other securities) of the Company held by each such Holder (other than those included in the registration) for a period specified by the representative of the underwriters not to exceed a period of seven (7) days prior to and one hundred eighty (180) days following the effective date of a registration statement of the Company filed under the Securities Act pertaining to the Company's Initial Offering or a period of seven (7) days prior to and ninety (90) days following the effective date of any other registration statement of the Company filed under the Securities Act (other than registration statements relating to employee benefit plans and transactions under Rule 145 of the Securities Act), provided that all executive officers and directors of the Company enter into similar agreements. The Company will also agree to a lock-up of the same duration if requested by the underwriters of the Common Stock. The obligations described in this Section 2.10 shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8 or similar forms that may be promulgated in the future, or a registration relating solely to shares issued in an acquisition or pursuant to a Commission Rule 145 transaction on Form S-4 or similar forms that may be promulgated in the future. The Company may impose stop-transfer instructions with respect to the shares of Common Stock (or other securities) subject to the foregoing restriction until the end of said one hundred eighty (180) day period. 2.11 RULE 144 REPORTING. With a view to making available to the Holders the benefits of certain rules and regulations of the SEC which may permit the sale of the Registrable Securities to the public without registration, the Company agrees to use its best efforts to: (a) Make and keep public information available, as those terms are understood and defined in SEC Rule 144 or any similar or analogous rule promulgated under the Securities Act, at all times after the effective date of the first registration filed by the Company for an offering of its securities to the general public; (b) File with the SEC, in a timely manner, all reports and other documents required of the Company under the Exchange Act; (c) So long as a Holder owns any Registrable Securities, furnish to such Holder forthwith upon request: a written statement by the Company as to its compliance with the reporting requirements of Rule 144 of the Securities Act and of the Exchange Act (at any time after it has become subject to such reporting requirements); a copy of the most recent annual or quarterly report of the Company; and such other reports and documents as a Holder may reasonably request in availing itself of any rule or regulation of the SEC allowing it to sell any such securities without registration. 3. INFORMATION RIGHTS. 3.1 QUARTERLY REPORTS. So long as a Holder owns at least ten thousand (10,000) shares of the Shares or one hundred thousand (100,000) shares of the Common Stock issued upon conversion of the Shares (as adjusted for stock splits, combinations and the like that occur after the original issuance of such shares), as soon as practicable after the end of each fiscal quarter of the Company, and in any event within ninety (90) days thereafter, the Company will furnish to such Holder an unaudited balance sheet of the Company, as at the end of such fiscal quarter, and an unaudited consolidated statement of income and an unaudited consolidated statement of cash flows of the Company, for such quarter, all prepared in accordance with generally accepted accounting principles consistently applied. This obligation shall expire and terminate as to each Holder on the effective date of the first registration statement for the public offering of the Company's Common Stock. 3.2 CONFIDENTIALITY. (a) Each Holder agrees not to disclose to any third party or use Confidential Information (as hereinafter defined) of the Company for its own use or for any purpose except to evaluate and enforce its equity investment in the Company. Each Holder shall undertake to treat such Confidential Information in a manner consistent with the treatment of its own information of similar proprietary nature and agrees that it shall protect the confidentiality of Confidential Information. Each transferee of any Holder who receives Confidential Information shall agree to be bound by such provisions. (b) "Confidential Information" means any reports provided pursuant to Section 3.1 and any other information disclosed by the Company either directly or indirectly in a writing stamped "Confidential" or "Proprietary" or, if disclosed orally, which is promptly confirmed in writing to be Confidential Information. Confidential Information does not include information, technical data or know-how which (i) is in the Holder's possession at the time of disclosure as shown by such Holder's files and records immediately prior to the time of disclosure; (ii) is generally known not as a result of any action or inaction of the Holder; (iii) is disclosed to a Holder on a non-confidential basis by a third party having a legal right to disclose such information; or (iv) is approved for release by written authorization of Company. The provisions of this Section shall not apply (x) to the extent that a Holder is required to disclose Confidential Information pursuant to any law, statute, rule or regulation or any order or legal process of any court; or (y) to the disclosure of Confidential Information to a Holder's counsel, accountants or other professional advisors. 4. GENERAL. 4.1 GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of New York without giving effect to conflicts of laws principles. 4.2 SURVIVAL. The representations, warranties, covenants, and agreements made herein shall survive any investigation made by any Holder and the closing of the transactions contemplated hereby. All statements as to factual matters contained in any certificate or other instrument delivered by or on behalf of the Company pursuant hereto in connection with the transactions contemplated hereby shall be deemed to be representations and warranties by the Company hereunder solely as of the date of such certificate or instrument. 4.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, and administrators of the parties hereto and shall inure to the benefit of and be enforceable by each person who shall be a holder of Registrable Securities from time to time; provided, however, that prior to the receipt by the Company of adequate written notice of the transfer of any Registrable Securities specifying the full name and address of the transferee, the Company may deem and treat the person listed as the holder of such shares in its records as the absolute owner and holder of such shares for all purposes, including the payment of dividends or any redemption price. 4.4 SEVERABILITY. In case any provision of the Agreement shall be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 4.5 AMENDMENT AND WAIVER. (a) Except as otherwise expressly provided, this Agreement may be amended or modified only upon the written consent of the Company and the holders of fifty-one percent (51%) of the Registrable Securities. (b) Except as otherwise expressly provided, the obligations of the Company and the rights of the Holders under this Agreement may be waived only with the written consent of fifty-one percent (51%) of the Registrable Securities. (c) Notwithstanding the foregoing, this Agreement may be amended with only the written consent of the Company to include additional purchasers of Shares as "Holders" and parties hereto. 4.6 DELAYS OR OMISSIONS. It is agreed that no delay or omission to exercise any right, power, or remedy accruing to any Holder, upon any breach, default or noncompliance of the Company under this Agreement shall impair any such right, power or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of any similar breach, default or noncompliance thereafter occurring. It is further agreed that any waiver, permit, consent, or approval of any kind or character on any Holder's part of any breach, default or noncompliance under the Agreement or any waiver on such Holder's part of any provisions or conditions of this Agreement must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement, by law, or otherwise afforded to Holders, shall be cumulative and not alternative. 4.7 NOTICES. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (iv) two (2) days after deposit with a recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the party to be notified at the address as set forth on Exhibit A hereto or at such other address as such party may designate by ten (10) days advance written notice to the other parties hereto. 4.8 ATTORNEYS' FEES. In the event that any dispute among the parties to this Agreement should result in litigation, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, including without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals. 4.9 HEADINGS. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 4.10 ENTIRE AGREEMENT. This Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subject matter hereof and supersedes all previous negotiations, agreements and arrangements made between the parties with respect to such subject matter. 4.11 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. IN WITNESS WHEREOF, the parties hereto have executed this Registration Rights Agreement as of the date set forth in the first paragraph hereof. theglobe.com, inc. By: -------------------------------- Name: Title: ----------------------------------- MICHAEL S. EGAN ----------------------------------- TODD V. KRIZELMAN ----------------------------------- STEPHAN J. PATERNOT SERIES A INVESTOR ----------------------------------- Name: EXHIBIT A --------- SERIES A INVESTORS ------------------ Bergendahl, Anders Bergendahl, Mia Grey, Nicki Grinstead, Simon Hirsch, Jason Krizelman, Allen Krizelman, Susan Krizelman, Todd Maconie, Andrew Paternot, Jacques Paternot, Madeleine Paternot, Monica Paternot, Thierry Paternot, Yves S. Knight Pond Trust EX-4.7 4 EXHIBIT 4.7 REGISTRATION RIGHTS AGREEMENT THEGLOBE.COM, INC. FEBRUARY 1, 1999 TABLE OF CONTENTS PAGE 1. DEFINITIONS.............................................................1 2. REGISTRATION; RESTRICTIONS ON TRANSFER..................................3 2.1 Restrictions on Transfer..........................................3 2.2 Shelf Registration................................................4 2.3 Delay, Postponement and Suspension of Sale........................6 2.4 Piggyback Registrations...........................................6 2.5 Registration Expenses.............................................7 2.6 Obligations of the Company........................................7 2.7 Termination of Registration Rights...............................10 2.8 Delay of Registration............................................10 2.9 Indemnification..................................................10 2.10 "Market Stand-Off"Agreement......................................13 2.11 Rule 144 Reporting...............................................14 3. CONFIDENTIALITY........................................................14 4. GENERAL................................................................15 4.1 Governing Law....................................................15 4.2 Survival.........................................................15 4.3 Successors and Assigns...........................................15 4.4 Severability.....................................................15 4.5 Amendment and Waiver.............................................15 4.6 Delays or Omissions..............................................16 4.7 Notices..........................................................16 4.8 Attorneys'Fees...................................................16 4.9 Headings.........................................................16 4.10 Entire Agreement.................................................16 4.11 Counterparts.....................................................16 4.12 Third-Party Beneficiaries........................................17 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered into as of the 1st day of February, 1999, by and among theglobe.com, inc., a Delaware corporation (the "Company"), and the Persons listed on Exhibit A hereto. WHEREAS, pursuant to the Agreement and Plan of Merger, dated February 1, 1999 (the "Merger Agreement"), by and among the Company and certain of the Holders, pertaining to the acquisition by the Company of factorymall.com, inc., a Washington corporation, d/b/a Azazz.com (the "Acquired Company"), the Company has agreed to provide certain registration rights to the Holders as set forth herein; and WHEREAS, the foregoing parties desire to set forth their agreement as to the registration rights of the Holders; NOW, THEREFORE, the parties hereto, in consideration of the foregoing, the mutual covenants and agreements hereinafter set forth, and other good and valuable consideration the receipt and sufficiency of which hereby are acknowledged, agree as follows: 1. DEFINITIONS. As used in this Agreement, the following terms shall have the following respective meanings: "ACQUIRED COMPANY" shall have the meaning set forth in the recitals hereto. "AUDITED FINANCIAL STATEMENTS" shall mean balance sheets, statements of operations, statements of stockholders' equity and statements of cash flows, including any pro forma financial statements (and any notes related to the foregoing) necessary in the Company's judgment in order to meet the requirements of Regulation S-X of the Securities Act or other federal laws applicable to the Company in connection with the Registration Statement contemplated hereby, covering any time period required by such securities laws, prepared in accordance with United States Generally Accepted Accounting Principles consistently applied and audited by a nationally recognized independent accounting firm selected by the Company, which firm has executed an unqualified opinion related to, and has consented to the inclusion of, such financial statements in such Registration Statement. "COMMON STOCK" shall mean the common stock, par value $.001 per share, of the Company. "COMPETITOR" shall mean any Person engaged in, or owning or controlling, a business operating an Internet Web site, an online e-commerce business or a virtual community Web site. "CONFIDENTIAL INFORMATION" shall have the meaning set forth in Section 3. "DELAY PERIOD" shall have the meaning set forth in Section 2.3 "EFFECTIVE DATE" shall have the meaning set forth in Section 2.2. "EFFECTIVE PERIOD" shall have the meaning set forth in Section 2.2. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. References to a particular section of the Securities Exchange Act of 1934, as amended, shall include a reference to the comparable section, if any, of any such similar federal statute. "FAMILY MEMBER" shall mean an individual's spouse, natural and adoptive children, siblings, parents and grandparents; provided that none of the foregoing is a Competitor of the Company. "HOLDER" means any Person listed on Exhibit A hereto who owns of record Registrable Securities or Warrants and who has executed a counterpart signature page to this Agreement, or any assignee of record of Registrable Securities or Warrants held by such Person in accordance with Section 4.3 hereof. "MERGER AGREEMENT" shall have the meaning set forth in the recitals hereto. "PERSON" shall mean any individual, corporation, limited liability company, partnership, trust or association, or any other entity or organization, including any government entity. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement or document. "REGISTRABLE SECURITIES" means (i) shares of Common Stock issued to the Holders pursuant to the Merger Agreement; (ii) any Common Stock issued upon exercise of the Warrants, to the extent permitted to be included in the Registration Statement by the SEC; and (iii) any Common Stock issued as a dividend or other distribution with respect to, or in exchange for or in replacement of, such above-described securities. As to any particular Registrable Securities, such securities shall cease to be Registrable Securities when (a) a Registration Statement with respect to the sale of such securities shall have become effective under the Securities Act and shall have remained effective for the Effective Period, (b) they may be sold by the Holder thereof pursuant to Rule 144 or any successor rule under the Securities Act, (c) they shall have been otherwise transferred, new certificates for them not bearing a legend restricting further transfer under the Securities Act shall have been delivered by the Company and subsequent public distribution of them shall not require registration of them under the Securities Act, or (d) they shall have ceased to be outstanding. "REGISTRATION STATEMENT" means a registration statement of the Company, filed with the Commission on an appropriate form, including any registration statement filed pursuant to the provisions of this Agreement, including the prospectus included therein, all amendments and supplements thereto (including post-effective amendments) and all exhibits and material incorporated by reference therein. "SEC" or "COMMISSION" means the Securities and Exchange Commission. "SECURITIES ACT" means the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. References to a particular section of the Securities Act of 1933, as amended, shall include a reference to the comparable section, if any, of any such similar federal statute. "SHELF REGISTRATION STATEMENT" shall have the meaning set forth in Section 2.2. "TRANSFER" shall have the meaning set forth in Section 2.1. "WARRANTS" shall mean warrants for common stock of the Acquired Company which were assumed by the Company pursuant to the Merger Agreement and exercisable for shares of Common Stock. 2. REGISTRATION; RESTRICTIONS ON TRANSFER. 2.1 RESTRICTIONS ON TRANSFER. (a) Each Holder agrees not to make any sale, offer for sale, pledge or other disposition (collectively, a "Transfer") of all or any portion of Registrable Securities or Warrants unless and until: (i) There is then in effect a Registration Statement under the Securities Act covering such proposed Transfer and such Transfer is made in accordance with such Registration Statement; or (ii) (A) The transferee has agreed in a letter addressed to the Company to be bound by this Agreement, (B) such Holder shall have notified the Company, in advance of the proposed Transfer, of the name and address of the proposed transferee and shall have furnished the Company with a detailed statement of the circumstances surrounding such proposed Transfer, (C) the transferee is not a Competitor of the Company, and (D) if requested by the Company, such Holder shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such Transfer will not require registration of such shares under the Securities Act. (iii) Notwithstanding the provisions of paragraphs (i) and (ii) above, no such Registration Statement or opinion of counsel shall be necessary for a Transfer by a Holder to the Holder's Family Members or trusts for the benefit of an individual Holder or such Holder's Family Members, provided, however, that such Holder shall have notified the Company in advance of the proposed Transfer, the name and address of the proposed transferee, and such transferee agrees in a letter addressed to the Company to be bound by all of the provisions of this Agreement to the same extent as if such transferee were an original Holder hereunder. (iv) In the case of any Transfer or exercise of a Warrant, the Holder shall deliver evidence reasonably satisfactory to the Company that such Holder is an "accredited investor" within the meaning of that term as defined in Rule 501 promulgated under the Securities Act. (b) Each certificate representing Registrable Securities or Warrants shall be stamped or otherwise imprinted with the following legends: (i) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED." (ii) ANY LEGEND REQUIRED BY APPLICABLE STATE SECURITIES LAWS. (c) The Company shall promptly reissue certificates without the legend specified in Section 2.1(b)(i) at the request of any Holder who has obtained an opinion of counsel (which counsel may be counsel to the Company, but the Company shall not be required to have its counsel deliver such opinion) or other evidence in each case reasonably acceptable to the Company to the effect that the Registrable Securities or Warrants proposed to be disposed of may lawfully be so disposed of without registration, qualification or legend. (d) Any legend endorsed on a certificate representing Registrable Securities or Warrants pursuant to applicable state securities laws and the stop-transfer instructions with respect to such Registrable Securities shall be removed upon receipt by the Company of an order of the appropriate blue sky authority authorizing such removal. 2.2 SHELF REGISTRATION. (a) The Company agrees to use its commercially reasonable best efforts to file with the SEC no later than twenty (20) days following the receipt of completed Audited Financial Statements of the Acquired Company, a Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415 of the Securities Act (the "Shelf Registration Statement") covering all of the Registrable Securities. The Shelf Registration Statement shall be on Form S-1 under the Securities Act or another appropriate form permitting registration of the Registrable Securities for resale by the Holders thereof; provided that the Company may at any time amend the Shelf Registration Statement to amend the form on which such registration statement has been filed, so long as permitted by applicable federal law. The Company shall use its commercially reasonable best efforts to cause the Shelf Registration Statement to be declared effective pursuant to the Securities Act as promptly as practicable following the filing thereof (the "Effective Date"), and to keep the Shelf Registration Statement effective under the Securities Act for a period of twenty (20) business days after the Effective Date (the "Effective Period"), or such shorter period ending upon the earlier of (i) the time which all of the Registrable Securities covered by the Shelf Registration Statement have been sold in the manner set forth in the Shelf Registration Statement, or (ii) such securities otherwise cease to be Registrable Securities as defined herein. The Company shall use commercially reasonable efforts to obtain Audited Financial Statements of the Acquired Company within 45 calendar days of the date of this Agreement. (b) To the extent that the Company may file the Shelf Registration Statement with the SEC at an earlier time than the completed Audited Financial Statements of the Acquired Company are available, only as permitted by and in compliance with the Securities Act in the judgment of the Company, the Company will use commercially reasonable best efforts in order to effect such filing; provided that the Company will not be required to make such filing until 20 days after its Audited Financial Statements for 1998 are available. Any filing made in accordance with this Section 2.3(b) shall satisfy the Company's obligation to file any Shelf Registration Statement pursuant to the first sentence of Section 2.2(a) above. (c) No Holder may include any of its Registrable Securities in the Shelf Registration Statement pursuant to this Agreement unless and until such Holder furnishes to the Company in writing, as soon as practicable after the date hereof but in no event later than five (5) business days prior to the Effective Date, the information specified in Item 507 or 508 of Regulation S-K promulgated under the Securities Act, as applicable, for use in connection with the Shelf Registration Statement or prospectus or preliminary prospectus included therein. Each selling Holder agrees to promptly furnish such information and any additional information required to be disclosed in order to make the information previously furnished to the Company by such Holder not materially misleading. (d) The Company shall not be required to effect a registration as set forth in this Section 2.2 in any particular jurisdiction in which the Company would be required to qualify to do business as a foreign corporation or to pay taxes wherein it would not but for the requirements of this Agreement be obligated to be so qualified or to consent to general service of process or pay taxes in any such state or jurisdiction effecting such registration, qualification or compliance. (e) The Company shall not have any further obligation under this Section 2.2 if the Shelf Registration Statement has been effective for the Effective Period. (f) Each Holder shall, upon five (5) business days' notice to the Company (or such shorter period acceptable to the Company), have the right to withdraw from the Shelf Registration Statement provided such withdrawal occurs prior to the Effective Date. (g) In the event of any sale or disposition of Registrable Securities pursuant to the Shelf Registration Statement as provided in this Section 2.2, each Holder that has sold or disposed of Registrable Securities thereunder will promptly notify the Company in writing of the amount of Registrable Securities sold or disposed of by such Holder. (h) Each Holder hereby agrees that upon expiration of the Effective Period, such Holder will immediately discontinue any distribution, disposition or sale of Registrable Securities pursuant to the Shelf Registration Statement and will use reasonable efforts to assist the Company in obtaining any withdrawal or termination of the effectiveness of the Shelf Registration Statement, including but not limited to providing any consents or authorizations necessary or desirable in connection therewith. 2.3 DELAY, POSTPONEMENT AND SUSPENSION OF SALE. Notwithstanding the provisions of Section 2.2 hereof, the Company shall have the right on one or more occasions to delay the filing or effectiveness of the Shelf Registration Statement, or, if the Shelf Registration Statement has become effective, suspend the distribution or disposition of the Holders' Registrable Securities pursuant to the Shelf Registration Statement, for the period (the "Delay Period") specified below in the event that either (i) the Company files a Registration Statement covering shares of Common Stock or any other security of the Company to be issued by the Company or for resale by other stockholders of the Company, or (ii) the Company determines in its reasonable judgment that (a) the filing, declaration of effectiveness or continued effectiveness of such Shelf Registration Statement at such time would require the Company to disclose in the Registration Statement a proposed or consummated financing, reorganization or recapitalization, or pending or consummated negotiations relating to a merger, consolidation, acquisition or similar transaction or other business transaction, or other material event, which would otherwise adversely affect the Company; or (b) pro forma and/or historical financial statements meeting the requirements of the Securities Act as a result of any transaction described in clause (ii)(a) above are not available at such time. In the case of clause (i) above, the Delay Period shall begin on the fifth (5th) business day following the date of a written notice given by the Company to the Holders of the filing of a Registration Statement in connection with such offering, and shall end on the closing date of such offering, subject to any lock-up period described in Section 2.10. In the case of clause (ii) above, the Delay Period shall begin on the date specified in a written notice given by the Company to the Holders and shall end upon further written notice by the Company. Any notice by the Company pursuant to this Section 2.3 shall be given in the manner set forth in Section 4.7. If the filing or effectiveness of the Shelf Registration Statement is delayed or the right of Holders to distribute or dispose of Registrable Securities pursuant to the Shelf Registration Statement is suspended by the Company as set forth in this Section 2.3, the Company shall use its commercially reasonable best efforts to file and cause to be declared effective, or reinstate the Holders' ability to distribute or dispose of Registrable Securities pursuant to, the Shelf Registration Statement within ten (10) business days following the expiration of any Delay Period applicable to clause (i) above, subject to any lock-up period described in Section 2.10, and within five (5) business days following the expiration of any Delay Period applicable to clause (ii) above; provided that in either case any necessary financial statements are available for filing. The Company shall not be deemed to be in breach of its obligations pursuant to Section 2.2, 2.6(a) or otherwise pursuant to this Agreement due to the commencement or continuation of any Delay Period resulting from any of the events referred to in clauses (i) or (ii) above. The parties acknowledge that, in the case of clauses (i) or (ii) above, the Company shall use commercially reasonable efforts to limit any Delay Period to a reasonable period of time following the availability of any financial statements required to be included in the Registration Statement and the making of any public disclosure as a result of any negotiation or the entering into of any transaction of the nature referred to in such clause. 2.4 PIGGYBACK REGISTRATIONS. No Holder shall have the right to include any Registrable Securities in any other Registration Statement filed or proposed to be filed by the Company. Additionally, no stockholder of the Company other than a Holder shall have the right to include their securities of the Company in, or otherwise participate in, the Shelf Registration Statement. All of the Registrable Securities shall be entitled, at the option of the Holders thereof, to be included in the Shelf Registration Statement so long as such Holder complies with the provisions of this Agreement. 2.5 REGISTRATION EXPENSES. (a) All expenses incident to the Company's performance of or compliance with this Agreement shall be borne by the Company, regardless of whether the Shelf Registration Statement becomes effective, including without limitation: (i) all registration and filing fees and expenses; (ii) fees and expenses relating to compliance with federal securities and state "blue sky" securities laws; (iii) expenses of printing (including printing certificates for the Registrable Securities and prospectuses), messenger and delivery services and telephone charges; (iv) fees and disbursements of counsel for the Company and fees and disbursements of up to $10,000 for one counsel (which shall be Perkins Coie LLP unless other counsel is appointed by the Holders of a majority of the Registrable Securities) for all of the Holders of the Registrable Securities selling such securities pursuant to the Shelf Registration Statement; (v) all application and filing fees in connection with listing the Registrable Securities on a national securities exchange or automated quotation system pursuant to the requirements hereof; (vi) all fees and disbursements of independent certified public accountants of the Company (including the expenses of any special audit required by or incident to such performance); and (vii) such other reasonable and customary expenses as may be at such time (A) associated with shelf registration offerings and (B) customarily borne by the issuer, which such reasonable and customary expenses shall not be deemed to include any underwriter or agent discounts, commissions or applicable transfer taxes attributable to the sale of Registrable Securities. The Company shall, in any event, bear its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit, and the fees and expenses of any Person, including special experts, retained by the Company. Notwithstanding the provisions of this Section 2.5, each Holder shall pay registration expenses if and to the extent required by applicable law. 2.6 OBLIGATIONS OF THE COMPANY. Whenever required to effect the registration of any Registrable Securities pursuant to this Agreement, the Company shall, as expeditiously as reasonably possible: (a) Use commercially reasonable efforts to keep the Shelf Registration Statement effective for the Effective Period, subject to its right to invoke any Delay Period, and provide all requisite financial statements required by such Shelf Registration Statement for such Effective Period, subject to any Delay Period and other rights and provisions of Section 2.3. Subject to any Delay Period and the other terms and provisions set forth in Section 2.3, upon the occurrence of any event that would cause the Shelf Registration Statement or the prospectus contained therein (i) to contain a material misstatement or omission or (ii) not to be effective and usable for resale of Registrable Securities during the Effective Period (other than pursuant to Section 2.3), the Company shall promptly file an appropriate amendment to such Shelf Registration Statement, (A) in the case of clause (i), correcting any such misstatement or omission, and (B) in the case of clauses (i) and (ii), using its commercially reasonable efforts to cause such amendment to be declared effective and such Shelf Registration Statement and the related prospectus to become usable for their intended purpose(s) as soon as commercially practicable thereafter; (b) Prepare and file with the SEC such amendments and post-effective amendments to the Shelf Registration Statement as may be necessary to keep the Shelf Registration Statement effective for the duration of the Effective Period; cause the prospectus to be supplemented by any required prospectus supplement, and as so supplemented, to be filed pursuant to Rule 424, and to comply fully with Rules 424 and 430A of the Securities Act, as applicable, in a timely manner; and otherwise comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Shelf Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the sellers thereof as set forth in such Shelf Registration Statement or supplement to the prospectus; (c) Furnish to counsel for the selling Holders named in any Shelf Registration Statement or prospectus, before filing with the SEC, copies of any Shelf Registration Statement or any prospectus included therein or any amendments or supplements to any such Shelf Registration Statement or prospectus, which documents will be subject to the review and comment of counsel for such Holders for a period of time as is reasonably appropriate under the circumstances, determined in the sole discretion of the Company (it being acknowledged that such period shall be at least three (3) business days in the case of an initial draft of the Shelf Registration Statement and such shorter time as may be appropriate in the case of any supplements or amendments thereto), and the Company agrees to reasonably consider such comments in preparing the filing of any such Shelf Registration Statement or prospectus or any amendment or supplement to any such Shelf Registration Statement or prospectus (including all such documents incorporated by reference); (d) Furnish (without charge) to counsel for the selling Holders, one copy of the Registration Statement, each amendment and supplement thereto (in each case including all exhibits) and furnish to the Holders such number of copies of the prospectus included in such Registration Statement, including each preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them; (e) Use all reasonable commercial efforts to register or qualify the Registrable Securities covered by such Registration Statement under such securities or blue sky laws of such States of the United States of America where any exemption is not available 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 generally to do business as a foreign corporation, to pay taxes in any jurisdiction where it would not but for the requirements of this Agreement be obligated to be so qualified, to consent to general service of process or to pay taxes in any such state or jurisdiction; (f) Promptly notify counsel for the Holders selling Registrable Securities covered by such Registration Statement: (i) when the Registration Statement, any pre-effective amendment, the prospectus or any prospectus supplement related thereto or post-effective amendment to the Registration Statement has been filed and, with respect to the Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the SEC or state securities authority for amendments or supplements to the Registration Statement or the prospectus related thereto or for additional information; (iii) of the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for such purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of any Registrable Securities for sale under the securities or blue sky laws of any jurisdiction or the initiation of any proceeding for such purpose; and (v) at any time when a prospectus relating to the Shelf Registration Statement is required to be delivered under the Securities Act, upon discovering that, or upon 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 under which they were made, and in the case of this clause (v), the Company will, subject to the other terms of this Agreement, promptly prepare and furnish to the Holders participating in the offering of the Registrable Securities, a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit 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 under which they were made; (g) Comply with all applicable rules and regulations of the SEC, and make generally available to the Holders, as soon as reasonably practicable after the effective date of the Shelf Registration Statement (and in any event within sixteen (16) months thereafter), an earnings statement (which need not be audited) covering the period of at least twelve (12) consecutive months beginning with the first day of the Company's first calendar quarter after the effective date of the Shelf Registration Statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder; (h) Cause all Registrable Securities covered by the Shelf Registration Statement to be listed on the Nasdaq National Market or other principal securities exchange on which similar securities issued by the Company are then listed, if the listing of such Registrable Securities is then permitted under the rules of such exchange; (i) Provide and cause to be maintained a transfer agent and registrar for all such Registrable Securities covered by such Registration Statement not later than the effective date of such Registration Statement; and (j) Cooperate with the selling Holders of Registrable Securities to facilitate the timely preparation and delivery of certificates not bearing any restrictive legends representing the Registrable Securities to be sold, and cause such Registrable Securities to be issued in such denominations and registered in such names in accordance with the instructions of the selling Holders of Registrable Securities. Each Holder agrees that if the Shelf Registration Statement shall have been declared effective, upon the giving of any notice from the Company of the happening of any event of the kind described in Section 2.6(f)(v), or the giving of notice by the Company of the invocation of any Delay Period pursuant to Section 2.3, such Holder will discontinue such Holder's disposition of Registrable Securities pursuant to the Shelf Registration Statement covering such Registrable Securities until (A) in the case of Section 2.6(f)(v), such Holder's receipt of the copies of the supplemented or amended prospectus contemplated by such Section and, if so directed by the Company, such Holder will deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Holder's possession, of the prospectus covering such Registrable Securities that was in effect at the time of receipt of such notice, and (B) in the case of any Delay Period pursuant to Section 2.3, until the expiration of such period or as otherwise provided in Section 2.3. Following the end of any restriction on disposition pursuant to Section 2.6(f)(v) or Section 3, the Shelf Registration Statement shall remain effective for a period equal to the greater of (i) 5 business days, or (ii) such greater number of business days as determined by the difference of (x) 20, less (y) the number of business days for which Holders have been able to sell without restriction under the Shelf Registration Statement prior to any notice delivered pursuant to Section 2.6(f)(v) or Section 3. 2.7 TERMINATION OF REGISTRATION RIGHTS. All registration rights granted to a Holder under this Section 2 shall terminate and be of no further force and effect upon the earlier of: (i) such time as the securities of the Company held by a Holder cease to be Registrable Securities, as defined herein, and (ii) such time as the Effective Period shall have expired. 2.8 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 2. 2.9 INDEMNIFICATION. In the event any Registrable Securities are included in a Registration Statement under Section 2.2: (a) Indemnification by the Company. To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the partners, officers and directors of each Holder, if any, who control such Holder within the meaning of the Securities Act or the Exchange Act, against any and all losses, claims, damages, liabilities or expenses whatsoever as incurred (including but not limited to reasonable attorneys' fees and any and all reasonable expenses whatsoever incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, and any and all amounts paid in settlement of any claim or litigation), joint or several, to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof), arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in such Registration Statement or final prospectus contained therein or any amendments or supplements thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the Company shall not be liable in any case to the extent that any loss, claim, damage, liability or expense (or action or proceeding in respect thereof) arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder, partner, officer, director, or controlling person of such Holder, and provided, further, that the Company shall not be liable to any Person who participates in the offering or sale of Registrable Securities or any other Person, if any, who controls such Person, in any such case if any such loss, claim, damage, liability or expense (or action or proceeding in respect thereof) arises out of such Person's failure to send or give a copy of the final prospectus or amendment or supplement thereto, as the same may be then supplemented or amended, to the Person asserting an untrue statement or alleged untrue statement or omission or alleged omission at or prior to the written confirmation of the sale of Registrable Securities to such Person if such statement or omission was corrected in such final prospectus so long as such final prospectus, and any amendments or supplements thereto, have been furnished to such Person participating in the offering or sale of Registrable Securities. (b) Indemnification by the Holders. To the extent permitted by law, each Holder will, if Registrable Securities held by such Holder are included in such Registration Statement, indemnify and hold harmless the Company, each of its directors, its officers, and each Person, if any, who controls the Company within the meaning of the Securities Act, and any other Holder selling securities under such Registration Statement or any of such other Holder's partners, directors or officers, if any, who control such Holder, against any losses, claims, damages, liabilities or expenses (including but not limited to attorneys' fees and any and all expenses whatsoever incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, and any and all amounts paid in settlement of any claim or litigation), severally, to which the Company or any such director, officer, controlling Person, or other such Holder, partner, director, or officer, if any, or controlling such other Holder may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, liabilities or expenses (or actions or proceedings in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement for registration of the Registrable Securities, or final prospectus contained therein or any amendments or supplements thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent (and only to the extent) that such losses, claims, damages, liabilities or expenses (or actions or proceedings in respect thereof) arise out of or are based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by such Holder expressly for use in connection with such registration; provided, however, that in no event shall any indemnity under this Section 2.9 exceed the net proceeds from the offering received by such Holder. (c) Notices of Claims, etc. Promptly after receipt by an indemnified party of notice of the commencement of any action or proceeding involving a claim referred to in the preceding subdivisions of this Section 2.9, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action; provided, however, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under the preceding subdivisions of this Section 2.9, except to the extent that the indemnifying party is prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, and it notifies an indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein, and, to the extent it may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof. Notwithstanding the foregoing, the indemnified party shall have the right to employ its own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the employment of such counsel shall have been authorized in writing by the indemnifying party in connection with the defense of such action, (ii) the indemnifying party shall not have employed counsel to have charge of the defense of such action within a reasonable time after notice of commencement of the action, or (iii) such indemnified party shall have reasonably concluded that there may be defenses available to it which are different from or additional to those available to the indemnifying party (in which case the indemnifying party shall not have the right to direct the defense of such action on behalf of the indemnified party), in any of which events such fees and expenses shall be borne by the indemnifying party. In no event shall the indemnifying party be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from its own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, and which counsel shall be approved by the indemnifying party, whose approval shall not be unreasonably withheld. No indemnifying party shall be liable for any settlement of any action or proceeding effected without its written consent, which consent shall not be unreasonably withheld. No indemnifying party shall, without the consent of the indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect of such claim or litigation. (d) Contribution. If the indemnification provided for in this Section 2.9 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any losses, claims, damages, liabilities or expenses (including but not limited to attorneys' fees and any and all expenses whatsoever incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, and any and all amounts paid in settlement of any claim or litigation), joint or several, of the nature contemplated by such indemnification provision, the indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall to the extent permitted by applicable law contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage, liability or expense (or action or proceeding in respect thereof) 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 which resulted in such losses, claims, damages, liabilities or expenses (or actions or proceedings in respect thereof), as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by a court of law 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; provided that, in no event shall any contribution by a Holder hereunder exceed the net proceeds from the offering received by such Holder. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. In addition, no Person shall be obligated to contribute hereunder any amounts in payment for any settlement of any action or claim effected without such Person's consent, which consent shall not be unreasonably withheld. (e) Survival of Indemnification. The obligations of the Company and the Holders under this Section 2.9 shall survive completion of any offering of Registrable Securities in a Registration Statement pursuant to Section 2.2. (f) Other Indemnification. Indemnification and contribution similar to that specified in the preceding subdivisions of this Section 2.9 (with appropriate modifications) shall be given by the Company and each seller of Registrable Securities with respect to any required registration or other qualification of securities under any federal or state law or regulation of any governmental authority other than the Securities Act. 2.10 "MARKET STAND-OFF" AGREEMENT. In the case of any underwritten public offering by the Company of shares of Common Stock, whether for its own account or for the account of any stockholder of the Company, each Holder agrees that, during a period of seven (7) days prior to and ninety (90) days following the effective date of a Registration Statement filed in connection with such offering, such Holder will not, without the prior written consent of the Company, directly or indirectly, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, or otherwise dispose of or transfer any shares of Common Stock or any securities convertible into or exchangeable or exercisable for Common Stock, whether now owned or hereafter acquired by such Holder or with respect to which such Holder has or hereafter acquires the power of disposition, or enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Common Stock, whether any such swap or transaction is to be settled by delivery of Common Stock or other securities, in cash or otherwise. The Company shall give notice of such restriction in the manner set forth in Section 4.7. Upon the request of the underwriters for any underwritten public offering of Common Stock of the Company referred to above, each Holder hereby agrees to deliver a "lock-up" or "market stand-off" agreement signed by such Holder which is equivalent in substance to the agreement set forth in this Section 2.10 addressed to such underwriter. Any such underwriter shall expressly be deemed to be a third party beneficiary of this Section 2.10. The obligations described in this Section 2.10 shall not apply to a registration relating solely to employee benefit plans or similar forms that may be promulgated in the future, or a registration relating solely to a Rule 145 transaction (including the registration for resale of securities issued in a Rule 145 transaction) on Form S-4 under the Securities Act or similar forms that may be promulgated in the future, unless in any such case such registration is in connection with an underwritten public offering. The Company may impose stop-transfer instructions with respect to the shares of Common Stock (or other securities) subject to the foregoing restriction until the end of such restrictive period. 2.11 RULE 144 REPORTING. With a view to making available to the Holders the benefits of certain rules and regulations of the SEC which may permit the sale of the Registrable Securities to the public without registration, the Company agrees to use its commercially reasonable best efforts to: (a) Make and keep public information available, as those terms are understood and defined in SEC Rule 144 or any similar or analogous rule promulgated under the Securities Act; and (b) File with the SEC, in a timely manner, all reports and other documents required of the Company under the Exchange Act. 3. CONFIDENTIALITY. (a) Each Holder agrees not to disclose to any third party or use Confidential Information (as hereinafter defined) of the Company for its own use or for any purpose except to evaluate and enforce its current equity investment in the Company. Each Holder shall undertake to treat such Confidential Information in a manner consistent with the treatment of its own information of similar proprietary nature and agrees that it shall protect the confidentiality of Confidential Information. Each transferee of any Holder who receives Confidential Information shall agree to be bound by such provisions. (b) "Confidential Information" means any notices given by the Company pursuant to the terms of this Agreement and any other information disclosed by the Company either directly or indirectly in a writing stamped "Confidential" or "Proprietary" or, if disclosed orally, which is promptly confirmed in writing to be Confidential Information. Confidential Information does not include information, technical data or know-how which (i) is generally known or publicly available not as a result of any action or inaction of a Holder; (ii) is disclosed to a Holder on a non-confidential basis by a third party having a legal right to disclose such information; or (iii) is approved for release by written authorization of the Company. The provisions of this Section shall not apply to the extent that a Holder is required to disclose Confidential Information pursuant to any law, statute, rule or regulation or any legal process or order of any court, provided that the Holder shall notify the Company of any such required disclosure as promptly as possible and shall cooperate with the Company in order to limit the scope of any order or service of legal process requiring disclosure of such Confidential Information. 4. GENERAL. 4.1 GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of New York without giving effect to conflicts of laws principles. Each of the parties to this Agreement hereby irrevocably and unconditionally consents to submit to the exclusive jurisdiction of the courts of the State of New York and the courts of the United States of America located in the Southern District of the State of New York for any action, claim or proceeding arising out of or relating to this Agreement (and agrees not to commence any action, claim or proceeding relating hereto except in such courts), and further agrees that service of any process, summons, notice or document by U.S. registered mail to its respective address shall be effective service of process for any action, claim or proceeding brought against it in any such court. Each of the parties to this Agreement hereby irrevocably and unconditionally waives any objection to the laying of venue of any action, claim or proceeding arising out of this Agreement in the courts of the State of New York or the courts of the United States of America located in the State of New York and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, claim or proceeding brought in any such court has been brought in an inconvenient forum. Each of the parties hereto hereby irrevocably and unconditionally waives any right it may have to trial by jury in connection with any action, claim or proceeding arising out of or relating to this Agreement. 4.2 SURVIVAL. The provisions of Section 2.9 and Section 3 hereof shall survive any termination of this Agreement 4.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, and administrators of the parties hereto and shall inure to the benefit of and be enforceable by each Person who shall be a Holder from time to time in accordance with the terms of this Agreement. 4.4 SEVERABILITY. In case any provision of the Agreement shall be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 4.5 AMENDMENT AND WAIVER. (a) Except as otherwise expressly provided herein, this Agreement may be amended or modified and the observance of any provision hereof may be waived (either generally or in a particular instance and either retroactively or prospectively) upon the written consent of the Company and the Holders of at least a majority in interest of the Registrable Securities. Any amendment or waiver effected in accordance with this Section 4.5 shall be binding upon each Holder and the Company. (b) Except as otherwise expressly provided herein, the obligations of the Company and the rights of the Holders under this Agreement may be waived only with the written consent of at least a majority in interest of the Registrable Securities. (c) This Agreement may be amended only with the written consent of the Company to include any additional party as a "Holder." 4.6 DELAYS OR OMISSIONS. It is agreed that no delay or omission to exercise any right, power or remedy accruing to any Holder, upon any breach, default or noncompliance of the Company under this Agreement shall impair any such right, power or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of any similar breach, default or noncompliance thereafter occurring. It is further agreed that any waiver, permit, consent or approval of any kind or character on any Holder's part of any breach, default or noncompliance under this Agreement or any waiver on such Holder's part of any provisions or conditions of this Agreement must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement, by law or otherwise afforded to Holders, shall be cumulative and not alternative. 4.7 NOTICES. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed facsimile if sent during normal business hours of the sender; if not, then on the next business day, (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (iv) one (1) day after deposit with a recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the party to be notified at the address as set forth on Exhibit A hereto or at such other address as such party may designate in writing to the Company in accordance with this Section 4.7 by ten (10) days' advance written notice to the other parties hereto. 4.8 ATTORNEYS' FEES. In the event that any dispute among the parties to this Agreement should result in litigation, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, including without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals. 4.9 HEADINGS. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing the intent of this Agreement. 4.10 ENTIRE AGREEMENT. This Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subject matter hereof and supersedes all previous negotiations, agreements and arrangements made between the parties with respect to such subject matter. 4.11 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. 4.12 THIRD-PARTY BENEFICIARIES. This Agreement shall inure to the benefit of and be binding upon the Company and each of the other signatories hereto and their respective successors and assigns. The underwriter for an underwritten public offering of the Company, as described in Section 2.10, shall be expressly deemed to be a third-party beneficiary of the provisions of such Section. Other than as expressly set forth in this paragraph, no other party will be considered a third-party beneficiary of any rights or benefits created under this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Registration Rights Agreement as of the date set forth in the first paragraph hereof. COMPANY: HOLDER: THEGLOBE.COM, INC. By: By: ------------------------------ ------------------------------ Todd V. Krizelman Co-Chief Executive Officer By: ------------------------------ Stephan J. Paternot Co-Chief Executive Officer EXHIBIT A SCHEDULE OF HOLDERS Name Address Telephone and Facsimile EX-9.1 5 EXHIBIT 9.1 STOCKHOLDERS' AGREEMENT STOCKHOLDERS' AGREEMENT (this "Agreement"), dated as of February 14, 1999, by and among theglobe.com, inc., a Delaware corporation (the "Company"), Michael S. Egan, Dancing Bear Investments, Inc., a Florida corporation ("DBI" and, together with Michael S. Egan, "Dancing Bear"), Todd V. Krizelman, Stephan J. Paternot, Edward A. Cespedes and Rosalie V. Arthur. WHEREAS, Dancing Bear held warrants (the "Warrants") to purchase an aggregate of 2,023,009 shares of common stock of the Company, par value $.001 per share (the "Common Stock"). WHEREAS, Dancing Bear has transferred Warrants exercisable for 100,000, 100,000, 25,000 and 25,000 shares of Common Stock to Todd V. Krizelman, Stephan J. Paternot, Edward A. Cespedes and Rosalie V. Arthur (collectively referred to herein as the "Holders"), respectively; WHEREAS, the parties hereto wish to provide certain restrictions on the disposition by the Holders of any Warrants held by them and any shares of Common Stock for which such Warrants may be exercised (the "Warrant Shares"); WHEREAS, the parties wish to provide for certain arrangements with respect to the voting of the Warrant Shares in the event the Warrants held by the Holders are exercised; and WHEREAS, Messrs. Krizelman and Paternot and Dancing Bear wish to provide for certain arrangements with respect to the voting of any shares of Stock held by them. NOW, THEREFORE, the parties hereto agree as follows: Section 1. Definitions. For purposes of this Agreement, the following terms shall have the meanings indicated: "Acceptance Notice" shall have the meaning given to it in Section 7 hereof. "Agreement" shall have the meaning given to it in the preamble hereto. "Beneficially Own" shall have the meaning ascribed thereto in Rule 13d-3 under the Securities Exchange Act of 1934, as amended. "Board" shall mean the Board of Directors of the Company and any authorized committee thereof. "Buyer" shall have the meaning given to it in Section 8 hereof. "Cause" shall mean with respect to an individual (i) conduct that is fraudulent or unlawful, (ii) gross negligence or willful misconduct that discredits or damages the Company, (iii) willful and repeated failure to perform such individual's duties and such failure to perform adversely affects the Company, (iv) such individual has become the subject of any order, judgment, or decree of any court or regulatory authority of competent jurisdiction which is final and non-appealable, permanently or temporarily enjoining him or her from engaging in any activity in connection with the purchase or sale of any security or commodity, or in connection with any violation of federal or state securities laws or federal commodities laws, or (v) such individual is found by a court of competent jurisdiction in a civil action or by the SEC to have violated any federal or state securities laws, and the judgment in such civil action or finding by the SEC has not been subsequently reversed, suspended, or vacated. "Closing Date" shall have the meaning given to it in Section 7 hereof. "Common Stock" shall have the meaning given to it in the recitals hereto. "Company" shall have the meaning set forth in the preamble hereto. "Controlled Person" shall mean a Person in which a Holder or Dancing Bear Beneficially Owns a controlling interest, or a Person which Beneficially Owns a controlling interest in Dancing Bear. "Dancing Bear" shall have the meaning given to it in the preamble hereto. "Dancing Bear Nominee" shall have the meaning given to it in Section 5 hereof. "DBI" shall have the meaning given to it in the preamble hereto. "Diluted Capital Stock" shall mean issued and outstanding shares of Common Stock (assuming the Warrants have been exercised). "Founder Nominees" shall have the meaning given to it in Section 5 hereof. "Holders" shall have the meaning given to it in the recitals hereto and shall include any other party deemed a "Holder" pursuant to Section 2 or 3 hereof. "Offered Securities" shall have the meaning given to it in Section 7 hereof. "Offering Notice" shall have the meaning given to it in Section 7 hereof. "Options" shall mean options exercisable for Common Stock. "Permitted Transfer" shall mean a Transfer of Stock, Warrants or Warrant Shares (i) by a Holder or Dancing Bear to a Controlled Person, or (ii) by a Holder or Mr. Egan, while living, to such Holder's or Mr. Egan's respective spouse or children or to a trust or trusts for the benefit of such Holder's or Mr. Egan's respective spouse, children or their issue, siblings, or parents or, at death, by will, trust or the laws of intestacy. As a condition to any such Transfer, the transferee shall execute an instrument in form and substance satisfactory to the Company agreeing to be bound by the terms of this Agreement as if an original signatory hereto, and shall execute such further documents, proxies or stock transfer powers as may be necessary or desirable to implement the provisions hereof. "Permitted Transferee" shall mean a Person who receives Stock, Warrants or Warrant Shares in a Permitted Transfer. "Person" means an individual, a corporation, a joint venture, a partnership, a limited liability company, a firm, an association, a business trust or any other entity. "Preferred Stock" shall mean the preferred stock of the Company, par value $.001 per share. "Prospective Buyer" shall have the meaning given to it in Section 7 hereof. "SEC" shall mean the Securities and Exchange Commission. "Selling Holder" shall have the meaning given to it in Section 7 hereof. "Securities Act" shall mean the Securities Act of 1933, as amended. "Stock" shall mean the Common Stock, the Preferred Stock and any other series or class of capital stock of the Company, the holders of which are entitled to participate generally in the election of members of the Board. "Tag-Along Notice" shall have the meaning given to it in Section 9 hereof. "Take-Along Notice" shall have the meaning given to it in Section 8 hereof. "Take Along Right" shall have the meaning given to it in Section 8 hereof. "Transfer" means to sell, assign, donate, gift, convey, transfer, pledge, encumber, hypothecate, grant any option with respect to or otherwise dispose of any interest in (or enter into any agreement or understanding with respect to) any of the foregoing. "Warrants" shall have the meaning given to it in the recitals hereto. "Warrant Shares" shall have the meaning given to it in the recitals hereto. Section 2. Warrants and Warrant Shares Subject to Agreement. Each of the Holders hereby agrees that, except as may otherwise be provided herein, this Agreement shall apply to any Warrants Transferred to such Holder by Dancing Bear on or prior to the date of this Agreement and to any Warrant Shares that may be issued to any such Holder and shall continue to apply to any Warrants and Warrant Shares Transferred by such Holder to any Permitted Transferee. Unless otherwise provided herein, as a condition to the transfer of Warrants or Warrant Shares to any Permitted Transferee, all such Permitted Transferees shall expressly become parties to this Agreement, shall be subject to the same rights and restrictions as the Holders and, unless the context indicates otherwise, all references to "Holder" or "Holders" herein shall include such transferees. Section 3. Stock Subject to Agreement. Each of the Holders and Dancing Bear hereby agrees that, except as may otherwise be provided herein, this Agreement shall apply to any Stock currently held by them on the date hereof, any Stock subsequently acquired by them whether by purchase, option, gift, bequest or otherwise, or any Stock Transferred by them to a Permitted Transferee. Unless otherwise provided herein, as a condition to the transfer of warrant or warrant Shares to any Permitted Transferee, all such Permitted Transferees shall expressly become parties to this Agreement, shall be subject to the same rights and restrictions as Dancing Bear or the Holders, as applicable, and, unless the context indicates otherwise, all references to "Holder" or "Holders" herein shall include such transferees. Section 4. Transfers of Warrants and Warrant Shares. No Holder shall Transfer all or any part of his or her Warrants or Warrant Shares without the prior written consent of Dancing Bear, except (i) to a Permitted Transferee of such Holder, or (ii) as expressly permitted by Section 7 hereof. Section 5. Board Representation. (a) Board of Directors. Each of Messrs. Egan, Krizelman and Paternot agree not to vote to decrease the number of directors on the Board to be less than nine members without the prior written consent of the others. Nominees for election to the Board shall be designated as follows: (i) Dancing Bear (or its Permitted Transferees) shall, subject to applicable law, have the right to designate up to five nominees to the Board (each such designee being hereinafter referred to as a "Dancing Bear Nominee"); and (ii) Messrs. Krizelman and Paternot (or their Permitted Transferees) shall, subject to applicable law, collectively have the right to designate up to two individuals for nomination to the Board (such designees being hereinafter referred to as the "Founder Nominees"). Each of Dancing Bear and Messrs. Krizelman and Paternot (and their respective Permitted Transferees) shall vote, or cause to be voted, all shares of Stock Beneficially Owned by them at any regular or special meeting of stockholders called for the purpose of filling positions on the Board, or in any written consent executed in lieu of such a meeting of stockholders, in favor of the election of each Dancing Bear Nominee and each Founder Nominee. Dancing Bear and Messrs. Krizelman and Paternot (or their respective Permitted Transferees) shall not vote to remove any member of the Board elected in accordance with the foregoing provisions except for Cause or with respect to any person nominated by such Person. Notwithstanding the foregoing, each of Dancing Bear and Messrs. Krizelman and Paternot (or their respective Permitted Transferees) shall vote, or cause to be voted, all shares of Stock Beneficially Owned by it or him in favor of the removal of any Dancing Bear Nominee, upon the request of Dancing Bear, or any Founder Nominee, upon the request of Messrs. Krizelman and Paternot. (b) Replacement Directors. If following election to the Board, any Dancing Bear Nominee or Founder Nominee shall resign, be removed, or be unable to serve for any reason prior to the expiration of his or her term as a director of the Company, Dancing Bear (or its Permitted Transferees) in the case of a Dancing Bear Nominee, or Messrs. Krizelman and Paternot (or their Permitted Transferees) in the case of a Founder Nominee (following the same procedure for designating such nominees set forth in Section 5(a)), shall be entitled to designate a replacement nominee. Following such designation, each of Dancing Bear and Messrs. Krizelman and Paternot (and their respective Permitted Transferees) shall vote, or cause to be voted, all shares of Stock Beneficially Owned by them in favor of the election to the Board of such replacement nominee at any special meeting of stockholders called for such purpose, or in any written consent executed in lieu of such a meeting. (c) Further Action. In order to effectuate the provisions of this Section 5, each of Dancing Bear and Messrs. Krizelman and Paternot (and their respective Permitted Transferees) agrees that, in addition to voting, or causing to be voted, all shares of Stock Beneficially Owned by it or him in favor of the election to the Board of each Dancing Bear Nominee, each Founder Nominee, and any replacement nominee designated in accordance with Section 5(b) hereof, such party will take, or use such party's best efforts to cause to be taken, all such further action which they may take in their capacity as stockholders of the Company and as may be necessary to ensure the election of such nominees to the Board; provided, however, that no party shall be required to solicit the vote of any other stockholder of the Company. Section 6. Voting of Warrant Shares. Each Holder hereby grants to Dancing Bear an irrevocable proxy to vote all Warrant Shares for which any Warrants held by them have been exercised, with full power of substitution, in Dancing Bear's full discretion for all matters subject to stockholder vote. Each Holder acknowledges that this proxy is coupled with an interest and agrees not to give any other proxy or proxies in derogation of this proxy as long as this Agreement is in force. Such proxy shall remain in effect with respect to each Warrant or Warrant Share held by a Holder until such time as a Holder has Transferred such Warrant or Warrant Share pursuant to Section 7 hereof to a third party (other than a Permitted Transferee). Section 7. Right of First Refusal for Warrants and Warrant Shares. (a) If at any time any Holder or any Permitted Transferee of a Holder desires to Transfer Warrants or Warrant Shares (a "Selling Holder") in a bona fide arm's-length transaction to any third party (a "Prospective Buyer") (other than (x) in a Permitted Transfer, (y) pursuant to a registration statement under the Securities Act or (z) in a sale pursuant to Rule 144 under the Securities Act (or any successor provision) effected through the Nasdaq National Market or any other national securities exchange on which the Common Stock is listed; provided that a Holder may only use the exceptions under (x) and (y) if he or she does not own any other shares of Stock which could otherwise be transferred), the Selling Holder shall give written notice thereof (an "Offering Notice") to Dancing Bear. The Offering Notice shall state (i) the number of Warrants or Warrant Shares proposed to be sold (the "Offered Securities"), (ii) the name and address of the Prospective Buyer, (iii) the price per Offered Security (which shall be payable in cash) at which the Selling Holder has a reasonable and bona fide intention to Transfer the Offered Securities to the Prospective Buyer (which may be the market price in the case of a public sale), and (iv) the method of payment and other terms and conditions of the proposed Transfer. (b) Dancing Bear (or its Permitted Transferees) shall have the irrevocable option, but not an obligation, to purchase from the Selling Holder all, but not less than all, of the Offered Securities. To exercise such option, Dancing Bear shall, within 20 business days of its receipt of the Offering Notice, deliver to the Selling Holder a notice of its intention to exercise such option (an "Acceptance Notice"). By so delivering an Acceptance Notice, Dancing Bear shall be committed to exercise such option and purchase the Offered Securities at the per security purchase price specified in the Offering Notice. The exercise of such option and the purchase and sale of the Offered Securities resulting from the exercise of such option shall take place at the principal offices of Dancing Bear on the fifth business day following the date of delivery of the Acceptance Notice, or at such other place, on such other date, or both, as the Selling Holder and Dancing Bear shall agree upon in writing (the "Closing Date"). On the Closing Date, the Selling Holder shall deliver (i) the certificate(s) representing the number of Offered Securities to Dancing Bear (or its Permitted Transferees) in proper form for transfer with appropriate stock powers executed in blank attached and with all documentary or transfer tax stamps affixed, (ii) a certificate representing that Dancing Bear (or its Permitted Transferees) will receive good title to the securities represented by such certificate(s), free and clear of all liens, security interests, pledges, charges, encumbrances, stockholders' agreements and voting trusts (other than this Agreement), against payment of the purchase price therefor by a wire transfer of funds to a bank account designated by the Selling Holder or by certified or official bank check or checks, and (iii) a legal opinion relating to such matters as may be reasonably requested by Dancing Bear. (c) If Dancing Bear (or any of its Permitted Transferees) does not elect to purchase the Offered Securities, the Selling Holder shall be free, during the 30-day period commencing on the date the option granted pursuant to this Section 7 expires unexercised, to Transfer all but not less than all of the Offered Securities to the Prospective Buyer at a per security price that shall not be less than the price specified in the Offering Notice. After such 30-day period, the Selling Holder shall not sell any Warrants and Warrant Shares without again complying with the provisions of this Section 7. Section 8. Take-Along Right for Stock. (a) If at any time Dancing Bear (or any of its Permitted Transferees) proposes to sell or exchange (in a business combination or otherwise) in one or a series of related or contemporaneous bona fide arm's-length transactions to any third party (a "Buyer") (other than (x) in a Permitted Transfer, (y) pursuant to a registration statement under the Securities Act or (z) in a sale pursuant to Rule 144 under the Securities Act (or any successor provision) effected through the Nasdaq National Market or any other national securities exchange on which the Common Stock is listed), shares of Stock (including Stock issued upon exercise of Options at or prior to the consummation of such transaction), Warrants or Warrant Shares that equal or exceed 25% in the aggregate of the Diluted Capital Stock of the Company, then, subject to the last sentence of this paragraph, Dancing Bear (or its Permitted Transferees) shall have the right (a "Take-Along Right") to require each Holder and such Holder's Permitted Transferees to sell or exchange up to the same percentage of the Diluted Capital Stock then Beneficially Owned by such Holder (or such Permitted Transferee) as is set forth in the Take-Along Notice (defined below) given by Dancing Bear, in such transaction or series of related or contemporaneous transactions, on the same terms and subject to the same conditions (including but not limited to obligations with respect to indemnification) as the sale or exchange by Dancing Bear (and its Permitted Transferees). To exercise a Take-Along Right, Dancing Bear shall give written notice thereof (a "Take-Along Notice") to each Holder and such Holder's Permitted Transferees. The Take-Along Notice shall state (i) the name and address of such Buyer, (ii) the price per security and the form of consideration that such Buyer proposes to pay for the purchased securities, (iii) the percentage of Diluted Capital Stock Beneficially Owned by Dancing Bear (and its Permitted Transferees) that is being sold or exchanged, and (iv) the method of payment and other terms and conditions of the proposed sale or exchange. (b) The exercise of any Take-Along Right and the purchase and sale of Stock, Warrants and Warrant Shares resulting from the exercise of such Take-Along Right shall take place at the principal offices of Dancing Bear on the fifth business day following the date of delivery of any Take-Along Notice, or at such other place, on such other date, or both, as the aforementioned Buyer and Dancing Bear shall agree upon in writing. Section 9. Tag-Along Rights for Stock. (a) If at any time Dancing Bear (or any of its Permitted Transferees) proposes to sell or exchange (in a business combination or otherwise) in one or a series of related or contemporaneous bona fide arm's-length transactions to any Buyer (other than (x) in a Permitted Transfer, (y) pursuant to a registration statement under the Securities Act or (z) in a sale pursuant to Rule 144 under the Securities Act (or any successor provision) effected through the Nasdaq National Market or any other national securities exchange on which the Common Stock is listed), shares of Stock (including Stock issued upon exercise of Options at or prior to the consummation of such transaction), Warrants or Warrant Shares that equal or exceed 25% of the Diluted Capital Stock of the Company, Dancing Bear shall so notify (a "Tag-Along Notice") each Holder and such Holder's Permitted Transferees. The Tag-Along Notice shall state (i) the name and address of such Buyer, (ii) the price per security and the form of consideration that such Buyer proposes to pay for the purchased Stock, Warrants or Warrant Shares, (iii) the percentage of the Diluted Capital Stock Beneficially Owned by Dancing Bear (and its Permitted Transferees) that is being sold or exchanged, and (iv) the method of payment and other terms and conditions of the proposed sale or exchange. Each Holder and such Holder's Permitted Transferees shall have the option, exercisable by written notice to Dancing Bear, within 10 days after Dancing Bear (a "Tag-Along Period") delivers a Tag-Along Notice stating its intention to effect such sale or exchange, to sell or exchange up to the same percentage of the Diluted Capital Stock Beneficially Owned by such Holder and such Holder's Permitted Transferees as is stated in the Tag-Along Notice delivered by Dancing Bear, in such transaction or series of related or contemporaneous transactions on the same terms and subject to the same conditions (including but not limited to obligations with respect to indemnification) as the sale or exchange by Dancing Bear (and its Permitted Transferees), and, if such option is exercised, Dancing Bear (and its Permitted Transferees) shall not proceed with such sale or exchange unless any Holder who has exercised such option is given the right to so participate. (b) If at any time Mr. Krizelman or Mr. Paternot (or any of either's Permitted Transferees), individually or collectively, proposes to sell or exchange (in a business combination or otherwise) in one or a series of related or contemporaneous bona fide arm's-length transactions to any Buyer (other than (x) in a Permitted Transfer, (y) pursuant to a registration statement under the Securities Act or (z) in a sale pursuant to Rule 144 under the Securities Act (or any successor provision) effected through the Nasdaq National Market or any other national securities exchange on which the Common Stock is listed), shares of Stock (including Stock issued upon exercise of Options at or prior to the consummation of such transaction), Warrants or Warrant Shares that equal or exceed 7% of the Diluted Capital Stock of the Company, Messrs. Krizelman and Paternot shall deliver a Tag-Along Notice to Dancing Bear, each other Holder and such parties' Permitted Transferees. The Tag-Along Notice shall state (i) the name and address of the Buyer, (ii) the price per security and the form of consideration that the Buyer proposes to pay for the purchased Stock, Warrants or Warrants Shares, (iii) the collective percentage of the Diluted Capital Stock owned by both Messrs. Krizelman and Paternot (and their Permitted Transferees) that is being sold or exchanged, and (iv) the method of payment and other terms and conditions of the proposed sale or exchange. Dancing Bear, each Holder and such Parties' Permitted Transferees shall have the option, exercisable by written notice to Messrs. Krizelman and Paternot, within 10 days (a "Tag-Along Period") after Messrs. Krizelman and Paternot deliver a Tag-Along Notice stating their intention to effect such sale or exchange, to sell or exchange up to the same percentage of the Diluted Capital Stock then Beneficially Owned by each of Dancing Bear, such Holder and such Parties' Permitted Transferees as is stated in the Tag-Along Notice delivered by Messrs. Krizelman and Paternot, in such transaction or series of transactions on the same terms and subject to the same conditions (including but not limited to obligations with respect to indemnification) as the sale or exchange by Messrs. Krizelman and Paternot (and their Permitted Transferees), and, if such option is exercised, Messrs. Krizelman and Paternot (and their Permitted Transferees) shall not proceed with such sale or exchange unless the parties who have exercised such option are given the right to so participate. (c) In the event that there is a limitation on the aggregate number of securities which may be included in a sale or exchange as provided by this Section 9, each party may participate pro rata based upon the number of securities proposed to be sold or exchanged by all such parties. (d) Notwithstanding anything to the contrary set forth in this Section 9, no Warrants or Warrant Shares may be sold or exchanged by any Holder or their Permitted Transferees pursuant to this Section 9 unless such sale or exchange is in accordance with Dancing Bear's right of first refusal set forth in Section 7 hereof. (e) The exercise of any Tag-Along Right and the purchase and sale of Stock, Warrants or Warrant Shares resulting from the exercise of such Tag-Along Right shall take place at the principal offices of the Company on the fifth business day following the end of the applicable Tag-Along Period, or at such other place, on such other date, or both, as the Buyer and the deliverer of the Tag-Along Notice shall agree upon in writing. Section 10. Legend. The following legend shall be noted conspicuously on all certificates representing shares of Stock, Warrants or Warrant Shares heretofore or hereafter issued which are subject to the terms of this Agreement: "The securities represented by this certificate are subject to restrictions on transfer and voting, as provided in a Stockholders' Agreement, dated as of February 14, 1999, among theglobe.com, inc. (the "Company") and certain of its securityholders, a copy of which is on file with the Secretary of the Company. No sale, assignment, transfer, pledge, encumbrance or other disposition shall be effective unless and until the terms and conditions of that Stockholders' Agreement shall have been complied with in full." The Company will agree to cause the foregoing legend to be removed upon receipt of a certificate from the holder of the Stock, Warrants or Warrant Shares in a form acceptable to the Company that it is appropriate to remove such legend. Section 11. No Inconsistent Agreements. The Company will not hereafter enter into any agreement with respect to its securities, and neither the Company nor any other party hereto shall take any action that is inconsistent in any material respect with the rights granted to or obligations undertaken by the parties to this Agreement. Section 12. Termination. This Agreement, and the obligations of the parties hereto, shall terminate: (a) with respect to a Holder's Warrants and Warrant Shares, at such time as all of such Warrants and Warrant Shares have been transferred to a third party (other than a Permitted Transferee) in accordance with the terms of this Agreement; (b) with respect to a party's Stock, upon such time as all of such party's Stock has been transferred to a third party (other than a Permitted Transferee) in accordance with the terms of this Agreement; (c) in its entirety, with the exception of the provisions contained in Sections 6 and 7 hereof, in the event that Dancing Bear and its Permitted Transferees hold less than 10% of the Diluted Capital Stock of the Company; or (d) in its entirety on the tenth anniversary of the date of this Agreement. Section 13. Availability of Equitable Remedies. Since a breach of the provisions of this Agreement could not adequately be compensated by money damages, any non-breaching party shall be entitled, in addition to any other right or remedy available, to an injunction restraining such breach and to specific performance of any such provision of this Agreement, and in either case no bond or other security shall be required in connection therewith, and each party hereto hereby consents to such injunction and to the ordering of such specific performance. Section 14. Modification. This Agreement sets forth the entire understanding of the parties hereto with respect to the subject matter hereof, supersedes all existing agreements among them concerning such subject matter, and may be modified only by a written instrument duly executed by each party hereto at the time of any such modification; provided, however, that any Permitted Transferee may become a party to this Agreement upon the execution of an instrument in form and substance satisfactory to the Company agreeing to be bound by the terms of this Agreement as if an original signatory hereto, with no further action required by any other party hereto. Section 15. Notices. Any notice under or relating to this Agreement shall be given in writing and shall be deemed sufficiently given when delivered by hand or by conformed facsimile transmission, on the second business day after a writing is consigned (freight prepaid) to a commercial overnight courier, and on the fifth business day after a writing is deposited in the mail, postage and other charges prepaid, addressed as follows: The Company: theglobe.com,inc. 31 West 21 Street New York, NY 10010 Attention: Todd V. Krizelman Stephan Paternot Telecopier No.: (212) 367-8604 Dancing Bear: Dancing Bear Investments, Inc. 333 East Las Olas Boulevard Fort Lauderdale, FL 33301 Attention: Rosalie V. Arthur Telecopier No.: (954) 769-5930 Todd V. Krizelman: c/o theglobe.com, inc. 31 West 21st Street New York, NY 10010 Telecopier No.: (212) 367-8604 Stephan J. Paternot: c/o theglobe.com, inc. 31 West 21st Street New York, NY 10010 Telecopier No.: (212) 367-8604 Edward A. Cespedes: c/o Dancing Bear Investments, Inc. 333 East Las Olas Boulevard Fort Lauderdale, FL 33301 Telecopier No.: (954) 769-5930 Rosalie V. Arthur: c/o Dancing Bear Investments, Inc. 333 East Las Olas Boulevard Fort Lauderdale, FL 33301 Telecopier No.: (954) 769-5930 or to such other address or telecopy number as any party may, from time to time, designate in a written notice given in a like manner. Any notice or other communication to be given hereunder to a Permitted Transferee may be given by any party hereto to Todd V. Krizelman (in the case of a Permitted Transferee of Todd V. Krizelman), to Stephan J. Paternot (in the case of a Permitted Transferee of Stephan J. Paternot) to Edward A. Cespedes (in the case of a Permitted Transferee of Edward A. Cespedes) to Rosalie V. Arthur (in the case of a Permitted Transferee of Rosalie V. Arthur) and to Dancing Bear (in the case of a Permitted Transferee of Dancing Bear), in accordance with the provisions of this Section 15. Section 16. Waiver. Any waiver by any party of a breach of any provision of this Agreement shall not operate as, or be construed to be, a waiver of any other breach of such provision or of any breach of any other provision of this Agreement. The failure of a party to insist upon strict adherence to any term of this Agreement on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. Any waiver of any provision of this Agreement must be in writing. Section 17. Binding Effect. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective permitted successors, assigns, heirs, and personal representatives. Section 18. Separability. If any provision of this Agreement is deemed invalid, illegal, or unenforceable, the balance of this Agreement shall remain in effect, and if any provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances. Section 19. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Section 20. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, without giving effect to the rules of such state respecting conflicts of law. IN WITNESS WHEREOF, the parties hereto have duly executed or have caused their duly authorized officers to execute this Agreement as of the date first written above. THEGLOBE.COM, INC. By: /s/ Todd V. Krizelman ----------------------------- Name: Todd V. Krizelman Title: Co-Chief Executive Officer and Co-President DANCING BEAR INVESTMENTS, INC. By: /s/ Rosalie V. Arthur ----------------------------- Name: Rosalie V. Arthur Title: Vice President /s/ Michael S. Egan --------------------------------- Michael S. Egan /s/ Todd V. Krizelman --------------------------------- Todd V. Krizelman /s/ Stephan J. Paternot --------------------------------- Stephan J. Paternot /s/ Rosalie V. Arthur --------------------------------- Rosalie V. Arthur /s/ Edward A. Cespedes --------------------------------- Edward A. Cespedes EX-10.6 6 EXHIBIT 10.6 ================================================= BROADPINE REALTY HOLDING COMPANY, INC. LANDLORD AND theglobe.com, inc. f/k/a WebGenesis, Inc. TENANT ------------- L E A S E ------------- Premises: Entire 22nd Floor 120 Broadway New York, New York ================================================== TABLE OF CONTENTS ----------------- Article Page - ------- ---- 1. DEFINITIONS; DEMISE OF PREMISES.....................................1 2. COMMENCEMENT OF TERM................................................3 3. RENT................................................................6 4. USE.................................................................7 5. ALTERATIONS; LIENS; TENANT'S PROPERTY...............................8 6. REPAIRS AND MAINTENANCE.............................................13 7. COMPLIANCE WITH LAW.................................................14 8. INSURANCE...........................................................16 9. DAMAGE OR CASUALTY..................................................18 10. ASSIGNMENT AND SUBLETTING...........................................20 11. NON-LIABILITY; INDEMNIFICATION......................................27 12. CONDEMNATION........................................................29 13. ACCESS; BUILDING NAME...............................................30 14. BANKRUPTCY..........................................................31 15. DEFAULTS, REMEDIES, DAMAGES.........................................32 16. CURING TENANT'S DEFAULTS; REIMBURSEMENT.............................35 17. QUIET ENJOYMENT.....................................................36 18. BUILDING SERVICES...................................................36 19. TAXES; OPERATING EXPENSES...........................................38 20. ELECTRICITY.........................................................48 21. BROKER..............................................................53 22. SUBORDINATION.......................................................53 23. ESTOPPEL CERTIFICATE................................................55 24. LEGAL PROCEEDINGS...................................................55 25. SURRENDER...........................................................56 26. RULES AND REGULATIONS...............................................57 27. PERSONS BOUND.......................................................57 28. NOTICES.............................................................58 29. PARTNERSHIP TENANT..................................................58 30. NO WAIVER; ENTIRE AGREEMENT.........................................59 31. MISCELLANEOUS.......................................................60 32. INABILITY TO PERFORM; SEVERABILITY..................................63 33. SECURITY............................................................63 34. RENEWAL OPTION......................................................65 35. FIRST OFFER RIGHTS..................................................66 36. EXPANSION OPTION....................................................67 EXHIBIT "A" - Floor Plans A-1 EXHIBIT "B" - Commencement Date Agreement B-1 EXHIBIT "C" - Landlord's Work C-1 EXHIBIT "D" - Description of Land D-1 EXHIBIT "E" - Cleaning Specifications E-1 EXHIBIT "F" - Rules and Regulations F-1 EXHIBIT "G" - Form of Letter of Credit G-1 EXHIBIT "H" - Request for Taxpayer Identification Number H-1 EXHIBIT "I" - Approved Contractors I-1 EXHIBIT "J" - Building Holidays J-1 EXHIBIT "K" - First 30th Floor Offer Space K-1 EXHIBIT "L" - 15th Floor Space L-1 EXHIBIT "M" - 12th Floor Space M-1 EXHIBIT "N"" - Second 30th Floor Offer Space N-1 EXHIBIT "O" - 30th /31st Floor Offer Space O-1 EXHIBIT "P" - 21st Floor Offer Space P-1 INDENTURE OF LEASE made as of this 12th day of January, 1999, between BROADPINE REALTY HOLDING COMPANY, INC., a New York corporation having an office c/o J.P. Morgan Investment Management Inc., 522 Fifth Avenue, New York, New York 10036 (hereinafter referred to as "Landlord"), and theglobe.com, inc. f/k/a WebGenesis, Inc., a Delaware corporation having an office at 31 West 21st Street, New York, New York 10010 (hereinafter referred to as "Tenant"). W I T N E S S E T H : ARTICLE 1 --------- DEFINITIONS; DEMISE OF PREMISES Section 1.01. For the purposes of this Lease (including all of the schedules, riders and exhibits, if any, annexed to this Lease), the terms set forth below shall have the definitions which immediately follow such terms, and such definitions are hereby incorporated into this Lease wherever used: ALTERATIONS - The term "Alterations" shall mean and include all installations, changes, alterations, restorations, renovations, decorations, replacements, additions, improvements and betterments made in or to the Demised Premises or the Building, and shall include Tenant's Initial Work. Alterations shall not include Tenant's personal property, equipment, furniture, furnishings, and trade fixtures if and for so long as the same shall not be affixed (other than by wiring) to, or incorporated into, the Demised Premises. AUTHORIZED USE - The "Authorized Use" shall be for executive, administrative and general business offices, but subject to the provisions of this Lease and the certificate of occupancy for the Building. BASE OPERATING YEAR - The "Base Operating Year" shall mean the calendar year 1999. BASE TAX AMOUNT - The "Base Tax Amount" shall mean the amount of Taxes with respect to calendar year 1999. The Base Tax Amount shall be determined by averaging the Taxes with respect to (i) the fiscal year commencing July 1, 1998, and ending June 30, 1999, and (ii) the fiscal year commencing July 1, 1999, and ending June 30, 2000. By way of example only, if the Taxes for the 1998/99 fiscal year were $100,000, and the Taxes for the 1999/00 fiscal year were $120,000, the Base Tax Amount would be equal to $110,000. BUILDING - The "Building" shall mean and include the structure and other improvements constructed or as may in the future be constructed on the Land, known by the address "120 Broadway", New York, New York. BUILDING SYSTEMS - The term "Building Systems" shall mean and include such heating, ventilating and air-conditioning systems, and such elevators, water, sewerage, toilet, plumbing, sprinkler, electric, wiring and mechanical systems, now or hereafter installed in the Building, and the fixtures, equipment and appurtenances thereof, and all other mechanical devices, fixtures, equipment, appurtenances and systems installed by Landlord in the Building and serving the tenants of the Building generally (as opposed to systems used exclusively to service a particular tenant of the Building). COMMENCEMENT DATE - The "Commencement Date" shall mean the date set forth in Subsection 2.01A below. COMPARABLE BUILDINGS - The term "Comparable Buildings" shall mean first-class office buildings, similar to the Building, in downtown Manhattan. DEMISED PREMISES - The "Demised Premises" shall mean the entire rentable portion of the 22nd floor in the Building which is shown on the hatched portion of the plan annexed hereto as Exhibit "A" and made a part hereof. DESIGNATED BROKER - The "Designated Broker" shall mean Silverstein Properties Inc. and Julien J. Studley, Inc., collectively. EXPIRATION DATE - The "Expiration Date" shall mean the date set forth in Subsection 2.01B below. FIRST OFFER SPACE - The "First Offer Space" shall mean the space set forth in Article 35. INCLUDE AND INCLUDING - The terms "include" and "including" shall each be construed as if followed by the phrase "without being limited to". INSURANCE BOARDS - The term "Insurance Boards" shall mean and include the National Board of Fire Underwriters, the New York Board of Fire Underwriters, and any other body having similar jurisdiction, and the New York Fire Insurance Exchange, and any other body establishing insurance premium rates. LAND - The "Land" shall mean the real property described in Exhibit "D" annexed hereto. LEGAL REQUIREMENTS - The term "Legal Requirements" shall mean and include all laws, orders, ordinances, directions, notices, rules and regulations of the federal government and of any state, county, city, borough and municipality, and of any division, agency, subdivision, bureau, office, commission, board, authority and department thereof, and of any public officer or official and of any quasi-governmental officials and authorities having or asserting jurisdiction over the Land, Building and/or the Demised Premises. MINIMUM RENT - The "Minimum Rent" shall be: (i) during the period beginning on the Commencement Date and continuing through and including the day immediately preceding the fifth (5th) anniversary of the Commencement Date, ONE MILLION THREE HUNDRED SIXTY-ONE THOUSAND FIVE HUNDRED SEVENTY-NINE ($1,361,579.00) and 00/100 DOLLARS per annum, to be paid by Tenant in equal monthly installments of $113,464.92; (ii) during the period beginning on the fifth (5th) anniversary of the Commencement Date and continuing through and including the day immediately preceding the tenth(10th) anniversary of the Commencement Date, ONE MILLION FOUR HUNDRED FIFTY-FIVE THOUSAND FOUR HUNDRED EIGHTY-ONE ($1,455,481.00) and 00/100 DOLLARS per annum, to be paid by Tenant in equal monthly installments of $121,290.08; and (iii) during the period beginning on the tenth (10th) anniversary of the Commencement Date and continuing through and including the Expiration Date, ONE MILLION SIX HUNDRED NINETY THOUSAND TWO HUNDRED THIRTY-SIX ($1,690,236.00) and 00/100 DOLLARS per annum, to be paid by Tenant in equal monthly installments of $140,853.00. MORTGAGE - The term "Mortgage" shall mean any existing or future mortgage and/or security deed affecting the Land and/or the Building, alone or with other property, as the same may from time to time be amended, modified, renewed, consolidated, substituted, spread, added to, extended and/or replaced. MORTGAGEE - The term "Mortgagee" shall mean the mortgagee under, and/or the holder of, any Mortgage. OVERLANDLORD - The term "Overlandlord" shall mean the landlord under any Underlying Lease, including the lease referred to in Subsection 22.01(b) below. PERSONS WITHIN TENANT'S CONTROL - The term "Persons Within Tenant's Control" shall mean and include Tenant, all of Tenant's subtenants and assignees, and all of their respective principals, officers, agents, contractors, servants, employees, licensees, guests and invitees. PERSONS WITHIN LANDLORD'S CONTROL - The term "Persons Within Landlord's Control" shall mean and include Landlord, and Landlord's principals, officers, agents, contractors, servants, employees and guests, but shall not include any tenants in or other occupants of the Building. RECURRING ADDITIONAL RENT - The term "Recurring Additional Rent" shall mean all additional rent payable by Tenant pursuant to Article 19 of this Lease. REPAIRS - The term "Repairs" shall mean and include repairs, restorations and replacements. SECURITY DEPOSIT AMOUNT - The "Security Deposit Amount" shall mean $ 1,500,000.00, subject, however, to the provisions of Section 33.02B. SQUARE FEET OF RENTABLE AREA - The term "Square Feet of Rentable Area" in the Demised Premises shall be deemed to be the equivalent of 46, 951 square feet, as agreed to by the parties following Tenant's inspection of (or opportunity to inspect) the Demised Premises. This definition shall not be construed as any kind of representation by Landlord as to the size of the Demised Premises or the Building. TENANT'S INITIAL FIRST OFFER SPACE WORK - The term "Tenant's Initial First Offer Space Work" shall mean such work (if any) as shall be performed by Tenant or Persons Within Tenant's Control to prepare any First Offer Space for Tenant's initial occupancy thereof. TENANT'S INITIAL WORK - The term "Tenant's Initial Work" shall mean such work (if any) as shall be performed by Tenant or Persons Within Tenant's Control to prepare the Demised Premises for Tenant's initial occupancy thereof. TENANT'S PROPORTIONATE SHARE - The term "Tenant's Proportionate Share" shall mean 2.72 %, so long as Landlord continues to own the portion of the Building currently owned by Landlord. If a portion(s) of the Building (but not the entire Building) shall be sold, transferred or conveyed, Tenant's Proportionate Share shall be changed to that percentage which shall be equal to a fraction, the numerator of which shall be the Square Feet of Rentable Area, and the denominator of which shall be the aggregate rentable square feet of office space in that portion of the Building owned by Landlord at such time (and from time to time), as reasonably determined by Landlord's architect. TERM - The "Term" shall mean fifteen (15) years, unless sooner terminated as provided in this Lease or by law. UNDERLYING LEASE - The term "Underlying Lease" shall mean any present or future ground or overriding or underlying lease and/or grant affecting the Land, the Building and/or the Demised Premises, as the same may from time to time be amended, modified, renewed, extended and/or replaced. Section 1.02. Landlord hereby leases to Tenant, and Tenant hereby hires from Landlord, the Demised Premises, together with the right to use, in common with others, such portions of the lobbies, elevators and other public portions of the Building as may be necessary for access to the Demised Premises, for the Term, and for the Minimum Rent and additional rent herein reserved, and subject to all of the covenants, agreements, terms, conditions, limitations, reservations and provisions hereinafter set forth. ARTICLE 2 --------- COMMENCEMENT OF TERM Section 2.01. ------------ A. The Term of this Lease shall commence on the date hereof (the "Commencement Date"). B. The term of this Lease shall expire at 11:59 p.m. of the last day of the calendar month in which the day immediately preceding the fifteenth (15th) anniversary of the Commencement Date shall occur (the "Expiration Date"), or shall end on such earlier date upon which such term may expire or be canceled or terminated pursuant to the provisions of this Lease or by law or shall be extended pursuant to and in accordance with the terms and conditions contained in Article 34 hereof. C. Promptly following the Commencement Date, Landlord and Tenant shall execute and exchange an amendment to this Lease (in the form annexed hereto as Exhibit "B," and pertaining to the matters set forth therein) setting forth the actual dates of the Commencement Date and the Expiration Date, and the date that Tenant's obligation to pay Minimum Rent shall commence in accordance with Section 3.01 of this Lease, but the failure to so execute or exchange said supplementary agreement shall not in any way reduce Tenant's obligations or Landlord's rights under this Lease. Section 2.02. ------------ A. Landlord agrees to deliver and Tenant agrees to accept possession of the Demised Premises in "as is" and "where is" condition on the Commencement Date, and Landlord shall not be obligated to perform any work whatsoever to prepare the Demised Premises for Tenant, except as specified in Exhibit "C" which is annexed hereto and made a part hereof ("Landlord's Work"). The parties hereby agree and acknowledge that, under good construction practices, the performance of Landlord's Work should be coordinated with the performance of Tenant's Initial Work and, accordingly, Landlord's Work will not be performed and completed by Landlord prior to the Commencement Date. Tenant agrees to make the Demised Premises available to Landlord at all reasonable times so that Landlord may perform Landlord's Work, which Landlord agrees to perform in a manner so as not to unreasonably interfere with the performance of Tenant's Initial Work. All materials, work, labor, fixtures and installations required for completion of the Demised Premises and the operation of Tenant's business thereat, other than Landlord's Work, shall (subject to the provisions of Article 5 below) be promptly furnished and performed by Tenant, at Tenant's own cost and expense. Within fifteen (15) days following Landlord's approval of Tenant's Plans for Tenant's Initial Work, Landlord shall deliver to Tenant a Department of Environmental Protection ACP-5 Form (an "ACP-5") with respect to the Demised Premises. B. Notwithstanding anything to the contrary contained in this Lease, in the event that Landlord shall not have substantially completed the performance of Landlord's Work on or before the date which is one hundred twenty (120) days after Landlord's approval of Tenant's Plans for Tenant's Initial Work outlining designated areas for the installation of the A/C Units (the "Landlord Completion Date"), and provided that such failure to substantially complete the performance of Landlord's Work shall not have been caused by or be attributable to (x) any of the events set forth in Section 32.01 or (y) any act or omission on the part of Tenant or of Persons Within Tenant's Control, then, as Tenant's sole remedy in connection therewith (subject, however, to the provisions of this Section 2.02B), Tenant shall be entitled to an abatement of Minimum Rent and of Tenant Electricity (as hereinafter defined) allocable to the Demised Premises for each day beyond the Landlord Completion Date that Landlord shall fail to substantially complete the performance of Landlord's Work in the Demised Premises. Section 2.03. Except as expressly provided to the contrary in Section 2.02 B above, if Landlord shall be unable to give possession of the Demised Premises on the Commencement Date by reason of the fact that the Demised Premises are not ready for occupancy, or by reason of the failure of a prior tenant or occupant thereof to vacate the same or deliver possession thereof to Landlord, or for any other reason, Landlord shall not be subjected to any liability for the failure to give possession on said date. No such failure to give possession on such specific date shall affect the validity of this Lease or the obligations of Tenant hereunder or be deemed to extend the Term, but the rent reserved and covenanted to be paid hereunder shall not commence until possession of the Demised Premises shall be given or shall be made available for occupancy by Tenant, except that if such failure to give possession has been caused by any act or omission on the part of Tenant or of any Person Within Tenant's Control, there shall be no abatement of rent. If repairs, improvements or decorations of the Demised Premises, if any, as may be expressly provided in this Lease to be made by Landlord, are not completed on or before such date, Landlord shall not be subject to any liability for any delay in such completion. Landlord hereby represents that the Demised Premises are not currently leased to, or occupied by, any tenant or occupant. Notwithstanding anything to the contrary contained herein, in the event that Tenant shall be unable to occupy the Demised Premises for the conduct of Tenant's business by the expiration of the Free Rent Period (as hereinafter defined) solely as a result of Tenant's inability to complete Tenant's Initial Work, and if such failure to timely complete Tenant's Initial Work is attributable solely to the negligence or willful misconduct of Landlord (a "Landlord Caused Work Delay") and, without limiting the foregoing, shall not be caused by or be attributable to (x) any of the events set forth in Section 32.01 or (y) any act or omission on the part of Tenant or of Persons Within Tenant's Control, then, as Tenant's sole remedy in connection therewith, Tenant shall be entitled to an extension of the Free Rent Period allocable to the Demised Premises for each day beyond the expiration of the Free Rent Period that Tenant shall have been unable to occupy the Demised Premises for the conduct of Tenant's business therein due solely to such Landlord Caused Work Delay. Section 2.04. Except as expressly provided in this Article 2, the parties hereto agree that this Article 2 constitutes an express provision as to the time at which Landlord shall deliver possession of the Demised Premises to Tenant, and Tenant hereby waives any rights to rescind this Lease which Tenant might otherwise have pursuant to Section 223-a of the Real Property Law of the State of New York, or pursuant to any other law of like import now or hereafter in force. Section 2.05. ------------ A. Subject to the terms and conditions hereinafter set forth, Landlord agrees to provide a construction allowance ("Landlord's Contribution") to reimburse Tenant for the cost expended by Tenant to perform Tenant's Initial Work, in an aggregate amount not to exceed ONE MILLION SIX HUNDRED FORTY THREE THOUSAND TWO HUNDRED EIGHTY FIVE ($1,643,285.00) DOLLARS. Landlord shall fund the portion of Landlord's Contribution then being requisitioned in the manner set forth in Subsections 2.05B and 2.05C below, but only at such time as all of the following conditions shall have been satisfied or waived by Landlord, in Landlord's sole and absolute discretion: (i) Tenant shall not be in default in any of its monetary obligations hereunder or in default (after notice and the expiration of any applicable cure period provided in this Lease) with respect to any of the material terms, covenants or conditions to be performed or observed by Tenant under this Lease. (ii) Tenant shall have obtained, and at all times during the construction period shall maintain, all necessary and appropriate permits, licenses, authorizations and approvals from all governmental authorities having or asserting jurisdiction in connection with such construction, and shall have delivered true copies thereof to Landlord; and (iii) Tenant shall have delivered to Landlord, for approval by Landlord: (x) a completed requisition for payment (in form issued by the American Institute of Architects), certified and sworn to by Tenant's architect stating or accompanied by: (1) the amount being requested, (2) receipted invoices for all labor and materials performed as part of Tenant's Initial Work (to the extent such invoices were not previously provided to Landlord), (3) to the best of such architect's knowledge, the amount of Landlord's Contribution theretofore paid to Tenant, (4) the cost of labor and materials theretofore performed and incorporated in the Demised Premises and the estimated aggregate cost of the entire Tenant's Initial Work to be performed, and (5) that the work completed to date has been performed substantially in accordance with the plans and specifications approved by Landlord and in compliance with all Legal Requirements; and (y) waivers of lien from all contractors, subcontractors and materialmen who shall have furnished materials or supplies or performed work or services in connection with Tenant's Initial Work, which is the subject of such requisition. B. Within thirty (30) days after Tenant shall have complied with all of the conditions set forth in the foregoing Subsection 2.05A, Landlord shall pay to Tenant an amount equal to that portion of Landlord's Contribution which shall equal, on a percentage basis, that portion of Tenant's Initial Work then completed in accordance with the provisions hereof, as certified by Tenant's architect, less all amounts of Landlord's Contribution previously disbursed; provided, however, that (x) Landlord shall not be required to make more than one (1) payment per calendar month, and (y) the disbursements hereunder shall be subject to a retention of ten (10%) percent until Tenant's Initial Work shall have been completed (excluding "punch-list" and other minor work) and approved. C. Provided that Tenant shall not then be in default in any of its monetary obligations hereunder or in default (after notice and the expiration of any applicable cure period provided in this Lease) with respect to any of the material terms, covenants or conditions to be performed or observed by Tenant under this Lease, then, within thirty (30) days following the last to occur of: (i) Tenant's request for payment of the final installment of Landlord's Contribution, (ii) completion of Tenant's Initial Work in accordance with the provisions of Article 5 below, (iii) the certification of Tenant's architect that Tenant's Initial Work has been completed to the satisfaction of Tenant's architect, substantially in accordance with the plans and specifications approved by Landlord and in compliance with all Legal Requirements, (iv) delivery by Tenant to Landlord of waivers of lien from all contractors, subcontractors and materialmen who shall have furnished materials or supplies or performed work or services in connection with Tenant's Initial Work, (v) delivery by Tenant to Landlord of true copies of final approvals of Tenant's Initial Work by all governmental authorities having or asserting jurisdiction (including the New York City Department of Buildings), and (vi) delivery by Tenant to Landlord of "as built" drawings with respect to Tenant's Initial Work (if and to the extent that the same shall have been prepared), the balance of Landlord's Contribution which has not been previously disbursed (but, in the aggregate, not in excess of the total cost of Tenant's Initial Work), shall be disbursed to Tenant. Tenant expressly agrees that Landlord's obligation to pay the final installment of Landlord's Contribution shall be conditioned upon Tenant's timely compliance with the requirements set forth in clauses (i) - (vi) of this Subsection 2.05(C), and that Tenant's right to receive any portion of Landlord's Contribution which shall not have been requested by Tenant within eighteen (18) months following completion of Tenant's Initial Work shall be deemed to have been irrevocably waived by Tenant. D. Landlord's obligation to pay Landlord's Contribution shall only apply to that part of Tenant's Initial Work consisting of the installation of walls, partitions, fixtures, improvements and appurtenances permanently attached to or built into the Demised Premises, including the following: mechanical systems, flooring, ceilings, duct work, electrical wiring, plumbing, millwork and supplemental air-conditioning systems (if any), decorating, affixed carpeting and other floor coverings, (but shall not include business and trade fixtures, machinery, equipment or other articles of personal property), design fees, consulting, permit and similar fees, architectural fees, engineering fees, legal fees, construction and/or project management fees, and moving expenses (with such fees and expenses being referred to herein as "soft costs"); provided, however, in no event shall Landlord be required to pay more than ten (10%) percent (i.e., $164,328.50) of Landlord's Contribution for any such "soft costs" incurred in connection with the performance of Tenant's Initial Work. Section 2.06. Upon execution of this Lease by Tenant, Tenant shall execute and deliver to Landlord a Request for Taxpayer Identification Number and Certification in the form annexed hereto as Exhibit "H". ARTICLE 3 --------- RENT Section 3.01. Tenant covenants and agrees that, during the entire Term, Tenant shall pay to Landlord the Minimum Rent at the annual rate set forth in Section 1.01, in equal monthly installments, in advance, on the first day of each calendar month during the Term, at the office of Landlord or such other place as Landlord may designate, without any abatement, reduction, setoff, counterclaim, defense or deduction whatsoever; it being agreed, however, that if Tenant shall not then be in default (after notice and the expiration of any applicable cure period provided in this Lease) of any of Tenant's obligations under this Lease, Landlord hereby conditionally excuses Tenant's obligation to pay Minimum Rent for the first three (3) full calendar months of the Term (the "Free Rent Period"). Upon the execution of this Lease, Tenant shall pay to Landlord the installment of Minimum Rent due hereunder for the fourth (4th) full calendar month of the Term. In the event that Tenant's obligation to pay Minimum Rent shall commence on a date which shall be other than the first day of a calendar month, the same shall be prorated at the rental rate applicable during the first year of the Term, and shall be paid by Tenant to Landlord together with the first full monthly installment of Minimum Rent as shall become due hereunder. Section 3.02. All costs, charges, expenses and payments (including the payments required to be made by Tenant pursuant to Article 19 below) which Tenant assumes, agrees or shall be obligated to pay to Landlord or others pursuant to this Lease (other than Minimum Rent) shall be deemed additional rent, and, in the event that Tenant shall fail to timely pay the same, Landlord shall have all of the rights and remedies with respect thereto as are provided for herein or by applicable law in the case of non-payment of rent. Section 3.03. Tenant covenants to pay the Minimum Rent and additional rent as in this Lease provided, when due and without notice or demand, 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. If any installment of Minimum Rent or any additional rent shall not be paid within five (5) days after such installment of Minimum Rent or additional rent shall have first become due, Tenant shall also pay to Landlord (i) an administrative late charge in the amount of $250.00, and (ii) interest thereon from the due date until such installment of Minimum Rent or additional rent is fully paid at the "Interest Rate" (defined in Article 16 below). Such administrative late charge and interest charge shall be due and payable as additional rent with the next monthly installment of Minimum Rent provided that Landlord has given Tenant written notice of same. If any check delivered to Landlord in full or partial payment of any amounts due to Landlord pursuant to the terms of this Lease shall not be honored by reason of insufficient or uncollected funds or for any other reason, then (x) Tenant shall pay to Landlord a service charge on account thereof in the amount of $250.00, which service charge shall be due and payable as additional rent with the next monthly installment of Minimum Rent provided that Landlord has given Tenant written notice of same, and (y) all subsequent payments of any amounts due to Landlord pursuant to the terms of this Lease for the next twelve (12) months shall, if Landlord so requests, be made by certified check, official bank or teller's check, or money order. Upon default in payment by Tenant of any of the aforementioned charges, Landlord shall have all the rights and remedies provided for upon default of the Minimum Rent. The foregoing obligations on the part of the Tenant shall not preclude the simultaneous or subsequent exercise by Landlord of any and all other rights or remedies provided for in this Lease or now or hereafter existing at law or in equity or by statute or otherwise. No payment by Tenant or receipt by Landlord of a lesser amount than the Minimum Rent or additional rent herein stipulated shall be deemed to be other than on account of the earliest stipulated Minimum Rent or additional rent (unless Landlord, in Landlord's sole and absolute discretion, shall otherwise and in writing so elect), nor shall any endorsement or statement on any check or in any letter accompanying any check or payment, as Minimum Rent or additional 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 Minimum Rent and additional rent or pursue any other remedy provided in this Lease, at law or in equity. Section 3.04. If all or any part of the Minimum Rent or additional rent shall at any time become uncollectible, reduced or required to be refunded by virtue of any Legal Requirements (including rent control or stabilization laws), except if and to the extent the same shall be as a result of the ICIP Program, the LMEP or the Lower Manhattan Plan (each as hereinafter defined), then for the period prescribed by said Legal Requirements, Tenant shall pay to Landlord the maximum amounts permitted pursuant to said Legal Requirements, and Tenant shall execute and deliver such agreement(s) and take such other steps as Landlord may reasonably request and as may be legally permissible to permit Landlord to collect the maximum rent which, from time to time during the continuance of such legal rent restriction, may be legally permissible (and not in excess of the amounts then reserved therefor under this Lease). Upon the expiration or other legal termination of the applicable period of time during which such amounts shall be uncollectible, reduced or refunded: (a) the Minimum Rent and additional rent shall become and shall thereafter be payable in accordance with the amounts reserved herein for the periods following such expiration or termination, and (b) Tenant shall pay to Landlord as additional rent, within fifteen (15) days after demand, all uncollected, reduced or refunded amounts that would have been payable for the aforesaid period absent such Legal Requirements. The provisions of the immediately preceding sentence shall survive the expiration or sooner termination of this Lease. Section 3.05. If Landlord shall direct Tenant to pay Minimum Rent or additional rent to a "lockbox" or other depository whereby checks issued in payment of Minimum Rent or additional rent (or both, as the case may be) are initially cashed or deposited by a person or entity other than Landlord (albeit on Landlord's authority), then, for any and all purposes under this Lease: (i) Landlord shall not be deemed to have accepted such payment until ten (10) days after the date on which Landlord shall have actually received such funds (although for purposes of determining whether a default shall exist under this Lease, Tenant shall be deemed to have paid Minimum Rent or additional rent on the date such Minimum Rent and/or additional rent shall have been delivered to such lockbox), and (ii) Landlord shall be deemed to have accepted such payment if (and only if) within said ten (10) day period, Landlord shall not have refunded (or attempted to refund) such payment to Tenant. Nothing contained in the immediately preceding sentence shall be construed to place Tenant in default of Tenant's obligation to pay rent if and for so long as Tenant shall timely pay the rent required pursuant to this Lease in the manner designated by Landlord. ARTICLE 4 --------- USE Section 4.01. Tenant shall use and occupy the Demised Premises for the Authorized Use (as defined in Section 1.01), and for no other purpose. Section 4.02. Without in any way limiting the restrictions on use contained in Section 4.01, Tenant specifically agrees that Tenant shall not permit any part of the Demised Premises to be used for banking or lending purposes of any kind; or for a safe deposit business or the sale of travelers checks and/or foreign exchange; or as a kitchen, restaurant or cafeteria (except, subject to Tenant's compliance with the certificate of occupancy affecting the Demised Premises and with all other provisions of this Lease, and as an incident to Tenant's use of the Demised Premises for the Authorized Use, Tenant shall be permitted to use a dwyer pantry for the use of its staff); or for manufacturing, storage, shipping or receiving; or for retail securities brokerage purposes; or for any purpose that would violate restrictive covenants with any tenant of the Building, of which shall exist on the date hereof and of which Tenant shall have written notice; or for any retail sales or as a store; or for the sale of any food or beverage; or as a news and cigar stand (or anything similar thereto); or for any sale of merchandise with delivery at or from the Demised Premises; or for the production of samples or workroom; or for any purpose other than the Authorized Use. Landlord represents that there are no restrictive covenants with any tenant of the Building which would prohibit Tenant's use of the Demised Premises for the Authorized Use and any incidental use expressly permitted under this Lease. In addition, the Demised Premises may not be used by (i) an agency, department or bureau of the United States Government, any state or municipality within the United States, or any foreign government, or any political subdivision of any of them, (ii) any charitable, religious, union or other not-for-profit organization, or (iii) any tax exempt entity within the meaning of Section 168(h)(2) of the Internal Revenue Code of 1986, as amended, or any successor or substitute statute, or rule or regulation applicable thereto (as same may be amended). Section 4.03. Tenant expressly acknowledges that irreparable injury will result to Landlord in the event of a breach of any of the covenants made by Tenant in this Article 4, and it is agreed that, in the event of such breach, Landlord shall be entitled, in addition to any other remedies available, to an injunction to restrain the violation thereof. Breach of any of Tenant's covenants under this Article (after notice and the expiration of the applicable cure period provided in this Lease) shall also constitute an Event of Default pursuant and subject to the provisions of Article 15 hereof. ARTICLE 5 --------- ALTERATIONS; LIENS; TENANT'S PROPERTY Section 5.01. ------------ A. Except as expressly provided to the contrary in this Section 5.01, Tenant shall make no Alterations in or to the Demised Premises, including removal or installation of partitions, doors, electrical installations, plumbing installations, water coolers, heating, ventilating and air conditioning or cooling systems, units or parts thereof or other apparatus of like or other nature, whether structural or non-structural, without Landlord's prior written consent (which consent Landlord agrees not to unreasonably withhold or unduly delay with respect to non-structural Alterations ("Minor Non-Structural Alterations") that are made entirely within the Demised Premises and which do not (i) affect the structure of the Building or any Building Systems outside (or serving parts of the Building outside) the Demised Premises, or (ii) violate, create a condition which violates, or require Landlord to perform any work or incur any expense to ensure compliance with, any Legal Requirements (it being agreed that, in all other instances, Landlord may withhold its consent in Landlord's sole and absolute discretion), and then only by contractors or mechanics as set forth in Subsection 5.01D below or approved in writing by Landlord (which approval Landlord agrees not to unreasonably withhold or unduly delay with respect to contractors or mechanics performing Minor Non-Structural Alterations). Notwithstanding anything to the contrary contained in this Section 5.01, Tenant shall have the right, on not less than three (3) Business Days prior written notice to Landlord, but without being required to obtain Landlord's consent, to perform Alterations in or to the Demised Premises which do not require the issuance of a building permit or any other governmental authorization and which are purely decorative in nature (i.e., painting and the installation or removal of carpeting or wall coverings; collectively, "Decorative Alterations"), provided that: (x) such Decorative Alterations are made entirely, and visible only, within the Demised Premises, (y) Tenant shall comply with all applicable Legal Requirements and all of the other applicable requirements governing Alterations set forth in this Lease, and (z) such Decorative Alterations shall be performed only by Approved Contractors (as hereinafter defined). B. It shall be Tenant's responsibility and obligation to ensure that all Alterations: (i) shall be made at Tenant's own cost and expense and at such times and in such manner as Landlord may from time to time reasonably designate (including reasonable rules governing Alterations as Landlord may from time to time make as provided under the provisions of Article 26 below, which rules shall not be enforced against Tenant in a discriminatory manner), (ii) shall comply with all Legal Requirements (including NYC Local Laws No. 5 of 1973, No. 16 of 1984 and No. 58 of 1988, each as amended from time to time, and all Legal Requirements then in effect relating to asbestos and to access for the handicapped or disabled) and all orders, rules and regulations of Insurance Boards, (iii) shall be made promptly and in a good and workmanlike manner using prime quality materials, and (iv) shall not affect the appearance of the Building outside of the Demised Premises or be visible from the exterior of the Building, it being Landlord's intention to keep the exterior appearance of the Building reasonably uniform (and, in pursuance thereof, Landlord shall have the right to approve the appearance of all such Alterations described in this subclause (iv), including ceiling heights, blinds, lighting, signs and other decorations). In order to ensure, maintain and control the quality and standards of materials and workmanship in and the effective security of the Building, including the Demised Premises, Tenant acknowledges that it is reasonable to require Tenant, and Tenant hereby covenants and agrees, to use only contractors as set forth in Subsection 5.01D below or contractors first approved in writing by Landlord (which approval Landlord agrees not to unreasonably withhold or unduly delay with respect to contractors or mechanics performing Minor Non-Structural Alterations as described in Subsection 5.01A above). Landlord expressly reserves the right to exclude from the Building any person, firm or corporation attempting to perform any work or act as construction contractor or manager without Landlord's prior written consent. C. Within ten (10) days after being billed therefor, Tenant shall reimburse Landlord, as additional rent, for any reasonable out-of-pocket expenses incurred by Landlord and payable to unaffiliated third parties in connection with any Alterations performed by Tenant. D. A list of currently approved contractors and mechanics is annexed hereto as Exhibit "I" and made a part hereof ("Approved Contractors"). The contractors and mechanics identified on said list shall be deemed approved only for the performance of Tenant's Initial Work and not for any other future Alterations. Following the completion of Tenant's Initial Work, Landlord shall have the unfettered right to revise said list in any manner that Landlord deems appropriate. Landlord shall provide Tenant with any such revised list upon written request therefor by Tenant, and those contractors and mechanics on such list shall, subject to the provisions of this Subsection 5.01D, be deemed Approved Contractors hereunder. E. The provisions of this Article 5 shall apply to Tenant's Initial Work, as well as to all future Alterations. Section 5.02. ------------ A. Prior to commencing the performance of any Alterations (other than Decorative Alterations), Tenant shall furnish to Landlord: (i) Plans and specifications (to be prepared by a licensed architect or engineer engaged by Tenant, at the sole cost and expense of Tenant), in sufficient detail to be accepted for filing by the New York City Building Department (or any successor or other governmental agency serving a similar function), of such proposed Alterations, and Tenant shall not commence the performance thereof unless and until Landlord has given written consent to said plans and specifications (which consent shall not be unreasonably withheld or delayed with respect to plans and specifications for Minor Non-Structural Alterations); (ii) A certificate evidencing that Tenant (or Tenant's contractors) has (have) procured and paid for worker's compensation insurance covering all persons employed in connection with the work who might assert claims for death or bodily injury against Overlandlord, Landlord, Tenant, the Land and/or the Building; (iii) Such additional personal injury and property damage insurance (over and above the insurance required to be carried by Tenant pursuant to the provisions of Section 8.03 below), and builder's risk, fire and other casualty insurance as Landlord may reasonably require in connection with the work to be done for Tenant; (iv) Except with respect to Tenant's Initial Work, if the work to be undertaken is of such a nature that it requires the approval of the Overlandlord or any Mortgagee, such approval shall be obtained at Tenant's own cost and expense; and if the work requires expenditures by Tenant in excess of an amount equal to three (3) monthly installments of the then prevailing Minimum Rent, a surety company performance bond in form and substance satisfactory to Landlord (procured at Tenant's own cost and expense), issued by a surety company acceptable to Landlord, or other security satisfactory to Landlord, in an amount equal to at least 110% of the estimated cost of such Alterations, guaranteeing to Landlord, Overlandlord and any Mortgagee the completion thereof and payment therefor within a reasonable time, free and clear of all liens, encumbrances, chattel mortgages, security interests, conditional bills of sale and other charges, and substantially in accordance with the plans and specifications approved by Landlord; (v) Such permits, authorizations or consents as may be required by any applicable Legal Requirements, all of which shall be obtained at Tenant's cost and expense, provided, however, that no plans, specifications or applications shall be filed by Tenant with any governmental authority without Tenant first obtaining Landlord's written consent thereto (which consent may not be withheld or delayed to the extent Landlord has already approved such plans and specifications). Landlord agrees that Landlord shall reasonably cooperate with Tenant in connection with obtaining any such permits, authorizations, or consents, including the signing by Landlord of any such applications or other documents which shall be necessary and are customarily signed by building owners on behalf of their tenants provided that Landlord shall not be required to incur any expense thereby; and (vi) A written letter of authorization, in form satisfactory to Landlord, signed by all architects, engineers, surveyors and designers to become involved in such Alterations, which shall confirm that any of their respective drawings or plans are to be removed from any filing with governmental authorities on the request of Landlord. B. In the event that Landlord shall submit the plans and specifications referred to in clause (i) of Subsection 5.02A above to Landlord's unaffiliated third-party architects and/or engineers for review, Tenant shall reimburse Landlord as additional rent for Landlord's actual and reasonable out -of-pocket expenses of such review within ten (10) days after delivery to Tenant of the invoices showing the amount of such expense. C. Tenant shall keep accurate and complete cost records of all Alterations performed by Tenant or by Persons Within Tenant's Control, and shall furnish to Landlord true copies thereof and/or of all contracts entered into and work orders issued by Tenant in connection therewith within thirty (30) days following Landlord's request therefor. Landlord's review of, and/or any failure by Landlord to object to, any such contract or work order shall not: (i) be construed as an approval by Landlord of such contract or work order or the contents thereof except as expressly provided in Subsection 5.02D below, (ii) impose any liability on Landlord in connection therewith, or (iii) relieve Tenant of any obligation of Tenant with respect to such Alterations or the Demised Premises as otherwise set forth in this Lease. D. I. In connection with Tenant's Initial Work and Tenant's Initial First Offer Space Work only, if Landlord shall fail to notify Tenant that Landlord has consented in writing or not consented in writing to any of Tenant's plans, specifications, or applications (or portions thereof) for Tenant's Initial Work or Tenant's Initial First Offer Space Work as provided in Subsection 5.02A(i) above within eight (8) Business Days after Landlord's receipt of a written notice (a "Tenant's Initial Work Notice" or a "Tenant's Initial First Offer Space Work Notice", as the case may be), delivered by Tenant, Landlord shall be deemed to have granted such consent if such Tenant's Initial Work Notice or Tenant's Initial First Offer Space Work Notice, as the case may be, shall specify the precise nature of Tenant's Initial Work or Tenant's Initial First Offer Space Work, as the case may be, and shall include the plans, specifications, or applications (or portions thereof) for Tenant's Initial Work or Tenant's Initial First Offer Space Work, as the case may be, and shall bear the following legend typed in bold, capital letters at the top: "IF LANDLORD SHALL FAIL TO NOTIFY TENANT THAT LANDLORD HAS CONSENTED OR NOT CONSENTED TO THE PROPOSED [TENANT'S INITIAL WORK (OR TENANT'S INITIAL FIRST OFFER SPACE WORK) /PLANS, SPECIFICATIONS, APPLICATIONS (OR PORTIONS THEREOF)] SPECIFIED HEREIN WITHIN EIGHT (8) BUSINESS DAYS FOLLOWING LANDLORD'S RECEIPT OF THIS NOTICE, LANDLORD SHALL BE DEEMED TO HAVE CONSENTED TO SUCH PROPOSED [TENANT'S INITIAL WORK (OR TENANT'S INITIAL FIRST OFFER SPACE WORK) /PLANS, SPECIFICATIONS, OR APPLICATIONS (OR PORTIONS THEREOF)] IN ACCORDANCE WITH THE PROVISIONS OF SECTION 5.02D.I. OF THE LEASE." II. In connection with Tenant's Initial Work and Tenant's Initial First Offer Space Work only, if Landlord shall fail to notify Tenant that Landlord has consented in writing or not consented in writing to any of Tenant's revisions to Tenant's plans, specifications, or applications (or portions thereof) for Tenant's Initial Work or Tenant's Initial First Offer Space Work, as the case may be, as provided in Subsection 5.02A(i) above within five (5) Business Days after Landlord's receipt of a written notice (a "Tenant's Initial Work Revisions Notice" or a "Tenant's Initial First Offer Space Work Revisions Notice", as the case may be) delivered by Tenant, Landlord shall be deemed to have granted such consent if such Tenant's Initial Work Revisions Notice or Tenant's Initial First Offer Space Work Revisions Notice, as the case may be, shall include the revisions to the plans, specifications, or applications (or portions thereof) for Tenant's Initial Work or Tenant's Initial First Offer Space Work, as the case may be, and shall bear the following legend typed in bold, capital letters at the top: "IF LANDLORD SHALL FAIL TO NOTIFY TENANT THAT LANDLORD HAS CONSENTED OR NOT CONSENTED TO THE REVISIONS TO THE PROPOSED [TENANT'S INITIAL WORK (OR TENANT'S INITIAL FIRST OFFER SPACE WORK) /PLANS, SPECIFICATIONS, OR APPLICATIONS (OR PORTIONS THEREOF)] SPECIFIED HEREIN WITHIN FIVE (5) BUSINESS DAYS FOLLOWING LANDLORD'S RECEIPT OF THIS NOTICE, LANDLORD SHALL BE DEEMED TO HAVE CONSENTED TO SUCH REVISIONS TO THE PROPOSED [TENANT'S INITIAL WORK (OR TENANT'S INITIAL FIRST OFFER SPACE WORK) /PLANS, SPECIFICATIONS, OR APPLICATIONS (OR PORTIONS THEREOF)] IN ACCORDANCE WITH THE PROVISIONS OF SECTION 5.02D.II. OF THE LEASE." Notwithstanding anything to the contrary contained herein, Landlord's written notice to Tenant of Landlord's non-approval of any of Tenant's initial or revised plans, specifications, or applications (or portions thereof) for Tenant's Initial Work or Tenant's Initial First Offer Space Work, as the case may be, as provided in Section 5.02A(i) above shall specify the reason(s) such consent was withheld by Landlord. Section 5.03. ------------ A. Except for furniture, fixtures, and customary office equipment which is the subject of a lease or installment sales contract and does not constitute an Alteration, in no event shall any material or equipment be incorporated in or to the Demised Premises in connection with any Alteration which is subject to any lien, encumbrance, chattel mortgage, security interest, charge of any kind whatsoever, or is subject to any conditional sale or other similar or dissimilar title retention agreement. B. Tenant shall not create or permit to be created any lien, encumbrance or charge (levied on account of any taxes or any mechanic's, laborer's or materialman's lien, conditional sale, title retention agreement or otherwise) which might be or become a lien, encumbrance or charge upon the Land or Building or any part thereof or the income therefrom, and Tenant shall not suffer any other matter or thing whereby the estate, rights and interest of Landlord in the Land or Building or any part thereof might be impaired. Tenant shall take all steps necessary under local laws to prevent the imposition of such a lien, encumbrance or charge on the Land or Building. C. If any lien, encumbrance or charge referred to in this Section 5.03 (other than any lien, encumbrance or charge resulting solely and directly from work performed by Landlord) shall at any time be filed against the Land or Building or any part thereof, then Tenant, within thirty (30) days after Tenant receives actual notice of the filing thereof from any source and at Tenant's own cost and expense, shall cause the same to be discharged of record or bonded, and Tenant shall indemnify Landlord against and defend and hold Landlord harmless from all costs, expenses, liabilities, losses, fines and penalties, including reasonable attorneys' fees and disbursements, resulting therefrom. If Tenant shall fail to cause such lien to be discharged or bonded within the aforesaid period, then, in addition to any other right or remedy, Landlord may, but shall not be obligated to, discharge the same either by paying the amount claimed to be due or by procuring the discharge of such lien by deposit or by bonding proceedings, and in any such event Landlord shall be entitled, if Landlord so elects, to compel the prosecution of an action for the foreclosure of such lien by the lienor and to pay the amount of the judgment in favor of the lienor with interest, costs and allowances. Any amount so paid by Landlord and all costs and expenses incurred by Landlord in connection therewith, together with interest thereon at the Interest Rate, shall constitute additional rent payable by Tenant under this Lease, which additional rent shall be paid by Tenant to Landlord on demand within ten (10) days following delivery of a bill therefor to Tenant. D. Except as otherwise expressly provided herein, nothing contained in this Lease shall be deemed or construed in any way as constituting the consent or request of Landlord, express or implied by inference or otherwise, to any contractor, subcontractor, laborer or materialman for the performance of any labor or the furnishing of labor or materials for the specific improvement, alteration to or repair of the Demised Premises or any part thereof, nor as giving Tenant any right, power or authority to contract for or permit the rendering of any services or the furnishing of any materials that would give rise to the filing of any lien against the Land, Building, Demised Premises or any part thereof. Notice is hereby given that Landlord shall not be liable for any work performed or to be performed at the Demised Premises for Tenant or any subtenant, or for any materials furnished or to be furnished at the Demised Premises for Tenant or any subtenant upon credit, and that no mechanic's or other lien for such work or materials shall attach to or affect the estate or interest of Landlord in and to the Land, Building or Demised Premises. Landlord shall have the right to post and keep posted on the Demised Premises any notices which Landlord may be required to post for the protection of Landlord, the Land, Building and/or the Demised Premises from any lien. E. Tenant shall have no power to do any act or make any contract which may create or be the foundation for any lien, mortgage or other encumbrance upon the reversion or other estate of Landlord or of any interest of Landlord in the Demised Premises. Section 5.04. Tenant shall not at any time, either directly or indirectly, use any contractors or labor or materials in the Demised Premises if the use of such contractors or labor or materials would create any work stoppage, picketing, labor disruption or any other difficulty with other contractors or labor engaged by Tenant or Landlord or others in the construction, maintenance or operation of the Building or any part thereof. Tenant shall immediately stop any work or other activity if Landlord shall notify Tenant that continuing such work or activity would violate the provisions of the immediately preceding sentence. Section 5.05. Landlord shall not be liable for any failure or diminution of any Building Systems or services, or for any damage to Tenant's property or the property of any other person, caused by Alterations made by Tenant or by Persons Within Tenant's Control, notwithstanding Landlord's consent thereto or to the plans and specifications therefor. Landlord's consent to any such plans or specifications shall not be deemed a representation of any kind that the same conform to the applicable Legal Requirements. Tenant shall promptly correct any faulty or improper Alteration made by Tenant or by Persons Within Tenant's Control, and shall repair any and all damage caused thereby. Upon Tenant's failure to promptly make such corrections and repairs, Landlord may make such corrections and repairs and charge Tenant for the cost thereof. Such charge shall be deemed additional rent, and shall be paid by Tenant to Landlord within ten (10) days after written notice to Tenant of the amount thereof. Section 5.06. ------------ A. All movable property, furniture, furnishings and trade fixtures furnished by or at the expense of Tenant, other than those affixed to the Demised Premises so that they cannot be removed without damage and other than those replacing an item theretofore furnished and paid for by Landlord or for which Tenant has received a credit or allowance, shall remain the property of Tenant, and may be removed by Tenant from time to time prior to the expiration of the Term. Tenant shall notify Landlord in writing not less than sixty (60) days prior to the expiration of the Term specifying any such items of property which Tenant does not wish to remove. If within thirty (30) days after the service of such notice Landlord shall request Tenant to remove any of said items, Tenant shall, at Tenant's expense, remove said items prior to the expiration of the Term. Without limiting the generality of the provisions of this Subsection 5.06A, Tenant expressly agrees that, at Landlord's request, Tenant shall, at Tenant's own cost and expense and prior to the expiration of the Term, remove any and all vaults located or installed in the Demised Premises. B. All Alterations made by either party, including all paneling, decorations, partitions, railings, mezzanine floors, galleries and the like, which are affixed to the Demised Premises, shall become the property of Landlord and shall be surrendered with the Demised Premises at the end of the Term; provided, however, that Landlord may elect to require Tenant to remove, prior to the expiration or earlier termination of the Term, at Tenant's expense, "Specialty Alterations" (as such term is defined below). Notwithstanding the foregoing, if, simultaneously with Tenant's submission to Landlord for Landlord's approval of plans and specifications of an Alteration, Tenant shall deliver a written request (the "Fixtures Request") that Landlord notify Tenant whether a proposed Alteration constitutes a "Specialty Alteration", and, if so, whether Tenant must remove such Specialty Alteration upon the expiration or earlier termination of the Term, Landlord shall so notify Tenant at the time Landlord shall give its approval of such plans and specifications. The Fixtures Request shall specify the Specialty Alteration that Tenant is requesting not to remove and shall bear the following legend typed in bold, capital letters at the top: "IN ACCORDANCE WITH THE PROVISIONS OF SECTION 5.06 OF THE LEASE, TENANT REQUESTS THAT LANDLORD NOTIFY TENANT WHETHER THE ALTERATION DESCRIBED HEREIN CONSTITUTES A "SPECIALTY ALTERATION", AND, IF SO, WHETHER TENANT SHALL BE REQUIRED TO REMOVE SUCH SPECIALTY ALTERATION UPON THE EXPIRATION OR EARLIER TERMINATION OF THE TERM." In the event that Landlord shall so notify Tenant that Tenant shall be required to remove any such Specialty Alterations from the Demised Premises on or prior to the Expiration Date, such Specialty Alterations shall not become the property of Landlord on the Expiration Date. For the purposes hereof, the term "Specialty Alterations" shall mean and include any Alteration that is not an ordinary office installation, as reasonably determined by Landlord. By way of example only, a kitchen, cafeteria, private lavatory, raised floor, vault, safe, internal stairway or slab cut would each be deemed to be a Specialty Alteration (it being understood and agreed that the foregoing is merely a list of non-exclusive examples of Specialty Alterations, and does not constitute, nor shall it be construed as, Landlord's consent to the installation thereof). Notwithstanding anything to the contrary contained herein, Landlord shall not require Tenant to remove any A/C Units installed in the Demised Premises as part of Landlord's Work. C. In any case where Tenant removes any property or Alterations in accordance with Subsections A and B above, or otherwise, Tenant shall immediately repair all damage caused by said removal and shall restore the Demised Premises to good order and condition (normal wear and tear excepted) at Tenant's expense, and if Tenant fails to do so, Landlord may do so at Tenant's cost and Tenant shall reimburse Landlord therefor upon demand. D. Upon failure of Tenant to remove any property or Alterations in accordance with Subsections A and B above on or prior to the Expiration Date, Landlord may, at Tenant's expense: (i) remove all such property and Alterations which Landlord may require Tenant to remove pursuant to Subsections A and B above, (ii) cause the same to be placed in storage, and (iii) repair any damage caused by said removal and restore the Demised Premises to good order and condition. Tenant shall, upon demand and as additional rent, reimburse Landlord for all of the aforesaid expenses. E. Notwithstanding anything to the contrary contained in this Section 5.06, any items of property or Alterations not removed by Tenant may, at the election of Landlord, be deemed to have been abandoned by Tenant, and Landlord may retain and dispose of said items without any liability to Tenant and without accounting to Tenant for the proceeds thereof; provided, however, that if Landlord shall sell or dispose of such items of Tenant's Property or Alterations abandoned by Tenant, Landlord shall offset the proceeds thereof, if any, less any costs and expenses incurred by Landlord in connection with such sale or disposal, against any sums due and owing by Tenant to Landlord under this Lease. F. The provisions of this Section 5.06 shall survive the expiration or sooner termination of the Term, whereupon any and all monetary obligations of Tenant pursuant thereto shall be deemed damages recoverable by Landlord. Section 5.07. If Tenant shall fail to comply with any provision of this Article 5 (beyond notice and the expiration of any applicable cure period provided in this Lease), Landlord, in addition to any other remedy herein provided, may require Tenant to immediately cease all work being performed in the Building by or on behalf of Tenant, and Landlord may deny access to the Demised Premises to any person performing work or supplying materials in the Demised Premises. ARTICLE 6 --------- REPAIRS AND MAINTENANCE Section 6.01. Tenant shall take good care of the Demised Premises and the fixtures, glass, appurtenances and equipment therein (including, all horizontal portions of the Building Systems that are located within the Demised Premises (except for the perimeter heating units), and expressly including any sprinkler loop and distribution pipes and heads, any ventilation and air-conditioning equipment and any private bathrooms in or appurtenant to the Demised Premises, all of which Landlord represents are in good working order and condition as of the date hereof), and, at Tenant's sole cost and expense, shall make all Repairs as and when needed to preserve them in good working order and condition, whether or not such Repairs are ordinary or extraordinary, or foreseen or unforeseen at this time, and whether or not such Repairs pertain to improvements in the Demised Premises furnished or installed by Landlord, but excluding Repairs to the rough floor, the rough ceiling, exterior walls, including exterior windows, or load-bearing columns, unless required under the provisions of following sentence. All damage or injury to the Demised Premises, or to the Building or the Building Systems outside of the Demised Premises, caused by or arising from the negligence of Tenant, or of Persons Within Tenant's Control, including those which are structural, extraordinary and unforeseen, shall be promptly repaired, restored or replaced by Tenant, at Tenant's own cost and expense. All Repairs shall be in quality and class equal to or better than the original work or installations, and shall be performed in good and workmanlike manner, using Building standard or higher quality materials. Section 6.02. Landlord, at Landlord's expense, shall make or cause to be made all Repairs, structural and otherwise, necessary to keep in good order and repair the exterior of the Building and the public portions of the Building, and such portions of the Building Systems that serve the Demised Premises, in each case other than those required to be made by Tenant as provided in Section 6.01, Article 7 or any other provision of this Lease. There shall be no allowance to Tenant for a diminution of rental value or interruption of business, and no liability on the part of Landlord, by reason of inconvenience, annoyance or injury to business arising from Landlord, Tenant or others making any Repairs or Alterations in or to any portion of the Building or Building Systems or the Demised Premises. Landlord shall promptly proceed until completion with the performance of the foregoing Repairs and Alterations, and shall use commercially reasonable efforts to minimize interference with Tenant's business operations at the Demised Premises in performing any such Repairs or Alterations; provided, however, that Landlord shall have no obligation to employ contractors or labor at overtime or premium rates or to incur any other overtime costs or expenses in connection with the performance of such Repairs and Alterations. Landlord shall operate and maintain the Building in accordance with the standards customarily followed in the operation and maintenance of Comparable Buildings. Section 6.03. If any Insurance Boards or Legal Requirements shall require or recommend installation of fire extinguishers or of a "sprinkler system" or any other fire protection devices, or any changes, modifications, alterations or additions thereto for any reason, attributable to Tenant's manner of use of the Demised Premises (as distinguished from Tenant's mere use of the Demised Premises for the Authorized Use), or if any such installation or equipment becomes necessary to prevent the imposition of a penalty or charge against the full allowance for a sprinkler or fire extinguishing system in the fire insurance rate as fixed by Insurance Boards, or by any fire insurance company, and provided that the necessity for the same shall be attributable to Tenant's manner of use of the Demised Premises (as distinguished from Tenant's mere use of the Demised Premises for the Authorized Use), then Tenant, at Tenant's expense, shall promptly make such installation within the Demised Premises and supply such changes, modifications, alterations, additions or other equipment. In the event that (i) Tenant shall fail to perform the work required pursuant to the preceding sentence, and/or (ii) if due to the nature of such work, Landlord requires that such work be performed by Landlord, Landlord shall make any such installation (including sprinklers, stair pressurizers, water towers), or any such change, modification, alteration or additions outside of the Demised Premises (such as, without limitation, in the common area), and Tenant shall reimburse Landlord, as additional rent, an amount equal to Tenant's Proportionate Share of the reasonable cost thereof. Such reimbursement shall be made by Tenant within thirty (30) days after written notice to Tenant of such amount. Section 6.04. In any case where Tenant shall be required to make Repairs or perform any work pursuant to this Article and such Repairs or work shall affect the Building Systems or areas outside of the Demised Premises, Landlord may, in Landlord's discretion, elect to make such Repairs or to perform such work for and on behalf of Tenant, but at Tenant's reasonable and actual cost and expense, provided that Landlord shall competitively bid such work. In such event, Tenant shall reimburse Landlord as additional rent for the reasonable and actual cost of such Repairs and/or work within thirty (30) days after Landlord shall furnish a statement to Tenant of the amount thereof. Section 6.05. Tenant shall maintain the Demised Premises and the areas appurtenant thereto (including any permitted signs or cameras) in a clean and orderly condition that is consistent with the use and appearance of the Building. If Tenant shall fail to so maintain the Demised Premises or appurtenant areas to the satisfaction of Landlord, then Landlord shall have the right, on ten (10) days written notice to Tenant (except in an emergency, in which case no notice shall be required) and at Tenant's sole cost and expense, to enter into the Demised Premises and such appurtenant areas for the express purpose of rectifying the condition thereof and restoring the Demised Premises and such appurtenant areas to the condition and appearance required hereunder; provided, however, that Landlord shall not store in the Demised Premises any materials used in connection with the making of any Repairs. ARTICLE 7 --------- COMPLIANCE WITH LAW Section 7.01. ------------ A. Tenant shall not do, and shall not permit Persons Within Tenant's Control to do, any act or thing in or upon the Demised Premises or the Building which will invalidate or be in conflict with the certificate of occupancy for the Demised Premises or the Building, or violate any Legal Requirements. Tenant shall, at Tenant's cost and expense, comply with all Legal Requirements (including Local Laws No. 5 of 1973, No. 16 of 1984 and No. 58 of 1988, each as modified and supplemented from time to time under the Administrative Code as applicable to the Demised Premises, and, subject to the provisions of Section 11.06 below, all Legal Requirements relating to asbestos) which shall with respect to the Demised Premises or with respect to any abatement of nuisance (including the removal, containment, transportation and disposal of asbestos, subject to the provisions of said Section 11.06), impose any violation, order or duty upon Landlord or Tenant arising from, or in connection with, the Demised Premises, Tenant's manner of use of the Demised Premises (as distinguished from Tenant's mere use of the Demised Premises for the Authorized Use), or any installations made by or on behalf of Tenant therein, or required by reason of a breach of any of Tenant's covenants or agreements hereunder, whether or not such Legal Requirements shall now be in effect or hereafter enacted or issued, and whether or not any work required shall be ordinary or extraordinary or foreseen or unforeseen at the date hereof. B. Notwithstanding anything to the contrary contained in this Lease, Tenant shall be responsible for the cost of all present and future compliance with The Americans with Disabilities Act of 1990, Public Law 101-336, 42 U.S.C. ss. 12101 et seq. (herein called the "Disabilities Act") in respect of the Demised Premises, except that Tenant shall not hereby be under any obligation to comply with the Disabilities Act to the extent that the same shall require Tenant to make any structural alterations within the Demised Premises (i.e., alterations to the slab, support columns and facade) or to make any modifications to Building Systems located within the Demised Premises, unless the necessity for such structural alteration or modification to Building Systems located within the Demised Premises arises from (i) Tenant's manner of use of the Demised Premises (as distinguished from Tenant's mere use of the Demised Premises for the Authorized Use), (ii) the manner of conduct of Tenant's business at the Building, (iii) Tenant's installations, equipment or other property therein or the operation thereof, (iv) any cause or condition created by or at the instance of Tenant (as distinguished from Tenant's mere use of the Demised Premises for the Authorized Use), or (v) the breach of any of Tenant's obligations under this Lease. In addition, Tenant shall be responsible for the cost of all present and future compliance with the Disabilities Act with respect to areas of the Land and Building outside the Demised Premises, but only if and to the extent that compliance with the requirements for such present and future compliance arises from (I) Tenant's manner of use of the Demises Premises (as distinguished from Tenant's mere use of the Demised Premises for the Authorized Use), (II) the manner of conduct of Tenant's business at the Building, (III) Tenant's installations, equipment or other property therein or the operation thereof, (IV) any cause or condition created by or at the instance of Tenant (as distinguished from Tenant's mere use of the Demised Premises for the Authorized Use), or (V) the breach of any of Tenant's obligations under this Lease. Tenant expressly acknowledges and agrees that, for the purposes of this Subsection 7.01B as well as all other provisions of this Lease, the elevator lobbies, but not the elevators, and all bathrooms on the 22nd floor shall be deemed to be part of the Demised Premises. C. Tenant shall not cause or permit any Hazardous Materials (hereinafter defined) to be used, stored, transported, released, handled, produced or installed in, on or from the Demised Premises or the Building; provided, however, that the foregoing prohibition shall not apply to standard office supplies in reasonable quantities for routine office use, if and to the extent permitted by applicable Legal Requirements. The term "Hazardous Materials", as used herein, shall mean any flammables, explosives, radioactive materials, hazardous wastes, hazardous and toxic substances or related materials, asbestos or any material containing asbestos, or any other substance or material included in the definition of "hazardous substances", "hazardous wastes", "hazard materials", "toxic substances", "contaminants" or any other pollutant, or otherwise regulated by any federal, state or local environmental law, ordinance, rule or regulation, including the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, the Hazardous Materials Transportation Act, as amended, and the Resource Conservation and Recovery Act, as amended, and in the regulations adopted and publications promulgated pursuant to each of the foregoing Acts. In the event of a violation of any of the foregoing provisions of this Subsection 7.01C, Landlord may, without notice and without regard to any grace or cure period contained elsewhere in this Lease, take all remedial action deemed necessary by Landlord to correct such condition, and Tenant shall reimburse Landlord for the cost thereof, upon demand, as additional rent. Section 7.02. If Tenant shall receive notice of any violation of any Legal Requirements applicable to the Demised Premises, Tenant shall give prompt notice thereof to Landlord. Section 7.03. Tenant shall also be obligated to comply with any Legal Requirements requiring any structural Alteration of the Demised Premises, but only if such Alteration shall be required by reason of (i) a condition which has been created by, or at the instance of, Tenant or Persons Within Tenant's Control, (ii) the manner of use to which Tenant or Persons Within Tenant's Control puts the Demised Premises (as distinguished from Tenant's mere use of the Demised Premises for the Authorized Use), (iii) the manner of conduct of Tenant's business, (iv) Tenant's installations, equipment or other property therein or the operation thereof, or (v) a breach of any of Tenant's covenants and agreements hereunder. Section 7.04. If any governmental license or permit shall be required for the proper and lawful conduct of Tenant's business and if the failure to secure such license or permit would, in any way, affect Landlord or the Building, then Tenant, at Tenant's expense, shall promptly procure and thereafter maintain, submit for inspection by Landlord, and at all times comply with the terms and conditions of, each such license or permit. Section 7.05. If an excavation shall be made upon the land adjacent to or under the Building, or shall be authorized or contemplated to be made, Tenant shall afford to the person causing or authorized to cause such excavation license to enter upon the Demised Premises, at reasonable times and upon reasonable notice to Tenant, for the purpose of doing such work as said person shall deem necessary or desirable to preserve the Building from injury or damage and to support the same by proper foundations without any claim for damages or indemnity against Landlord, or diminution or abatement of rent. Section 7.06. Tenant shall not clean, or permit, suffer or allow to be cleaned, any windows in the Demised Premises from the outside in violation of Section 202 of the Labor Law or any other Legal Requirements. ARTICLE 8 --------- INSURANCE Section 8.01. Tenant shall not do or permit to be done any act or thing in or upon the Demised Premises which will invalidate or be in conflict with the terms of the New York State standard form of fire insurance with extended coverage, or with rental, liability, boiler, sprinkler, water damage, war risk or other insurance policies covering the Building and the fixtures and property therein (hereinafter referred to as "Building Insurance"); and Tenant, at Tenant's own expense, shall comply with all rules, orders, regulations and requirements of all Insurance Boards, and shall not do or permit anything to be done in or upon the Demised Premises or bring or keep anything therein or use the Demised Premises in a manner which increases the rate of premium for any of the Building Insurance or any property or equipment located therein over the rate in effect at the commencement of the Term. Landlord agrees that, for purposes of this Section 8.01, Tenant's use of the Demised Premises for executive and administrative office use, shall not, in and of itself, be deemed to invalidate or be in conflict with or cause an increase in the rate of premium for any of the Building Insurance. Section 8.02. ------------ A. If, by reason of Tenant's default under this Lease, the rate of premium for Building Insurance or other insurance on the property and equipment of Landlord or any other tenant or subtenant in the Building shall be higher than it otherwise would be, Tenant shall reimburse Landlord and/or such other tenants or subtenants in the Building for that part of the insurance premiums thereafter paid by Landlord or by the other tenants or subtenants in the Building which shall have been charged because of such default by Tenant. Tenant shall make said reimbursement on the first day of the month following such payment by Landlord or such other tenants or subtenants. B. In any action or proceeding wherein Landlord and Tenant are parties, a schedule or "make-up" of any insurance rate for the Building or Demised Premises issued by any Insurance Board establishing insurance premium rates for the Building shall be prima facie evidence of the facts therein stated and of the several items and charges in the insurance premium rates then applicable to the Building. Section 8.03. ------------ A. Tenant shall, at Tenant's own cost and expense, obtain, maintain and keep in force during the entire Term, for the benefit of Landlord, Overlandlord and Tenant, in the manner set forth in Section 8.03 below, the following insurance coverages: (i) commercial general liability insurance (including premises operation, bodily injury, personal injury, death, independent contractors' liability, owner's protective liability, products and completed operations liability, broad form contractual liability and broad form property damage coverages) in a combined single limit amount of not less than $3,000,000, against all claims, demands or actions with respect to damage, injury or death made by or on behalf of any person or entity, arising from or relating to the conduct and operation of Tenant's business in, on or about the Demised Premises (which shall include Tenant's signs, if any), or arising from or related to any act or omission of Tenant or of Persons Within Tenant's Control; (ii) during the course of construction of any Tenant's Alterations and until completion thereof, Builder's Risk insurance on an "all risk" basis (including collapse) on a completed value (non-reporting) form for full replacement value covering the interests of Landlord and Tenant (and their respective contractors and subcontractors) in all work incorporated into the Building by or on behalf of Tenant and all materials and equipment located in or about the Demised Premises; (iii) Workers' Compensation Insurance, as required by law; and (iv) if Tenant shall install or maintain one or more boilers or other pressure vessels to serve the Demised Premises or Tenant's operations thereat, Tenant shall, at Tenant's own cost and expense, obtain, maintain and keep in force, for the benefit of Landlord, Overlandlord and Tenant, appropriate insurance coverage thereof in an amount not less than $1,000,000 (it being understood and agreed, however, that the foregoing shall not be deemed a consent by Landlord to the installation and/or maintenance of any boilers or other pressure vessels in the Demised Premises, which installation and/or maintenance shall at all times be subject to the prior written consent of Landlord). All such insurance shall contain only such "deductibles" or "retentions" as Landlord shall reasonably approve. In addition, prior to any entry upon the Demised Premises by Tenant or by any Person Within Tenant's Control, Tenant shall deliver or cause to be delivered to Landlord certificates evidencing that all insurance required hereunder is in full force and effect. Whenever, in Landlord's reasonable judgment, good business practice and changing conditions indicate a need for additional or different types of insurance coverage, taking into account the insurance coverage then being required by landlords of Comparable Buildings, Tenant shall, upon Landlord's request, promptly obtain such insurance coverage, at Tenant's expense. B. Tenant, at Tenant's own cost and expense, shall maintain insurance protecting and indemnifying Landlord, the managing agent of the Building, Tenant and Overlandlord against any and all damage to or loss of Tenant's Alterations, equipment, furnishings, furniture, fixtures and contents in the Demised Premises or the Building (including all portions of the Building Systems that are located within the Demised Premises, and expressly including any sprinkler loop and distribution pipes and heads, any ventilation and air-conditioning equipment and any private bathrooms in or appurtenant to the Demised Premises), and all claims and liabilities relating thereto. C. Landlord, Overlandlord and the managing agent of the Building shall be named as insureds in said policies and shall be protected against all liability occasioned by an occurrence insured against. All said policies of insurance shall be: (i) written as "occurrence" policies, (ii) written as primary policy coverage and not contributing with or in excess of any coverage which Landlord, Overlandlord or the managing agent of the Building may carry, (iii) written in form and substance reasonably satisfactory to Landlord, and (iv) issued by insurance companies then rated not less than A:XII in Best's insurance reports, and which are licensed to do business in the State of New York. Tenant shall, prior to the Commencement Date, deliver to Landlord the policies of insurance or certificates thereof, together with evidence of payment of premiums thereon, and shall thereafter furnish to Landlord, at least thirty (30) days prior to the expiration of any such policies and any renewal thereof, a new policy or certificate in lieu thereof, with evidence of the payment of premiums thereon. Each of said policies shall also contain a provision whereby the insurer agrees not to cancel, diminish or materially modify said insurance policy(ies) without having given Landlord, Overlandlord and the managing agent of the Building at least thirty (30) days prior written notice thereof, by certified mail, return receipt requested. D. Tenant shall pay all premiums and charges for all of said policies, and, if Tenant shall fail to make any payment when due or carry any such policy, Landlord may, but shall not be obligated to, make such payment or carry such policy, and the amount paid by Landlord, with interest thereon at the Interest Rate, shall be repaid to Landlord by Tenant within ten (10) days after Landlord's demand therefor, and all such amounts so repayable, together with such interest, shall be deemed to constitute additional rent hereunder. Payment by Landlord of any such premium, or the carrying by Landlord of any such policy, shall not be deemed to waive or release the default of Tenant with respect thereto. E. Notwithstanding and without regard to the limits of insurance specified in this Section 8.03, Tenant agrees to defend, protect, indemnify and hold harmless Landlord, Overlandlord and the managing agent of the Building, and the agents, partners, shareholders, directors, officers and employees of Landlord, Overlandlord and the managing agent of the Building, from and against all claims, damage, loss, liability, cost and expense (including engineer's, architects' and attorneys' fees and disbursements) resulting from any of the risks referred to in Section 8.03A. The foregoing obligation of Tenant shall be and remain in full force and effect whether or not Tenant has placed and maintained the insurance specified in this Section 8.03, and whether or not proceeds from such insurance (such insurance having been placed and maintained) actually are collectible from one or more of the aforesaid insurance companies; provided, however, that Tenant shall be relieved of its obligation of indemnity herein pro tanto of the amount actually recovered by Landlord from one or more of said insurance companies by reason of injury, damage or loss sustained on the Demised Premises. If any action or proceeding shall be brought against Landlord or any of the other indemnified parties in connection with any matter which is the subject of the foregoing indemnity, Tenant, upon notice from Landlord, shall resist and defend such action or proceeding at Tenant's expense by counsel reasonably satisfactory to Landlord, without any disclaimer of liability in connection therewith. In any legal proceeding between Landlord and Tenant pursuant to this Lease, the losing party shall reimburse the prevailing party for out-of-pocket payments for court costs and reasonable attorneys' fees and disbursements in instituting, prosecuting, or defending any proceeding actually paid by the prevailing party in connection with such proceeding. F. Landlord shall carry insurance in at least the minimum amounts as may be required by any Mortgagee, insuring the Building against loss, damage, or destruction by fire or other casualty. If and to the extent that there shall be no Mortgagee, Landlord shall carry insurance in amounts as customarily carried by landlords of Comparable Buildings. Section 8.04. ------------ A. Landlord shall cause each policy carried by Landlord insuring the Building against loss, damage, or destruction by fire or other casualty, and Tenant shall cause each insurance policy carried by Tenant and insuring the Demised Premises and Tenant's Alterations, leasehold improvements, equipment, furnishings, fixtures and contents against loss, damage, or destruction by fire or other casualty, to be written in a manner so as to provide that the insurance company waives all rights of recovery by way of subrogation against Landlord or Tenant in connection with any loss or damage covered by any such policy. Neither party shall be liable to the other for the amount of such loss or damage which is in excess of the applicable deductible, if any, caused by fire or any of the risks enumerated in its policies, provided that such waiver was obtainable at the time of such loss or damage. However, if such waiver cannot be obtained, or shall be obtainable only by the payment of an additional premium charge above that which is charged by companies carrying such insurance without such waiver of subrogation, then the party undertaking to obtain such waiver shall notify the other party of such fact, and such other party shall have a period of ten (10) days after the giving of such notice to agree in writing to pay such additional premium if such policy is obtainable at additional cost (in the case of Tenant, pro rata in proportion of Tenant's rentable area to the total rentable area covered by such insurance); and if such other party does not so agree or the waiver shall not be obtainable, then the provisions of this Section 8.04 shall be null and void as to the risks covered by such policy for so long as either such waiver cannot be obtained or the party in whose favor a waiver of subrogation is desired shall refuse to pay the additional premium. If the release of either Landlord or Tenant, as set forth in the second sentence of this Section 8.04, shall contravene any law with respect to exculpatory agreements, the liability of the party in question shall be deemed not released, but no action or rights shall be sought or enforced against such party unless and until all rights and remedies against the other's insurer are exhausted and the other party shall be unable to collect such insurance proceeds. B. The waiver of subrogation referred to in Subsection 8.04A above shall extend to the agents and employees of each party, but only if and to the extent that such waiver can be obtained without additional charge (unless such party shall pay such charge). Nothing contained in this Section 8.04 shall be deemed to relieve either party from any duty imposed elsewhere in this Lease to repair, restore and rebuild. Section 8.05. In the event of any permitted sublease or occupancy (by a person other than Tenant) of all or a portion of the Demised Premises, all of the covenants and obligations on the part of Tenant set forth in this Article 8 shall bind and be fully applicable to the subtenant or occupant (as if such subtenant or occupant were Tenant hereunder) for the benefit of Landlord. ARTICLE 9 --------- DAMAGE OR CASUALTY Section 9.01. If the Demised Premises or any part thereof shall be damaged by fire or other insured casualty and Tenant shall give prompt written notice thereof to Landlord, then Landlord shall, subject to the provisions of Sections 9.02 and 9.03, proceed with commercially reasonable diligence to repair or cause to be repaired such damage at Landlord's expense, but in no event greater than the scope of Landlord's construction of the Demised Premises on the commencement of the Term. If the Demised Premises, or any part thereof, other than a de minimis part, shall be rendered untenantable , or if Tenant shall be denied access to the Demised Premises (it being agreed that Tenant shall be deemed to have been denied access to the Demised Premises if there is no elevator service to the Demised Premises) as a result of fire or other insured casualty by reason of such damage and such damage shall not be due to the gross negligence or willful misconduct of Tenant or of Persons Within Tenant's Control, then the Minimum Rent hereunder, or an amount thereof apportioned according to the area of the Demised Premises so rendered untenantable (if less than the entire Demised Premises shall be so rendered untenantable), shall be abated for the period from the date of such damage to the earlier of (i) the ninetieth (90th) day following the date when the damage shall have been repaired as aforesaid and possession of the Demised Premises (or said portion thereof) delivered to Tenant or (ii) the date Tenant shall first reoccupy the Demised Premises for the purpose of the regular conduct of Tenant's business operations therein. Tenant covenants and agrees to cooperate in all reasonable respects with Landlord, Overlandlord and any Mortgagee in their efforts to collect insurance proceeds (including rent insurance proceeds) payable to such parties. Landlord shall not be liable for any delay which may arise by reason of adjustment of insurance on the part of Landlord and/or Tenant, or any cause beyond the control of Landlord or contractors employed by Landlord. Section 9.02. Other than as set forth in Section 9.01 above, Landlord shall not be liable for any inconvenience or annoyance to Tenant or injury to the business of Tenant resulting in any way from damage from fire or other casualty or the repair thereof except if and to the extent such inconvenience, annoyance, or injury is caused by the gross negligence or willful misconduct of Landlord (and is not otherwise subject to the provisions of Section 8.04 above). Tenant understands that Landlord, in reliance upon the provisions set forth in Section 8.03, will not carry insurance of any kind on Tenant's furnishings, furniture, contents, fixtures, equipment, Alterations and leasehold improvements (including all portions of the Building Systems that are located within the Demised Premises, and expressly including any sprinkler loop and distribution pipes and heads, any ventilation and air-conditioning equipment and any private bathrooms in or appurtenant to the Demised Premises), and that Landlord shall not be obligated to repair any damage thereto or replace the same. Section 9.03. ------------ A. Notwithstanding anything to the contrary contained in Sections 9.01 and 9.02 above, in the event that: (i) the Building shall be also damaged by such fire or other casualty so that substantial alteration or reconstruction of the Building shall, in Landlord's sole and unfettered opinion, be required (whether or not the Demised Premises shall have been damaged by such fire or other casualty and without regard to the structural integrity of the Building and provided that, if the Demised Premises shall not have been damaged, Landlord shall terminate all other leases for space in the same elevator bank as the Demised Premises (excluding space occupied by Landlord or any affiliate of Landlord)), or (ii) the Demised Premises are totally or substantially damaged or are rendered wholly or substantially untenantable, or (iii) there is any damage to the Demised Premises within the last two (2) years of the Term, and the cost of repair exceeds an amount equal to three (3) monthly installments of Minimum Rent, then Landlord may, in Landlord's sole and absolute discretion, terminate this Lease and the term and estate hereby granted, by notifying Tenant in writing of such termination within ninety (90) days after the date of such damage. In the event that such a notice of termination shall be given, then this Lease and the term and estate hereby granted shall expire as of the date of termination stated in said notice with the same effect as if that were the date hereinbefore set for the expiration of the Term, and the Minimum Rent and additional rent hereunder shall be apportioned as of such date. B. If the Demised Premises shall be damaged or shall be rendered untenantable as a result of fire or other casualty during the Term hereof, then, within sixty (60) days following the date on which Tenant shall have given notice to Landlord (such sixty (60) day period being hereinafter referred to as the "Estimate Procurement Period"), in accordance with the provisions of Section 9.01, of such damage or untenantability, and provided further that such notice shall state in bold, capital letters at the top: "IN ACCORDANCE WITH THE PROVISIONS OF SUBSECTION 9.03B OF THE LEASE, TENANT REQUESTS THAT LANDLORD NOTIFY TENANT AS TO LANDLORD'S CONTRACTOR'S ESTIMATE AS TO TIME REQUIRED TO REPAIR THE DEMISED PREMISES . TENANT MAY TERMINATE THE LEASE IF LANDLORD FAILS TO RESPOND TO THIS NOTICE WITHIN SIXTY (60) DAYS.", then Landlord shall deliver to Tenant an estimate prepared by a contractor selected by Landlord setting forth such contractor's estimate as to the time reasonably required to repair such damage (the "Contractor's Estimate"). If (i) Landlord fails to deliver the Contractor's Estimate during the Estimate Procurement Period; or (ii) the period to repair set forth in such Contractor's Estimate shall exceed two hundred seventy (270) days; or (iii) Landlord fails to complete such repairs within two hundred seventy (270) days from the date of the fire or other casualty, which period, however, shall be extended by the number of days, if any, as shall equal the aggregate number of days that Landlord may have been delayed in making such repairs and restoration by reason of labor trouble, governmental controls, act of God, adjustment of insurance loss or any other cause beyond Landlord's reasonable control, but in no event more than three hundred sixty five (365) days from the date of the fire or other casualty (the "Casualty Repair Period"), then, in any of the above cases, Tenant may elect to terminate this Lease by notice (the "Casualty Termination Notice") to Landlord given not later than: (x) thirty (30) days following the expiration of the Estimate Procurement Period with respect to clause (i) of this Subsection 9.03C; (y) sixty (60) days following delivery to Tenant of the Contractor's Estimate with respect to clause (ii) of this Subsection 9.03C; and (z) ten (10) days following the expiration of the Casualty Repair Period with respect to clause (iii) of this Subsection 9.03C (time being of the essence with respect to such thirty (30) day and ten (10) day periods). In the event that Landlord shall have failed to complete such repairs within the Casualty Repair Period and Tenant shall have elected to terminate this Lease pursuant to the provisions of clause (iii) of this Subsection 9.03C, then, notwithstanding Tenant's delivery of the Casualty Termination Notice, if Landlord shall have substantially completed the repairs or restoration to the Demised Premises, and Landlord shall tender to Tenant possession of the Demised Premises within five (5) Business Days following Landlord's receipt of the Casualty Termination Notice, then Tenant's Casualty Termination Notice shall be null and void and of no force and effect. Section 9.04. Except as may be provided in Section 8.04, nothing herein contained shall relieve Tenant from any liability to Landlord or to Landlord's insurers in connection with any damage to the Demised Premises or the Building by fire or other casualty if Tenant shall be legally liable in such respect. Section 9.05. Tenant shall throughout the Term provide fire wardens and searchers as required under NYC Local Law No. 5 of 1973, as heretofore and/or hereafter amended. Section 9.06. Tenant shall give Landlord notice of the occurrence of any fire, casualty or other accident in the Demised Premises promptly after Tenant becomes aware thereof. Section 9.07. This Lease shall be considered an express agreement governing any case of damage to or destruction of the Building or any part thereof by fire or other casualty, and Section 227 of the Real Property Law of the State of New York (providing for such a contingency in the absence of express agreement), and any other law of like import now or hereafter in force, shall have no application in such case. ARTICLE 10 ---------- ASSIGNMENT AND SUBLETTING Section 10.01. ------------- A. As a material inducement to Landlord to enter into this Lease, Tenant covenants and agrees, for Tenant and Tenant's heirs, distributees, executors, administrators, legal representatives, successors and assigns, that neither this Lease nor the term and estate hereby granted, nor any part hereof or thereof, will be assigned, mortgaged, pledged, encumbered or otherwise transferred, by operation of law or otherwise, and that neither the Demised Premises, nor any part thereof, will be sublet or occupied by anyone other than Tenant, or for any purpose other than as hereinbefore set forth, without the prior written consent of Landlord (which consent, unless expressly provided to the contrary in this Article 10, shall not be unreasonably withheld or conditioned or unduly delayed; provided that the criteria and/or conditions set forth in Section 10.03 and, in the case of an assignment, Section 10.4 and, in the case of a sublease, Section 10.05, shall be satisfied) in every case. B. The direct or indirect transfer of fifty (50%) percent or more (aggregating all multiple and/or prior transfers) of: (i) the shares of a corporate tenant, or (ii) the shares of any corporation of which Tenant is an immediate or remote subsidiary, or (iii) the beneficial or legal interests of a tenant that is a business entity other than a corporation, in each case including transfers by operation of law, and including a related or unrelated series of transactions, shall be deemed an assignment of this Lease for the purposes of this Article 10. For the purposes hereof, "shares" of a corporate tenant or other corporation shall be deemed to include: (x) the issued and outstanding shares of any class of the voting stock of a corporation, and/or (y) the issued and outstanding shares of any class of convertible non-voting stock, debentures or securities of a corporation. Issuance of new corporate shares of a corporation or partnership interests by a partnership, and/or the issuance of a new class of voting stock or convertible non-voting stock or debentures or securities of a corporation which results in a transfer of control of that corporation, or the execution of an agreement affecting the power to vote fifty (50%) percent or more of the issued and outstanding shares of any class of stock or securities of a corporation, shall each be deemed to be a "transfer" for the purposes hereof. In implementation of the foregoing provisions (but subject to the provisions of Subsection 10.02C below), if Tenant shall be a corporation, then, unless the stock of Tenant is publicly traded, within ten (10) days following Landlord's written request therefor, Tenant shall furnish to Landlord a statement verified by a principal officer of Tenant setting forth the details of the then present ownership and all prior transfers of the issued and outstanding stock of the corporation, and such other information relating to such stock ownership and transfer of stock or securities as Landlord may reasonably request in such notice. Section 10.02. ------------- A. Tenant may assign or sublet all or part of the Demised Premises to a corporation or other business entity which controls, is controlled by or is under common control with, Tenant (herein referred to as a "Related Corporation"), without being required to obtain Landlord's prior written consent thereto, provided that: (i) Tenant shall not then be in default in any of its monetary obligations hereunder or in default (after notice and the expiration of the applicable cure period) with respect to any of Tenant's material obligations under this Lease, (ii) not less than fifteen (15) days prior to such subletting, Tenant shall notify Landlord of such intended sublet and shall furnish Landlord with the name of such Related Corporation, together with a certification of Tenant, and such other proof as Landlord may reasonably request, that such subtenant is a Related Corporation of Tenant, (iii) in the reasonable judgment of Landlord, the proposed subtenant is of a character which is in keeping with the standards of Landlord for the Building, (iv) for the entire term of such sublease, the subtenant thereunder shall continue to be a Related Corporation of Tenant and (v) in the case of an assignment, the Related Corporation shall have assets, capitalization and a net worth, as determined in accordance with generally accepted accounting principles and certified to Landlord by an independent certified public accountant, at least equal to the assets, capitalization and net worth, similarly determined, of Tenant as of the date of this Lease. In connection with the information to be provided to Landlord pursuant to this Subsection 10.02A, Landlord shall have the right, at any reasonable time and from time to time, to examine such books and records of Tenant as may be necessary to establish that such subtenant remains a Related Corporation of Tenant. Such assignment or subletting shall not be deemed to vest in any such Related Corporation any right or interest in this Lease, nor shall it relieve, release, impair or discharge any of Tenant's obligations hereunder. For the purposes of this Article 10, the term "control" shall be deemed to mean ownership of more than fifty (50%) percent of all of the voting stock of such corporation, or more than fifty (50%) percent of all of the legal and equitable interest in any other business entity. B. Upon not less than twenty (20) days prior written notice to Landlord, and subject to Tenant's compliance with all of the requirements set forth in this Subsection 10.02B, Tenant may assign or sublet all or part of Tenant's entire interest in this Lease and the leasehold estate hereby created to a "Successor Corporation" of Tenant (as hereinafter defined) without being required to obtain Landlord's prior consent thereto, provided that: (i) Tenant shall not then be in default in any of its monetary obligations hereunder or in default (after notice and the expiration of the applicable cure period) with respect to any of Tenant's material obligations under this Lease, and (ii) the proposed assignee shall not be entitled, directly or indirectly, to diplomatic or sovereign immunity, and shall be subject to the service of process in, and the jurisdiction of the courts of, the State of New York. The term "Successor Corporation" shall mean any of the following: (x) a corporation into which or with which Tenant shall be merged or consolidated, in accordance with applicable statutory provisions for the merger or consolidation of corporations, provided that (whether by operation of law or by effective provisions contained in the instruments of merger or consolidation) the liabilities of the corporations participating in such merger or consolidation are assumed by the corporation surviving such merger or consolidation; or (y) a corporation or other entity acquiring this Lease and the term hereof and the estate hereby granted, the goodwill and all or substantially all of the other property of Tenant and/or assets of Tenant, or all or substantially all of the stock of Tenant, and assuming all or substantially all of the liabilities of Tenant; or (z) any corporate successor to a Successor Corporation becoming such by either of the methods described in clauses (x) and (y) above; provided that, in each case: (1) such merger or consolidation, or such acquisition and assumption, as the case may be, shall be made for a valid business purpose other than (and not principally for) the purpose of transferring the leasehold estate created hereby, (2) immediately after giving effect to any such merger or consolidation, or such acquisition and assumption, as the case may be, the corporation surviving such merger or created by such consolidation or acquiring such assets and assuming such liabilities, as the case may be, shall have assets, capitalization and a net worth, as determined in accordance with generally accepted accounting principles and certified to Landlord by an independent certified public accountant, at least equal to the lesser of (I) the assets, capitalization and net worth, similarly determined, of Tenant (a) as of the date of this Lease or (b) immediately prior to such merger or consolidation or such acquisition and assumption, whichever shall be greater and (II) Sixty Million and 00/100 ($60,000,000.00) Dollars, and (3) proof reasonably satisfactory to Landlord of such business purpose, assets, capitalization and net worth shall have been delivered to Landlord at least ten (10) days prior to the effective date of any such transaction. The acquisition by Tenant of all or substantially all of the assets, together with the assumption of all or substantially all of the obligations and liabilities of any corporation or other business entity, shall be deemed to be a merger for the purposes of this Article 10. C. The transfer of the outstanding capital stock of any corporate tenant shall not be deemed an assignment of this Lease (and Tenant shall not be required to furnish Landlord with the information described in the last sentence of Subsection 10.01B above) if such transfer shall be effected by the sale of such stock through the "over-the-counter-market" or through any recognized stock exchange, unless such stock shall be sold, transferred or otherwise conveyed by persons deemed "insiders" within the meaning of the Securities Exchange Act of 1934, as amended. Section 10.03. ------------- A. Except with respect to assignments or sublets described in Section 10.02 above, if Tenant shall desire to assign this Lease or to sublet all or any portion of the Demised Premises, Tenant shall submit to Landlord a written request (a "First Assignment/Sublet Request") for Landlord's consent to such assignment or subletting, which First Assignment/Sublet Request shall contain or be accompanied by the following information: (i) the name and address of the proposed assignee or subtenant; (ii) a statement of all of the proposed material and economic terms of the proposed sublet or assignment; (iii) the nature and character of the business of the proposed assignee or subtenant and its proposed use of the Demised Premises; and (iv) banking, financial and other credit information with respect to the proposed assignee or subtenant reasonably sufficient to enable Landlord to determine the financial responsibility of the proposed assignee or subtenant. If Tenant shall have complied with the foregoing provisions of this Subsection 10.3A, then Landlord shall not unreasonably withhold or condition or unduly delay, consent to the proposed assignment of this Lease or a proposed subletting of all or any portion of the Demised Premises, provided that Tenant shall not then be in default (after notice of such default shall have theretofore been given to Tenant) in any of its monetary obligations hereunder or in default (after notice and the expiration of any applicable cure period provided in this Lease) with respect to any of Tenant's material obligations under this Lease, and provided further that the following additional conditions (which shall be in addition to, and not in lieu of, the other terms, conditions and requirements set forth elsewhere in this Article 10) shall be satisfied: (i) The proposed assignee or subtenant shall not be: (a) a school of any kind, or an employment or placement agency or governmental or quasi-governmental agency, or a real estate brokerage office or medical office or executive recruitment office, or any bank or an entity that intends to use the Demised Premises as retail establishment of any kind, or (b) entitled, directly or indirectly, to diplomatic or sovereign immunity, and the proposed assignee or subtenant shall be subject to service of process in, and the jurisdiction of the courts of, the State of New York; (ii) The subletting or assignment shall be, in the reasonable judgment of Landlord, to a reputable person or entity, whose occupancy will be in keeping with the dignity and character of the then use and occupancy of the Building, and whose occupancy will not be more hazardous than that of Tenant herein or impose any additional material burden upon Landlord in the operation of the Building; (iii) The proposed assignee or subtenant shall have, in the reasonable judgment of Landlord, sufficient financial worth to perform the obligations of Tenant under this Lease; (iv) No space shall be or have been advertised or promoted to the general public at a lower rental rate than that being asked by Landlord at the time for similar space in the Building (but Tenant may sublet the Demised Premises or list the Demised Premises for subletting with a real estate brokerage firm at a lower rental rate than that being asked by Landlord at the time for similar space in the Building); and (v) The proposed assignee or subtenant (whether as named or the intended user) shall not be (I) a tenant, subtenant, occupant or assignee of any premises in the Building, or (II) a party who is not a tenant, subtenant, occupant or assignee of any premises in the Building and who dealt or negotiated with Landlord or Landlord's agent (directly or through a broker) with respect to the leasing of any space in the Building during the nine (9) months immediately preceding Tenant's request for Landlord's consent, except that if Landlord shall not then have available for lease (or shall not reasonably anticipate to become available for lease within four (4) months following Tenant's request for Landlord's consent) "Relatively Equivalent Space" (as hereinafter defined), then the foregoing nine (9) month prohibition shall be deemed waived by Landlord. For purposes hereof, the term "Relatively Equivalent Space" shall mean premises at the Building having a rentable square footage equivalent to that of the portion of the Demised Premises that Tenant then desires to sublet or assign, plus or minus twenty (20%) percent of such rentable square footage. B. Landlord shall, within thirty (30) days after Landlord's receipt of the relevant First Assignment/Sublet Request, notify Tenant of Landlord's intention to consent or not to consent to such proposed sublease or assignment, subject, however, to the provisions of Section 10.04 and Section 10.5 below. If Landlord shall fail to respond to Tenant within such thirty (30) day period, Tenant may issue a Second Assignment/Sublet Request in accordance with the provisions of this Section 10.3B; provided that, when such First Assignment/Sublet Notice shall have been delivered to Landlord, it shall have borne the following legend typed in bold, capital letters at the top: "IF LANDLORD SHALL FAIL TO NOTIFY TENANT WHETHER LANDLORD CONSENTS TO OR REJECTS THE PROPOSED ASSIGNMENT OR SUBLETTING OF ALL OR A PORTION OF THE DEMISED PREMISES WITHIN THIRTY (30) DAYS FOLLOWING LANDLORD'S RECEIPT OF THIS NOTICE, SUCH FAILURE SHALL ENTITLE TENANT TO ISSUE A SECOND ASSIGNMENT/SUBLET REQUEST, AND IF LANDLORD SHALL NOT CONSENT TO OR REJECT THE PROPOSED ASSIGNMENT OR SUBLETTING WITHIN FIVE (5) BUSINESS DAYS OF RECEIPT OF SUCH SECOND ASSIGNMENT/SUBLET REQUEST, LANDLORD SHALL BE DEEMED TO HAVE CONSENTED TO SUCH PROPOSED ASSIGNMENT OR SUBLETTING IN ACCORDANCE WITH THE PROVISIONS OF SECTION 10.03B OF THE LEASE." If Landlord shall fail to notify Tenant of Landlord's intention to consent or not to consent to such proposed assignment or subletting within five (5) Business Days after Landlord's receipt of a separate written notice (a "Second Assignment/Sublet Request") delivered by Tenant of the existence of such failure, then Landlord shall be deemed to have consented to such proposed assignment or subletting; provided that the Second Assignment/Sublet Request shall specify Landlord's failure to respond to the First Assignment/Sublet Request and shall bear the following legend typed in bold, capital letters at the top: "IF LANDLORD SHALL FAIL TO NOTIFY TENANT THAT LANDLORD HAS CONSENTED OR NOT CONSENTED TO THE PROPOSED ASSIGNMENT OR SUBLETTING WITHIN FIVE (5) BUSINESS DAYS FOLLOWING LANDLORD'S RECEIPT OF THIS NOTICE, LANDLORD SHALL BE DEEMED TO HAVE CONSENTED TO SUCH PROPOSED ASSIGNMENT OR SUBLETTING IN ACCORDANCE WITH THE PROVISIONS OF SECTION 10.03B OF THE LEASE." If Landlord shall consent (or shall be deemed to have consented) to the proposed assignment or sublet, then contemporaneously with the effective date of such assignment or sublease, Tenant shall deliver to Landlord a fully executed and acknowledged duplicate original or photocopy of the assignment and assumption agreement or sublease agreement, as well as a copy of any brokerage agreement entered into by Tenant in connection with such assignment or sublease. No permitted or consented to assignment or subletting shall be effective or valid for any purpose whatsoever unless and until a duplicate original or photocopy of the assignment and assumption agreement or sublease agreement shall have been delivered to Landlord. Section 10.04. In the event of each and every permitted assignment of Tenant's interest under this Lease, the following provisions shall apply: (i) The assignee shall assume and agree, in a recordable writing delivered to Landlord on or before the effective date of such assignment, to perform all of the terms, conditions and agreements of this Lease on the part of Tenant to be kept, performed and observed, and to become jointly and severally liable with the assignor (and remote assignors, if any) for the performance thereof from and after the effective date of such assignment. (ii) The assignee shall deliver to Landlord a letter of credit for the Security Deposit Amount in accordance with (and that satisfies the requirements of) Article 33 of this Lease, which letter of credit, upon receipt and acceptance by Landlord, shall replace the letter of credit supplied by Tenant to Landlord pursuant to said Article 33, which letter of credit will be promptly returned to the Issuing Bank (as hereinafter defined) for cancellation. (iii) The terms, covenants and conditions of this Lease may be changed, altered or modified in any manner whatsoever by Landlord and the assignee without the consent thereto of any remote or immediate assignor, and no such change, alteration or modification shall release the remote or immediate assignor from the performance and observance by such remote and immediate assignor of any of the terms, covenants and conditions on Tenant's part to be performed under this Lease; provided, however, that in the case of a change, alteration or modification made after the date of an assignment of this Lease to a person or entity not a Related Corporation or a Successor Corporation, if and to the extent that such change, alteration or modification increases the obligations of Tenant under this Lease, the assignor shall not be liable with respect to such increase. Section 10.05. ------------- A. In the event of each and every permitted subletting of all or any part of the Demised Premises, the following provisions shall apply: (i) No subletting shall be for a term ending later than one (1) day prior to the Expiration Date of this Lease. (ii) The sublease shall provide that it is subject and subordinate to this Lease and to all matters to which this Lease is or shall be subordinate. (iii) The sublease and all of the subtenant's rights thereunder shall be expressly made subject to all of the obligations of Tenant under this Lease, and to the further condition and restriction that the sublease shall not be assigned, encumbered or otherwise transferred, or the subleased premises further sublet by the subtenant in whole or in part, or any part thereof suffered or permitted by the subtenant to be used or occupied by others, without the prior written consent of Landlord (which consent may be granted, withheld or conditioned in Landlord's sole and absolute discretion) in each instance, except that Tenant's direct and immediate subtenant of all the Demised Premises may further sublet the Demised Premises in accordance with the consent standard set forth in Section 10.03. B. If Landlord shall consent to a proposed subletting of all or any portion of the Demised Premises, to a person or entity not a Related Corporation or Successor Corporation, then the written instrument of consent, which shall also be executed and acknowledged by Tenant and the subtenant, shall contain a provision substantially similar to the following: "The sublandlord [i.e., Tenant under this Lease] and the subtenant hereby agree that, if the subtenant shall be in default of any obligation of the subtenant under the sublease, which default also constitutes a default by the sublandlord under the overlease [i.e., this Lease], then the overlandlord [i.e., Landlord under this Lease] shall be permitted to avail itself of all of the rights and remedies available to the sublandlord in connection therewith. Without limiting the generality of the foregoing, the overlandlord shall be permitted (by assignment of a cause of action or otherwise) to institute an action or proceeding against the subtenant in the name of the sublandlord in order to enforce the sublandlord's rights under the sublease, and shall also be permitted to take all ancillary actions (e.g., serve default notices and demands) in the name of the sublandlord as the overlandlord shall reasonably determine to be necessary. The sublandlord agrees to cooperate with the overlandlord, and to execute such documents as shall be reasonably necessary, in connection with the implementation of the foregoing rights of the overlandlord. The sublandlord and the subtenant expressly acknowledge and agree that the exercise by the overlandlord of any of the foregoing rights and remedies: (i) shall not constitute an election of remedies, (ii) shall not in any way impair the overlandlord's entitlement to pursue other rights and remedies directly against the sublandlord, and (iii) shall not establish any privity of relationship between the overlandlord and the subtenant, or in any way create a landlord/tenant relationship between the overlandlord and the subtenant." Section 10.06. ------------- A. If Landlord shall consent to any assignment of this Lease or to any sublease of all or any part of the Demised Premises (other than any assignment or subletting permitted pursuant to Section 10.02 above), Tenant shall, in consideration therefor, pay to Landlord, as additional rent hereunder, the following amounts (hereinafter being referred to as "Profit"): (i) in the case of an assignment, fifty (50%) percent of the excess, if any, of (x) all amounts and other consideration due or payable to Tenant and/or its designee for or by reason of such assignment (including all amounts due or payable for the sale or rental of Tenant's fixtures, leasehold improvements, equipment, furniture, furnishings or other personal property, less, in case of a sale or lease, the fair market value or rental, as the case may be, of such equipment, furniture, furnishings or other personal property), over (y) the amount of the following reasonable and customary out-of-pocket expenses, but only if and to the extent actually incurred and paid by Tenant to unrelated third parties in connection with such assignment: (a) brokerage commissions, (b) advertising expenses, (c) the costs incurred in connection with Alterations made by Tenant to prepare the Demised Premises for occupancy by the assignee, or the amount of a "contribution" or other payment made to the assignee by Tenant in lieu thereof, and (d) reasonable attorneys' fees; and (ii) in the case of a sublease, fifty (50%) percent of the excess, if any, of (x) the sum of (1) all rents, additional rents and other consideration due or payable under the sublease to Tenant by the subtenant, and (2) all other amounts and consideration due or payable to Tenant or its designee for or by reason of such subletting (including all amounts due or payable for the sale or rental of Tenant's fixtures, leasehold improvements, equipment, furniture or other personal property, less, in case of a sale or lease, the fair market value or rental, as the case may be, of such equipment, furniture, furnishings or other personal property), over (y) the sum of (1) that part of the Minimum Rent and additional rent hereunder allocable to the subleased space and accruing for the corresponding period during the term of the sublease, and (2) the amount of the following reasonable and customary out-of-pocket expenses, but only if and to the extent actually incurred and paid by Tenant to unrelated third parties in connection with such sublease: (a) brokerage commissions, (b) advertising expenses, (c) the costs incurred in connection with Alterations made by Tenant to prepare the Demised Premises for occupancy by the assignee, or the amount of a "contribution" or other payment made to the assignee by Tenant in lieu thereof, and (d) reasonable attorneys' fees. B. Any amount(s) payable by Tenant pursuant to the provisions of this Section 10.06 shall be paid by Tenant to Landlord as and when amounts on account thereof are due or paid by or on behalf of any assignee(s) and/or any sublessee(s) to Tenant or Tenant's designee, and Tenant agrees to promptly advise Landlord thereof and furnish such information with regard thereto as Landlord may reasonably request from time to time. C. Tenant shall furnish to Landlord, in the January calendar month immediately following each calendar year during any part of which any such sublease shall be in effect, a reasonably detailed financial statement certified as being correct by an executive financial officer (or, if Tenant is not a corporation, a principal) of Tenant, setting forth all sums accruing during the prior calendar year and/or realized by Tenant from such sublease, and a computation of the Profit accruing and/or realized by Tenant during such prior calendar year. Tenant shall remit to Landlord together with such statement any Profit or portion thereof on account of such calendar year not previously remitted to Landlord. Section 10.07. ------------- A. Each permitted assignee or transferee of Tenant's interest in this Lease (but not a subtenant) shall assume and be deemed to have assumed this Lease and all of Tenant's obligations under this Lease from and after the date of such assignment or transfer, and shall be and remain liable jointly and severally with Tenant thereafter for the payment of all Minimum Rent, additional rent, other charges and payments due under this Lease, and for the full and timely performance of and compliance with all the terms, covenants, conditions and agreements herein contained on Tenant's part to be performed or complied with for the entire Term. No assignment, sublease or transfer shall be effective or binding on Landlord unless and until such assignee, subtenant or transferee of Tenant shall deliver to Landlord a fully executed and acknowledged duplicate original of the instrument of assignment, sublease or transfer which contains a covenant of assumption (if not a sublease) by an assignee or transferee of all of the obligations aforesaid, and a confirmation (including a sublease) of the covenant under Section 10.01 prior to and preemptive of any similar rights of Tenant or any subtenant, and shall obtain from Landlord the aforesaid written consent prior thereto. In the event of any purported assignment, sublease or transfer in contravention of the provisions of this Lease, Landlord may elect to treat such purported assignee, subtenant or transferee as having assumed this Lease jointly and severally with Tenant as and to the extent set forth above, without in any way or to any extent binding Landlord to consent to such purported assignment, sublease or transfer. B. In no event shall any assignee, subtenant or other occupant of the Demised Premises use the Demised Premises for any purpose other than the Authorized Use. Section 10.08. The consent by Landlord to an assignment or subletting shall not relieve Tenant, the assignee or any subtenant from obtaining the express consent in writing of Landlord (which consent, unless expressly provided to the contrary in this Article 10, may be granted, withheld or conditioned in Landlord's sole and absolute discretion) to any other or further assignment or subletting. Section 10.09. ------------- A. If this Lease shall be assigned (whether or not in violation of the provisions of this Article 10), Landlord may collect from the assignee, and Tenant hereby authorizes and directs the assignee to pay to Landlord, all rent (whether denominated as Minimum Rent or otherwise), additional rent and other charges payable pursuant to the instrument of assignment, with the net amount so collected by Landlord to be applied to the Minimum Rent, additional rent and other charges herein provided, but no such assignment or collection shall be deemed a waiver of the covenant by Tenant under Section 10.01 above, nor shall the same be deemed the acceptance by Landlord of the assignee as a tenant, or a release of Tenant from the further performance of the covenants and agreements on the part of Tenant to be performed as herein contained. Each and every instrument of assignment shall contain the substance of the foregoing provision. B. If all or any portion of the Demised Premises shall be sublet or occupied by anyone other than Tenant (whether or not in violation of the provisions of this Article 10), then, upon demand made by Landlord at any time following the occurrence of an Event of Default and so long as such Event of Default is continuing, Landlord may collect from the subtenant or occupant, and Tenant hereby authorizes and directs such party to pay to Landlord, all rent (whether denominated as Minimum Rent or otherwise), additional rent and other charges payable pursuant to such instrument, with the net amount so collected by Landlord to be applied to the Minimum Rent, additional rent and other charges herein provided, but no such subletting, occupancy or collection shall be deemed a waiver of the covenant by Tenant under Section 10.01 above, nor shall the same be deemed the acceptance by Landlord of the subtenant or occupant as a tenant, or a release of Tenant from the further performance of the covenants and agreements on the part of Tenant to be performed as herein contained. Each and every instrument of sublease and/or occupancy agreement shall contain the substance of the foregoing provision. C. If Landlord shall for any reason or cause recover or come into possession of the Demised Premises before the date hereinbefore fixed for the expiration of the Term, then Landlord shall have the right (but not the obligation) to take over any and all subleases or sublettings of the Demised Premises or any part or parts thereof made or granted by Tenant and to succeed to all of the rights and privileges of said subleases and sublettings or such of them as Landlord may elect to take over and assume, and Tenant hereby expressly assigns and transfers to Landlord such of the subleases and sublettings as Landlord may elect to take over and assume at the time of such recovery of possession, and Tenant shall upon request of Landlord execute, acknowledge and deliver to Landlord such further assignments and transfers as may be necessary and sufficient to vest in Landlord the then existing subleases and sublettings. By its entry into a sublease, each and every subtenant shall be deemed to have thereby agreed that, upon said recovery of possession and if Landlord shall so elect, Landlord may, in Landlord's sole and absolute discretion, take over the right, title and interest of Tenant, as sublandlord, under such sublease, in which case such subtenant shall: (i) be deemed to have waived any right to surrender possession of the subleased space or to terminate the sublease, (ii) be bound to Landlord for the balance of the term of such sublease, and (iii) attorn to Landlord, as its landlord, under all of the then executory terms, covenants and conditions of this Lease, except that (x) rent shall be at rates of rent and additional rent under the sublease, and (y) such subtenant shall be deemed to have expressly agreed that Landlord shall not (1) be liable for any previous act or omission of Tenant under such sublease, (2) be subject to any counterclaim, offset or defense, not expressly provided in such sublease, which theretofore accrued to such subtenant against Tenant, or (3) be bound by any previous modification of such sublease (which was not previously consented to by Landlord), or by any previous prepayment of more than one (1) monthly installment of rent. The provisions of this Subsection 10.09C shall be self-operative, and no further instrument shall be required to give effect thereto. However, within five (5) days after Landlord shall have notified any subtenant of said election, such subtenant shall execute, acknowledge and deliver to Landlord such instruments as Landlord may request to evidence and confirm such attornment and the terms thereof. Each and every sublease shall contain the substance of this Subsection 10.09C. Section 10.10. Without limiting the generality of the covenant set forth in Section 10.01 above, Tenant covenants and agrees that Tenant shall not assign Tenant's interest under this Lease or sublet the Demised Premises (or any portion thereof) to any tenant or occupant in the Building. Tenant covenants and agrees not to accept an assignment of any lease or sublease from, or become a subtenant of, any tenant or occupant in the Building. Section 10.11. Tenant shall reimburse Landlord on demand for all reasonable costs (including all reasonable legal fees and disbursements, as well as the costs of making investigations as to the acceptability of a proposed assignee or subtenant) which may be incurred by Landlord in connection with a request by Tenant that Landlord consent to any proposed assignment or sublease. Section 10.12. If Landlord shall, in accordance with the applicable provisions of this Lease, decline to consent to any proposed assignment or sublease, Tenant shall indemnify, defend and hold Landlord harmless from and against any and all loss, liability, damages, cost and expense (including reasonable attorneys' fees disbursements), resulting from any claims that may be made against Landlord by the proposed assignee or subtenant or by any brokers or other persons claiming a commission or similar compensation in connection with the proposed assignment or sublease. Section 10.13. Except as expressly provided to the contrary in this Article 10, in the event that Tenant shall assign Tenant's interest in, to or under this Lease, or if Tenant shall sublet the Demised Premises or any portion thereof, without having obtained Landlord's prior written consent thereto or in violation of any of the other provisions contained in this Lease, Landlord shall have the right to terminate this Lease at any time thereafter without affording Tenant any grace period or opportunity to cure. The acceptance by Landlord of any Minimum Rent or additional rent paid, or of the performance of any obligation to be performed by Tenant, by a purported assignee or subtenant shall not be deemed (i) a consent by Landlord to the assignment or sublet to such purported assignee or subtenant, (ii) a release by Landlord of Tenant's performance of, or compliance with, any of the obligations to be performed, or covenants or terms to be complied with, by Tenant pursuant to this Lease, or (iii) a waiver of Landlord's right of termination as set forth in the immediately preceding sentence. Section 10.14. The listing of any name other than that of Tenant, whether on the doors of the Demised Premises, on the Building directory, elevators or otherwise, shall not operate to vest any right or interest in this Lease or the Demised Premises, nor shall it be deemed to be the consent of Landlord to any assignment or transfer of this Lease or to any sublease of the Demised Premises or to the use or occupancy thereof by third parties. Landlord shall not be required to permit the listing of any name other than Tenant, and Tenant agrees that, if Landlord does consent to any such listing, the same shall be deemed a privilege extended by Landlord that is revocable at will by written notice to Tenant. Notwithstanding anything to the contrary contained herein, Landlord shall list the names of permitted subtenants of the Demised Premises, and permitted assignees of this Lease, on the Building directory, but subject nevertheless to the provisions of this Lease and the Building rules, regulations and requirements governing such listings. ARTICLE 11 ---------- NON-LIABILITY; INDEMNIFICATION Section 11.01. Neither Landlord nor Persons Within Landlord's Control shall be liable for: (i) any damage to property of Tenant or of others entrusted to employees of Landlord or to Persons Within Landlord's Control, (ii) any loss or damage to any property of Tenant or of Persons Within Tenant's Control by theft or otherwise, except if and to the extent caused by the gross negligence or willful misconduct of Landlord or Persons Within Landlord's Control (and is not otherwise subject to the provisions of Section 8,04 above); (iii) any injury or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, water, rain, snow or leaks from any part of the Building or from the pipes, appliances or plumbing works or from the roof, street or sub-surface or from any other place or by dampness or by any other cause of whatsoever nature, except if and to the extent caused by the negligence or willful misconduct of Landlord or Persons Within Landlord's Control (and is not otherwise subject to the provisions of Section 8.04 above); (iv) any such damage caused by other tenants or persons in the Building or caused by operations in construction of any private, public or quasi-public work, except if and to the extent caused by the negligence or willful misconduct of Landlord or Persons Within Landlord's Control (and is not otherwise subject to the provisions of Section 8.04 above); or (v) any latent defect in the Demised Premises or in the Building (provided that the foregoing shall not be construed so as to relieve Landlord of Landlord's obligation to perform Landlord's Work or such Repairs as Landlord shall otherwise be required to perform pursuant to the provisions of this Lease in a good and workmanlike manner). In no event shall Landlord be liable to Tenant for any consequential damages in connection with or with respect to this Lease. Section 11.02. If at any time any windows of the Demised Premises shall be temporarily or permanently closed, darkened or covered for any reason whatsoever, including Landlord's own acts, Landlord shall not be liable for any damage Tenant may sustain thereby, and Tenant shall not be entitled to any compensation therefor nor abatement of rent, nor shall the same release Tenant from Tenant's obligations hereunder or constitute an eviction. Section 11.03. Except to the extent that the waiver of subrogation and release provisions of Section 8.04 hereof shall apply, Tenant agrees, irrespective of whether Tenant shall solely have been negligent in connection therewith, but only if and to the extent the same shall not be caused solely by the negligence or willful misconduct of Landlord or Persons Within Landlord's Control, to indemnify, protect, defend and save harmless, Landlord and Landlord's partners, officers, directors, contractors, agents and employees from and against any and all liability (statutory or otherwise), claims, suits, demands, damages, judgments, costs, fines, penalties, interest and expenses (including reasonable counsel and other professional fees and disbursements incurred in any action or proceeding), to which Landlord and/or any such partner, officer, director, contractor, agent or employee may be subject or suffer arising from, or in connection with: (i) any liability or claim for any injury to, or death of, any person or persons, or damage to property (including any loss of use thereof), occurring in or about the Demised Premises, or (ii) the use and occupancy of the Demised Premises, or from any work, installation or thing whatsoever done or omitted (other than by Landlord or its agents or employees) in or about the Demised Premises during the Term and during the period of time, if any, prior to the Commencement Date that Tenant may have been given access to the Demised Premises, or (iii) any default by Tenant in the performance of Tenant's obligations under this Lease, or (iv) any act, omission, carelessness, negligence or misconduct of Tenant or of Persons Within Tenant's Control. Notwithstanding the foregoing, Tenant shall be relieved of Tenant's obligation of indemnity herein pro tanto of the amount actually recovered by Landlord from one or more of Landlord's insurers in connection with any such claim. Section 11.04. Tenant shall reimburse and compensate Landlord, as additional rent within thirty (30) days after rendition of a statement, for all expenditures, costs, fees, expenses, judgments, penalties, damages and fines sustained or incurred by Landlord (including reasonable counsel and other professional fees and disbursements incurred in connection with any action or proceeding) in connection with any matter set forth in this Article 11, or breach of any warranty or representation by Tenant made in this Lease or the default by Tenant under this Lease. If, in any action or proceeding naming both Landlord and Tenant, liability arising out of the negligence of Tenant is established, Tenant shall (i) indemnify Landlord in accordance with the provisions of this Article 11 and (ii) waive any right of contribution against Landlord. Reference in this Article 11 to Landlord shall for all purposes be deemed to include the lessor of any Underlying Lease and each Mortgagee. Section 11.05. A. Subject to the provisions of Subsection 11.05B below, Tenant agrees that Tenant's sole remedies in any instances where Tenant disputes Landlord's reasonableness in exercising judgment or withholding its consent or approval pursuant to a specific provision of this Lease shall be those in the nature of an injunction, declaratory judgment or specific performance, the rights to monetary damages or other remedies being hereby specifically and irrevocably waived by Tenant. Without limiting the generality of the foregoing, and unless expressly provided to the contrary in this Lease, Tenant agrees that, in any situation in which Landlord's consent or approval is required pursuant to this Lease, the same may be granted or withheld in Landlord's sole and absolute discretion, and/or be made subject to such conditions as Landlord, in Landlord's sole and absolute discretion, may deem appropriate. B. In any instance where this Lease expressly provides that, in connection with a proposed Alteration, assignment or subletting, Landlord's consent or approval is required and may not unreasonably be withheld or delayed, if Tenant shall dispute the reasonableness of Landlord's refusal to grant such consent or approval or the timeliness of Landlord's response, Tenant shall have the right to submit said dispute to binding arbitration under the Expedited Procedures provisions (Rules 53 through 57 in the November 1, 1993 edition) of the Commercial Arbitration Rules of the American Arbitration Association ("AAA"). In cases where Tenant shall elect to utilize such arbitration: (i) the parties will have no right to object if the arbitrator so appointed was on the list submitted by the AAA and was not objected to in accordance with Rule 54, (ii) the first hearing shall be held within five (5) Business Days after the appointment of the arbitrator, which appointment shall occur within five (5) Business Days after Tenant elects to submit to arbitration such dispute, (iii) if the arbitrator shall find that Landlord acted unreasonably in withholding a consent or approval, such consent or approval shall be deemed granted, (iv) the losing party in such arbitration shall pay the arbitration costs charged by AAA and/or the arbitrator and any reasonable legal fees and disbursements and other reasonable professional fees incurred by the successful party in connection with such arbitration, and (v) the decision of such arbitrator may be entered in a court of competent jurisdiction. Section 11.06. ------------- A. Tenant acknowledges receipt of advice from Landlord to the effect that the Demised Premises and other portions of the Building contain (or may contain) asbestos. Tenant expressly agrees that except as set forth below: (i) Landlord shall have no liability whatsoever to Tenant, or to any person or entity claiming by, through or under Tenant, on account of, or in connection with, the presence of asbestos in the Demised Premises or the Building, and (ii) Tenant's obligation to keep, observe and perform all of the terms, provisions, covenants and conditions on the part of Tenant to be kept, observed and performed pursuant to this Lease shall not in any way be diminished or contested on account of the presence of such asbestos. B. Notwithstanding anything to the contrary contained in the foregoing Subsection 11.06A, Landlord represents that Landlord has removed all asbestos-containing material (as such term is defined by applicable Legal Requirements), located in the Demised Premises, except from the Building core and wet columns, removal of which Landlord represents is not required pursuant to applicable Legal Requirements, in compliance with all applicable Legal Requirements. With respect to any asbestos-containing material which shall remain in the Demised Premises, Landlord represents that, subject to the provisions of the last three sentences of this Subsection 11.06B, the Demised Premises and such asbestos-containing material shall be in compliance with all applicable Legal Requirements. If any Legal Requirements becoming effective following the date hereof shall require the removal, containment, treatment or encapsulation of any asbestos-containing material which may exist in the Demised Premises, Landlord shall promptly cause the removal, containment, treatment or encapsulation of any such asbestos-containing material, at Landlord's own cost and expense and in the same manner as Landlord is obligated to make Repairs, it being understood and agreed that Landlord's obligation to so treat such asbestos-containing materials is subject to the removal by Tenant, at Landlord's cost and expense, of such installations of Tenant as are necessary to remove so that Landlord shall have adequate access for such treatment of asbestos-containing materials. Landlord shall have no obligation for the restoration or repair of such Tenant's installations. Notwithstanding anything to the contrary contained in this Subsection 11.06B, if the removal, containment, treatment or encapsulation of such asbestos or asbestos-containing material shall be necessitated by the negligence or willful misconduct of Tenant or any Persons Within Tenant's Control, Landlord shall cause such asbestos-containing material to be removed, contained, treated or encapsulated, to the extent required by Legal Requirements, solely at Tenant's cost and expense. In no event shall Tenant be responsible for remediation of any asbestos- containing material outside the Demised Premises, unless such asbestos-containing material was introduced by Tenant or unless Tenant necessitates the need for such remediation. ARTICLE 12 ---------- CONDEMNATION Section 12.01. If the whole of the Demised Premises shall be lawfully condemned or taken in any manner for any public or quasi-public use, this Lease and the term and estate hereby granted shall forthwith cease and terminate as of the date of vesting of title. If only a part of the Demised Premises shall be so condemned or taken, then, effective as of the date of vesting of title, the Minimum Rent and additional rent hereunder shall be abated in an amount thereof apportioned according to the area of the Demised Premises so condemned or taken. If only a part of the Building (other than a de minimis portion of the Building) shall be so condemned or taken (whether or not the Demised Premises be affected), then Landlord may, at Landlord's option, terminate this Lease and the term and estate hereby granted as of the date of such vesting of title by notifying Tenant in writing of such termination within sixty (60) days following the date on which Landlord shall have received notice of vesting of title. If fifteen (15%) percent or more of the Demised Premises shall be so condemned or taken and any portion of the Building shall be so condemned or taken, which condemnation or taking of the Building shall have a material adverse effect on Tenant's means of access to the Demised Premises or entrance to the Building, then Tenant may, at Tenant's option, by delivery of notice in writing to Landlord within sixty (60) days following the date on which Tenant shall have received notice of vesting of title, terminate this Lease and the term and estate hereby granted as of the date set forth in Tenant's notice and the Minimum Rent and additional rent shall be prorated and adjusted as of the date of vesting of title. If neither Landlord nor Tenant elects to terminate this Lease as aforesaid, this Lease shall be and remain unaffected by such condemnation or taking, except that the Minimum Rent and additional rent shall be abated to the extent, if any, hereinbefore provided in this Article 12. If only a part of the Demised Premises shall be so condemned or taken and this Lease and the term and estate hereby granted are not terminated as hereinbefore provided, Landlord will, with reasonable diligence and at its expense, restore the remaining portion of the Demised Premises as nearly as practicable to the same condition as it was in prior to such condemnation or taking, provided that such restoration shall not exceed the scope of the work done in originally constructing the Building and that the cost thereof shall not exceed the net proceeds of the award received by Landlord for the value of the portion of the Demised Premises so taken, and Tenant shall be entitled to receive no part of such award. Section 12.02. In the event of any condemnation or taking hereinbefore mentioned of all or a part of the Building or the Demised Premises, Landlord shall be entitled to receive the entire award in the condemnation proceeding, including any award made for the value of the estate vested by this Lease in Tenant, and Tenant hereby expressly assigns to Landlord any and all right, title and interest of Tenant now or hereafter arising in or to any such award or any part thereof, and Tenant shall be entitled to receive no part of such award. In any condemnation proceeding, Tenant may submit a separate claim against the condemning authority for the value of Tenant's trade fixtures, the unamortized portion of Tenant's Initial Work, and the cost of removal or relocation, if such separate claims are allowable as such and do not reduce the award otherwise payable to Landlord. Section 12.03. If all or any portion of the Demised Premises shall be taken by the exercise of the right of eminent domain for occupancy for a limited period, this Lease shall continue in full force and effect provided, however, effective as of the date of vesting of title, Landlord shall be entitled to receive, for itself, the entire award or payment made for such use during such taking and Tenant hereby expressly assigns to Landlord any and all right, title, and interest of Tenant now or hereafter arising in or to any such award or payment. The Minimum Rent and Recurring Additional Rent hereunder shall be abated in an amount thereof apportioned according to the area of the Demised Premises so taken for the period of such taking. If such taking is for a period not extending beyond the Term of this Lease, and if such taking results in changes or Alterations in the Demised Premises which would necessitate an expenditure to restore the Demised Premises to its former condition, then Landlord, at the termination of such taking shall, at its expense, and to the extent any award or awards shall be sufficient for the purpose, restore the Demised Premises to its former condition. ARTICLE 13 ---------- ACCESS; BUILDING NAME Section 13.01. Landlord reserves the right at any time and from time to time (without thereby creating an actual or constructive eviction or incurring any liability to Tenant therefor) to place such structures and to make such relocations, changes, Alterations, additions, improvements, Repairs and replacements on the Land and in or to the Building (including the Demised Premises) and the Building Systems, and the operation of the Building Systems, as well as in or to the street entrances, subway entrances, lobbies, halls, plazas, washrooms, tunnels, elevators, stairways and other parts thereof, and to erect, maintain and use pipes, ducts and conduits in and through the Demised Premises, all as Landlord may reasonably in its good faith judgment deem necessary or desirable; provided, however, that: (i)Landlord shall use commercially reasonable efforts (except that Landlord shall have no obligation to employ contractors or labor at overtime or premium rates or to incur any other overtime costs or expenses in connection therewith) to minimize interference with Tenant's use and occupancy of the Demised Premises for the Authorized Use or access thereto arising from the making of such Repairs, Alterations and improvements (ii) any such changes, Alterations, Repairs, and improvements shall not materially increase the obligations of Tenant under this Lease and (iii) the installation and location of any pipes, ducts, or conduits installed in or through the Demised Premises shall not reduce the usable area of the Demised Premises by more than a de minimis amount. Landlord shall also have the right to install solar control window film on, or otherwise alter for energy savings purpose, any windows of the Demised Premises. Nothing contained in this Article 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 Legal Requirements as elsewhere in this Lease provided. Section 13.02. Except as provided in Section 1.02 above, neither this Lease nor any use by Tenant shall give Tenant any right or easement in or to the use of any door or hallways, or any passage or any tunnel or any concourse or arcade or plaza or to any connection of the Building with any subway, railroad or any other building or to any public conveniences, and the use of such doors, halls, passages, tunnels, concourses, arcades, plazas, connections and conveniences may without notice to Tenant be regulated or discontinued at any time and from time to time by Landlord without Landlord incurring any liability to Tenant therefor and without affecting the obligations of Tenant under this Lease. Section 13.03. Landlord, Overlandlord and any Mortgagee, and their representatives, may enter the Demised Premises at all reasonable hours and without Tenant being present, upon reasonable advance notice (which notice may be given orally to any managerial level employee of Tenant) and Tenant or a representative of Tenant may elect to be present and to accompany Landlord at the time of such entry (it being agreed that if Tenant shall not so elect, Landlord may enter the Demised Premises without Tenant being present) to Tenant (except in emergency, in which case entry may be made at any time and without notice), for the purpose of inspection or of making Repairs, Alterations, additions, restorations, replacements or improvements in or to the Demised Premises or the Building or Building Systems or of complying with Legal Requirements or the requirements of any Insurance Board, or of exercising any right reserved to Landlord by this Lease (including the right, during the progress of any Repairs or Alterations or while performing work or furnishing materials in connection with compliance with all such Legal Requirements or requirements of any Insurance Board, to keep and store within the Demised Premises all necessary materials, tools and equipment), provided that the foregoing shall not be deemed to impose any obligation on Landlord or Overlandlord or Mortgagee to make any Repairs or Alterations. Section 13.04. Landlord may, at reasonable times and without Tenant being present, upon reasonable advance notice (which notice may be given orally to any management level employee of Tenant), and Tenant may elect to be present and to accompany Landlord at the time of such entry (it being agreed that if Tenant shall not so elect, Landlord may enter the Demised Premises without Tenant being present) show the Demised Premises to any prospective purchaser, lessee, mortgagee, or assignee of the Building and/or the Land, or of Landlord's interest therein, and their representatives. During the twelve (12) month period preceding the Expiration Date, Landlord may similarly show the Demised Premises or any part thereof to any person contemplating the leasing of all or a portion of the same. Section 13.05. Without incurring any liability to Tenant, Landlord may permit access to the Demised Premises and open the same, whether or not Tenant shall be present, upon demand of any receiver, trustee, assignee for the benefit of creditors, sheriff, marshal or court officer entitled to, or purporting to be entitled to, such access for the purpose of taking possession of, or removing, Tenant's property or for any other lawful purpose (but by this provision any action by Landlord hereunder shall not be deemed a recognition by Landlord that the person or official permitted to such access has any right to such access or interest in or to this Lease, or in or to the Demised Premises), or upon demand of any representative of the fire, police, building, sanitation or other department of the city, state or federal governments. Section 13.06. Landlord shall have the absolute right at any time, and from time to time, to name and change the name of the Building and to change the designated address of the Building. The Building may be named after any person, or otherwise, whether or not such name shall be, or shall resemble, the name of a tenant of space in the Building. Section 13.07. Any reservation of a right by Landlord to enter upon the Demised Premises and to make or perform any Repairs, Alterations or other work in, to or about the Demised Premises which, in the first instance, is the obligation of Tenant pursuant to this Lease, shall not be deemed to: (i) impose any obligation on Landlord to do so, (ii) render Landlord liable (to Tenant or any third party) for the failure to do so, or (iii) relieve Tenant from any obligation to indemnify Landlord as otherwise provided elsewhere in this Lease. Section 13.08. Subject to the provisions of this Lease and to circumstances beyond the control of Landlord, Tenant shall have access to the Demised Premises on a 24-hour per day, 7-day per week, basis. ARTICLE 14 ---------- BANKRUPTCY Section 14.01. This Lease and the term and estate hereby granted shall be subject to the conditional limitation that, if any one or more of the following events shall occur: (i) Tenant shall (a) have applied for or consented to the appointment of a receiver, trustee, liquidator, or other custodian of Tenant or any of its properties or assets, (b) have made a general assignment for the benefit of creditors, (c) have commenced a voluntary case for relief as a debtor under the United States Bankruptcy Code or filed a petition to take advantage of any bankruptcy, reorganization, insolvency, readjustment of debts, dissolution or liquidation law or statute or an answer admitting the material allegations of a petition filed against it in any proceeding under any such law, or (d) be adjudicated a bankrupt or insolvent, or (ii) without the acquiescence or consent of Tenant, an order, judgment or decree shall have been entered by any court of competent jurisdiction (a) approving as properly filed a petition seeking relief under the United States Bankruptcy Code or any bankruptcy, reorganization, insolvency, readjustment of debts, dissolution or liquidation law or statute with respect to Tenant or all or a substantial part of its properties or assets, or (b) appointing a receiver, trustee, liquidator or other custodian of all or a substantial part of its properties or assets, and such order, judgment or decree shall have continued unstayed and in effect for any period of one hundred twenty (120) days or more, then this Lease may be canceled and terminated by Landlord by the sending of a written notice to Tenant within a reasonable time after Landlord shall be notified of the happening of any of the aforedescribed events. 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 Demised Premises, but shall forthwith quit and surrender the Demised Premises. If this Lease shall have been theretofore assigned in accordance with its terms, the provisions of this Article shall be applicable only to the party then owning Tenant's interest in this Lease. Section 14.02. Without limiting any of the foregoing provisions of this Article, if, pursuant to the United States Bankruptcy Code, Tenant shall be permitted to assign this Lease notwithstanding the restrictions contained in this Lease, Tenant agrees that adequate assurance of future performance by an assignee expressly permitted under such Code shall be deemed to mean (a) the deposit of cash security in an amount equal to the sum of three (3) monthly installments of the Minimum Rent plus additional rent under Article 19 of this Lease for the calendar year preceding the year in which such assignment is intended to become effective, which deposit shall be held by Landlord for the balance of the Term, without interest, as security for the full performance of all of the obligations under this Lease on the part of Tenant to be performed, and (b) evidence by financial statement prepared and certified by a certified public accountant that the assignee has a current net worth, after including the assignment and excluding the value of the leasehold, sufficient to meet all of the remaining rental obligations under this Lease. ARTICLE 15 ---------- DEFAULTS, REMEDIES, DAMAGES Section 15.01. This Lease and the term and estate hereby granted shall be subject to the conditional limitation that, if any one or more of the following events (collectively, "Events of Default") shall occur: (a) Tenant shall fail to pay to Landlord the full amount of any installment of Minimum Rent or any Recurring Additional Rent on the date upon which the same shall first become due, and such default shall continue for five (5) days following delivery of a written notice of such default to Tenant; or (b) Tenant shall fail to pay to Landlord the full amount of any additional rent (other than Recurring Additional Rent), or any other charge payable hereunder by Tenant to Landlord, on the date upon which the same first becomes due, and such default shall continue for ten (10) days following delivery of a written notice of such default to Tenant; or (c) Tenant shall do anything or permit anything to be done, whether by action or inaction, in breach of any covenant, agreement, term, provision or condition of this Lease, or any Exhibit annexed hereto, on the part of Tenant to be kept, observed or performed (other than a breach of the character referred to in clause s15.01(a) and (b) above), and such breach shall continue and shall not be fully remedied by Tenant within thirty (30) days after Landlord shall have given to Tenant a written notice specifying the same (except in connection with a breach which cannot be remedied or cured within said thirty (30) day period, in which event the time of Tenant within which to cure such breach shall be extended for such time as shall be necessary to cure the same, but only if Tenant, within such thirty (30) day period, shall promptly commence and thereafter proceed diligently and continuously to cure such breach, and provided further that such period of time shall not be so extended as to jeopardize the interest of Landlord in the Land and/or the Building or so as to subject Landlord to any liability, civil or criminal); or (d) Any event shall occur or any contingency shall arise whereby this Lease or the estate hereby granted or the unexpired balance of the Term of this Lease would, by operation of law or otherwise, devolve upon or pass to any person, firm, association or corporation other than Tenant, except as may be expressly authorized herein; or (e) Tenant shall permanently desert or abandon the Demised Premises, or the same shall become permanently vacant and Tenant shall not pay the rent due hereunder (whether or not the keys be surrendered, and whether or not improvements, personal property or trade fixtures remain in the Demised Premises), or Tenant shall fail to take possession or move into the Demised Premises within one hundred twenty (120) days after the Commencement Date; then, upon the occurrence of any of said events, Landlord may at any time thereafter give to Tenant a notice of termination of this Lease setting forth a termination date ten (10) days from the date of the giving of such notice, and, upon the giving of such notice, this Lease and the term and estate hereby granted (whether or not the Term shall theretofore have commenced) shall expire and terminate upon the expiration of said ten (10) days with the same effect as if that day were the date hereinbefore set for the expiration of the Term of this Lease, but Tenant shall remain liable for damages as provided in Section 15.03 below. Section 15.02. ------------- A. Subject to the provisions of Subsection 15.02F below, if an Event of Default shall have occurred, Landlord and/or Landlord's agents and employees, may, without notice to Tenant, immediately or at any time thereafter re-enter into or upon the Demised Premises or any part thereof, either by summary dispossess proceedings or by any suitable action or proceeding at law, or by force or otherwise, to the extent legally permitted, without being liable to indictment, prosecution or damages therefor, and may repossess the same, and may remove any persons or property therefrom, to the end that Landlord may have, hold and enjoy the Demised Premises again as and of its first estate and interest therein. The words "reenter" "re-entry" and "re-entered" as used in this Lease are not restricted to their technical legal meanings. In the event of any termination of this Lease under the provisions of Articles 14 or 15, or in the event that Landlord shall re-enter the Demised Premises under the provisions of this Article 15, or in the event of the termination of this Lease (or of re-entry) by or under any summary dispossess or other proceeding or action or any provision of law, Tenant shall thereupon pay to Landlord the Minimum Rent, additional rent and any other charges payable hereunder by Tenant to Landlord up to the time of such termination of this Lease, or of such recovery of possession of the Demised Premises by Landlord, as the case may be, plus the expenses incurred or paid by Landlord in terminating this Lease or of re-entering the Demised Premises and securing possession thereof, including reasonable attorneys' fees and costs of removal and storage of Tenant's property, and Tenant shall also pay to Landlord damages as provided in Section 15.03 below. B. In the event of the re-entry into the Demised Premises by Landlord under the provisions of this Section 15.02, and if this Lease shall not be terminated (subject to the provisions of Subsection 15.02F below), Landlord may (but shall have absolutely no obligation to do so), not in Landlord's own name, but as agent for Tenant, relet the whole or any part of the Demised Premises for any period equal to or greater or less than the remainder of the original term of this Lease, for any sum which Landlord may deem suitable, including rent concessions, and for any use and purpose which Landlord may deem appropriate. Such reletting may include any improvements, personalty and trade fixtures remaining in the Demised Premises. C. In the event of a breach or threatened breach on the part of Tenant with respect to any of the covenants, agreements, terms, provisions or conditions on the part of or on behalf of Tenant to be kept, observed or performed, Landlord shall also have the right to obtain injunctive relief. D. In the event of (i) the termination of this Lease under the provisions of Articles 14 or 15, or (ii) the re-entry of the Demised Premises by Landlord under the provisions of this Section 15.02, or (iii) the termination of this Lease (or re-entry) by or under any summary dispossess or other proceeding or action or any provision of law by reason of default hereunder on the part of Tenant, Landlord shall be entitled to retain all monies, if any, paid by Tenant to Landlord, whether as advance rent, security deposit or otherwise, but such monies shall be credited by Landlord against any Minimum Rent, additional rent or any other charge due from Tenant at the time of such termination or re-entry or, at Landlord's option, against any damages payable by Tenant under Section 15.03 or pursuant to law. E. The specified remedies to which Landlord may resort under this Lease are cumulative and concurrent, and are not intended to be exclusive of each other or of any other remedies or means of redress to which Landlord may lawfully be entitled at any time, and Landlord may invoke any remedy allowed under this Lease or at law or in equity as if specific remedies were not herein provided for, and the exercise by Landlord of any one or more of the remedies allowed under this Lease or in law or in equity shall not preclude the simultaneous or later exercise by the Landlord of any or all other remedies allowed under this Lease or in law or in equity. F. Notwithstanding anything to the contrary contained in this Section 15.02, Landlord shall not re-enter the Demised Premises by reason of Tenant's default under this Lease, unless: (i) Landlord shall have served a notice of termination pursuant to Section 15.01 above, or (ii) this Lease shall have been otherwise terminated pursuant to Article 14 above or this Article 15, or (iii) Landlord shall have prevailed in any summary proceeding with respect to the Demised Premises and shall have obtained a warrant of eviction against Tenant. Section 15.03. ------------- A. In the event of any termination of this Lease under the provisions hereof or under any summary dispossess or other proceeding or action or any provision of law, or in the event that Landlord shall re-enter the Demised Premises under the provisions of this Lease, Tenant shall pay to Landlord as damages, at the election of Landlord, either: (i) a sum which at the time of such termination of this Lease or at the time of any such re-entry by Landlord, as the case may be, represents the then value of the excess, if any, of (a) the aggregate of the installments of Minimum Rent and the additional rent (if any) which would have been payable hereunder by Tenant, had this Lease not so terminated, for the period commencing with such earlier termination of this Lease or the date of any such re-entry, as the case may be, and ending with the date hereinbefore set for the expiration of the full term hereby granted pursuant to Articles 1 and 2, over (b) the aggregate rental value of the Demised Premises for the same period (the amounts of each of clauses (a) and (b) being first discounted to present value at an annual rate equal to the Prime Rate (as hereinafter defined); or (ii) sums equal to the aggregate of the installments of Minimum Rent and additional rent (if any) which would have been payable by Tenant had this Lease not so terminated, or had Landlord not so re-entered the Demised Premises, payable upon the due dates therefor specified herein following such termination or such re-entry and until the date herein before set for the expiration of the full term hereby granted; provided, however, that if Landlord shall relet the Demised Premises during said period, Landlord shall credit Tenant with the net rents received by Landlord from such reletting, such net rents to be determined by first deducting from the gross rents as and when received by Landlord from such reletting the customary out-of-pocket expenses incurred or paid by Landlord in terminating this Lease and of re-entering the Demised Premises and of securing possession thereof, including reasonable attorneys' fees and costs of removal and storage of Tenant's property, as well as the customary out-of-pocket expenses of reletting, including repairing, restoring and improving the Demised Premises for new tenants, brokers' commissions, advertising costs, reasonable attorneys' fees and disbursements, and all other expenses chargeable against the Demised Premises and the rental therefrom in connection with such reletting, it being understood that such reletting may be for a period equal to or shorter or longer than the remaining term of this Lease; and provided further, that (a) in no event shall Tenant be entitled to receive any excess of such net rents over the sums payable by Tenant to Landlord hereunder, (b) in no event shall Tenant be entitled in any suit for the collection of damages pursuant to this Subdivision (ii) to a credit in respect of any net rents from a reletting except to the extent that such net rents are actually received by Landlord prior to the commencement of such suit, and (c) if the Demised Premises or any part thereof should be relet in combination with other space, then proper apportionment on a square foot area basis shall be made of the rent received from such reletting and of the expenses of reletting, or if relet for a period longer than the remaining term of this lease, the expenses of reletting shall be apportioned based on the respective periods. B. For the purposes of Subdivision A(i) of this Section 15.03, the amount of additional rent which would have been payable by Tenant under Article 19 for each year, as therein provided, ending after such termination of this Lease or such re-entry, shall be deemed to be an amount equal to the amount of such additional rent payable by Tenant for the calendar year and Tax Year ending immediately preceding such termination of this Lease or such re-entry. Suit or suits for the recovery of such damages, or any installments thereof, may be brought by Landlord from time to time at Landlord's election, and nothing contained herein shall be deemed to require Landlord to postpone suit until the date when the term of this Lease would have expired if it had not been terminated under the provisions of Articles 14 or 15, or under any provision of law, or had Landlord not re-entered the Demised Premises. Section 15.04. Nothing contained in this Article 15 shall be construed as limiting or precluding the recovery by Landlord against Tenant of any payments or damages to which, in addition to the damages particularly provided above, Landlord may lawfully be entitled by reason of any default hereunder on the part of Tenant. The failure or refusal of Landlord to relet the Demised Premises or any part or parts thereof, or the failure of Landlord to collect the rent thereof under such reletting, shall not release or affect Tenant's liability for damages. Section 15.05. Tenant, for Tenant, and on behalf of any and all persons claiming through or under Tenant, including creditors of all kinds, does hereby waive and surrender all right and privilege which they or any of them might have under or by reason of any present or future law to redeem the Demised Premises, or to have a continuance of this Lease for the term hereby demised, after Tenant shall be dispossessed or ejected therefrom by process of law or under the terms of this Lease or after the expiration or termination of this Lease as herein provided or pursuant to law. Tenant also waives the provisions of any law relating to notice and/or delay in levy of execution in case of an eviction or dispossess of a tenant for non-payment of rent, and of any other law of like import now or hereafter in effect. In the event that Landlord shall commence any summary proceeding for non-payment of rent or for holding over after the expiration or sooner termination of this Lease, Tenant shall not, and hereby expressly waives any right to, interpose any counterclaim of whatever nature or description in any such proceeding, unless the failure of Tenant to interpose such counterclaim would operate as a forfeiture of Tenant's right to make such a claim separately. Section 15.06. The provisions of this Article 15 shall survive the expiration or sooner termination of this Lease. ARTICLE 16 ---------- CURING TENANT'S DEFAULTS; REIMBURSEMENT Section 16.01. If Tenant shall default in any of its monetary obligations hereunder or default (after notice and the expiration of any applicable cure period provided in this Lease) in the observance or performance of any material term, covenant, provision or condition on Tenant's part to be observed or performed under or by virtue of any of the terms or provisions in this Lease, then, unless otherwise provided elsewhere in this Lease, Landlord may immediately or at any time thereafter and without notice perform the obligation of Tenant thereunder, and if Landlord, in connection therewith or in connection with any default by Tenant (after notice and the expiration of any applicable cure period provided in this Lease) in the covenant to pay Minimum Rent or additional rent hereunder, shall make any expenditures or incur any obligations for payment of money, including court costs and reasonable attorneys' fees, in instituting, prosecuting or defending any action or proceeding, then such fees, costs and expenses so paid or obligations incurred shall be additional rent to be paid by Tenant to Landlord, upon demand, with interest thereon at an annual rate (the "Interest Rate") equal to the lesser of: (a) the then prevailing prime rate (which, for the purposes hereof, includes any equivalent or successor interest rate, however denominated) of interest for unsecured ninety-day loans by Citibank, N.A. (or The Chase Manhattan Bank, N.A., if Citibank, N.A. shall not then have an established prime rate; or the prime rate of any major banking institution doing business in New York City, as selected by Landlord, if none of the aforementioned banks shall be in existence or have an established prime rate) (with the relevant interest rate being the "Prime Rate") plus two (2) percentage points, or (b) the maximum rate allowed by law. Any interest payable by Tenant pursuant to this Lease at the Interest Rate shall be calculated from the day such expenditure is made or obligation is incurred until the date when such payment is finally and completely paid by Tenant to Landlord. Section 16.02. Bills for any property, material, labor or services provided, furnished or rendered, or caused to be provided, furnished or rendered, by Landlord to Tenant pursuant to the terms of this Lease, may be sent by Landlord to Tenant monthly (or immediately, at Landlord's option), and shall be due and payable by Tenant as additional rent within thirty (30) days after the same shall be sent to Tenant by Landlord. If Landlord shall commence a summary proceeding against Tenant for non-payment of rent, Tenant shall reimburse Landlord as additional rent for Landlord's reasonable attorneys' fees and expenses, both if judgment is awarded for Landlord, or if Tenant makes the payment subsequent to service of process but prior to entry of judgment. If Tenant or any subtenant of Tenant shall request Landlord's consent to any matter that requires Landlord's consent under this Lease and if Landlord (in Landlord's sole discretion) shall refer the matter to Landlord's attorneys or other professionals or consultants, then, whether or not such consent shall be granted, Tenant shall reimburse Landlord for the reasonable fees and disbursements incurred by Landlord in connection therewith as additional rent within thirty (30) days after a bill therefor shall have been rendered. Section 16.03. If the Term shall have expired or been terminated after or on the date that Landlord shall have made any of the expenditures, or incurred any of the obligations, set forth in this Article 16, then all such amounts and any interest thereon, as set forth in Section 16.01 above, shall be recoverable by Landlord as damages. The provisions of this Article 16 shall survive the expiration or sooner termination of this Lease. ARTICLE 17 ---------- QUIET ENJOYMENT Section 17.01. Landlord covenants that, if and for so long as Tenant shall pay all of the Minimum Rent and additional rent reserved hereunder and shall observe and perform all of the terms, agreements, covenants, provisions and conditions of this Lease on Tenant's part to be observed and performed, Tenant may peaceably and quietly enjoy the Demised Premises, subject nevertheless to the terms and conditions of this Lease, and provided, however, that no eviction of Tenant by reason of paramount title, by reason of the foreclosure of any Mortgage now or hereafter affecting the Demised Premises or by reason of any termination of any Underlying Lease to which this Lease is subject and subordinate, whether such termination is effected by operation of law, by agreement or otherwise, shall be construed as a breach of this covenant nor shall any action by reason thereof be brought against Landlord. This covenant shall be construed as a covenant running with the Land, and is not, nor shall it be construed as, a personal covenant of Landlord, except to the extent of Landlord's interest in this Lease and only for so long as such interest shall continue; provided, however, that except as otherwise provided in this Lease, nothing contained in this Section 17.01 shall be deemed to exculpate Landlord for or with respect to acts of Landlord which occurred during the period of time that said Landlord held the interest of the Landlord under this Lease. Accordingly, this covenant shall bind and be enforceable against Landlord or any successor to Landlord's interest, subject to the terms hereof, only for so long as Landlord or any successor to Landlord's interest, respectively, shall be in possession and shall be collecting rent from Tenant, but not thereafter. ARTICLE 18 ---------- BUILDING SERVICES Section 18.01. ------------- A. So long as this Lease shall remain in full force and effect, Landlord shall provide the following services: (i) elevator service in the elevator bank servicing the Demised Premises on Business Days, during usual business hours (i.e., 8 A.M. to 6 P.M.), and, subject to the provisions of Section 18.04 below, have at least one elevator on call at all other times. Landlord shall also provide freight elevator service on Business Days during business hours in common with other tenants and occupants of the Building on a first-come first-served basis for the making of deliveries in the ordinary course of Tenant's business to and from the Demised Premises. Tenant agrees that Landlord may, at Landlord's election, install elevators with or without operators and may change the same from time to time; (ii) heat to the Demised Premises when and as required by law, on Business Days from 8 A.M. to 6 P.M.; (iii) hot and cold running water for ordinary lavatory, pantry, and drinking and office cleaning purposes. If Tenant requires, uses or consumes water for any other purposes or in unusually high quantities (as reasonably determined by Landlord), then Landlord may (or, at Landlord's direction, Tenant shall) install a meter or meters or other means to measure Tenant's water consumption, and Tenant agrees to pay for the cost of the meter or meters and the installation thereof, and to pay for the maintenance of said meter equipment and/or to pay Landlord's cost of other means of measuring such water consumption by Tenant. Tenant shall reimburse Landlord for the cost of all water consumed as measured by said meter or meters or as otherwise measured, including sewer rents, as additional rent, within thirty (30) days after bills therefor are rendered. Tenant shall reimburse Landlord for the cost of generating such hot water in excess of hot water that shall be required by Tenant, as reasonably determined by Landlord, for ordinary lavatory, dwyer type pantry, drinking and office cleaning purposes, as additional rent, within thirty (30) days after bills therefor are rendered; and (iv) cleaning of the Demised Premises on Business Days in accordance with the specifications set forth in Exhibit "E" annexed hereto and made a part hereof, provided that the Demised Premises are kept in reasonable order by Tenant (and further subject to the provisions of Section 18.03 below). Tenant shall reimburse Landlord for the cost of removal from the Demised Premises and the Building of so much of Tenant's refuse and rubbish as shall exceed that ordinarily accumulated daily in the routine of business office occupancy (collectively, "Extra Rubbish Removal"). The reimbursement for Extra Rubbish Removal shall be made by Tenant to Landlord, as additional rent, in an amount not to exceed Landlord's actual cost therefor, within thirty (30) days after bills therefor are rendered. B. Tenant acknowledges receipt of advice from Landlord to the effect that there is no Building air-conditioning or ventilation system servicing the Demised Premises, and that all air-conditioning and ventilation of the Demised Premises (other than the A/C Units that are specified as part of Landlord's Work) shall be procured by Tenant, at Tenant's own cost and expense. Tenant agrees that all air-conditioning equipment now or hereafter installed by Tenant in the Demised Premises shall be of the package air-cooled type, window units being expressly prohibited. Tenant covenants and agrees that, at Tenant's own cost and expense, Tenant shall maintain said air-conditioning equipment in good working order at all times during the Term, perform all repairs thereto and servicing thereof, and make replacement of all parts, as the same becomes necessary. Tenant shall be required to pay in accordance with Article 20 below for all electric energy necessary or used in connection with air-conditioning and ventilation in the Demised Premises. Said air-conditioning equipment shall at all times be the exclusive property of Landlord, and shall be surrendered to Landlord with the Demised Premises upon the expiration or sooner termination of this Lease. Landlord shall assign to Tenant any warranties obtained by Landlord for the Building Standard A/C Units or the Upgraded A/C Units, as the case may be, and the installation thereof. Section 18.02. The term "Business Days" shall be deemed to mean all days other than Saturdays, Sundays and Holidays. The term "Holidays" shall be deemed to mean all federal, state, municipal and bank holidays and Building Service Employees and Operating Engineer's Union contract holidays now or hereafter in effect. As of the date hereof, the current Building Holidays are as shown on Exhibit "J", annexed hereto and made a part hereof. Section 18.03. ------------- A. If Tenant so elects, Tenant may, on no less than ninety (90) days prior notice to Landlord, elect to clean the Demised Premises, in which case Landlord shall not be obligated to provide cleaning services, and Tenant shall, at Tenant's own cost and expense, keep the Demised Premises clean and in order, to the reasonable satisfaction of Landlord (including cleaning of the inside and outside of the windows once per month), and for that purpose shall employ a person, who or which shall be subject to the prior written approval of Landlord (which approval shall not be unreasonably withheld or unduly delayed). In order to ensure effective security in the Building, Tenant acknowledges the reasonableness of Landlord's right at its option to request a party to be so employed by Tenant and to act as maintenance and cleaning contractor for any office cleaning, rubbish removal, waxing, polishing, lamp replacement, cleaning and maintenance work in the Demised Premises, so long as such party is a reputable person that charges no more than the rates in effect for comparable services in Comparable Buildings. Landlord expressly reserves the right to exclude from the Building any person attempting to perform any such work or furnish any of such services without Landlord's prior written approval or not so requested by Landlord. B. If Landlord so elects, then, notwithstanding anything to the contrary set forth in Subdivision 18.01A(iv) above, Tenant shall directly procure the cleaning services and removal of refuse and rubbish which Landlord would otherwise be obligated to provide pursuant to said Subdivision 18.01A(iv). In the event that Landlord shall make the election described in the first sentence of this Subsection 18.03B, Landlord shall notify Tenant not less than thirty (30) days prior to the effective date thereof, and Landlord shall then arrange for such procurement at no additional cost or expense to Tenant, except for the cost of Extra Rubbish Removal. Landlord shall have the right, on notice given to Tenant at any time thereafter, to rescind such election. Section 18.04. Landlord reserves the right to stop the furnishing of the Building services and to stop service of the Building Systems, when necessary, by reason of accident, or emergency, or for Repairs and Alterations in the judgment of Landlord desirable or necessary to be made, until said Repairs and Alterations shall have been completed; and Landlord shall have no responsibility or liability for failure to supply heat, elevator, plumbing, electric or other services during said period or when prevented from so doing by strikes, lockouts, difficulty of obtaining materials, accidents or by any cause beyond Landlord's reasonable control, or by Legal Requirements or failure of electricity, water, steam, coal, oil or other suitable fuel or power supply, or inability by exercise of reasonable diligence to obtain electricity, water, steam, coal, oil or other suitable fuel or power. In the event such services shall have been stopped, Landlord agrees to use commercially reasonable efforts (but shall not be obligated to use overtime or premium pay labor) to minimize interference with Tenant's use and occupancy of the Demised Premises. No diminution or abatement of rent or other compensation shall or will be claimed by Tenant as a result therefrom, nor shall this Lease or any of the obligations of Tenant be affected or reduced by reason of such interruption, curtailment or suspension, nor shall the same constitute an actual or constructive eviction. Section 18.05. Tenant shall, at Tenant's own cost and expense, abide by all requirements which Landlord may reasonably prescribe for the proper protection and functioning of the Building Systems and the furnishing of the Building services as well as cooperate with Landlord in any conservation effort pursuant to a program or procedure promulgated or recommended by any Legal Requirements; provided, however, that in each instance, Landlord agrees not to enforce such requirements against Tenant in a discriminatory manner. Section 18.06. Landlord shall provide Tenant with a pro-rata share of Building directory space. ARTICLE 19 ---------- TAXES; OPERATING EXPENSES Section 19.01. In addition to the Minimum Rent and additional rent hereinbefore reserved, Tenant covenants and agrees to pay Landlord, as additional rent, all amounts computed in accordance with the provisions set forth in this Article 19. Section 19.02. For the purposes of this Lease: A. The term "Taxes" shall mean (whether represented by one or more bills) the total amount of all real estate taxes, assessments, special assessments, water and sewer rents, vault taxes, governmental levies, county taxes or any other governmental charge, general or special, ordinary or extraordinary, unforeseen as well as foreseen, of any and every kind or nature whatsoever, which are or may be levied, confirmed, charged, assessed or imposed upon the Land, the Building and/or Landlord's interest therein, and the sidewalks, plazas, streets and alleys in front of or adjacent thereto, and any rights or interests appurtenant thereto under the laws of the United States, the State of New York or any political subdivision thereof, or by the City of New York or any political subdivision thereof (including any assessments, levies, impositions, charges or taxes arising from the location of the Land or Building within a Business Improvement District or other area or zone which is subject to governmentally authorized or civic related assessments, levies, impositions, charges or taxes not generally applicable to other portions of the Borough of Manhattan or the City of New York). If, due to a future change in the method of taxation or in the taxing authority, a franchise, income, gross receipts, transit, profit or other tax or governmental imposition, however designated (including any tax, excise or fee, measured by or payable with respect to any rents, licenses or other charges received by Landlord and levied against Landlord, Land and/or the Building) shall be levied against Landlord, the Land and/or the Building in substitution (in whole or in part) for, or as an addition to or in lieu of, any Taxes, then such franchise, income, gross receipts, transit, profit or other tax or governmental imposition shall be deemed to be included within the definition of the term "Taxes" for the purposes hereof, excluding any general income, corporate franchise, estate, inheritance, succession, capital stock or transfer tax levied on Landlord. Furthermore, provided that Tenant shall have made the Tax Payment (as hereinafter defined) with respect to the Tax Year in question on a timely basis, Taxes shall not include any late charges, penalties, or interest which may be imposed by reason of Landlord's late payment of Taxes. B. The term "Tax Year" shall mean every twelve (12) consecutive month period, all or any part of which shall occur during the Term, commencing each July 1 or such other date as shall be the first day of the fiscal tax year of The City of New York or other governmental agency determined by Landlord to be responsible for the collection of substantially all Taxes. C. The term "Operating Year" shall mean each calendar year, all or any part of which shall occur during the Term, following the Base Operating Year. D. The term "Operating Statement" shall mean a written statement prepared by Landlord or Landlord's agent setting forth Landlord's computation of the amount payable by Tenant pursuant to Section 19.04. E. The term "Operating Expenses" shall mean (subject to the provisions of Subsection 19.02G below and without duplication), for any Operating Year, all costs and expenses paid or incurred for such Operating Year by Landlord or on Landlord's behalf in connection with the ownership, management, repair, maintenance, replacement, restoration or operation of the Building, the Land and any plazas, sidewalks, curbs and appurtenances thereto (provided that such items are not paid directly by Tenant pursuant to any other provisions of this Lease), including the following items (which items are illustrative of items to be included in Operating Expenses): (i) "Labor Costs" (as such term is defined below) of persons performing services in connection with the operation, repair and maintenance of the Land or the Building; (ii) subject to the provisions of this Subsection 19.02E, the cost of (including any rental cost of) materials and supplies used in the operation, cleaning, safety, security, renovation, replacement, repair and maintenance of the Building and its plazas (if any), sidewalks, curbs and appurtenances, and any plant, equipment, facilities and systems designed to supply heat, ventilation, air-conditioning or any other services or utilities, or comprising any portion of the electrical, gas, steam, plumbing, sprinkler, mechanical, communications, alarm, security or fire/life safety systems or equipment serving the Demised Premises or the common areas of the Building, including any sales and other taxes thereon; (iii) without duplication of clause (ii) of this Subsection 19.02E, the depreciation (over the useful life of such hand tools or other moveable equipment determined in accordance with generally accepted accounting principles) for, or the rental cost or value (including applicable sales taxes) of, hand tools and other movable equipment used in the operation, cleaning, safety, security, repair or maintenance of the Building and its plazas (if any), sidewalks, curbs and appurtenances; (iv) reasonable legal, accounting and other professional fees incurred in connection with the operation of the Land or the Building, but only to the extent of the amount thereof that would be levied if Landlord's interest in the Land and Building were the only asset of Landlord; (v) amounts incurred by Landlord for services, materials and supplies furnished in connection with the operation, repair and maintenance of any part of the Building and its plazas (if any), sidewalks, curbs and appurtenances, including the heating, air-conditioning, ventilating, plumbing, electrical, elevator, safety and other systems of the Building; (vi) the cost of all charges for window cleaning and other cleaning, janitorial, security and other services, in and about the Building and its plazas (if any), sidewalks, curbs and appurtenances; (vii) premiums paid by Landlord for rent, casualty, boiler, sprinkler, plate-glass, liability and fidelity insurance with respect to the Land or Building and its plazas (if any), sidewalks, curbs and appurtenances, and any other insurance Landlord maintains or is required to maintain with regard to the Land or the Building or the maintenance or operation thereof and as shall be commensurate with such coverage maintained by landlords of Comparable Buildings; (viii) costs (including all applicable taxes) for electricity (as measured by the Building's electric meters, and evaluated under the same rate classification and frequency that Landlord is charged by the public utility furnishing electricity to the Building), steam, telephone, and other utilities for the portions of the Land and the Building not leased and occupied by tenants in the Building and for utilities and electricity (so measured and evaluated) consumed in connection with the operation of the heating, ventilating and air-conditioning equipment servicing the common or public areas of the Building; (ix) water charges and sewer rents or charges to the extent not specifically reimbursable by tenants of the Building; (x) reasonable telephone and stationery costs; (xi) the cost of painting and otherwise decorating any non-tenant areas of the Building, and its plazas (if any) and sidewalks; (xii) the cost of installing, maintaining, repairing and replacing (but not the initial purchase of) art works (except fine art), as well as holiday decorations, for the lobby and other public portions of the Building, and its plazas (if any) and sidewalks; (xiii) the cost of exterior and interior landscaping of non-tenant areas of the Land, the Building and its plazas (if any) and sidewalks; (xiv) dues, fees and contributions paid to civic organizations and associations, or business improvement districts representing Landlord, or of which Landlord is a member, in the City of New York, which shall be deemed to be made in the largest number of installments permitted; (xv) franchise, license and similar fees and charges paid by Landlord to any governmental agency for the privilege of owning, leasing, operating, maintaining or servicing the Building or any of its equipment, property or appurtenances; (xvi) reasonable management fees of a third party managing agent, or, if no third party managing agent is then employed by Landlord, an amount in lieu, in either case, which is not in excess of the then prevailing rates for management fees for managing agents not affiliates of Landlord of first-class office buildings in Manhattan; (xvii) the cost, or the cost of the rental, together with the cost of installation, of any Building security or other system used in connection with life or property protection (including the cost, or the cost or value of the rental, of all machinery, electronic systems and other equipment comprising any part thereof), as well as the cost of the operation and repair of any such system in operation during the Base Operating Year; provided, however, if and to the extent such costs are capitalized according to generally accepted accounting principles, such costs shall be amortized on a straight line basis over the useful life of such system (determined in accordance with generally accepted accounting principles); (xviii) whether or not capitalized under generally accepted accounting principles, costs for Alterations to the Building made by reason of any Legal Requirements not in existence as of the date hereof, or the requirements of any Insurance Boards or Landlord's insurer enacted after the date hereof, provided, however, that if and to the extent such costs are capitalized under generally accepted accounting principles, such costs shall be amortized over the useful life of such Alterations, with an interest factor calculated using the Interest Rate in effect at the time that any such cost is incurred; (xix) whether or not capitalized under generally accepted accounting principles, the cost of improvements, equipment or machinery having the effect of reducing Operating Expenses, provided, however, that if and to the extent such costs are capitalized under generally accepted accounting principles, such costs shall be amortized over the useful life of such improvement, equipment or machinery with an interest factor calculated using the Interest Rate in effect at the time that any such cost is incurred, and provided further that Tenant shall not be required to pay more on the basis of such amortized cost than it can be reasonably anticipated that Tenant would have had to pay with respect to such component of Operating Expenses absent such expenditure; (xx) all other charges properly allocable to the repair, management, maintenance, replacement, restoration or operation of the Building in accordance with the then-prevailing real estate accounting practices customarily used in Manhattan. F. The term "Labor Costs" shall mean any and all expenses incurred by Landlord or on Landlord's behalf which shall be related to employment of personnel, including amounts incurred for wages, salaries and other compensation for services, payroll, social security, unemployment and other similar taxes, Workers' Compensation insurance, liability benefits, pensions, hospitalization, retirement plans and insurance (including group life and disability), uniforms and working clothes and the cleaning thereof, and expenses imposed on or on behalf of Landlord pursuant to any collective bargaining agreement relating to such employees. With respect to employees who are not employed on a full-time basis with respect to the Building, a pro rata portion of expenses allocable to the time any such employee is employed with respect to the Building shall be included in Labor Costs. G. The term "Operating Expenses" shall not include the following items: (i) Labor Costs (including compensation, salaries and fringe benefits) in respect of personnel above the grade of building manager, officers and executives of Landlord, unless for work actually performed in or about the Building ordinarily done by a third person, and then only at compensation no higher than that which would have been paid to such third person; (ii) legal fees, leasing commissions, takeover expenses, advertising expenses, promotional expenses, demolishing, painting, carpeting, refurnishing, contributions, and other costs incurred in the leasing or re-leasing of space in the Building; (iii) insurance premiums, but only if and to the extent that Landlord is specifically entitled to be reimbursed therefor by Tenant pursuant to this Lease (other than pursuant to this Article) or by any other tenant or other occupant of the Building pursuant to its lease (other than pursuant to an operating expenses escalation clause contained therein); (iv) the cost of any item for which Landlord is reimbursed by insurance or otherwise compensated, including reimbursement by any tenant (including Tenant); (v) the cost of any alterations, additions, changes, replacements and improvements that are made solely in order to prepare space for occupancy by a tenant and the costs incurred in performing work or furnishing services to or for any tenant (including Tenant), whether at such tenant's or Landlord's expense, to the extent that such work or service is in excess of work or service that Landlord is obligated to furnish to Tenant at Landlord's expense (except that cleaning costs shall only be excluded from Operating Expenses in excess of the costs of Landlord's Cleaning Services, regardless of whether tenant shall contract directly with a cleaning contractor pursuant to the provisions of Section 18.03B; (vi) the cost of capital improvements and capital expenditures, other than those (a) which under generally applied real estate practice are deemed expenses or deferred expenses, or (b) described in clauses (xviii) and (xix) of Subsection 19.02E above; (vii) the cost of electricity, fuel, gas, steam, or chilled or condenser water furnished to the Demised Premises or any other space in the Building leased, or available for lease, to tenants; provided, however, that this exclusion shall not apply to the cost of heat, air conditioning, and ventilation furnished to kiosks or booths in the lobby of the Building or to the cost of any electricity consumed in connection with the operation of, and the cost of any acquisition, installation, maintenance, repair or replacement of, any water towers which service the nonleasable portions of the Building and the Building's plazas, sidewalks, curbs and appurtenances; (viii) Taxes and corporate franchise, inheritance, estate, succession, gift, income and profit taxes, and capital stock taxes imposed payable by Landlord; (ix) financing and refinancing costs (including "points", commitment fees, brokerage fees and legal fees), and payments of mortgage interest and principal; (x) payments of any amounts to any person seeking recovery for liability of Landlord; (xi) costs incurred to place the Building in compliance with any Legal Requirements in effect on the date hereof with which the Building does not comply, unless attributable to the acts or omissions of any tenant in the Building (including Tenant) or of any agents, employees, servants or contractors of such tenant; (xii) costs to perform work or to provide services for any tenant of the Building, but only if and to the extent that the same is in excess of that which Landlord furnishes generally (with no additional expense) to the tenants of the Building; (xiii) the costs of any expansions to the rentable area of the Building after the date of this Lease and any costs arising therefrom; (xiv) the cost of the acquisition or leasing, restoring, removing, or replacing of art work (including, without limitation, sculptures, painting, and other objects of art) for the Building lobby (provided that this exclusion shall not be deemed to exclude from Operating Expenses the cost of the routine maintenance thereof); (xv) payments for rental equipment, the cost of which would constitute a capital expenditure if the equipment were purchased, except to the extent that the same would be included above; (xvi) any cost which would have been an Operating Expense which is reimbursed to Landlord by Tenant under this Lease (other than pursuant to this Article 19), or by any other tenant of the Building under its lease (other than reimbursement pursuant to provisions of its lease similar to this Article 19); (xvii) costs associated with the operation of the legal entity that constitutes Landlord (such as, by way of example, legal entity formation, organization and qualification) as distinguished from the cost of the operation of the Building; (xviii) any costs incurred in connection with the transfer or sale of any interest in the Building, Land, any Underlying Lease, or in the entity or entities directly or indirectly comprising Landlord, including any transfer, deed, mortgage recording or gains taxes payable by Landlord; (xix) fines, penalties, interest, or late charges incurred by Landlord, if due to Landlord's late payment or due to violations of any Legal Requirements; (xx) bad debt losses, rent losses or reserves for either; (xxi) ground rent and any other amounts (other than amounts paid for the equivalent of Operating Expenses if same were paid directly by Landlord) payable under any Underlying Lease; (xxii) depreciation or amortization, except as provided above; (xxiii) any amounts paid by Landlord to any affiliate of Landlord, to the extent such amount is in excess of the amount which would have been paid by Landlord in the absence of such relationship; (xxiv) costs associated with correcting defects in the construction of the Building or defects in Landlord's Work, except costs resulting from ordinary wear and tear; (xxv) legal fees incurred in the enforcement of any leases in the Building or in defending any suits brought by tenants in the Building and other legal fees (other than legal fees incurred in connection with the maintenance or operation of the Building or Land); (xxvi) INTENTIONALLY DELETED; (xxvii) any compensation paid to clerks, attendants or other persons in commercial concessions operated by Landlord or an affiliate of Landlord; (xxviii) the costs of operating and maintaining any retail areas and garages in the Building; (xxix) the cost of repairs or rebuilding necessitated by casualty or condemnation; (xxx) costs incurred by Landlord in connection with Landlord's breach of any of Landlord's covenants, agreements or indemnities expressly made in this Lease or Landlord's gross negligence or willful misconduct; (xxxi) any costs incurred in the removal, containment, encapsulation, disposal or repair of asbestos or any other "Hazardous Material" (as such term is defined pursuant to Section 7.01 hereof). (xxxii) fees incurred by Landlord in connection with disputes of Landlord with tenants, prospective tenants, or other occupants, purchasers, prospective purchasers, or mortgagees of the Building; (xxxiii) any costs incurred by Landlord in connection with the negotiation of leases for space in the Building or for any Underlying Lease and any costs incurred by Landlord in connection with the obtaining of any loan affecting the Land or the Building; (xxxiv) the cost of repairs, replacements or restorations necessitated by reason of fire or other casualty; and (xxxv) the cost of any work or service performed for any facility other than the Building, the appurtenant common areas and Building Systems. H. The cost of any item that was included in Operating Expenses for the Base Operating Year and is no longer being incurred by Landlord by reason of the installation of a labor saving device or other capital improvement shall be deleted from Operating Expenses for the Base Operating Year in connection with the calculation of the Operating Expense Payment for all Operating Years from and after the Operating Year in which such installation occurs, unless Tenant shall be paying Tenant's Proportionate Share of the cost of such labor saving device or capital improvement as part of the Operating Expense Payment for such Operating Year. I. If, during all or part of any Operating Year (including the Base Operating Year), Landlord shall not furnish any particular item(s) of work or service (which would otherwise constitute an Operating Expense hereunder) to portions of the Building due to the fact that (i) such portions are not occupied or leased, (ii) such item of work or service is not required or desired by the tenant of such portion, (iii) such tenant is itself obtaining and providing such item of work or service, or (iv) for any other reason, then, for the purposes of computing Operating Expenses, the amount for such item and for such period shall be deemed to be increased by an amount equal to the additional costs and expenses of furnishing such item of work or services to such portion of the Building or to such tenant. In connection with the immediately preceding clause (i), there shall be no adjustment made to Operating Expenses for a particular Operating Year unless less than ninety-five (95%) percent of the Building was occupied in the relevant Operating Year, and any such adjustment shall be made on the basis of ninety-five (95%) percent of the Building being occupied. J. Unless expressly excluded from Operating Expenses pursuant to Subsection 19.02G above or expressly provided otherwise elsewhere in this Lease, all items of cost and expense identified in this Lease as being "at Landlord's cost and expense" or phrases of similar import (regardless of whether the words "solely" or "exclusive" are used in connection therewith, and regardless of whether specific reference is made to Landlord's right to recoup such cost or expense as part of Operating Expenses) shall be included in Operating Expenses. Section 19.03. ------------- A. (i) If, for any reason whatsoever (whether foreseen or unforeseen), the Taxes applicable with respect to any Tax Year shall be greater than the Base Tax Amount, then Tenant shall pay to Landlord as additional rent for each such Tax Year an amount (the "Tax Payment") equal to Tenant's Proportionate Share (as defined in Section 1.01 above) of the amount by which the Taxes payable for such Tax Year exceeds the Base Tax Amount. (ii) Within a reasonable time period after the issuance by the governmental authority having jurisdiction thereover of tax bills for Taxes payable for any Tax Year, Landlord shall submit to Tenant a statement (the "Tax Statement") which shall indicate the amount, if any, required to be paid by Tenant as additional rent provided in this Section 19.03, accompanied by a copy of the relevant tax bill(s) upon which such Tax Statement is based, provided that Tenant shall not be responsible for any Tax Statement first billed to Tenant more than three (3) calendar years after the end of the Tax Year to which such Tax Statement relates, except that if the taxing authority shall not have timely billed any amounts to Landlord within three (3) years following the relevant Tax Year, then Landlord may bill any such amounts to Tenant within one (1) year following receipt of a bill thereafter from the taxing authority. (iii) Within thirty (30) days after delivery of the Tax Statement, Tenant shall pay to Landlord the additional rent as set forth on such Tax Statement. Notwithstanding anything to the contrary contained herein, Tenant's tax payment shall be payable in the same number of installments as Landlord is required to pay to the taxing authority, unless any Mortgagee shall require otherwise. B. If, following the delivery of any Tax Statement, Landlord shall receive a refund of Taxes with respect to a Tax Year for which Tenant has paid any additional rent under the provisions of this Section, then Tenant's Proportionate Share of the net proceeds of such refund, after deduction of reasonable legal fees, appraiser's fees and other expenses incurred in obtaining reductions and refunds and collecting the same (and after deduction of such expenses for previous Tax Years which were not offset by tax refunds for such Tax Years) shall be applied and allocated to the periods for which the refund was obtained and, if Tenant shall not be in default (after notice and the expiration of the applicable cure period) of any of Tenant's obligations under this Lease, or, if Tenant shall be in default of any of Tenant's obligations under this Lease (after notice and the expiration of the applicable cure period), but shall cure such default within sixty (60) days after Landlord's receipt of such refund of Taxes, and shall notify Landlord of such cure within such sixty (60) day period (except in connection with a breach which cannot be remedied or cured within said sixty (60) day period, in which event the time of Tenant within which to cure such breach shall be extended for such time as shall be reasonably necessary to cure the same, but only if Tenant, within such sixty (60) day period, shall promptly commence and thereafter proceed diligently and continuously to cure such breach), Landlord shall refund to Tenant or credit against the installment of Minimum Rent next due, an amount equal to Tenant's Proportionate Share of the net proceeds of such refund. In no event shall any refund or credit due to Tenant hereunder exceed the sum paid by Tenant for such particular Tax Year. Only Landlord shall be eligible to institute tax reduction or other proceedings to reduce the assessed valuation of the Landlord or the Building. In no event shall Tenant have the right to seek from the taxing authority any refund or reduction of Taxes. If, prior to the delivery of a Tax Statement to Tenant with respect to a particular Tax Year, Landlord shall obtain a reduction in Taxes for that Tax Year, then Tenant shall pay to Landlord, within thirty (30) days following the issuance to Tenant of a bill therefor, an amount equal to Tenant's Proportionate Share of all costs and expenses (including legal, appraisal and other expert fees) incurred by Landlord in obtaining such reduction. C. If there shall be a reduction or refund of Taxes for either year used to compute the Base Tax Amount, Landlord shall furnish to Tenant a statement indicating the amount thereof, and all prior and future additional rent payments provided for in this Section 19.03 shall be recalculated accordingly. Any additional payment due for any Tax Year shall be made by Tenant within thirty (30) days after the furnishing to Tenant of the revised statement. D. If there shall be a reduction of the area of the Demised Premises either due to a partial taking thereof by eminent domain or due to subsequent agreement of the parties or if the area of the Demised Premises shall be increased, Tenant's Proportionate Share of increases of Taxes thereafter payable by Tenant under Subsection 19.03A shall, except as may otherwise be expressly agreed in writing by the parties, be increased or decreased on the basis of the ratio between the square feet of rentable area in the Demised Premises before and after said increase or decrease in area. E. Tenant shall pay, before delinquency, all rent and occupancy taxes and all property taxes and assessments on the furniture, fixtures, equipment and other property of Tenant at any time situated on or installed in the Demised Premises, and on additions and improvements in the Demised Premises made or installed by Tenant subsequent to the Commencement Date, if any. If at any time during the Term any of the foregoing are assessed as a part of the real property of which the Demised Premises are a part, Tenant shall pay to Landlord upon demand the amount of such additional taxes as may be levied against said real property by reason thereof. F. (i) Notwithstanding anything to the contrary contained in this Lease, in the event that Landlord receives any refund or abatement of Taxes pursuant to the "Lower Manhattan Plan" (as hereinafter defined), then, if and for so long as Landlord shall actually receive such benefits, Tenant shall be entitled to receive, as a credit against the rent due hereunder, the benefit of such refund or abatement in the amount and in the manner provided for in the Lower Manhattan Plan, but only to the extent required to be provided under the Lower Manhattan Plan. Landlord shall use reasonable efforts to become (and, if Landlord shall qualify for the Lower Manhattan Plan, to remain) qualified under the Lower Manhattan Plan. (ii) For purposes of this Subsection 19.03F, 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"). The term "LMP Abatement Benefits" shall mean the real estate tax abatement benefits of the Lower Manhattan Plan. The term "Department" shall mean New York City Department of Finance. For purposes of the Lower Manhattan Plan, "Tenant's Proportionate Share" shall mean 2.72% percent as determined pursuant to Section 1.01 hereof by dividing the net rentable square footage contained in the Demised Premises by the net rentable square footage contained in the Building owned by Landlord. (iii) Tenant represents that there shall be more than 125 employees located at the Demised Premises throughout the Term of this Lease. (iv) 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 Minimum Rent and the Recurring Additional Rent (including the Tax Payment (as defined in Subsection 19.03 hereof)) payable by Tenant hereunder in an amount that, in the aggregate, equals the full amount of any abatement of real estate taxes granted for the Demised 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 Minimum Rent and/or Recurring Additional Rent becoming due hereunder. (v) Tenant shall promptly pay to Landlord, as additional rent hereunder, the amount of all or any portion of the Actual LMP Benefits that have been credited against Minimum Rent and/or Recurring Additional Rent becoming due hereunder, and which may thereafter actually be revoked, to the extent such Minimum Rent and/or Recurring Additional Rent must be repaid by Tenant (including, without limitation, if such Actual LMP Benefits are revoked due to the exercise by Tenant of its right to assign or sublease pursuant to Article 10 of this Lease), together with any interest and/or penalties imposed against Landlord in connection with such Actual LMP Benefits; provided, however, that Tenant shall be responsible for any amounts due under this Subsection 19.03G(v) if and only if Tenant or any Persons Within Tenant's Control shall be responsible, whether as a result of any act, omission, carelessness, negligence, or misconduct, for the revocation of such Actual LMP Benefits. (vi) In accordance with Section 499-c(5) of the Lower Manhattan Plan, Landlord agrees and informs Tenant that: (a) an application for abatement of real property taxes pursuant to Title 4 of Article 4 of the New York Real Property Tax Law will be made for the Demised Premises pursuant to Subsection 3.04J hereof; (b) the rent, including amounts payable by Tenant for Taxes, will accurately reflect any abatement of Taxes granted pursuant to Title 4 of Article 4 of the New York Property Tax Law for the Demised Premises in accordance with Subsection 3.04F hereof; (c) at least ten dollars per square foot or thirty-five dollars per square foot must be spent on improvements to the premises and the common area, the amount being dependent upon the length of the lease and whether it is a new, renewal or expansion lease; and (d) all abatements granted with respect to the Building pursuant to Title 4 of Article 4 of the New York Real Property Law will be revoked if, during the Benefit Period, real estate taxes or water or sewer charges or other lienable charges are unpaid for more than one year, unless such delinquent amounts are paid as provided in subdivision four of section four hundred ninety-nine-f of Title 4 of the New York Real Property Law. (vii) Landlord covenants and agrees that (i) Landlord shall timely pay all Taxes, water and sewer charges and other lienable charges that become due and payable during the period for which Tenant is entitled to receive the Actual LMP Benefits and (ii) there shall be no Taxes, water and sewer charges or other lienable charges due and owing with respect to the Building on the date the "Abatement Application" (as hereinafter defined) is filed with the Department, unless such Taxes or charges are being paid in timely installments pursuant to a written agreement with the Department or other appropriate agency. (viii) Landlord, upon not less than thirty (30) days advance written notice from Tenant, agrees to cooperate with Tenant to execute, deliver and file, together with the Abatement Application, the affidavit required by Section 499-c(7) of the Lower Manhattan Plan, and thereafter to diligently pursue the processing of such application. Landlord, upon not less than thirty (30) days advance written notice from Tenant, agrees to cooperate with Tenant to execute, deliver and file, within sixty (60) days after the Commencement Date, an application (the "Abatement Application") for a certificate of abatement in accordance with Section 499-d of the Lower Manhattan Plan. Landlord and Tenant each further agree to provide all other information required by the Department of Finance pursuant to Section 499-d of the Lower Manhattan Plan and to otherwise comply with the provisions of said Section 499-d and the Lower Manhattan Plan. Tenant shall have no right to make any separate application under the Lower Manhattan Plan without Landlord's participation. (ix) Tenant shall promptly pay to Landlord, upon such request of Landlord and as additional rent hereunder, the amount of any costs incurred by Landlord in connection with the performance of Landlord's obligations pursuant to this Section 19.03, including, without limitation, the amount of any administrative charges or fees imposed by the Department in connection with such compliance, including, without limitation, the $500.00 fee due in connection with the Abatement Application. Tenant shall indemnify and hold harmless Landlord and its respective partners, directors, officers, principals, shareholders, agents and employees from and against any and all losses, costs, damages and expenses (including attorney's fees) arising from or in connection with Tenant's failure to pay such charges or fees or from Tenant's failure to comply with the provisions and requirements of the Lower Manhattan Plan or this Section 19.03. (x) Tenant shall notify Landlord of any vacation or subletting of the Demised Premises or any portion thereof, or any assignment of Tenant's interest in this Lease, which would result in the revocation of any abatement or other benefits, or any portion thereof, granted pursuant to the Lower Manhattan Plan. Within thirty (30) days following demand therefor, Tenant shall reimburse Landlord for any interest or penalties imposed by any governmental authority in connection with the revocation of the abatement or other benefits resulting directly from Tenant's failure to so notify Landlord of any such vacation, subletting or assignment. (xi) Landlord does not warrant or represent that any abatement, reduction or other benefit described in this Section 19.03 or the Lower Manhattan Plan is available or will be obtained for the Building, or by Landlord and/or Tenant, except as expressly provided to the contrary herein. Landlord shall have no liability to Tenant, and the Minimum Rent and Recurring Additional Rent set forth in this Lease will not be abated or reduced, if and to the extent that such abatement or reduction under the Lower Manhattan Plan is denied, reduced, suspended, revoked or terminated for any reason, except if the same shall result solely from the gross negligence or willful misconduct of Landlord. Section 19.04. ------------- A. For each Operating Year, any part of which shall occur during the Term, Tenant shall pay an amount (the "Operating Expense Payment") equal to Tenant's Proportionate Share of the amount, if any, by which Operating Expenses for such Operating Year shall exceed the Operating Expenses for the Base Operating Year; provided, however, that if the Commencement Date shall occur other than on the first day of an Operating Year or if the Term shall expire or be sooner terminated on other than the last day of an Operating Year, then the Operating Expense Payment in respect thereof shall be prorated to correspond to that portion of such Operating Year occurring within the Term. B. At any time during each Operating Year, Landlord may furnish to Tenant a written statement (an "Estimate Statement") setting forth Landlord's reasonable estimate of the Operating Expense Payment for such Operating Year (the "Estimated Payment"). Tenant shall pay to Landlord on the first day of each month during each Operating Year an amount equal to one twelfth (1/12th) of the Estimated Payment. If Landlord furnishes an Estimate Statement for an Operating Year subsequent to the commencement thereof, then: (i) until the first day of the month following the month in which the Estimate Statement shall be furnished to Tenant, Tenant shall continue to pay to Landlord on the first day of each month an amount equal to the monthly sum payable by Tenant to Landlord with respect to the most recent Operating Year; (ii) promptly after the Estimate Statement shall be furnished to Tenant, Landlord shall give notice to Tenant stating whether the amount previously paid by Tenant to Landlord for the current Operating Year was greater or less than the installment of the Estimated Payment to be paid for the current Operating Year, and (x) if there shall be a deficiency, Tenant shall pay the amount thereof to Landlord within thirty (30) days after demand therefor, or (y) if there shall have been an overpayment, Landlord shall credit the amount thereof against the next monthly installment of the Minimum Rent payable under this Lease; and (iii) on the first day of the month following the month in which the Estimate Statement shall be furnished to Tenant, and monthly thereafter throughout the remainder of the Operating Year, Tenant shall pay to Landlord an amount equal to one-twelfth (1/12th) of the Estimated Payment shown on the Estimate Statement. Landlord may during an Operating Year (but not more than three (3) times with respect to an Operating Year), furnish to Tenant a revised Estimate Statement, and, if a revised Estimate Statement shall be furnished to Tenant, the Estimated Payment for such Operating Year shall be adjusted in the same manner as provided in the preceding sentence. If an Estimate Statement or a revised Estimate Statement, as the case may be, shall show an increase of more than five (5%) percent of the Operating Expense Amount that Tenant was required to pay for the immediately prior Operating Year, Landlord shall furnish to Tenant in reasonable detail the reasons therefor. C. As soon as reasonably practicable after each Operating Year, Landlord shall furnish to Tenant an annual Operating Statement (the "Annual Statement") for such Operating Year, provided that Tenant shall not be responsible for any Operating Statement first billed to Tenant more than three (3) calendar years after the end of the Operating Year to which such Operating Statement relates. If the Annual Statement shows that the Estimated Payment (or other payments) for such Operating Year exceeds the Operating Expense Payment which should have been paid for such Operating Year, then Landlord shall credit the amount of such excess against the next monthly installment of Minimum Rent payable under this Lease (except at the end of the Term, when Landlord shall refund the amount of such excess to Tenant within thirty (30) days thereafter, provided that there shall not then be any remaining uncured defaults of any of Tenant's monetary obligations hereunder or of any of the material terms, covenants and conditions to be performed or observed by Tenant under this Lease); if the Annual Statement for such Operating Year shows that the Estimated Payment (or other payments) for such Operating Year was less than the Operating Expense Payment (or other payments) which should have been paid for such Operating Year. Tenant shall pay the amount of such deficiency to Landlord within twenty (20) days after receipt of the Annual Statement. D. Each Annual Statement shall be conclusive and binding upon Tenant unless, within one hundred and eighty (180) days after receipt thereof, Tenant shall give Landlord written notice (the "Operating Dispute Notice") that Tenant requests additional information with respect to the Annual Statement or that Tenant disputes the correctness of the Annual Statement, specifying the particular respects in which the Annual Statement is claimed to be incorrect, to the extent such information is available. If such Operating Dispute Notice shall be timely delivered by Tenant to Landlord, then, provided that Tenant shall pay or have paid to Landlord the amount shown to be due to Landlord on the disputed Annual Statement, Tenant and its representatives shall have the right, not later than forty-five (45) days after Landlord's receipt of Tenant's Operating Dispute Notice, and not earlier than five (5) Business Days after Landlord's receipt of a written request therefor, to examine during regular business hours at a location in New York City designated by Landlord, Landlord's relevant books and records with respect to Operating Expenses relating to the Building for the period in question (the "Relevant Records") in order to verify the accuracy of the relevant Annual Statement; provided, however, that Tenant and its authorized representatives shall use reasonable efforts to minimize interference to Landlord's business operations during the course of such examination. Tenant shall not disclose (and shall require all of Tenant's representatives not to disclose) to any third party any information obtained in the course of such examination, except if and to the extent the same shall be required by a court of competent jurisdiction. Tenant recognizes and agrees that Landlord's books and records (and those of Landlord's agents) with respect to the operation of the Land and the Building are confidential, and that, except as provided herein, Tenant shall have no right to inspect the same. If Tenant shall have timely delivered the Operating Dispute Notice to Landlord, and the parties shall not be able to resolve such dispute within sixty (60) days after Tenant or its authorized representatives have examined the Relevant Records or the Relevant Records have been made available for examination, as the case may be, then, provided that Tenant shall have theretofore paid to Landlord the amount shown to be due to Landlord on the disputed Annual Statement, either party may refer the decision of the issue raised to a reputable independent firm of certified public accountants mutually agreeable to the parties, and the decision of such accountants shall be conclusive and binding upon the parties. The fees and expenses involved in such decision shall be borne by the unsuccessful party (and if both parties are partially unsuccessful, the accountants shall apportion the fees and expenses between the parties based on the degree of success of each party). Tenant agrees that, notwithstanding any such dispute (and pending resolution thereof), Tenant shall timely pay to Landlord in full the amount shown to be due to Landlord on the disputed annual statement. If such dispute is resolved in Tenant's favor, Landlord shall either reimburse Tenant for any overpayment or credit the amount of such overpayment against the next monthly installment of Minimum Rent payable under this Lease. Section 19.05. Nothing contained in this Article 19 or any other provision of this Lease concerning the payment of additional rents shall be construed so as to reduce the Minimum Rent below the amount set forth in Section 1.01, plus any increases therein pursuant to any provision of this Lease. Section 19.06. Any payments due hereunder for any period of less than a full Tax Year or Operating Year at the commencement or end of the Term shall be equitably prorated. In the event of any change in the fiscal period constituting a Tax Year, Taxes levied during any transitional period shall be added to the first subsequent Tax Year for purposes of Section 19.03. Except as otherwise provided in Subsection 19.04C, any delay or failure by Landlord to render any statement under the provisions of this Article 19 shall not prejudice Landlord's right hereunder to render such statement for prior or subsequent periods. Except as other wise provided in Subsection 19.04C, any delay or failure by Landlord in making any request or demand for any amount payable by Tenant pursuant to the provisions of this Article 19 shall not constitute a waiver of, or in any way diminish, the continuing obligation of Tenant to make such payment. Except as otherwise provided in Subsection 19.04D above, all statements rendered by Landlord pursuant to the provisions of this Article 19 shall be deemed final and conclusive as to Tenant, unless, within ninety (90) days following rendition of any such statement, Tenant shall, in good faith and with reasonable specificity, notify Landlord that such statement contains mathematical error. Tenant agrees that, notwithstanding any dispute as to the correctness of a statement (and pending resolution of such dispute), Tenant shall timely pay to Landlord in full the amount shown to be due to Landlord on the disputed statement. If such dispute is resolved in Tenant's favor, Landlord shall either reimburse Tenant for any overpayment or credit the amount of such overpayment against the next monthly installment of Minimum Rent payable under this Lease (except at the end of the Term, when Landlord shall refund the amount within thirty (30) days following such resolution). The obligations of Landlord or Tenant with respect to any payment required pursuant to the provisions of this Article 19 shall survive the expiration or sooner termination of the Term. ARTICLE 20 ---------- ELECTRICITY Section 20.01. Subject to the provisions of this Article 20 and other provisions of this Lease, Landlord shall furnish the electricity that Tenant shall reasonably require in the Demised Premises for normal business office purposes, making available to the Demised Premises a capacity (the "Existing Capacity") based on the feeders, risers, wiring and panel boards currently servicing the Demised Premises of twelve (12) watts per rentable square foot (on a connected load basis), inclusive of electricity used by the machinery and equipment of Tenant's air-conditioning unit(s) servicing the Demised Premises. Landlord shall not be liable to Tenant for any loss or damage or expense which Tenant may sustain or incur if either the quantity or character of electric service shall be changed or shall no longer be available or suitable for Tenant's requirements. At Landlord's election, Landlord shall furnish and install all replacement lighting tubes, lamps, bulbs and ballasts required in the Demised Premises, and Tenant shall pay to Landlord or Landlord's designated contractor upon demand the then established charges of Landlord or said contractor, as the case may be, provided the same are commercially reasonable. Section 20.02. ------------- A. Subject to the provisions of Section 20.03 below, Tenant's consumption and demand of all electricity made available to the Demised Premises (including the machinery and equipment of Tenant's air-conditioning unit(s) servicing the Demised Premises) or to Tenant elsewhere in the Building (collectively, "Tenant Electricity") shall be measured by one or more submeters (collectively, the "Submeter") to be furnished and installed by Landlord, the cost and expense of which shall be borne equally by Landlord and Tenant, in a location designated by Landlord. Landlord agrees to use commercially reasonable efforts (but shall not be obligated to use overtime or premium pay labor) to install the Submeter by the date Tenant first occupies the Demised Premises for the conduct of its business therein. Landlord shall also, at Tenant's cost and expense, install connections from the risers and/or circuits servicing the Demised Premises to the Submeter, and perform all other work necessary for the furnishing of Tenant Electricity by Landlord in the manner provided for in this Section 20.02. Tenant shall pay all such costs and expenses to Landlord, as additional rent, within thirty (30) days after being billed therefor. B. Tenant agrees to purchase Tenant Electricity from Landlord or Landlord's designated agent at terms and rates equal to "Landlord's Electricity Cost" (as such term is defined below), plus five (5%) percent thereof to reimburse Landlord for administrative services in connection with supplying, measuring and billing Tenant Electricity and for transmission and transformer losses. If more than one submeter shall measure Tenant Electricity, then the service rendered through each such submeter shall be aggregated and billed in accordance with the foregoing rate, unless Landlord shall elect separate billing on a per meter basis. Landlord may at any time render bills for Tenant Electricity in accordance with the foregoing provisions, and Tenant shall pay all amounts shown on said bills to Landlord, as additional rent, within thirty (30) days following the date that such bills shall have been rendered. C. For purposes of this Article 20 and the other provisions of this Lease: (i) The term "Landlord's Electricity Cost", shall mean the cost per kilowatt hour and cost per kilowatt demand, by time of day, if applicable, or other applicable billing method, to Landlord of purchasing electricity for the Building, including fuel adjustment charges (as determined for each month of the relevant period), rate adjustment charges, sales tax, and/or any other factors used by the public utility furnishing electric service to the Building (the "Public Utility") in computing its charges to Landlord, applied to the kilowatt hours of electricity and kilowatts of demand purchased by Landlord during a given period. (ii) The term "Electricity Additional Rent" shall mean all amounts computed in accordance with Subsection 20.02B above, and Landlord's determination of such amounts shall be binding and conclusive on Tenant, unless, within one hundred eighty (180) days after an electricity bill shall have been rendered, Tenant shall give Landlord written notice (the "Electricity Dispute Notice") that Tenant disputes the correctness of such electricity bill, specifying whether such electricity bill contains a mathematical error or whether there has been an error in reading the Submeter(s). If Tenant shall have timely delivered the Electricity Dispute Notice to Landlord, and the parties shall not be able to resolve such dispute within one hundred eighty (180) days thereafter, then, provided that Tenant shall have theretofore paid to Landlord the amount shown to be due to Landlord on the disputed electricity bill, either party may refer the decision of the issue raised to a reputable independent third party electrical consultant mutually agreeable to the parties, and the decision of such electrical consultant shall be conclusive and binding upon the parties. The fees and expenses involved in such decision shall be borne by the unsuccessful party (and if both parties are partially unsuccessful, the electrical consultant shall apportion the fees and expenses between the parties based on the degree of success of each party). Tenant agrees that, notwithstanding any such dispute (and pending resolution thereof), Tenant shall timely pay to Landlord in full the amount shown to be due to Landlord on the disputed electricity bill. If such dispute is resolved in Tenant's favor, Landlord shall either reimburse Tenant for any overpayment or credit the amount of such overpayment against the next monthly installment(s) of Minimum Rent payable under this Lease. . D. If the Submeter should fail to properly register or operate at any time during the Term for any reason whatsoever, then, unless Landlord shall otherwise elect in accordance with the provisions of Section 20.03 below, Landlord may estimate the Electricity Additional Rent, and when the Submeter shall again become properly operative, an appropriate reconciliation shall be made, by Tenant paying any deficiency to Landlord within ten (10) Business Days after demand therefor, or by Landlord crediting Tenant with the amount of any overpayment, as the case may be. E. Landlord and Tenant agree that the Submeter might be installed or become operational subsequent to the date (the "Initial Occupancy Date") that Tenant or any Person Within Tenant's Control first enters the Demised Premises. In such event, Landlord, in Landlord's sole discretion, may: (i) furnish Tenant Electricity on a "rent inclusion" basis in accordance with the provisions of Section 20.03 below for the period between the Commencement Date and such time as the Submeter shall be installed and operating; or (ii) 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 Landlord, within thirty (30) days after demand therefor, the amount set forth on Landlord's estimate and, after rendition of a subsequent statement, an appropriate reconciliation shall be made for any deficiency owed by Tenant, or any overage paid by Tenant; or (iii) render a statement to Tenant after the first reading of the Submeter shall be made (the date upon which the Submeter shall be first read being herein called the "Occupancy Reading Date"), which shall be on or about the date upon which Tenant shall have commenced the conduct of Tenant's business operations in the Demised Premises, and the amount calculated based on the Submeter reading 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 to Landlord on the basis of such Submeter reading within thirty (30) days after rendition of Landlord's statement setting forth such computation. Section 20.03. ------------- A. Notwithstanding anything to the contrary contained in the provisions of Section 20.02 above, if at any time during the Term said submeter(s) shall not then be installed or operating, despite Landlord's good faith efforts, or if Landlord shall be compelled by the Public Utility or any Legal Requirement to discontinue furnishing electricity to Tenant on a submetered basis, or if Landlord shall elect to discontinue furnishing electricity to substantially all of the office tenants of the Building on a submetered basis, then (subject to the provisions of Section 20.05 below) Landlord shall furnish electricity to the Demised Premises in quantity equal to the Existing Capacity on a "rent inclusion" basis, and there shall be no separate charge to Tenant for such electricity; it being agreed that if Landlord is not able to collect from Tenant all or a portion of the allowable costs (as described in this Lease) incurred by Landlord for Tenant Electricity for any reason, then the Minimum Rent shall be increased by an amount equal to Landlord's actual costs to provide and deliver Tenant Electricity less any portion of such allowable costs actually collected by Landlord, and all references to Minimum Rent throughout this Lease shall include the increase set forth herein, for so long as Landlord shall not be able to collect from Tenant the allowable costs incurred by Landlord for Tenant Electricity. B. For the purposes of this Article 20, and other provisions of this Lease: (i) The term "Base Electric Charge" shall initially mean the amount of $133,810.35 per annum (except during the period which shall begin on the Commencement Date and end on the earlier to occur of (i) the day on which Tenant shall first occupy the Demised Premises for the purpose of conducting Tenant's business operations therein, or (ii) the expiration of the Free Rent Period, during which period the term "Base Electric Charge" shall mean the amount of $46,951.00 per annum). (ii) The term "Electric Inclusion Factor" shall mean an amount, to be included as a component of Minimum Rent, equal to the sum of the Base Electric Charge plus all increases thereto pursuant to the provisions of this Article 20; it being understood and agreed that at all times the Electric Inclusion Factor shall not be less than the amount computed by multiplying Landlord's Electricity Cost by Tenant's kilowatt hour and kilowatt demand usage as determined by the estimate of Landlord's electrical consultant ("Landlord's Consultant"), plus five (5%) percent of the resulting total. C. Landlord and Tenant agree that, during any period in which electricity shall be furnished to the Demised Premises on a "rent inclusion" basis, the annual Minimum Rent set forth in Section 1.01 above shall be increased by an amount equal to the Base Electric Charge, as the same may be adjusted pursuant to the provisions of this Article 20. Tenant acknowledges and agrees that the Base Electric Charge currently represents the amount initially included in the Electric Inclusion Factor to compensate Landlord for the electrical wiring and other installations necessary for, and for Landlord's obtaining and making available to Tenant, the redistribution of electric energy to the Demised Premises as an additional service, and that such Base Electric Charge component of the Electric Inclusion Factor is subject to adjustment as provided herein based on Tenant's consumption and/or demand of electricity, but shall in no event be subject to reduction. D. At any time, and from time to time, after Tenant shall have entered into possession of the Demised Premises or any portion thereof, and electricity shall be furnished to the Demised Premises on a "rent inclusion" basis, Landlord and Landlord's agents and consultants may survey the electrical fixtures, appliances and equipment located in or servicing the Demised Premises and Tenant's consumption and demand of electricity therein to (i) ascertain whether Tenant is complying with Tenant's obligations under this Article 20, and (ii) determine whether the then Electric Inclusion Factor included in Minimum Rent is less than the Electric Inclusion Factor computed as a result of said survey, and to adjust the Electric Inclusion Factor component of Minimum Rent in accordance with the following computations: (x) In the case of the first electric survey, if the cost or value of Tenant's electric consumption and/or demand shown by the survey shall exceed the initial Electric Inclusion Factor, then the Electric Inclusion Factor component of the Minimum Rent shall be increased by the amount of such excess retroactive to the date on which increases in the connected load or changes in electric consumption occurred (as reasonably determined by Landlord's Consultant); and (y) In the event of the second and subsequent surveys, if the cost or value of Tenant's electric consumption and/or demand shown by such survey shall exceed the then Electric Inclusion Factor, then such Electric Inclusion Factor component of Minimum Rent shall be increased by the amount of such excess, effective as of the earlier of (a) the date of such survey or (b) the date on which increases in the connected power load or changes in electric consumption occurred (as reasonably determined by Landlord's Consultant). E. The initial amount of each such increase shall be paid by Tenant to Landlord within thirty (30) days after Landlord furnishes Tenant with a statement thereof, and thereafter, such increase shall be added to each of the monthly installments of Minimum Rent. The cost of each survey made pursuant to Subsection 20.03D above shall be borne equally by Landlord and Tenant. The determination of Landlord's Consultant as to any increase in the Minimum Rent based on such average monthly electric energy consumption and/or demand shall be conclusive and binding upon the parties from and after the delivery of a copy of such determination to Landlord and Tenant, unless, within thirty (30) days thereafter, Tenant shall dispute such determination by having an independent reputable electrical consultant, selected and paid for by Tenant ("Tenant's Consultant"), consult with Landlord or Landlord's Consultant as to said determination. If the parties or their respective consultants shall agree as to a resolution of said dispute, then such agreement shall be binding upon the parties, or if the difference between them shall be eight (8%) percent or less of the determination made by Landlord's Consultant, then the determination made by Landlord's Consultant shall be binding upon the parties. If Landlord's Consultant and Tenant's Consultant shall not agree within the said eight (8%) percent of each other, then Landlord's Consultant and Tenant's Consultant 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 Landlord's Consultant and Tenant's Consultant shall not agree upon such a third electrical consultant, the matter shall be submitted to the American Arbitration Association in New York City to be determined in accordance with its rules and regulations, and the decision of the arbitrators shall be binding upon the parties with the same force and effect as if a non-appealable judgment had been entered by a court of competent jurisdiction. Any charges of such third consultant or of the American Arbitration Association, and all costs and expenses of either, shall be borne equally by both parties. Notwithstanding the foregoing, until such final determination, Tenant shall pay Minimum Rent to Landlord in accordance with the determination made by Landlord's Consultant. After such final determination, the parties shall promptly make adjustment for any deficiency owed by Tenant or any overage paid by Tenant. F. If at any time during the Term the electric rate charged by the Public Utility (the "Electric Rate") shall be increased or decreased by the Public Utility, then, effective as of the date of each such change in the Electric Rate, the Electric Inclusion Factor included in the Minimum Rent shall be increased or decreased in proportion to such change in the Electric Rate (as determined by Landlord's Consultant, whose determination shall be binding and conclusive upon the parties, subject to the provisions of Subsection 20.03E above). G. At Landlord's request, the parties shall execute, acknowledge and deliver to each other a supplemental agreement in such form as Landlord shall reasonably require to reflect each change in the Minimum Rent under this Article 20, but each and every such change shall be effective as of the effective date described in the provision under which such change is provided for, even if such agreement shall not be executed and delivered. Section 20.04. ------------- A. Tenant's use of electricity in the Demised Premises shall not at any time exceed the Existing Capacity. In order to ensure that the Existing Capacity is not exceeded and to avert possible adverse effect upon the Building's distribution of electricity via the Building's electric system, if at any time the total connected load of Tenant's fixtures, appliances and equipment in the Demised Premises shall equal or exceed the Existing Capacity, then Tenant shall not, without Landlord's prior consent in each instance, connect any additional fixtures, appliances or equipment to the Building's electric system, or make any alterations or additions to the electric system of the Demised Premises existing on the Commencement Date. B. In the event that Tenant shall request electric energy in addition to the Existing Capacity, and if and to the extent that Landlord shall determine that such additional electric energy is available for use by Tenant without (x) resulting in allocation to Tenant of a disproportionate amount of available electric energy and (y) otherwise adversely affecting the Building or any of the other tenancies therein, then Landlord shall connect such additional electric energy to the Demised Premises, and Tenant shall pay to Landlord a charge equal to Landlord's then established connection charge for each additional amp of electric energy or portion thereof so supplied to the Demised Premises, in addition to the cost of installing additional risers, switches and related equipment necessary in providing such additional electric energy. Section 20.05. ------------- A. Landlord reserves the right to discontinue furnishing electricity to Tenant in the Demised Premises at any time upon not less than sixty (60) days notice to Tenant, if Landlord shall be compelled by the Public Utility or any Legal Requirements, it being agreed that such compulsion shall include Landlord's inability to collect from Tenant the allowable electric charges set forth in this Lease, except that, if Tenant shall immediately commence and diligently pursue to completion arrangements to obtain electricity from the Public Utility upon receipt of Landlord's notice that Landlord intends to discontinue furnishing electricity to the Demised Premises, then Landlord shall postpone such discontinuance for a sufficient amount of time so as to allow Tenant to obtain electricity directly from the Public Utility. If Landlord exercises such right, this Lease shall continue in full force and effect and shall be unaffected thereby, except that, from and after the effective date of such discontinuance, Landlord shall not be obligated to furnish electricity to Tenant. B. If Landlord so discontinues furnishing electricity to Tenant, then Tenant shall, at Tenant's own cost and expense, promptly arrange to obtain electricity directly from the Public Utility. Such electricity may be furnished to Tenant by means of the then existing Building System feeders, risers and wiring, but only if and to the extent that Landlord determines the same to be available, suitable and safe for such purpose. All meters and additional panel boards, feeders, risers, wiring and other conductors and equipment which may be required to obtain electricity directly from such Public Utility shall be: (x) if located entirely within the Demised Premises, installed and connected by Tenant, at Tenant's own cost and expense, but only after having received Landlord's prior written consent thereto (which consent shall not be unreasonably withheld or unduly delayed), and Tenant shall thereafter maintain, repair and replace the same, as necessary, at Tenant's own cost and expense; and (y) if located wholly or in part outside of the Demised Premises, installed, connected and thereafter maintained, repaired and replaced, as necessary, by Landlord, at Tenant's cost and expense. Only rigid conduit will be allowed in connection with any such installation. Section 20.06. If, pursuant to any Legal Requirement, the amount which Landlord shall be permitted to charge Tenant for the purchase of electricity pursuant to this Article 20 shall be reduced below that which Landlord would otherwise be entitled to charge Tenant hereunder, then Tenant shall pay the difference between such amounts to Landlord as additional rent within thirty (30) days after being billed therefor by Landlord, as compensation for the use of the Building's electrical distribution system. If any tax shall be imposed on Landlord by any federal, state or municipal authority with respect to electricity furnished to Tenant, then Tenant's pro rata share of such taxes shall be reimbursed by Tenant to Landlord as additional rent within thirty (30) days after being billed therefor. Section 20.07. If the Public Utility or any Legal Requirement shall institute or require a change in the manner in which electricity is to be furnished or paid for, and such change reasonably necessitates an appropriate modification of this Article 20, Tenant shall execute and deliver to Landlord an instrument which sets forth such modification; provided, however, that in no event shall the Minimum Rent be reduced to an amount below the amount thereof stated in Section 1.01 above. Tenant agrees to fully and timely comply with all rules and regulations of the Public Utility applicable to Tenant or the Demised Premises. Section 20.08. In the event that, pursuant to any of the provisions of this Article 20, any initial determinations, statements or estimates are made by or on behalf of Landlord (whether or not such initial determinations, statements or estimates are subject to dispute), Tenant shall pay to Landlord 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. Section 20.09. Notwithstanding any provisions of this Article 20 and regardless of the manner of service of electricity to the Demised Premises (whether by submetering or as described in Section 20.02E, but excluding a situation in which Tenant shall be obtaining electricity directly from the Public Utility pursuant to the provisions of Section 20.05 above), in no event shall the cost to Tenant for electricity to the Demised Premises be less than one hundred five (105%) percent of Landlord's Electricity Cost, subject to LMEP benefits. Section 20.10. Any payments due hereunder for less than a calendar year at the commencement or end of the Term shall be equitably prorated. Any delay or failure by Landlord to render any bills or statements under the provisions of this Article 20 shall not prejudice Landlord's right thereunder to render such bills or statements for prior or subsequent periods. Any delay or failure by Landlord in making any request or demand for any amount payable by Tenant pursuant to the provisions of this Article 20 shall not constitute a waiver of, or in any way diminish, the continuing obligation of Tenant to make such payment. The obligations of Tenant with respect to any payment or increase, and the obligations of Landlord with respect to a refund of any overpayment, pursuant to the provisions of this Article 20 shall survive for a period of three (3) years after the expiration or sooner termination of the Term; provided Landlord shall have sent Tenant within said three (3) year period a written notice (including the basis for such payment) or bill or statement pursuant to the provisions of this Article 20; and provided, further, however, that any action by Landlord to enforce its rights to any payment due or owing pursuant to the provisions of this Article 20 shall have been brought by Landlord no later than six (6) years after the expiration or sooner termination of the Term. Section 20.11. Tenant acknowledges receipt of advice from Landlord to the effect that, prior to the date of this Lease, Landlord filed an application to qualify the Building under the Industrial and Commercial Incentive Program, City of New York Administrative Code, Title 11, Chapter 2, Part 4 (the "ICIP Program"). Landlord and Tenant further acknowledge that in the event the Building qualifies under the ICIP Program, then due to such qualification, the Building may also qualify under the Lower Manhattan Energy Plan, Article 2-I of the General City Law of the City of New York (the "LMEP") and, if Landlord has applied for, and successfully qualifies the Building under the LMEP, then Landlord shall credit against Tenant's obligation to pay Electricity Additional Rent (as defined in Subsection 20.02C hereof) due under this Lease (whether the same are due through a rent inclusion charge for electricity, or otherwise (as the case may be)), the reduction in Landlord's Electricity Cost (as defined in Subsection 20.02C hereof) realized by the Building under the LMEP to the extent attributable to the Demised Premises. If the Building qualifies under the LMEP as the date hereof, Landlord shall use diligent, good faith efforts to remain qualified under the LMEP. In accordance with Article 2-I of the General City Law of the City of New York, subsection 25-bb(c)(5), Landlord shall set forth on all invoices for Tenant's bills from Landlord for electricity (for which reductions thereof are by reason of the applicability of the LMEP), substantially the following language: "Tenant may be entitled to share a rebate which your Landlord has received for charges for energy pursuant to the revitalization area energy rebate program. The amount is separately stated and identified in this bill." ARTICLE 21 ---------- BROKER Section 21.01. Each party represents and warrants to the other that such party has not employed, dealt with or negotiated with any broker in connection with this Lease, and each party shall indemnify, protect, defend and hold the other harmless from and against any and all liability, damage, cost and expense (including reasonable attorneys' fees and disbursements) arising out of a breach by such party of the foregoing representation and warranty. The provisions of this Section 21.01 shall not apply to the Designated Broker, if a Designated Broker is specified in Section 1.01. Landlord agrees to pay the Designated Broker's commission, if any, in accordance with the terms of separate agreements between Landlord and the Designated Broker. ARTICLE 22 ---------- SUBORDINATION Section 22.01. ------------- A. This Lease and all of Tenant's rights hereunder, including Tenant's rights under Section 27.01, are and shall be subject and subordinate to (i) every Underlying Lease, the rights of the Overlandlord or Overlandlords under each Underlying Lease, all mortgages heretofore or hereafter placed on or affecting any Underlying Lease, alone or with other property, and to all advances heretofore or hereafter made under any such leasehold mortgage, and to all renewals, modifications, consolidations, replacements, substitutions, spreaders, additions and extensions of any such leasehold mortgage, and (ii) any condominium plan or declaration now or hereafter affecting the Building, and any other instruments or rules and regulations promulgated in connection therewith, and (iii) any Mortgage now or hereafter affecting the real property of which the Demised Premises form a part or any part or parts of such real property, or such real property and other property, and to each advance made or hereafter to be made under any such Mortgage and to all renewals, modifications, consolidations, replacements, substitutions, spreaders, additions and extensions of any such Underlying Lease or Leases and/or Mortgages. The subordination provisions herein contained shall be self-operative and no further instrument of subordination shall be required. Landlord reserves the right, by written notice to Tenant from Landlord, to provide that the foregoing provisions shall not apply to any or all Mortgages then being and/or thereafter to be made. In confirmation of such subordination, Tenant shall execute and deliver promptly any certificate that Landlord or its successors in interest may reasonably request. Notwithstanding any provision in this Lease or any separate agreement with Tenant, Tenant covenants and agrees that Tenant shall not do any act, or refrain from doing any act, if doing such act, or refraining from doing such act, would constitute a default or breach of any Underlying Lease or Mortgage to which this Lease is subordinate, and as to which Tenant has knowledge. B. Without limiting the generality of the provisions of the foregoing Subsection 22.01A, Tenant acknowledges receipt of advice from Landlord to the effect that this Lease, and all rights of Tenant hereunder, are and shall be subject and subordinate in all respects to the lease dated as of July 15, 1955, between Webb & Knapp, Inc., as landlord, and 13039 Corporation, as tenant, as such lease has been amended, and as assigned by mesne assignments to Landlord with respect to the interest of the tenant thereunder, and to 405 Company, S.K. Realty Company and 715 Realty Company, collectively, with respect to the interest of the landlord thereunder (collectively, the "Ground Lessor"). Landlord warrants and represents that (i) since October 27, 1993, the date that the landlord named herein (i.e., Broadpine Realty Holding Company, Inc.) acquired title to the Building by foreclosure (with respect to which foreclosure a Notice of Entry of Order was entered on April 11, 1994), the Ground Lessor has not executed and delivered to any tenant in the Building a non-disturbance or other recognition-type agreement for such tenant's benefit, (ii) the Ground Lease is the only Underlying Lease affecting the Land and/or the Building on the date hereof, (iii) there is no Mortgage affecting the Land and/or the Building on the date hereof, and (iv) on the date hereof, Landlord has not received any written notice of default and, to the best of Landlord's knowledge, is not in default in the observance of any of its obligations as tenant under the Ground Lease. Section 22.02. This Lease may be conditionally assigned as collateral security by Landlord to a Mortgagee, which collateral assignment may provide that, without Mortgagee's prior written consent, the parties shall not (i) pay or accept the rent or additional rent under the terms of this Lease for more than one month in advance of its due date, or (ii) enter into an agreement to amend or modify this Lease if there is an unexpired term of more than one (1) year thereunder, or (iii) voluntarily surrender the Demised Premises, terminate this Lease, or accelerate the Term without cause, or (iv) authorize the Tenant to assign this Lease or sublet the Demised Premises or any part thereof except in the manner as provided under the terms of this Lease. Any agreement by Landlord to make, perform or furnish any capital improvements or services not related to the possession or use of the Demised Premises by Tenant, shall not be binding on any Mortgagee in the event of foreclosure or in the event that a Mortgagee enters upon the Demised Premises pursuant to any security instrument in connection with the mortgage loan. Any Mortgagee and its successor shall not be responsible for any improvements, covenants, contractual obligations or services which Landlord has agreed to make, furnish or perform for Tenant under the terms of this Lease which do not run with the Land, or for the control, care or management of the Building or any waste committed on the Building by any tenant, or for any dangerous or defective condition of the Building resulting in loss or injury or death to any tenant, licensee or stranger. No Mortgagee will be deemed to assume liability for any security deposited by Tenant unless such Mortgagee accepts the transfer of said security and assumes responsibility therefor. Section 22.03. Tenant agrees that, unless a Mortgagee shall elect otherwise in the case of a foreclosure of such Mortgage, or unless the Overlandlord of an Underlying Lease to which this Lease is subordinate shall elect otherwise in the case of a cancellation or a termination of such Underlying Lease, neither the cancellation nor termination of any Underlying Lease, nor any foreclosure of a Mortgage affecting the Land, Building, an Underlying Lease or the Demised Premises, nor the institution of any suit, action, summary or other proceeding against Landlord herein or any successor landlord, shall by operation of law or otherwise result in cancellation or termination of this Lease or the obligations of Tenant hereunder, and upon the request of the Overlandlord of such Underlying Lease, or the holder of such Mortgage, or the purchaser at a sale in foreclosure of such Mortgage, or other person who shall succeed to the interests of Landlord (which such Overlandlord, holder, purchaser or other person is hereafter in this paragraph referred to as "such successor in interest"), Tenant covenants and agrees to attorn to such successor in interest and recognize such successor in interest as its landlord under this Lease. Tenant agrees to execute an instrument in writing reasonably satisfactory to such successor in interest whereby Tenant attorns to such successor in interest. Tenant further 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 Demised Premises in the event any Underlying Lease terminates or any such mortgage is foreclosed or any such proceeding is brought by any Overlandlord or the holder of any such mortgage. Section 22.04. In the event of the occurrence of any act or omission by Landlord which would give Tenant the right to terminate this Lease or claim a partial or total eviction, or make any claim against Landlord for the payment of money, Tenant will not exercise such right until Tenant has given written notice of such occurrence to (i) Landlord and (ii) each Mortgagee and the Overlandlord of any Underlying Lease, as to whom, and to the last address to which Tenant has been instructed to give such notice, and a reasonable period for remedying such act or omission shall have elapsed following the giving of such notices, during which such parties or any of them with reasonable diligence following the giving of such notice, have not commenced and continued to remedy such act or omission or to cause the same to be remedied. Nothing herein contained shall be deemed to create any rights in Tenant not specifically granted in this Lease or under any applicable provision of law, nor to obligate any such Mortgagee or Overlandlord to remedy any such act or omission. Section 22.05. If a Mortgagee or prospective mortgagee shall request modifications to this Lease, Tenant shall not unreasonably withhold, delay or defer Tenant's consent thereto, provided that such modifications shall not increase Tenant's monetary obligations hereunder or increase Tenant's non-monetary obligations hereunder by more than a de minimis amount or adversely affect the leasehold interest hereby created by more than a de minimis amount. In no event shall a requirement that the consent of any such Mortgagee or prospective mortgagee be given for any modification of this Lease or for any assignment or sublease, be deemed to materially adversely affect the leasehold interest hereby created. Section 22.06 Notwithstanding anything to the contrary contained in this Lease, Landlord hereby agrees to use reasonable efforts to obtain from a Mortgagee a non-disturbance agreement in favor of Tenant on such Mortgagee's standard form. ARTICLE 23 ---------- ESTOPPEL CERTIFICATE Section 23.01. Tenant agrees, at any time, and from time to time, within twenty (20) days after request by Landlord, to execute, acknowledge and deliver to Landlord, a statement in writing addressed to Landlord and/or to such other party(ies) as Landlord may designate: (i) 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), (ii) stating the dates to which the Minimum Rent, additional rent and other charges have been paid, (iii) stating whether or not, to the best knowledge of the signer of such certificate, there exists any default by either party in the performance of any covenant, agreement, term, provision or condition contained in this Lease, and, if so, specifying each such default of which the signer may have knowledge, and (iv) setting forth such other information as Landlord may reasonably request concerning this Lease, it being intended that any such statement delivered pursuant hereto may be relied upon by Landlord or a purchaser of Landlord's interest and by any mortgagee, or prospective mortgagee, of any mortgage affecting the Building or the Land, or both, and by any Overlandlord or prospective Overlandlord under any Underlying Lease affecting the Land or Building, or both, and by any mortgagee or prospective mortgagee of any Underlying Lease, it being understood that Tenant shall not be required to make any investigation of any matter beyond Tenant's own books and records. Section 23.02. Landlord agrees, in connection with any proposed assignment of this Lease or subletting of the Demised Premises by Tenant (except to an unaffiliated Successor Corporation), or in connection with any offering materials to be delivered by Tenant to the Securities Exchange Commission, within thirty (30) days after request by Tenant, to execute, acknowledge, and deliver to Tenant, a statement in writing addressed to Tenant and/or any other party(ies) as Tenant may designate: (i) 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), (ii) stating, to the best of Landlord (but without having made any independent investigation), the dates to which the Minimum Rent and Recurring Additional Rent have been paid, and (iii) stating whether, to the best knowledge of Landlord (but without having made any independent investigation), Tenant is in default in the performance of any covenant, agreement, term, provision, or condition contained in this Lease, and, if Tenant is in default, identifying all such defaults; provided, however, that Landlord shall not be required to provide such a statement to Tenant more than twice during any twelve (12) month period. ARTICLE 24 ---------- LEGAL PROCEEDINGS Section 24.01. If Tenant or Landlord shall bring any action or suit for any relief against the other, declaratory or otherwise, arising out of this Lease or Tenant's occupancy of the Demised Premises, the parties hereto agree to and hereby waive any right to a trial by jury. Section 24.02. This Lease shall be governed in all respects by the laws of the State of New York. Tenant hereby specifically consents to jurisdiction in the State of New York in any action or proceeding arising out of this Lease and/or the use and occupation of the Demised Premises. If Tenant at any time during the Term shall not be a New York partnership or a New York corporation or a foreign corporation qualified to do business in New York State, Tenant shall designate, in writing, an agent located in New York County (together with such agent's address) for service under the laws of the State of New York for the entry of a personal judgment against Tenant. Tenant, by notice to Landlord, shall have the right to change Tenant's designation of such agent, provided that at all times there shall be an agent in New York County for such service. In the event of any revocation by Tenant of such agency, such revocation shall be void and have no force or effect unless and until a new agent shall have been designated for service and Tenant shall have notified Landlord thereof (together with such new agent's address). If any such agency designation shall require a filing in the office of the Clerk of the County of New York, the same shall be promptly accomplished by Tenant, at Tenant's expense, and a certified copy thereof shall thereupon be transmitted by Tenant to Landlord. ARTICLE 25 ---------- SURRENDER Section 25.01. Tenant shall, at the expiration or sooner termination of the Term (either, as applicable, being referred to herein as the "Surrender Date"), quit and surrender to Landlord the Demised Premises, broom clean and in the condition required under this Lease, reasonable wear and tear and Repairs that are the obligation of Landlord pursuant to the terms of this Lease excepted, and shall surrender all keys for the Demised Premises to Landlord at the place then fixed for the payment of rent, and shall inform Landlord of all combinations of locks, safes and vaults, if any, located (and permitted by Landlord to remain) in the Demised Premises. Except as otherwise expressly provided elsewhere in this Lease, Tenant shall, on the Surrender Date, remove all of Tenant's property from the Demised Premises and shall immediately repair any damage to the Demised Premises caused by the installation and/or removal of such property. Any or all of such property not so removed shall, at Landlord's option, become the exclusive property of Landlord or be disposed of by Landlord, at Tenant's cost and expense, without further notice to or demand upon Tenant, and without any liability to Tenant, in connection therewith. Section 25.02. ------------- A. If the Demised Premises (or any portion thereof) shall not be surrendered as and when aforesaid, Tenant shall pay to Landlord as use and occupancy for each month or fraction thereof during which Tenant continues to occupy the Demised Premises (or any portion thereof) from and after the Surrender Date (the "Continued Occupancy Period") an amount of money (the "Occupancy Payment") equal to one hundred fifty (150%) percent of one twelfth (1/12) of the Minimum Rent and additional rent payable by Tenant during the immediately preceding twelve (12) months. Notwithstanding anything to the contrary contained in this Section 25.02A, in the event that Tenant shall be unable to surrender the Demised Premises on the Surrender Date for any reason outside of Tenant's reasonable control (an "Excusable Surrender Delay Event") and provided Tenant is not then in default under this Lease (other than by reason of such failure to vacate) and has given Landlord notice specifying the nature of the Excusable Surrender Delay Event no less than thirty (30) days prior to the Surrender Date, then the Occupancy Payment for the thirty (30) day period following the Surrender Date shall be one twelfth (1/12) of the Minimum Rent and additional rent payable by Tenant during the immediately preceding twelve (12) months. Tenant shall make the Occupancy Payment, without notice or previous demand therefor, on the first day of each and every month during the Continued Occupancy Period. B. In addition to making all required Occupancy Payments, Tenant shall, in the event of Tenant's failure to surrender the Demised Premises on the Surrender Date as and in the manner aforesaid, also indemnify and hold Landlord harmless from and against any and all cost, expense, damage, claim, loss or liability resulting from any delay or failure by Tenant in so surrendering the Demised Premises, including any consequential damages suffered by Landlord and any claims made by any succeeding occupant founded on such delay or failure, and any and all reasonable attorneys' fees, disbursements and court costs incurred by Landlord in connection with any of the foregoing. C. The receipt and acceptance by Landlord of all or any portion of the Occupancy Payment shall not be deemed a waiver or acceptance by Landlord of Tenant's breach of Tenant's covenants and agreements under this Article 25, or a waiver by Landlord of Landlord's right to institute any summary holdover proceedings against Tenant, or a waiver by Landlord of Landlord's rights to enforce any of Landlord's rights, or pursue any of Landlord's remedies against Tenant in such event as provided for in this Lease or under law. Section 25.03. It is expressly understood and agreed that there can be no extension of the Term unless said extension is reduced to writing and agreed to by Landlord. No verbal statement or unsigned writing shall be deemed to extend the Term, and Tenant hereby agrees that any improvements Tenant shall make to the Demised Premises in reliance upon any extension of the Term given verbally or by an unsigned writing shall be at Tenant's peril. Section 25.04. If the last day of the Term shall fall on a Saturday, Sunday or legal holiday, the term of this Lease shall expire on the business day immediately following such date. Section 25.05. Tenant expressly waives, for itself and for any person claiming by, through or under Tenant, any rights which Tenant or any such persons may have under the provisions of Section 2201 of the New York Civil Practice Law and Rules, and of any successor law of like import then in force, in connection with any summary holdover proceedings which Landlord may institute to enforce the provisions of this Article 25. Section 25.06. Each and every one of Tenant's obligations set forth in this Article 25 (including the indemnity) shall survive the expiration or other termination of the Term. ARTICLE 26 ---------- RULES AND REGULATIONS Section 26.01. Tenant, and all Persons Within Tenant's Control, shall observe and comply with: (i) all of the rules and regulations set forth in Exhibit "F" annexed hereto and made a part hereof, and (ii) such additional rules and regulations as Landlord hereafter at any time or from time to time may reasonably make and may communicate in writing to Tenant, which, in the reasonable judgment of Landlord, shall be necessary or desirable for the reputation, safety, care or appearance of the Building and the Building Systems, or the preservation of good order therein, or the operation or maintenance of the Building and Building Systems, or the comfort of tenants or others in the Building and which do not materially increase Tenant's obligations or materially reduce Tenant's right hereunder; provided, however, that in the case of any conflict between the provisions of this Lease and any such rules or regulations, the provisions of this Lease shall control, and provided further that nothing contained in this Lease shall be construed to impose upon Landlord any duty or obligation to enforce the rules and regulations or the terms, covenants or conditions in any other lease as against any other tenant, and provided further that Landlord shall not be liable to Tenant for violation of the same by any other tenant, its servants, employees, agents, visitors, invitees, subtenants or licensees. In the event that Tenant shall dispute the reasonableness of any additional rule or regulation hereafter made or adopted by Landlord or Landlord's agents, the parties hereto agree to submit the question of the reasonableness of such rule or regulation for decision to the AAA, whose determination shall be final and conclusive upon the parties hereto. The right to dispute the reasonableness of any additional rule or regulation upon Tenant's part shall be deemed waived unless the same shall be asserted by service of a notice in writing upon Landlord within thirty (30) days after the giving of notice of the making of the rule or regulation to Tenant. Notwithstanding the foregoing, Landlord agrees not to enforce the rules and regulations against Tenant in a discriminatory manner. ARTICLE 27 ---------- PERSONS BOUND Section 27.01. The covenants, agreements, terms, provisions and conditions of this Lease shall bind and inure to the benefit of the respective heirs, distributees, executors, administrators, successors, assigns and legal representatives of the parties hereto with the same effect as if mentioned in each instance where a party hereto is named or referred to, except that no violation of the provisions of Article 10 shall operate to vest any rights in any successor, assignee or legal representative of Tenant, and that the provisions of this Article 27 shall not be construed as modifying the conditions of limitation contained in Articles 14 and 15. The term "Landlord" as used in this Lease shall mean the Landlord at the particular time in question, and it is agreed that the covenants and obligations of Landlord under this Lease shall not be binding upon Landlord herein named or any subsequent landlord with respect to any period subsequent to the transfer of its interest under this Lease by operation of law or otherwise. In the event of any such transfer, the transferee shall be deemed to have assumed (subject to this Article 27) the covenants and obligations of Landlord under this Lease, and Tenant agrees to look solely to the transferee for the performance of the obligations of Landlord hereunder, but only with respect to the period beginning with such transfer and ending with a subsequent transfer of such interest. A lease of Landlord's interest shall be deemed a transfer within the meaning of this Article 27. Section 27.02. Notwithstanding anything to the contrary provided in this Lease, Tenant agrees that there shall be no personal liability on the part of Landlord or Landlord's principals, partners, members, shareholders, directors, officers, employees or agents, arising out of any default by Landlord under this Lease, and that Tenant (and any person claiming by, through or under Tenant) shall look solely to the equity interest of Landlord in and to the Building or the leasehold estate of Landlord, and the proceeds of any sale or other disposition thereof or proceeds from insurance or condemnation awards, for the enforcement and satisfaction of any defaults by Landlord hereunder, and that Tenant shall not enforce any judgment or other judicial decree requiring the payment of money by Landlord, against any other property or assets of Landlord, and at no time shall any other property or assets of Landlord, or Landlord's principals, partners, members, shareholders, directors or officers, be subject to levy, execution, attachment or other enforcement procedure for the satisfaction of Tenant's (or such person's) remedies under or with respect to this Lease, the relationship of Landlord and Tenant hereunder or Tenant's use or occupancy of the Demised Premises; such exculpation of personal liability to be absolute and without any exception. ARTICLE 28 ---------- NOTICES Section 28.01. In order for the same to be effective, each and every notice, request or demand permitted or required to be given by the terms and provisions of this Lease, or by any Legal Requirement, either by Landlord to Tenant or by Tenant to Landlord (any of the foregoing being referred to in this Article 28 as a "Notice"), shall be given in writing, in the manner provided in this Section 28.01, unless expressly provided otherwise elsewhere in this Lease. In the case of Notices given by Landlord to Tenant, any such Notice shall be deemed to have been served and given by Landlord and received by Tenant, on the third business day following the date on which Landlord shall have deposited such Notice by registered or certified mail, return receipt requested, enclosed in a securely closed postpaid wrapper, in a United States general or branch post office facility ("Post Office"), addressed to Tenant at the Demised Premises (or before Tenant has moved its offices to the Demised Premises, addressed to Tenant at its address as stated on the first page of this Lease), Attention: Mr. Frank Joyce, Chief Operating Officer, with a copy to Fried, Frank, Harris, Shriver & Jacobson, One New York Plaza, New York, New York, 10004-1980, Attention: Valerie Ford Jacob, Esq. In the case of Notices given by Tenant to Landlord, any such Notice shall be deemed to have been served and given by Tenant and received by Landlord on the third business day following the date on which Tenant shall have deposited such Notice (and any required copies thereof) by registered or certified mail, return receipt requested, enclosed in securely closed postpaid wrapper in a Post Office addressed to Landlord as follows: Broadpine Realty Holding Company, Inc., c/o J.P. Morgan Investment Management Inc., 522 Fifth Avenue, New York, New York 10036, Attention: Ms. Elizabeth Propp, with a copy to Silverstein Properties, Inc., 120 Broadway, New York, New York 10271, Attention: Ms. Catherine T. Giliberti and with an additional copy to: Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York 10038, Attention: Brian Diamond, Esq., and with copies thereof mailed as aforesaid to parties designated in accordance with Section 22.04. Notices may also be given by air courier or personal delivery with receipted delivery, each effective upon receipt (or refusal to receive). Either party may, by notice as aforesaid, designate a different address or addresses for Notices. Section 28.02. Notices may be given on behalf of Landlord by the managing agent for the Building, which currently is Silverstein Properties, Inc. Notices may also be given on behalf of Landlord and Tenant by their respective attorneys. ARTICLE 29 ---------- PARTNERSHIP TENANT Section 29.01. If Tenant is a partnership (or is comprised of two (2) or more persons, individually and as co-partners of a partnership) or if Tenant's interest in this Lease shall be assigned to a partnership (or to two (2) or more persons, individually and as co-partners of a partnership) pursuant to Article 10 (any such partnership and such persons being referred to in this Article as "Partnership Tenant"), the following provisions of this Section 29.01 shall apply to such Partnership Tenant: (i) the liability of each of the parties comprising Partnership Tenant (other than limited partners of the initial Tenant entity if such entity shall be a limited partnership) shall be joint and several, (ii) each of the parties comprising Partnership Tenant hereby consents in advance to, and agrees to be bound by, any written instrument which may hereafter be executed changing, modifying or discharging this Lease, in whole or in part, or surrendering all or any part of the Demised Premises to Landlord, and by any notices, demands, requests or other communications which may hereafter be given by Partnership Tenant or by any of the parties comprising Partnership Tenant, (iii) any bills, statements, notices, demands, requests or other communications given or rendered to Partnership Tenant or to any of the parties comprising Partnership Tenant (other than limited partners of the initial Tenant entity if such entity shall be a limited partnership) shall be binding upon Partnership Tenant and all such parties, (iv) if Partnership Tenant shall admit new partners, all of such new partners shall, by their admission to Partnership Tenant, be deemed to have assumed performance of all of the terms, covenants and conditions of this Lease on Tenant's part to be observed and performed (it being understood, however, that, in the case of a limited partnership, such new limited partners shall not be deemed to have personally assumed such performance), (v) Partnership Tenant shall give prompt notice to Landlord of the admission of any such new partners (other than limited partners), and, upon demand of Landlord, shall cause each such new partner (other than limited partners) to execute and deliver to Landlord an agreement in form satisfactory to Landlord, wherein each such new partner shall assume performance of all of the terms, covenants and conditions of this Lease on Tenant's part to be observed and performed (but neither Landlord's failure to request any such agreement nor the failure of any such new partner to execute or deliver any such agreement to Landlord shall vitiate the provisions of clause (iv) of this Section 29.01), and (vi) on each anniversary of the Commencement Date, Partnership Tenant shall deliver to Landlord a list of the names of all partners and their current residential addresses. Section 29.02. If any partner in Tenant is or shall be a professional corporation, Tenant agrees to cause such professional corporation and each individual shareholder thereof to execute such guaranties and other instruments, agreements or documents as Landlord may reasonably request confirming that such individual shareholder shall have the same obligations and liability under this Lease as such shareholder would have had if he, and not such professional corporation, were a partner in Tenant. Section 29.03. Tenant and each of the partners/shareholders of Tenant hereby waive any requirements of law that may require that Landlord first look to the assets of Tenant for recovery of any monies due hereunder, it being the intention of the parties hereto that Landlord may, at Landlord's election, proceed against the assets of Tenant and/or the assets of the individual partners/shareholders of Tenant, whether simultaneously, or in such order of priority as Landlord may determine in Landlord's sole discretion. The provisions of this Section 29.03 are not intended to mean that Landlord shall have limited or waived its rights to any other available remedies hereunder or under applicable law as to Tenant, including the right to look to the assets of Tenant for recovery of any monies due hereunder. Section 29.04. The partners/shareholders of Tenant hereby consent and submit to the jurisdiction of any court of record of New York State located in New York County, or of the United States District Court for the Southern District of New York, and agree that service of process in any action or proceeding brought by Landlord may be made upon any or all of the partners/shareholders of Tenant by mailing a copy of the summons to such partner(s)/shareholder(s) either at their respective addresses or at the Demised Premises, by registered or certified mail, return receipt requested. Notwithstanding the foregoing, the residence of any partner/shareholder of Tenant shall not be a basis for a choice of venue or for a motion by a partner/shareholder of Tenant for transfer of venue or forum non conveniens pursuant to any rule of common law and/or any applicable state of federal provision or statute, and each partner/shareholder of Tenant and Tenant hereby waives the right to choose venue or to move for transfer of venue or forum non conveniens on the grounds that an individual partner/shareholder of the Tenant resides in a particular jurisdiction. ARTICLE 30 ---------- NO WAIVER; ENTIRE AGREEMENT Section 30.01. The failure of the Landlord to enforce Landlord's rights for violation of, or to insist upon the strict performance of any covenant, agreement, term, provision or condition of this Lease, or any of the rules and regulations, shall not constitute a waiver thereof, and Landlord shall have all remedies provided herein and by applicable law with respect to any subsequent act which would have originally constituted a violation. The receipt by Landlord of Minimum Rent and/or additional rent with knowledge of the breach of any covenant, agreement, term, provision or condition of this Lease shall not be deemed a waiver of such breach. No provision of this Lease shall be deemed to have been waived by Landlord, unless such waiver be in writing signed by Landlord. Tenant hereby expressly waives any right that Tenant might otherwise have to raise or assert either the aforesaid failure of Landlord to enforce rights, seek redress or insist upon strict performance, or the aforesaid receipt by Landlord of Minimum Rent and/or additional rent, as a basis for any defense or counterclaim in any legal, equitable or other proceeding in which Landlord shall seek to enforce any rights, covenants or conditions under this Lease. The remedies provided in this Lease shall be cumulative and shall not in any way abridge, modify or preclude any other rights or remedies to which Landlord may be entitled under this Lease, at law or in equity. Without limiting the generality of the foregoing, Tenant expressly agrees that, upon the occurrence of an Event of Default, Landlord shall be entitled to exercise all of the rights set forth in Article 15 above (including the right to terminate this Lease), notwithstanding that this Lease provides that Landlord may cure the default or otherwise perform the obligation of Tenant which gave rise to such Event of Default, and regardless of whether Landlord shall have effected such cure or performed such obligation. The receipt and retention by Landlord of Minimum Rent or additional rent from any person other than Tenant shall not be deemed a waiver by Landlord of any breach by Tenant or any covenant, agreement, term, provision or condition herein contained, or the acceptance of such other person as a tenant, or a release of Tenant from the further performance of the covenants, agreements, terms, provisions and conditions herein contained. Section 30.02. This Lease, with the schedules, riders and exhibits, if any, annexed hereto, contains the entire agreement between Landlord and Tenant, and any agreement heretofore made with respect to the subject matter hereof shall be deemed merged herein. Any agreement hereafter made between Landlord and Tenant shall be ineffective to change, modify, waive, release, discharge, terminate or effect a surrender or abandonment of this Lease, in whole or in part, unless such agreement is in writing and signed by the party against whom enforcement is sought. All of the schedules, riders and exhibits, if any, annexed hereto are incorporated herein and made a part hereof as though fully set forth herein. If Tenant shall have any right to an extension or renewal of the Term, or any right to lease other space from Landlord, Landlord's exercise of Landlord's right to terminate this Lease shall operate, ipso facto, to terminate such renewal, extension or other right, whether or not theretofore exercised by Tenant. Any option on the part of Tenant herein contained for an extension or renewal hereof shall not be deemed to give Tenant any option for a further extension beyond the first renewal or extended term. No option or right granted to Tenant under this Lease to terminate, extend, or make any other election, shall be exercisable or valid during such time as Tenant shall be in default in any of its monetary obligations or in default (after notice and the expiration of any applicable cure period provided in this Lease) with respect to any of Tenant's material obligations under this Lease. Section 30.03. No act or thing done by Landlord or Landlord's agents during the Term shall be deemed to constitute an eviction by Landlord, or be deemed an acceptance of a surrender of the Demised Premises, and no agreement to accept such surrender shall be valid, unless in writing signed by Landlord. No employee of Landlord or of Landlord's agents shall have any power to accept the keys of the Demised Premises prior to the termination of this Lease. The delivery of keys to any employee of Landlord or of Landlord's agents shall not operate as a termination of this Lease or a surrender of the Demised Premises. In the event that Tenant at any time shall desire to have Landlord sublet the Demised Premises for Tenant's account, Landlord or Landlord's agents are authorized to receive said keys for such purposes without releasing Tenant from any of Tenant's obligations under this Lease, and Tenant hereby relieves Landlord of any liability for loss of or damage to any of Tenant's property in connection with such subletting. ARTICLE 31 ---------- MISCELLANEOUS Section 31.01. Tenant represents that Tenant has inspected the Demised Premises, and (except as may be otherwise expressly set forth elsewhere in this Lease) agrees to take same in its existing condition "as is" and "where is" at the commencement of the term of this Lease, subject, however, to Landlord's obligation to substantially complete Landlord's Work, in accordance with Article 2 of this Lease. The taking of possession of the Demised Premises by Tenant shall be deemed conclusive evidence that Tenant accepts the same "as is" and "where is", and that the Demised Premises and the Building are in good and satisfactory condition, but nothing contained in this Section 31.01 shall be construed as a waiver by Tenant of Landlord's obligations to perform such Repairs as Landlord shall otherwise be required to perform pursuant to the provisions of this Lease, or to complete such incomplete portions of any work as Landlord may be required to complete pursuant to Article 2 above. Tenant agrees that neither Landlord, nor any broker, agent, employee or representative of Landlord nor any other party, has made, and Tenant does not rely on, any representations, warranties or promises with respect to the Building, the Land, the Demised Premises or this Lease, 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. Landlord makes no representation as to the design, construction, development or use of the Land or Building, except as may be expressly set forth in this Lease. Section 31.02. The Table of Contents and Article headings of this Lease are included for convenience only, and shall not limit or define the meaning or content hereof. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural, as the identity of the person or persons may require. The terms "herein," "hereof" and "hereunder," and words of similar import, shall be construed to refer to this Lease as a whole, and not to any particular Article or Section, unless expressly so stated. The term "and/or", when applied to two or more matters or things, shall be construed to apply to any one or more or all thereof as the circumstances warrant at the time in question. The term "person" shall mean any natural person or persons, a partnership, a corporation, and any other form of business or legal association or entity, unless expressly otherwise stated. An "affiliate" of Tenant shall mean any person which controls or is controlled by, or is under common control with, Tenant, with the word "control" (and, correspondingly, "controlled by" and "under common control with"), as used with respect to any person, meaning the possession of the power to direct or cause the direction of the management and policies of such person. The rule of "ejusdem generis" shall not apply in or to the construction of any term of this Lease. Section 31.03. If the term "Tenant", as used in this Lease, refers or shall refer to more than one person, then, as used in this Lease, said term shall be deemed to include all of such persons or any one of them. If any of the obligations of Tenant under this Lease is or shall be guaranteed, the term "Tenant" as used in Article 14 shall be deemed to mean the Tenant and the guarantor, or either of them. If this Lease shall have been assigned, then for purposes of Article 14, the term "Tenant" shall be deemed to mean either assignor or assignee. The term "Tenant" shall mean the Tenant herein named or any assignee or other successor in interest (immediate or remote) of the Tenant herein named, which at the time in question is the owner of the Tenant's estate and interest granted by this Lease; but the foregoing provisions of this Section 31.03 shall not be construed to permit any assignment of this Lease or to relieve the Tenant herein named or any assignee or other successor in interest (whether immediate or remote) of the Tenant herein named from the full and prompt payment, performance and observance of each and every one of the covenants, obligations and conditions to be paid, performed and observed by Tenant under this Lease. Section 31.04. If any portion of the Building shall be sold or transferred by Landlord in a transaction in the nature of a condominium, Landlord may, by notice to Tenant, elect to increase Tenant's Proportionate Share under this Lease by dividing the prior Tenant's Proportionate Share by the percentage that the assessed valuation of the tax lot which includes the Demised Premises for the first year of changed ownership bears to the total of the assessed valuations of all new tax lots which comprised the single tax lot which included the Demised Premises during the preceding Year, and base period amounts shall be reduced by multiplying the amount thereof theretofore in effect by the same percentage, and affected computations under Subsection 19.03A shall be apportioned, but in no event shall Tenant's Operating Expense Payment or Tax Payment following such sale or transfer exceed the amount that such Operating Expense Payment or Tax Payment would have been had the Building remained as a single unit and Tenant's Proportionate Share not been recalculated . Section 31.05. Landlord and Tenant and any subtenant under this Lease, hereby expressly consent to the jurisdiction of the Civil Court of the City of New York and the Supreme Court of the State of New York with respect to any action or proceeding between Landlord and Tenant or such party with respect to this Lease or any rights or obligations of either party pursuant to this Lease, and each of such subtenant, Landlord and Tenant agrees that venue shall lie in New York County. Tenant and any subtenant further waive any and all rights to commence any such action or proceeding against Landlord before any other court. Section 31.06. The submission of this Lease to Tenant shall not be construed as an offer, nor shall Tenant have any rights with respect thereto or the Demised Premises, unless and until Landlord and Tenant shall each have executed a counterpart of this Lease and delivered the same to the other. Until such execution and delivery, any action taken or expense incurred by Tenant in connection with this Lease or the Demised Premises shall be solely at Tenant's own risk and account. Section 31.07. Neither this Lease nor any memorandum thereof shall be recorded. Section 31.08. This Lease shall be governed exclusively by (i) the provisions hereof, without the aid of any canon, custom or rule of law requiring or suggesting construction against the party drafting or causing the drafting of the provision in question, and (ii) the internal laws of the State of New York as the same may from time to time exist, without giving effect to the principles of conflicts of laws. Section 31.09. There shall be no merger of this Lease, or the leasehold estate created by this Lease, with any other estate or interest in the Demised Premises, or any part thereof, by reason of the fact that the same person may acquire or own or hold, directly or indirectly, (i) this Lease or the leasehold estate created by this Lease, or any interest in this Lease or in any such leasehold estate, and (ii) any such other estate or interest in the Demised Premises or any part thereof; and no such merger shall occur unless and until all persons having an interest (including a security interest) in (a) this Lease or the leasehold estate created by this Lease and (b) any such other estate or interest in the Demised Premises, or any part thereof, shall join in a written instrument effecting such merger and shall duly record the same. Section 31.10. If Tenant is a corporation, each person executing this Lease on behalf of Tenant hereby covenants, represents and warrants that Tenant is a duly incorporated or duly qualified (if foreign) corporation and is authorized to do business in the State of New York (a copy of evidence thereof to be supplied to Landlord upon request); and that each person executing this Lease on behalf of Tenant is an officer of Tenant, and that he is duly authorized to execute, acknowledge and deliver this Lease to Landlord (a copy of a resolution to that effect to be supplied to Landlord upon request). Section 31.11. The terms "Landlord shall have no liability to Tenant", or "the same shall be without liability to Landlord", or "without incurring any liability to Tenant therefor", or words of similar import, shall mean that Tenant shall not be entitled to terminate this Lease, or to claim actual or constructive eviction (partial or total), or to receive any abatement or diminution of rent, or to be relieved in any manner of any of Tenant's other obligations hereunder, or to be compensated for loss or injury suffered, or to enforce any other right or kind of liability whatsoever against Landlord under or with respect to this Lease or with respect to Tenant's use or occupancy of the Demised Premises. Section 31.12. If, under the terms of this Lease, Tenant shall be obligated to pay to Landlord any amount (other than Minimum Rent), and no payment period therefor is specified, Tenant shall pay to Landlord the amount due within thirty (30) days after being billed therefor. Section 31.13. Except as otherwise expressly provided herein, all bills, invoices or statements rendered to Tenant pursuant to the terms of this Lease shall be deemed binding and conclusive if, within ninety (90) days of receipt of the same, Tenant fails to notify Landlord, in writing, of Tenant's intention to dispute such bill, invoice or statement. Section 31.14. Time shall be of the essence with respect to the exercise of any option granted to Tenant pursuant to this Lease. Section 31.15. Notwithstanding anything to the contrary contained in this Lease, during the continuance of any default by Tenant (after notice and the expiration of any applicable cure period provided in this Lease) with respect to any of Tenant's obligations under this Lease, Tenant shall not be entitled to exercise any rights or options or to receive any funds or proceeds being held by Landlord under or pursuant to this Lease. Section 31.16. If any sales or other tax shall be due or payable with respect to any cleaning or other service which Tenant obtains or contracts for directly from any third party or parties, Tenant shall file any required tax returns and shall pay any such tax, and Tenant shall indemnify and hold Landlord harmless from and against any loss, damage or liability suffered or incurred by Landlord by reason thereof. Section 31.17. Tenant acknowledges that Tenant has no rights to any development rights, "air rights" or comparable rights appurtenant to the Land and the Building, and consents, without further consideration, to any utilization of such rights by Landlord, and agrees to promptly execute and deliver any instruments which may be requested by Landlord, including instruments merging zoning lots, evidencing such acknowledgment and consent. The provisions of this Section 31.17 shall be deemed to be and shall be construed as an express waiver by Tenant of any interest Tenant may have as a "party in interest" (as such quoted term is defined under the definition of "Zoning Lot" in Section 12-10 of the Zoning Resolution of the City of New York) in the Land and/or the Building. Section 31.18. This Lease shall not be deemed or construed to create or establish any relationship of partnership or joint venture or similar relationship or arrangement between Landlord or Tenant. Section 31.19. The terms "actual" and "reasonable" when referring to costs or expenses in connection with work or services performed shall be deemed to include all amounts actually incurred and payable by a party which shall be attributable to any requirements or regulations prescribed by any labor unions. ARTICLE 32 ---------- INABILITY TO PERFORM; SEVERABILITY Section 32.01. This Lease and the obligation of Tenant to pay Minimum Rent and additional rent hereunder, and to perform and comply with all of the other covenants and agreements hereunder on the part of Tenant to be performed or complied with, shall in no way be affected, impaired or excused because of Landlord's delay or failure to perform or comply with any of the covenants and agreements hereunder on the part of Landlord to be performed or complied with, or to furnish any service or facility, for reasons beyond the reasonable control of Landlord, including strikes, lock-outs or labor problems, governmental preemption, or by reason of any Legal Requirements, or by reason of the conditions of supply and demand which have been or shall be affected by war or other emergency or general market conditions or otherwise. Section 32.02. If any provision of this Lease or the application thereof to any person or circumstance shall be determined by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions of this Lease or the application of such provision to persons or circumstances other than those to which it is held invalid or unenforceable shall not be affected thereby, and shall be valid and enforceable to the fullest extent permitted by law. Section 32.03. Each covenant, agreement, obligation and/or other provision of this Lease on Tenant's part to be performed shall be deemed and construed as a separate and independent covenant of Tenant, and not dependent on any other provision of this Lease. ARTICLE 33 ---------- SECURITY Section 33.01. Upon the execution of this Lease, Tenant shall deliver to Landlord the "Letter of Credit" (as defined in Section 33.02 below), in an amount equal to the Security Deposit Amount, as security for the faithful performance and observance by Tenant of all of the covenants, agreements, terms, provisions and conditions of this Lease. Tenant agrees that, if Tenant shall default (after notice and the expiration of any applicable cure period provided in this Lease) in respect of any of the covenants, agreements, terms, provisions and conditions of this Lease, including the payment of the Minimum Rent and additional rent, Landlord may, at Landlord's option (unless Tenant has cured such default prior to Landlord's drawing and Landlord shall have received satisfactory evidence thereof) draw upon the entire Letter of Credit (or a portion thereof) and thereafter use, apply or retain the whole or any part of the cash security then being held by Landlord by reason of Landlord's having drawn upon the Letter of Credit, as aforesaid (the "Cash Security") to the extent required for the payment of any Minimum Rent and additional rent, or any other payments as to which Tenant shall be in default or for any monies which Landlord may expend or may be required to expend by reason of Tenant's default (after notice and the expiration of any applicable cure period provided in this Lease) in respect of any of the covenants, agreements, terms, provisions and conditions of this Lease, including any damages or deficiency in the reletting of the Demised Premises, whether such damages or deficiency accrued before or after summary proceedings or other re-entry by Landlord. Landlord shall not be required to so use, apply or retain the whole or any part of the Cash Security, but if the whole or any part thereof shall be so used, applied or retained, then Tenant shall, upon demand, immediately deliver to Landlord a supplementary letter of credit equal to the amount of the Cash Security so used, applied or retained or a replacement letter of credit for the Security Deposit Amount (each of which shall comply with the requirements of Section 33.02 below), so that Landlord shall have the entire Security Deposit Amount on hand at all times during the Term. In the event that Tenant shall fully and faithfully comply with all of the terms, provisions, covenants, agreements and conditions of this Lease, the Cash Security and/or Letter of Credit, as applicable, shall be returned to Tenant within thirty (30) days after the Expiration Date and delivery of exclusive possession of the Demised Premises to Landlord. In the event of any making or assignment of any Underlying Lease or upon a conveyance of the Building: (i) Landlord shall have the right to transfer the Cash Security and/or Letter of Credit, as applicable, to the assignee or lessee or transferee, (ii) upon such transfer to the assignee, lessee, or transferee, and the assumption by the assignee, lessee, or transferee of the Cash Security and/or Letter of Credit in writing, Landlord shall thereupon be released by Tenant from all liability for the return of such Cash Security and/or Letter of Credit, as applicable, and (iii) Tenant agrees to look solely to Landlord's successor for the return of said Cash Security and/or Letter of Credit, as applicable; it being agreed that the provisions hereof shall apply to every transfer or assignment made of the Cash Security and/or Letter of Credit, as applicable, to a new Landlord. Tenant further covenants that Tenant will not assign or encumber or attempt to assign or encumber either the Cash Security or the Letter of Credit, as applicable, and that neither Landlord nor Landlord's successors or assigns shall be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance Section 33.02. ------------- A. The Letter of Credit that Tenant shall deliver to Landlord (the "Letter of Credit") shall be a clean, irrevocable, transferable and unconditional letter of credit (the "Letter of Credit") issued by and drawn upon a commercial bank (hereinafter referred to as the "Issuing Bank") which shall be a member bank of the New York Clearinghouse Association (or, in the alternative, which shall have offices for banking purposes in the Borough of Manhattan and shall have a net worth of not less than $100,000,000, with appropriate evidence thereof to be submitted by Tenant), which Letter of Credit shall: (i) have a term of not less than one year, (ii) be materially in the form annexed hereto as Exhibit "G" or such other form as is satisfactory to Landlord, (iii) be for the benefit of Landlord, (iv) be in the amount of $1,500,000.00 (i.e., the Security Deposit Amount, subject to reduction as provided in Subsection 33.02B), (v) except as otherwise provided in this Section 33.02, conform and be subject to Uniform Customs and Practice for Documentary Credits, 1993 Revision, ICC Publication No. 500 (or any revision thereof or successor thereto), (vi) be fully transferable by Landlord without any fees or charges therefor (or, if the Letter of Credit shall provide for the payment of any transfer fees or charges, the same shall be paid by Tenant as and when such payment shall be requested by the Issuing Bank), (vii) provide that Landlord shall be entitled to draw upon the Letter of Credit upon presentation to the Issuing Bank of a sight draft accompanied by Landlord's statement that Landlord is then entitled to draw upon the Letter of Credit pursuant to the terms of this Lease, and (viii) provide that the Letter of Credit shall be deemed automatically renewed, without amendment, for consecutive periods of one year each year thereafter during the entire Term of this Lease and for a period of thirty (30) days thereafter, unless the Issuing Bank shall send notice (the "Non-Renewal Notice") to Landlord by registered mail, return receipt requested, not less than thirty (30) days next preceding the then expiration date of the Letter of Credit that the Issuing Bank elects not to renew such Letter of Credit, in which case Landlord shall have the right, by sight draft on the Issuing Bank, to receive the monies represented by the then existing Letter of Credit, and to hold and/or disburse such proceeds as cash security. If Landlord shall fail, for any reason whatsoever, to draw upon the Letter of Credit within said thirty (30) day period, and the Letter of Credit shall expire prior to the thirtieth (30th) day following the Expiration Date of the Term of this Lease, then Tenant shall, upon demand, immediately furnish Landlord with a replacement Letter of Credit (which shall comply with all of the conditions set forth in the immediately preceding sentence), in the Security Deposit Amount so that Landlord shall have the entire Security Deposit Amount on hand at all times during the Term and for a period of thirty (30) days thereafter. Tenant acknowledges and agrees that the Letter of Credit shall be delivered to Landlord as security for the faithful performance and observance by Tenant of all of the covenants, agreements, terms, provisions and conditions of this Lease, and that Landlord shall have the right to draw upon the entire Letter of Credit (or a portion thereof) as hereinbefore described in Section 33.01 above. B. Landlord agrees that, provided that Tenant shall not then be in default in any of its monetary obligations or in default (after notice and the expiration of any applicable cure period provided in this Lease) with respect to any of the material terms, provisions, covenants, agreements and conditions of this Lease, Tenant shall be permitted to reduce the amount of said Letter of Credit by the sum of $115,960.50 on the first anniversary of the Commencement Date and on each anniversary of the Commencement Date thereafter through and including the tenth (10th) anniversary of the Commencement Date, provided, however, that at no time shall the Letter of Credit furnished to Landlord pursuant to this Section 33.02 be reduced to an amount less than $340, 395.00. In the event that, at the time Tenant would have been permitted to so reduce the amount of the Letter of Credit in accordance with the provisions of this Section 33.02B, Tenant shall have been in default of any of its monetary obligations hereunder or in default (after notice and the expiration of any applicable cure period provided in this Lease), with respect to any of the material terms, covenants, or conditions to be performed or observed by Tenant under this Lease, then following the cure of such default, as evidenced to the satisfaction of Landlord, Tenant may reduce the Letter of Credit by the aforesaid amount. ARTICLE 34 ---------- RENEWAL OPTION Section 34.01. Tenant shall have an option (the "Renewal Option") to extend the term of this Lease for a single renewal term of five (5) years (the "Renewal Term"), which shall commence at noon on the Expiration Date and shall expire at 11:59 p.m. on the fifth (5th) anniversary of the Expiration Date or such earlier date upon which this Lease may be terminated as herein provided. The Renewal Option may be exercised only by Tenant giving Landlord written notice (the "Renewal Notice") of Tenant's intention to renew this Lease pursuant to this Article 34 not later than one (1) year prior to the Expiration Date, and not earlier than twenty-four (24) months prior to the Expiration Date (TIME BEING STRICTLY OF THE ESSENCE WITH RESPECT TO THE GIVING OF SUCH NOTICE), and such Renewal Notice shall be deemed properly given only if, on the date that Tenant shall exercise the Renewal Option (the "Exercise Date"): (i) this Lease shall not have been previously terminated or canceled, (ii) Tenant shall be in occupancy of all of the Demised Premises, and (iii) Tenant shall not be in breach or default of any of the obligations of Tenant under this Lease. Time shall be strictly of the essence with respect to the giving of the Renewal Notice by Tenant to Landlord. Notwithstanding anything to the contrary contained in this Section 34.01, if, subsequent to the Exercise Date but prior to the commencement of the Renewal Term: (x) Tenant shall not be in occupancy of all of the Demised Premises, or (y) an Event of Default shall have occurred and then be continuing, then Landlord, in Landlord's sole and absolute discretion, may elect, by written notice to Tenant, to void Tenant's exercise of the Renewal Option, in which case Tenant's exercise of the Renewal Option shall be of no force or effect, and the Term shall end on the Expiration Date of the initial term of this Lease, unless sooner canceled or terminated pursuant to the provisions of this Lease or by law. Section 34.02. If Tenant shall exercise the Renewal Option in accordance with the provisions of this Article 34, then this Lease shall be extended for the Renewal Term upon all of the terms, covenants and conditions contained in this Lease, except that: (i) during the Renewal Term, the Minimum Rent shall be the fair annual market rental value (the "Market Value Rent") of the Demised Premises on the Expiration Date, determined as provided in Section 34.03 below, but in no event less than the Minimum Rent in effect on the Expiration Date, (ii) during the Renewal Term, the Base Tax Amount shall be Taxes for the fiscal year in which the first day of the Renewal Term shall occur, (iii) during the Renewal Term, the Base Operating Year shall be the calendar year in which the first day of the Renewal Term shall occur, (iv) from and after the Exercise Date (but subject to the provisions of the last sentence of Section 34.01 above), all references to "Expiration Date" shall be deemed to refer to the last day of the Renewal Term, and all references to "Term" shall be deemed to include the Renewal Term, (v) Tenant shall have no further right or option to renew this Lease or the term hereof, and (vi) all provisions of this Lease concerning the performance by Landlord or Tenant of any work, and the grant by Landlord of any monetary contribution, rent abatement or rent credit, in connection with Tenant's initial occupancy of the Demised Premises shall be deemed deleted. Section 34.03. ------------- A. The term "Market Value Rent" shall mean the annual fair market rental value of the Demised Premises as of the Determination Date (as hereinafter defined), taking into consideration the value of such rental abatements and construction allowances customarily being granted by landlords at such times in Comparable Buildings to tenants entering into leases of the size of the Demised Premises for a five (5) year term and all other relevant factors, but in no event less than the Minimum Rent and all additional rent payable pursuant to Article 19 of this Lease ("Recurring Additional Rent") payable by Tenant in the twelve-month period immediately prior to the Expiration Date of the initial term of this Lease. In addition, commencing on the first day of the Renewal Term, Tenant shall pay, as additional rent, in addition to the escalation payments provided for under this Lease, such other types of escalation payments which Landlord shall be then charging tenants under other leases, or shall be then requiring in other offers for leases, in the Building. For purposes hereof, the "Determination Date" shall mean the date which shall occur one (1) year prior to the Expiration Date. B. The initial determination of Market Value Rent shall be made by Landlord. In the event that Tenant shall have duly and timely delivered this Renewal Notice, then Landlord shall give notice (the "MVR Notice") to Tenant of Landlord's initial determination of the Market Value Rent within thirty (30) days following the Determination Date. Such initial determination of Market Value Rent shall be final and binding in fixing the Market Value Rent, unless, within thirty (30) days after Landlord shall have given MVR Notice to Tenant, Landlord shall receive a notice from Tenant (the "MVR Objection Notice"): (i) advising Landlord that Tenant disagrees with the initial determination of Market Value Rent set forth in the MVR Notice, and (ii) proposing a specific alternative Market Value Rent, which shall have been determined in good faith by Tenant. If Landlord and Tenant shall fail to agree upon the Market Value Rent within thirty (30) days after Landlord shall have received the MVR Objection Notice, then Landlord and Tenant each shall give notice to the other setting forth the name and address of an arbitrator designated by the party giving such notice. If either party shall fail to give notice of such designation within ten (10) days, then the first arbitrator chosen shall make the determination alone. If two arbitrators shall have been designated, such two arbitrators shall, within thirty (30) days following the designation of the second arbitrator, make their determinations of Market Value Rent in writing and give notice thereof to each other and to Landlord and Tenant. Such two arbitrators shall have twenty (20) days after the receipt of notice of each other's determinations to confer with each other and to attempt to reach agreement as to the determination of Market Value Rent. If such two arbitrators shall concur as to the determination of the Market Value Rent, such concurrence shall be final and binding upon Landlord and Tenant. If such two arbitrators shall fail to concur by the end of said twenty (20) day period, then such two arbitrators shall forthwith designate a third arbitrator. If the two arbitrators shall fail to agree upon the designation of such third arbitrator within ten (10) days, then either party may apply to the American Arbitration Association or any successor thereto having jurisdiction for the designation of such arbitrator. All arbitrators shall be real estate appraisers or consultants who shall have had at least fifteen (15) years continuous experience in the business of appraising or managing real estate or acting as real estate agents or brokers in the Borough of Manhattan, City of New York. The third arbitrator shall conduct such hearings and investigations as he may deem appropriate and shall, within thirty (30) days after his designation, choose one of the determinations of the two arbitrators originally selected by the parties, and that choice by the third arbitrator shall be binding upon Landlord and Tenant. Each party shall pay its own counsel fees and expenses, if any, in connection with any arbitration under this Article 34, including the expenses and fees of any arbitrator selected by it in accordance with the provisions of this Article, and the parties shall share equally all other expenses and fees of any such arbitration. The determination rendered in accordance with the provisions of this Section 34.03 shall be final and binding in fixing the Market Value Rent. The arbitrators shall not have the power to add to, modify or change any of the provisions of this Lease. C. If for any reason the Market Value Rent shall not have been determined prior to the commencement of the Renewal Term, then, until the Market Value Rent and, accordingly, the Minimum Rent, shall have been finally determined, the Minimum Rent and all Recurring Additional Rent payable for and during the Renewal Term shall be equal to the Market Value Rent and Recurring Additional Rent proposed by Landlord. Upon final determination of the Market Value Rent, an appropriate adjustment to the Minimum Rent shall be made reflecting such final determination, and Landlord or Tenant, as the case may be, shall refund or pay to the other any overpayment or deficiency, as the case may be, in the payment of Minimum Rent from the commencement of the Renewal Term to the date of such final determination. ARTICLE 35 ---------- FIRST OFFER RIGHTS Section 35.01. ------------- A. During the first five (5) years of the Term of this Lease, provided that (x) this Lease shall then be in full force and effect, (y) Tenant shall not then be in default with respect to any of Tenant's monetary obligations or in default (after notice and the expiration of any applicable cure period provided in this Lease) with respect to any of the material terms, provisions, covenants, agreements and conditions of this Lease and (z) Tenant or a Related Corporation shall then occupy the entire Demised Premises, then, at the time that any First Offer Space (as hereinafter defined) shall be available for lease by Landlord, Landlord shall deliver to Tenant notice of such availability (each a "First Offer Space Notice"), and Tenant shall, subject to the provisions of this Article 35, have one-time first offer rights (collectively, the "First Offer Rights") with respect to each such First Offer Space. If Landlord has any obligation to take any affirmative action or if Landlord has any right to trigger a tenant's right, in either instance, with respect to any First Offer Space (or any portion thereof) under any lease with another tenant of the Building (which tenant has rights with respect to such First Offer Space (or any portion thereof)), Landlord will take such action or exercise such right in accordance with the terms of the relevant lease. The First Offer Spaces are as follows (with each being referred to individually as a "First Offer Space"): (i) approximately 9,879 rentable square feet of space on the thirtieth (30th) floor of the Building as depicted on Exhibit K (the "First 30th Floor Offer Space"), which space Landlord hereby agrees not to lease to any other tenant during the six (6) month period following the execution of this Lease; provided, however, that, notwithstanding the foregoing, Landlord may lease or attempt to lease the 30th Floor Offer Space during such six month (6) period (without offering same to Tenant) if, prior to the end of such six (6) month period, Landlord shall have leased or licensed the space on the fifteenth (15th) floor of the Building (the "15th Floor Space") as depicted on Exhibit L to a third party tenant and the space on the twelfth (12th) floor of the Building (the "12th Floor Space") as depicted on Exhibit M to a third party tenant (it being understood that Landlord shall promptly notify Tenant of the latter to occur of the leasing of the 15th Floor Space or the 12th Floor Space); (ii) approximately 6,434 rentable square feet of space on the thirtieth (30th) floor of the Building as depicted on Exhibit N (the "Second 30th Floor Offer Space"), which Landlord anticipates shall become available for lease by Landlord on or about January 1, 2000, subject to the superior right of Donaldson, Lufkin, and Jenrette, Inc. to lease such space; (iii) any portion of the thirty-sixth (36th) floor of the Building (the "36th Floor Offer Space") which shall become available for lease by Landlord, subject to the superior right of Lester Schwab Katz & Dwyer ("Lester Schwab") to lease all or a portion of such space within two (2) years from the Commencement Date; provided, however, that if Lester Schwab elects to take only a portion of the 36th Floor Offer Space, Tenant may lease from Landlord that portion of space on the thirty sixth (36th) floor not leased by Lester Schwab (the "Remaining 36th Floor Offer Space") or any portion thereof, provided that the portion of the Remaining 36th Floor Offer Space that Tenant does not elect to lease is, in Landlord's sole discretion, an area that is contiguous, commercially rentable, and divisible from that portion of the Remaining 36th Floor Offer Space that Tenant elects to so lease; (iv) the entire rentable portion of the thirty-first (31st) floor of the Building and that portion of the thirtieth (30th) floor of the Building, as depicted on Exhibit O (the "30th/31st Floor Offer Space"), subject to the superior right of Donaldson, Lufkin, and Jenrette, Inc. to lease such space; it being agreed, however, that Tenant shall not have the right to lease less than the entire 30th/31st Floor Offer Space; and (v) the entire rentable portion of the twenty-first (21st) floor of the Building, as depicted on Exhibit P (the "21st Floor Offer Space"), subject to the exercise by Garban, Ltd. of Garban, Ltd.'s right to cancel its lease with respect to such space effective November 1, 2000; provided, however, that Tenant must elect to lease all of the 21st Floor Offer Space unless Landlord, in Landlord's sole discretion, agrees to lease a lesser portion of such space to Tenant, in which case such portion shall contain at least one-half of the rentable square footage of the 21st floor of the Building. Notwithstanding the foregoing, in the event Tenant does not elect to lease the entire 30th/31st Floor Offer Space in accordance with the provisions of clause (iv) above, and if General Reinsurance Corp. does not elect to renew its lease for such space, then, subject to the right of Donaldson, Lufkin, and Jenrette, Inc. to lease such space, Tenant may lease from Landlord that portion of space, if any, which Landlord, in Landlord's sole discretion, agrees to lease to Tenant, provided that such portion shall contain at least one-half of the rentable square footage on the floor of the Building where such space is located. The lease of General Reinsurance Corp. with Landlord with respect to the 30th/31st Floor Offer Space expires according to its terms in March 2002. The First Offer Space Notice shall set forth the First Offer Space, together with a floor plan depicting such First Offer Space. In the event Tenant fails to deliver to Landlord written notice of Tenant's election to exercise a particular First Offer Right (each a "First Offer Notice") within ten (10) business days after delivery of the First Offer Space Notice (time being of the essence with respect thereto) (the "First Offer Exercise Date"), the relevant First Offer Right shall be deemed revoked, null, and void, and of no further force or effect, and Tenant shall have no further rights of first offer with respect to such First Offer Space, and Landlord may thereafter proceed with the leasing of the relevant First Offer Space to any party upon any terms and conditions. Such First Offer Notice shall be deemed properly given only if on the First Offer Exercise Date: (i) this Lease shall not have been previously terminated or canceled and (ii) Tenant shall not be in breach or default of any of Tenant's monetary or material non-monetary obligations under this Lease (after notice and the expiration of any applicable cure period provided in this Lease). B. Notwithstanding anything to the contrary contained in this Section 35.01, if on the relevant First Offer Space Commencement Date (as defined in Subsection 35.02B), an Event of Default shall have occurred and be continuing (and if the underlying default shall have been of a monetary or material non-monetary nature), Landlord, in Landlord's sole and absolute discretion, may elect, by written notice to Tenant, to void Tenant's exercise of the relevant First Offer Right, in which case Tenant's exercise of such First Offer Right shall be of no force or effect. Section 35.02. ------------- A. If Tenant shall duly and timely deliver the relevant First Offer Notice to Landlord in the manner specified hereinabove, the parties hereto shall enter into an amendment (the "First Offer Space Lease Amendment") with respect to the First Offer Space in question, pursuant to which (i) the relevant First Offer Space shall be added to and become part of the Demised Premises under this Lease, (ii) the Minimum Rent shall be increased by an amount equal to the product of (a) the Minimum Rent then payable for the Demised Premises (on a per square foot basis), and (b) the rentable square footage of the relevant First Offer Space, (iii) Tenant's Proportionate Share shall be adjusted to reflect the addition of the relevant First Offer Space (with no change in the Base Tax Amount or the Base Operating Year), (iv) Landlord shall provide Tenant with an abatement of Minimum Rent under the Lease with respect to the relevant First Offer Space from the First Offer Space Commencement Date in an amount equal to the product of (x) three (3) months of Minimum Rent for the relevant First Offer Space, and (y) the amount of the percentage amount determined by dividing the number of months then remaining in the Term by the total number of months in the Term (the "Allocable Percentage"), (v) Landlord's Contribution for the relevant First Offer Space shall be equal to the product of (x) the Allocable Percentage and (y) Landlord's Contribution (on a per square foot basis) and (z) the rentable square footage of the relevant First Offer Space, (vi) the Security Deposit Amount for the relevant First Offer Space shall be equal to the product of (x) Landlord's Contribution for the relevant First Offer Space (on a per square foot basis) and (y) the rentable square footage of the relevant First Offer Space, and (vii) the lease term with respect to the relevant First Offer Space shall be co-terminous with the Term of the Lease; provided, however, that the failure of the parties to so execute or exchange said First Offer Space Lease Amendment shall not in any way reduce the parties' obligations or rights under this Lease. Notwithstanding anything to the contrary contained in this Lease, the Security Deposit Amount for the relevant First Offer Space will be reduced on the first anniversary of the relevant First Offer Space Commencement Date and on each anniversary of the relevant First Offer Space Commencement Date thereafter through and including the tenth (10th) anniversary of the relevant First Offer Space Commencement Date by the "Differential Amount"(as hereinafter defined). For the purposes hereof, for any relevant First Offer Space the "Differential Amount" is that amount obtained by dividing the sum obtained by subtracting from the Security Deposit Amount for the relevant First Offer Space an amount equal to three (3) months of Fixed Rent for the relevant First Offer Space by the number (10); provided, however, that at no time shall the Security Deposit Amount for the relevant First Offer Space be reduced to an amount less than three (3) months of Fixed Rent for the relevant First Offer Space. B. If Tenant shall timely exercise the relevant First Offer Right, Landlord shall endeavor to deliver possession of the relevant First Offer Space to Tenant on the date set forth in the relevant First Offer Space Notice, subject to delays beyond Landlord's reasonable control (the date of delivery of possession of the relevant First Offer Space to Tenant being hereinafter referred to as the "First Offer Space Commencement Date"). C. The relevant First Offer Space shall be delivered to Tenant in its then "as is" condition, and Landlord shall have no obligation to perform any work or Alterations in order to prepare the relevant First Offer Space for Tenant's initial occupancy thereof, except that Landlord shall, at Landlord's cost and expense, demolish the relevant First Offer Space and install Building Standard A/C Unit(s) (as hereinafter defined), the tonnage of which shall be proportionate to the size of the relevant First Offer Space; it being agreed that, notwithstanding anything to the contrary contained in this Lease, the tonnage of Building Standard A/C Unit(s) for a full floor at the Building is 120 tons ("Landlord's First Offer Space Work"). Landlord shall perform Landlord's First Offer Space Work in the same manner in which Landlord was obligated to perform Landlord's work. Section 35.03. If Landlord, after using reasonable efforts, is unable to give possession of the relevant First Offer Space to Tenant on the relevant First Offer Space Commencement Date because of the holding-over or retention of possession of any tenant, undertenant or occupants, or for any other reason beyond Landlord's reasonable control, Landlord shall not be subject to any liability for failure to give possession on said date and the validity of this Lease shall not be impaired under such circumstances, nor shall the same be construed in any way to extend the term of the First Offer Space or the Term of this Lease, but the relevant First Offer Space Commencement Date shall be deemed extended until the date on which Landlord shall have delivered possession thereof to Tenant (provided Tenant is not responsible for the inability to obtain possession). Notwithstanding anything to the contrary contained in this Lease, in the event that Landlord is unable to deliver the relevant First Offer Space to Tenant within ninety (90) days from the relevant First Offer Space Commencement Date (the ninetieth (90th) day of such period being referred to as the "Inability to Convey Date"), then Tenant may, at Tenant's option, elect to revoke Tenant's exercise of such relevant First Offer Right within ninety (90) days after the Inability to Convey Date (such period being hereinafter referred to as the "Tenant Revocation Period"), it being understood that if Tenant does not elect to revoke Tenant's exercise of Tenant's relevant First Offer Right by the expiration of such Tenant Revocation Period, Tenant shall be deemed to have waived Tenant's right to revoke Tenant's exercise of Tenant's relevant First Offer Right and shall remain obligated with respect to the relevant First Offer Space pursuant to the provisions of this Lease and shall accept the relevant First Offer Space on the date on which Landlord delivers possession thereof to Tenant in accordance with the provisions of this Article 35 of the Lease. The provisions of this Section 35.03 are intended to constitute "an express provision to the contrary" within the meaning of Section 223-a of the New York Real Property Law. Section 35.04. All materials, work, labor, fixtures and installations required by Tenant for completion of the relevant First Offer Space (if any) other than Landlord's First Offer Space Work, shall (subject to the provisions of Article 5 hereof) be performed by Tenant, at Tenant's sole cost and expense (other than Landlord's Contribution for the relevant First Offer Space as provided in Subsection 35.02A above). ARTICLE 36 ---------- EXPANSION OPTION Section 36.01. ------------- A. Notwithstanding anything to the contrary stated in this Lease, provided that this Lease shall then be in full force and effect and that Tenant shall not then be in default with respect to any of Tenant's monetary obligations or in default (after notice and the expiration of any applicable cure period provided in this Lease) with respect to any of the material terms, provisions, covenants, agreements and conditions of this Lease, Landlord shall provide to Tenant, during the first five (5) years of the Term (but in no event more often than three (3) times in any twelve (12) month period), within thirty (30) days following Landlord's receipt of Tenant's written request therefor, a list (the "Available Space List") of space(s) contiguous to the Demised Premises (or if such contiguous space(s) is not available, other space(s) in the Building) comprising up to one full floor of the Building and available for lease by Landlord or anticipated to become available for lease within four (4) months following the date of the delivery of such Available Space List (the "Available Expansion Space(s)"). B. Provided that this Lease shall be in full force and effect and Tenant shall not then be in default with respect to any of Tenant's obligations under this Lease, Tenant shall have the one-time option (the "Expansion Option"), subject to any existing rights or options of other tenants (i.e., rights existing as of the date of such Available Space List) and any renewal rights or renewal options granted to any future occupants of the Available Expansion Space, to lease one of the Available Expansion Spaces or portions thereof upon the terms and conditions contained in this Article 35. The Expansion Option shall be exercisable only by Tenant giving written notice to Landlord that Tenant elects to exercise such Expansion Option (the "Expansion Notice"), not later than ten (10) Business Days after the date of delivery of the Available Space List to Tenant (time being strictly of the essence with respect to the giving of such expansion notice), and such Expansion Notice shall specify which Available Expansion Space or portions thereof Tenant elects to lease pursuant to this Expansion Option, it being agreed that Tenant may elect to lease less than an entire particular Available Expansion Space provided that the remaining portion of the Available Expansion Space that Tenant does not elect to lease (the "Non-Leased Space") is, in Landlord's judgment, an area that is contiguous, commercially rentable, and divisible from that portion of the Available Expansion Space that Tenant elects to so lease (the "Expansion Space"), and, in no event, shall such Non-Leased Space contain less than one-quarter of the rentable square footage on the floor of the Building where such Expansion Space is located (i.e., one "quadrant"). Section 36.02. ------------- A. The terms and conditions of the Lease with respect to the Expansion Space shall be the same terms and conditions contained in this Lease, except as provided herein, such that (i) the Expansion Space shall be added to and become part of the Demised Premises under this Lease, (ii) the Minimum Rent shall be increased by an amount equal to the product of (a) the Minimum Rent then payable for the Demised Premises (on a per square foot basis), and (b) the rentable square footage of the Expansion Space, (iii) Tenant's Proportionate Share shall be adjusted to reflect the addition of the Expansion Space (with no change in the Base Tax Amount or the Base Operating Year), (iv) Landlord shall provide Tenant with an abatement of Minimum Rent under the Lease with respect to the Expansion Space in an amount equal to the product of (x) three (3) months of Minimum Rent for the Expansion Space, and (y) the amount of the percentage amount determined by dividing the number of months then remaining in the Term by the total number of months in the Term (the "Allocable Percentage") (v) Landlord's Contribution for the Expansion Space shall be equal to the product of (x) the Allocable Percentage and (y) Landlord's Contribution (on a per square foot basis) and (z) the rentable square footage of the Expansion Space, (vi) the Security Deposit Amount for the Expansion Space shall be equal to the product of (x) Landlord's Contribution for the relevant Expansion Space (on a per square foot basis) and (y) the rentable square footage of the Expansion Space, and (vii) the lease term with respect to the Expansion Space shall be co-terminous with the Term of the Lease. Notwithstanding anything to the contrary contained in this Lease, the Security Deposit Amount for the relevant Expansion Space will be reduced on the first anniversary of the relevant Expansion Space Commencement Date and on each anniversary of the relevant Expansion Space Commencement Date thereafter through and including the tenth (10th) anniversary of the relevant Expansion Space Commencement Date by the "Expansion Differential Amount" (as hereinafter defined). For the purposes hereof, for any relevant Expansion Space the "Expansion Differential Amount" is that amount obtained by dividing the sum obtained by subtracting from the Security Deposit Amount for the relevant Expansion Space an amount equal to three (3) months of Fixed Rent for the relevant Expansion Space by the number (10); provided, however, that at no time shall the Security Deposit Amount for the relevant Expansion Space be reduced to an amount less than three (3) months of Fixed Rent for the relevant Expansion Space. If Tenant shall timely exercise the Expansion Option, Landlord shall deliver possession of the Expansion Space to Tenant on a date set forth in the Expansion Notice, subject to delays beyond Landlord's reasonable control (the date of delivery of possession of the Expansion Space to Tenant being hereinafter referred to as the "Expansion Space Commencement Date"). In the event that Tenant timely exercises the right granted herein, Landlord and Tenant shall promptly thereafter execute an amendment to this Lease to incorporate the Expansion Space and to make necessary adjustments to the relevant provisions of this Lease (e.g., the definitions of Square Feet of Rentable Area, Tenant's Proportionate Share, Minimum Rent, Security Deposit Amount, Landlord's Contribution); provided, however, that the failure to so execute or exchange said amendment shall not in any way reduce Tenant's obligations or Landlord's rights under this Lease. B. The Expansion Space shall be delivered to Tenant in its then "as is" condition, and Landlord shall have no obligation to perform any work or Alterations in order to prepare the Expansion Space for Tenant's initial occupancy thereof, except that Landlord shall, at Landlord's cost and expense, demolish the Expansion Space and install air-conditioning unit(s), the tonnage of which shall be proportionate to the Building Standard A/C Units based on the size of the Expansion Space ("Landlord's Expansion Space Work"). Landlord shall perform Landlord's Expansion Space Work in the same manner in which Landlord was obligated to perform Landlord's Work. Notwithstanding anything to the contrary contained in this Section 36.02B, if on the relevant Expansion Space Commencement Date (as defined in Subsection 36.02A), an Event of Default shall have occurred and be continuing (and if the underlying default shall have been of a monetary or material non-monetary nature), Landlord, in Landlord's sole and absolute discretion, may elect, by written notice to Tenant, to void Tenant's exercise of such Expansion Option, in which case Tenant's exercise of the Expansion Option shall be of no force or effect. Section 36.03. If Landlord, after using reasonable efforts, is unable to give possession of the Expansion Space to Tenant on the Expansion Space Commencement Date because of the holding-over or retention of possession of any tenant, undertenant or occupants, or for any other reason beyond Landlord's reasonable control, Landlord shall not be subject to any liability for failure to give possession on said date and the validity of this Lease shall not be impaired under such circumstances, nor shall the same be construed in any way to extend the term of the Expansion Space or the Term of this Lease, but the Expansion Space Commencement Date shall be deemed extended until the date on which Landlord shall have delivered possession thereof to Tenant (provided Tenant is not responsible for the inability to obtain possession). Notwithstanding anything to the contrary stated herein, in the event that Landlord is unable to deliver the Expansion Space to Tenant within one hundred eight (180) days from the Expansion Space Commencement Date, then Tenant may, at Tenant's option, elect a substitute Available Expansion Space from an updated Available Space List (the "Substitute Available Space List"), which shall be comprised of a list of space(s) contiguous to the Demised Premises or if such contiguous space(s) is not available, other space(s) in the Building, comprising up to one full floor of the Building and then available for lease by Landlord or anticipated to become available for lease with four (4) months following the date of delivery of such Substitute Available Space List (the "Substitute Available Expansion Space"). The provisions of this Section 35.03 are intended to constitute "an express provision to the contrary" within the meaning of Section 223-a of the New York Real Property Law. Section 36.04. Except as expressly provided herein, all materials, work, labor, fixtures and installations required by Tenant for completion of the Expansion Space (if any) shall be performed by Tenant, at Tenant's sole cost and expense. IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease as of the day and year first above written. BROADPINE REALTY HOLDING COMPANY, INC., Landlord By: /s/ Elizabeth --------------------------------------- theglobe.com, inc. f/k/a WebGenesis, Inc. Tenant By: /s/ Frank Joyce --------------------------------------- Tenant's Federal ID# 14-1782-422 ---------------------- STATE OF NEW YORK ) )ss.: COUNTY OF NEW YORK ) On this 12th day of January, 1999, before me personally came Francis T. Joyce, to me known, who being by me duly sworn, did depose and say that he is the CFO and Treasurer of theglobe.com, inc. f/k/a WebGenesis, Inc., the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of said corporation. /s/ Jason R. Grebin ------------------------ Notary Public EXHIBIT "A" ----------- FLOOR PLANS The location and dimensions of walls, partitions, columns, stairs and openings are approximate and subject to revisions due to mechanical work, job conditions and requirements of governmental departments and authorities. If the space as actually partitioned shall differ in any respect from this sketch, the actual area as partitioned shall in all events control. No resulting deviation or discrepancy shall affect the rent or Tenant's obligations under this Lease. [Floor plan for the 22nd floor of 120 Broadway] EXHIBIT "B" ----------- COMMENCEMENT DATE AGREEMENT AGREEMENT made this ______ day of _________, 1999, between Broadpine Realty Holding Company, Inc., hereinafter referred to as "Landlord", and theglobe.com, inc. f/k/a WebGenesis, Inc., hereinafter referred to as "Tenant". WITNESSETH: 1. Landlord and Tenant have heretofore entered into a written indenture of Lease dated as of _____________ __, 199_ (hereinafter referred to as the "Lease"), for the leasing by Landlord to Tenant of certain space in the building known as 120 Broadway, New York, N.Y., all as in said Lease more particularly described. 2. Pursuant to Article 2 of the Lease, Landlord and Tenant agree that the Commencement Date of the term of said Lease is [was] [shall be] ; and that the term thereof shall expire, unless sooner terminated pursuant to the Lease, on ________________________ (the "Expiration Date"). IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Commencement Date Agreement as of the day and year first above written. BROADPINE REALTY HOLDING COMPANY, INC., Landlord By: --------------------------------------- theglobe.com, inc. f/k/a WebGenesis, Inc., Tenant By: --------------------------------------- STATE OF ) -------------- ) ss.: COUNTY OF ) ------------- On this ______ day of __________, 1999, before me personally came ________________________, to me known, who being by me duly sworn, did depose and say that he is the of theglobe.com, inc. f/k/a WebGenesis, Inc., the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of said corporation. -------------------------- Notary Public EXHIBIT "C" ----------- LANDLORD'S WORK All work set forth in this Exhibit "C" ("Landlord's Work") shall be of material, design, capacity, finish and color adopted by Landlord as "Building Standard". Landlord shall: 1. Subject to the provisions of the next sentence, Landlord, at Landlord's expense, agrees to install new 120 ton air cooled air conditioning units (the "Building Standard A/C Units") in the Demised Premises to exclusively service same. Upon written notice from Tenant to Landlord, which notice shall be received by Landlord prior to the ordering by Landlord of the Building Standard A/C Units, and which notice shall be accompanied by a payment in the amount of the Excess A/C Amount (as hereinafter defined), Landlord shall install, at Landlord's expense, new 140 ton air cooled air conditioning units (the "Upgraded A/C Units") in lieu of the Building Standard A/C Units. The term "Excess A/C Amount" shall mean the difference between the cost of purchasing and installing the Upgraded A/C Units and the Building Standard A/C Units. Landlord will inform Tenant of the Excess A/C Amount within five (5) business days following written request therefor. Landlord's Work shall include purchasing and installing the Building Standard A/C Units or the Upgraded A/C Units, as the case may be, including duct mounted smoke detectors, window louvers, ducts to the louvers, and control wiring. Notwithstanding the above, Tenant shall be responsible for the cost of constructing the mechanical rooms and the duct work distribution throughout the Demised Premises. EXHIBIT "D" ----------- LAND DESCRIPTION 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: BEGINNING at a point formed by the intersection of the northerly side of Pine Street and the westerly side of Nassau Street; RUNNING THENCE northerly along the westerly side of Nassau Street, 152 feet 3 inches to the southerly side of Cedar Street; THENCE westerly along the southerly side of Cedar Street, 312 feet 7 inches to the easterly side of Broadway; THENCE southerly along the easterly side of Broadway, 167 feet 1 inch to the northerly side of Pine Street; THENCE easterly along the northerly side of Pine Street, 304 feet 2 inches to the point or place of BEGINNING. EXHIBIT "E" ----------- CLEANING SPECIFICATIONS General Cleaning - ---------------- Nightly: General Offices including conference rooms: 1. All hardsurfaced flooring to be swept. 2. Carpet sweep all carpets, moving only light furniture (desks, file cabinets, etc. not to be moved). 3. Hand dust and wipe clean all furniture, fixtures and window sills. 4. Empty and clean all ash trays and screen all sand urns. 5. Empty and clean all waste receptacles and remove wastepaper. 6. Dust interiors of all waste disposal cans and baskets. 7. Wash clean all water fountains and coolers. 8. Sweep all private stairways. Building Standard Lavatories: 1. Sweep and wash all floors, using proper disinfectants. 2. Wash and polish all mirrors, shelves, bright work and enameled surfaces. 3. Wash and disinfect all basins, bowls and urinals. 4. Wash all toilet seats. 5. Hand dust and clean all partitions, tile walls, dispensers and receptacles in lavatories and restrooms. 6. Empty paper receptacles and remove wastepaper. 7. Fill toilet tissue holders. Multi-tenanted floors only. 8. Empty and clean disposal receptacles. Periodic-as reasonably required 1. Vacuum clean all carpeting and rugs. 2. Dust all doors louvers and other ventilating louvers within a person's reach. 3. Dust all baseboards. 4. Remove all finger marks from vinyl or painted surfaces near light switches, entrance doors, etc. 5. Wash all windows. 6. High dust premises complete including the following: a. Dust all pictures, frames, charts, graphs and similar wall hangings not reached in nightly cleaning. b. Dust clean all vertical surfaces, such as walls, partitions, doors, bucks and other surfaces not reached in nightly cleaning. c. Dust all venetian blinds. 7. Clean any employee dining areas and dwyer pantries. EXHIBIT "F" ----------- RULES AND REGULATIONS 1. The rights of tenants with respect to the entrances, corridors, elevators and escalators of the Building are limited to ingress to and egress from the tenants' premises for the tenants and their employees, licensees and invitees, and no tenant shall use, or permit the use of, the entrances, corridors, escalators or elevators for any other purpose. All deliveries and shipments of goods and packages shall be through the freight elevators, and not the passenger elevators. No tenant shall invite to the tenant's premises, or permit the visit of, persons in such numbers or under such conditions as to interfere in any material respect with the use and enjoyment of any of the plazas, entrances, corridors, escalators, elevators and other facilities of the Building by other tenants. Fire exits and stairways are for emergency use only, and they shall not be used for any other purpose by the tenants, their employees, licensees or invitees. No tenant shall encumber or obstruct, or permit the encumbrance or obstruction of any of the lobbies, sidewalks, plazas, entrances, corridors, escalators, elevators, fire exits, stairways or other public portions of the Building. No door mat of any kind whatsoever shall be placed or left in any public hall or outside any entry door of any tenant's premises. Landlord reserves the right to control and operate the public portions of the Building and the public facilities, as well as facilities furnished for the common use of the tenants, in such manner as it deems best for the benefit of the tenants generally. 2. Landlord may refuse admission to the Building outside of ordinary business hours to any person not known to the watchman in charge or not having a pass issued by Landlord or not properly identified, and may require all persons admitted to or leaving the Building outside of ordinary business hours to register. Tenant's employees, agents and visitors shall be permitted to enter and leave the Building whenever appropriate arrangements have been previously made between Landlord and Tenant with respect thereto. Each tenant shall be responsible for all persons for whom the tenant requests such permission, and shall be liable to Landlord for all acts 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, reputation or interests of the Building or its tenants may be denied access to the Building or may be ejected therefrom. In case 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 the tenants and protection of property in the Building. 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 must take place during such hours and in such elevators as Landlord may determine from time to time. 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 a part. Landlord may require any person leaving the Building with any package or other object to exhibit a pass from the tenant from whose premises the package or object is being removed, but the establishment and 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 the tenant. Landlord shall in no way be liable to any tenant for damages or loss arising from the admission, exclusion or ejection of any person to or from the tenant's premises or the Building under or despite the provisions of this rule. On days and hours other than those during which full elevator service is required to be provided, Landlord may lock all outside Building doors and require use of a night bell to summon a watchman from his other duties in order to gain access. 3. No tenant shall obtain or accept for use in its premises food, beverage, (other than vending machines for Tenant's own use), towel, barbering, boot blacking, floor polishing, lighting maintenance, cleaning, or other similar services from any persons not authorized by Landlord in writing to furnish such services, provided always that the charges for such services by persons authorized by Landlord are not excessive. Such services shall be furnished only at such hours, in such places within the tenant's premises and under such regulations as may be fixed by Landlord. 4. No awnings or other projections over or around the windows shall be installed by any tenant, and only such window blinds or drapes as are supplied or permitted by Landlord shall be used in a tenant's premises. No curtains, blinds, shades or screens shall be attached to or hung in, or used in connection with, any window or door of a tenant's premises, without the prior written consent of Landlord. Such curtains, blinds, shades or screens must be of a quality, type, design and color, and attached in the manner, approved by Landlord. No tenant shall place objects on the windowsills which are visible from outside of the Building. No tenant shall darken, cover or permanently close any windows in the tenant's premises. 5. There shall not be used in any space, or in the public halls of the Building, either by a tenant or by jobbers or others, in the delivery or receipt of merchandise, any hand trucks, except those equipped with rubber tires, side guards and such other safeguards as Landlord shall require. 6. All entrance doors in each tenant's premises shall be left locked when the tenant's premises are not in use. Entrance doors shall not be left open at any time unless the tenant, at its expense, has connected a special smoke detector system in compliance with all Legal Requirements and approved by Landlord. The sashes, sash doors, skylights, windows, and doors that reflect or admit light and air into the halls, passageways or other public places in the Building shall not be covered or obstructed by any tenant, nor shall any bottles, parcels, or other articles be placed on the window sills. 7. No noise, including the playing of any musical instruments, radio or television, which, in the judgment of Landlord, might disturb other tenants in the Building shall be made or permitted by any tenant. No tenant shall throw anything out of the doors, windows or skylights or down the passageways. Nothing shall be done or permitted in any tenant's premises, and nothing shall be brought into or kept in any tenant's premises, which would materially impair or interfere with any of the Building services or the proper and economic heating, cleaning or other servicing of the Building or the premises, or the use or enjoyment by any other tenant of any other premises, nor shall there be installed by any tenant any ventilating, air-conditioning, electrical or other equipment of any kind which, in the judgment of Landlord, might cause any such impairment or interference. No dangerous, inflammable, combustible or explosive object or material shall be brought into the Building by any tenant or with the permission of any tenant. 8. Tenants shall not permit any cooking within their premises (unless consented to in writing by Landlord), except for reheating by microwave of prepared foods for Tenant's own use, and shall not permit any food odors emanating within their premises to seep into other portions of the Building. In the event that Landlord shall consent to any cooking or installation of kitchen equipment in a tenant's premises, such tenant shall operate its dining room and kitchen equipment, if any, in a manner that will prevent odors and smoke from escaping into areas of the Building outside the premises, and shall, at its expense, (i) install and maintain appropriate filters and grease traps to prevent accumulation of grease in any duct, stack or flue used to exhaust fumes and vapors resulting from such food preparation and to prevent stopping up of the sewerage ejecting system of the Building if any of same are necessary or are required by any governmental authority, (ii) keep all range hoods and ducts therefrom, if any, clean and free of grease at all times so as to avoid fire hazard, and (iii) clean out the vertical exhaust flue and duct, if any, at least once a year, or more frequently as conditions require. The discharge of any fumes, vapors and odors, which, by any Legal Requirement, must be discharged into a separate stack or flue, will not be permitted unless such tenant, at its expense, shall provide for such discharge in a proper manner. 9. No acids, vapors or other materials shall be discharged or permitted to be discharged into the waste lines, vents or flues of the Building which may damage them. The water and wash closets and other plumbing fixtures in or serving any tenant's premises shall not be used for any purpose other than the purpose for which they were designed or constructed, and no sweepings, rubbish, rags, acids or other foreign substances shall be deposited therein. All damages resulting from any misuse of the fixtures shall be borne by the tenant who or whose servants, employees, agents, visitors or licensees, shall have caused the same. 10. No sign, advertisement, notice or other lettering shall be exhibited, inscribed, painted or affixed by a tenant on any part of the outside or inside of its premises or the Building without the prior written consent of Landlord. In the event of the violation of the foregoing by a tenant, Landlord may remove the same without any liability, and may charge the expense incurred by such removal to the tenant or tenants violating this rule. Interior signs and lettering on doors shall be inscribed, painted or affixed for each tenant by Landlord at the expense of such tenant, and shall be of a size, color and style reasonably acceptable to Landlord. Landlord shall have the right to prohibit any advertising by any tenant in or around the Building which refers to the Building and impairs the reputation of the Building or its desirability as a building for offices, and, upon written notice from Landlord, such tenant shall refrain from or discontinue such advertising. 11. Except as otherwise permitted in a tenant's lease, no additional locks or bolts of any kind shall be placed upon any of the doors or windows in any tenant's premises, and no lock on any door therein shall be changed or altered in any respect, unless, in each such case, Landlord shall have been furnished with a key thereto (or the same shall be operable by Landlord's master key for the Building). Duplicate keys for a tenant's premises and toilet rooms shall be procured only from the Landlord, which may make a reasonable charge therefor. Upon the termination of a tenant's lease, all keys to the tenant's premises and toilet rooms shall be delivered to the Landlord, and, in the event of the loss of any keys furnished by Landlord, such tenant shall pay to Landlord the cost thereof. 12. Except as otherwise permitted in a tenant's lease, no tenant shall make, paint, drill into, or in any way deface any part of the Building or the premises demised to such tenant. No boring, cutting or stringing of wires shall be permitted, except with the prior written consent of Landlord, and as Landlord may direct. No tenant shall install any resilient tile or similar floor covering in the premises demised to such tenant, except in a manner approved by Landlord. Unless and until Landlord may otherwise direct, no tenant shall 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. 13. No tenant shall use or occupy, or permit any portion of the premises demised to such tenant to be used or occupied, as an office for a public stenographer or typist, or as a barber or manicure shop or as an employment bureau or for any mail order business. No tenant or occupant shall engage or pay any employees in the Building, except those actually working for such tenant or occupant in the Building, nor advertise for laborers giving an address at the Building. No premises shall be used, or permitted to be used, at any time, as a store for the sale or display of goods, wares or merchandise of any kind, or as a restaurant, shop, booth, bootblack or other stand, or for the conduct of any business or occupation which predominantly involves direct patronage of the general public in the premises demised to such tenant, or for manufacturing or for other similar purposes. 14. 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 the office of the Landlord. 15. Unless Landlord shall be furnishing electricity to the tenant's premises, each tenant shall, at its expense, provide artificial light and electricity in the premises demised to such tenant for Landlord's agents, contractors and employees while performing janitorial or other cleaning services and making repairs or alterations in said premises. 16. Tenants' employees shall not loiter around the hallways, stairways, elevators, front, roof or any other part of the Building used in common by the occupants thereof. No tenant shall allow its premises to be used for lodging or sleeping, or for any immoral or illegal purposes. No bicycles, vehicles, animals, fish or birds of any kind shall be brought into or kept in or about any tenant's premises. Canvassing, soliciting and peddling in the Building are prohibited, and each tenant shall cooperate to prevent the same. 17. If the premises demised to any tenant become infested with vermin, such tenant, at its own cost and expense, shall cause its premises to be exterminated, from time to time, to the satisfaction of Landlord, and shall employ such exterminators therefor as shall be approved by Landlord. Landlord reserves the right to require that the exterminators generally employed in the Building be employed, so long as their charges are reasonable. 18. Any cuspidors or similar containers or receptacles used in any tenant's premises shall be cared for and cleaned by and at the expense of the tenant. No showcases or other articles shall be put in front of or affixed to any part of the exterior of the Building, nor placed in the halls, corridors or vestibules. If a tenant's premises shall be an entire floor, the elevator lobby in the premises shall be kept neat, orderly and fresh in appearance to Landlord's satisfaction. 19. No tenant shall place a load upon any floor of its premises which exceeds the load per square foot which such floor was designed to carry and which is allowed by law. 20. Business machines and mechanical equipment of any tenant which cause noise, vibration or any other nuisance that may be transmitted to the structure or other portions of the Building or to premises, to such a degree as to be reasonably objectionable to Landlord or which interfere with the use or enjoyment by other tenants of their premises or the public portions of the Building, shall be placed and maintained by such tenant at such tenant's own cost and expense, in settings of cork, rubber or spring type vibration eliminators sufficient to eliminate noise or vibration to the satisfaction of Landlord. 21. Landlord will, at the request of a tenant, maintain listings on the Building directory of the name of such tenant and, in the sole discretion of Landlord, of any other person, firm, association or corporation lawfully in possession of the premises or any part thereof. The listing of any name other than that of a tenant, whether on the doors of the premises, on the Building directory, or otherwise, shall not operate to vest any right or interest in such tenant's lease or in the premises or be deemed to be the written consent of Landlord required pursuant to such tenant's lease, it being expressly understood that any such listing is a privilege extended by Landlord revocable at will by written notice to such tenant. 22. No tenant shall move any safe, heavy equipment or bulky matter in or out of the Building without Landlord's written consent. If the movement of such items requires special handling, the tenant shall employ only persons holding a Master Rigger's License to do said work, and all such work shall be done in full compliance with the Administrative Code of the City of New York and other municipal requirements. All such movements shall be made during hours which will least interfere with the normal operations of the Building, and all damage caused by such movement shall be promptly repaired by such tenant at such tenant's expense. 23. All moving, shipping and receiving of a tenant's property shall be through the freight elevator only, and at such times and in such a manner as Landlord shall designate for the proper operation of the Building. If a tenant's use of such elevator is after regular business hours, or in such a manner that requires the supervision of Landlord's employees (of which fact Landlord shall be the sole judge), such tenant shall pay to Landlord the cost of furnishing such after hour service and/or supervision. All bulk deliveries shall be made during non-business hours, at the tenant's cost. 24. Any entrance door or doors leading from a tenant's premises into the public corridor shall be repaired and/or maintained by such tenant, at such tenant's own cost and expense, including, without limitation, repair and maintenance of the enframement and mechanisms of said door(s), whether such repair or maintenance is caused by any damage by such tenant, its employees, workmen or contractors, by ordinary wear and tear or otherwise. 25. Landlord reserves the right to rescind, alter or waive any rule or regulation at any time prescribed for the Building when Landlord deems it necessary or desirable for the reputation, safety, care of appearance 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 or waiver of any rule or regulation in favor of one tenant shall operate as a rescission, alteration or waiver in favor of any other tenant. EXHIBIT "G" ----------- FORM OF LETTER OF CREDIT NO.___________ Date ________________ Irrevocable Letter of Credit #_______ BENEFICIARY Broadpine Realty Holding Company, Inc. c/o J.P. Morgan Investment Management Inc. 522 Fifth Avenue New York, New York 10036 Dear Sir(s), We hereby authorize you to value on ___________________________ New York, New York. For the account of Broadpine Realty Holding Company, Inc. up to the aggregate amount of $1,500,000.00. Available by your drafts at sight, accompanied by your statement, purportedly signed by one of your authorized officers, partners or agents, that the amount of your drawing represents funds due and payable under a certain lease dated as of ____________________, executed by and between Broadpine Realty Holding Company, Inc., and theglobe.com, inc. f/k/a WebGenesis, Inc. This Letter of Credit may be transferred to any transferee of the interest of the landlord under the lease dated as of ___________________ between Broadpine Realty Holding Company, Inc., as landlord, and theglobe.com, inc. f/k/a WebGenesis, Inc. as tenant. It is a condition of this Letter of Credit that it shall be deemed to be automatically extended for a period of one year from the present or any future expiration date, unless we shall notify you by written notice given by registered mail at least 60 days prior to such expiration date that we elect not to renew it for such additional period, in which case you shall have the right to draw on us the full amount of this Letter of Credit by your sight draft, accompanied by your signed written statement that you are drawing under Letter of Credit #_______________ because you have received notice of non-renewal from us, and the accountee is still obligated to you under the above-referenced lease. Partial draws are permitted under this Letter of Credit. All drafts drawn under this Letter of Credit must bear on their face the clause "Drawn under Letter of Credit No. _________________". Except so far as otherwise expressly stated, this Letter of Credit is subject to the Uniform Customs and Practice for Documentary Credits (1993 Revision) International Chamber of Commerce, Publication No. 500. EXHIBIT "H" ----------- REQUEST FOR TAXPAYER IDENTIFICATION NUMBER 14-1782-422 [Attached, Internal Revenue Service Form W-9] EXHIBIT "I" ----------- APPROVED CONTRACTORS [LOGO of THE WAEHLER GROUP/Project Management Services] Date: January 7, 1999 To: David Goldstein Julien J. Studley From: Steve Waehler Re: theglobe.com 120 Broadway SUBCONTRACTOR LIST Electrical JRD Electric HighTech Electric Forest Electric Mechanical/HVAC BP Mechanical Matrix Mechanical Penquin Drywall/Acoustic J.P. Phillips Glenn Partition Donaldson Plumbing LAB Plumbing PAR Plumbing Ashland Plumbing Sprinkler ABCO Peerless National RAEL THE WAEHLER GROUP - PROJECT MANAGEMENT SERVICES 155 East 34th Street - New York, NY 10016 Tel: (212) 684-4565 * Fax: (212) 532-7279 120 Broadway GENERAL CONTRACTORS Ambassador Construction Company Jack Shafran 317 Madison Avenue 212-922-1020 New York, NY 10017 FAX - 212-949-9762 Structure Tone, Inc. Patrick Donaghy/John White 15 East 25th Street 212-481-6100 New York, NY 10010-1589 FAX - 212-685-8267 Barney Skanska Construction Co. Ms. Marla J. Glickman 360 Lexington Avenue 212-972-0720 New York, NY 10166 FAX - 212-697-7438 Lehrer McGovern Bovis, Inc. Ms. Tony Mannion 200 Park Avenue (9th floor) 212-582-6751 New York, NY 10166 FAX - 212-582-6988 Morse Diesel International, Inc. Mr. Graeme A. Whitelaw 1633 Broadway 212-484-0497 New York, NY 10019-6708 FAX - 212-484-0580 SUB-CONTRACTORS - --------------- ELECTRICIANS Robert B. Samuels Al Fishbone 352 Park Avenue South 212-686-6700 New York, NY 10010 FAX - 212-213-4089 Campbell & Dawes, Ltd. Gary Dawes 86-02 57th Avenue 718-651-4433 Elmhurst, NY 11373 FAX - 718-899-1213 Forest Electric Corporation Phillip Altheim 370 Seventh Avenue 212-594-4110 New York, NY 11101 FAX 212-318-1793 S.P.B. Electrical Contractors Sean Burke 480 Canal Street - Suite 208 212-714-0270 New York, NY 10013 FAX - 212-714-0408 Artic Electric Corporation Ken Ashendorf 132 West 22nd Street 212-255-6830 New York, NY 10011 FAX - 212-627-1549 MECHANICAL Kaback Enterprises, Inc. John Murphy/Vance Schipani 41 West 25th Street 212-645-5100 New York, NY 10016 FAX - 212-645-8962 Penquin Air Conditioning Paul Shields 26 West Street 718-706-2558 Brooklyn, NY 11222 FAX - 718-706-2565 Power Cooling, Inc. Lloyd Larsen 43-43 Vernon Blvd. 718-784-1300 Long Island City, NY 11101 FAX - 718-937-8418 Hennrick Lane Ernie Hennrick 49-22 9th Street 718-786-7277 Long Island City, NY 11101 FAX - 718-482-1625 PLUMBERS MJM Plumbing & Heating Company, Inc. Michael Carbone 268 West Street 212-966-2444 New York, NY 10013 FAX - 212-966-0031 American Contracting Company, Inc. Richard Silver 538 West 35th Street 212-736-6618 New York, NY 10001 FAX - 212 465-1734 S.B.A. Steven Verderame 23-30 50th Avenue 718-785-1100 Long Island City, NY 11101 FAX - 718-361-5327 Par Planning Company, Inc. Marty Levine 60 North Prospect Avenue 212-926-1088 Lynnbrook, NY 11563 FAX - 516-593-9089 EXHIBIT "J" ----------- BUILDING HOLIDAYS New Year's Day Columbus Day Washington's Birthday Thanksgiving Day Good Friday Day after Thanksgiving Memorial Day Christmas Day Independence Day Employee's Birthday Martin Luther King's Birthday or Yom Kippur at the option of the employee. EXHIBIT "K" ----------- FIRST 30th FLOOR OFFER SPACE [Floor plan for 30th floor at 120 Broadway] EXHIBIT "L" 15th FLOOR SPACE [Floor plan of the 15th floor at 120 Broadway] EXHIBIT "M" ----------- 12TH FLOOR OFFER SPACE [Floor plan for the 12th floor at 120 Broadway] EXHIBIT "N" ----------- SECOND 30th FLOOR OFFER SPACE [Floor plan for the 30th floor at 120 Broadway] EXHIBIT "O" ----------- 30th/31st FLOOR OFFER SPACE [Floor plan for 31st floor at 120 Broadway] [Floor plan for 30th floor at 120 Broadway] EXHIBIT "P" ----------- 21st FLOOR OFFER SPACE [Floor plan for 21st floor at 120 Broadway] EX-10.7 7 EXHIBIT 10.7 theglobe.com,inc. 1998 STOCK OPTION PLAN As Adopted July 15 , 1998 theglobe.com,inc. 1998 STOCK OPTION PLAN 1. Purpose. ------- The purpose of this Plan is to strengthen theglobe.com, inc., a Delaware corporation (the "Company"), by providing an incentive to its employees, officers, consultants and directors and thereby encouraging them to devote their abilities and industry to the success of the Company's business enterprise. It is intended that this purpose be achieved by extending to employees (including future employees who have received a formal written offer of employment), officers, consultants and directors of the Company and its Subsidiaries an added long-term incentive for high levels of performance and extraordinary efforts through the grant of Incentive Stock Options and Nonqualified Stock Options (as each term is herein defined). 2 Definitions. ----------- For purposes of the Plan: 2.1 "Adjusted Fair Market Value" means, in the event of a Change in Control, the greater of (a) the highest price per Share paid to holders of the Shares in any transaction (or series of transactions) constituting or resulting in a Change in Control or (b) the highest Fair Market Value of a Share during the ninety (90) day period ending on the date of a Change in Control. 2.2 "Affiliate" means any entity, directly or indirectly, controlled by, controlling or under common control with the Company or any corporation or other entity acquiring, directly or indirectly, all or substantially all the assets and business of the Company, whether by operation of law or otherwise. 2.3 "Agreement" means the written agreement between the Company and an Optionee evidencing the grant of an Option and setting forth the terms and conditions thereof. 2.4 "Board" means the Board of Directors of the Company. 2.5 "Cause" means: (a) for purposes of Section 6.4, the commission of an act of fraud or intentional misrepresentation or an act of embezzlement, misappropriation or conversion of assets or opportunities of the Company or any of its Subsidiaries; and (b) in the case of an Optionee whose employment with the Company or a Subsidiary is subject to the terms of an employment agreement between such Optionee and the Company or Subsidiary, which employment agreement includes a definition of "Cause", the term "Cause" as used in the Plan or any Agreement shall have the meaning set forth in such employment agreement during the period that such employment agreement remains in effect; and (c) in all other cases, (i) intentional failure to perform reasonably assigned duties, (ii) dishonesty or willful misconduct in the performance of duties, (iii) involvement in a transaction in connection with the performance of duties to the Company or any of its Subsidiaries which transaction is adverse to the interests of the Company or any of its Subsidiaries and which is engaged in for personal profit or (iv) willful violation of any law, rule or regulation in connection with the performance of duties (other than traffic violations or similar offenses). 2.6 "Change in Capitalization" means any increase or reduction in the number of Shares, or any change (including, but not limited to, in the case of a spin-off, dividend or other distribution in respect of Shares, a change in value) in the Shares or exchange of Shares for a different number or kind of shares or other securities of the Company or another corporation, by reason of a reclassification, recapitalization, merger, consolidation, reorganization, spin-off, split-up, issuance of warrants or rights or debentures, stock dividend, stock split or reverse stock split, cash dividend, property dividend, combination or exchange of shares, repurchase of shares, change in corporate structure or otherwise. 2.7 A "Change in Control" shall mean the occurrence of any of the following: (a) An acquisition (other than directly from the Company) of any voting securities of the Company (the "Voting Securities") by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Exchange Act), immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty percent (30%) or more of the then outstanding Shares or the combined voting power of the Company's then outstanding Voting Securities; provided, however, in determining whether a Change in Control has occurred pursuant to this Section 2.7(a), Shares or Voting Securities which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (i) an employee benefit plan (or a trust forming a part thereof) maintained by (A) the Company or (B) any corporation or other Person of which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by the Company (for purposes of this definition, a "Majority-Owned Subsidiary"), (ii) the Company or its Majority-Owned Subsidiaries, or (iii) any Person in connection with a "Non-Control Transaction" (as hereinafter defined); (b) The individuals who, as of date plan is adopted are members of the Board (the "Incumbent Board"), cease for any reason to constitute at least two-thirds of the members of the Board; provided, however, that if the election, or nomination for election by the Company's common stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of the Plan, be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (c) The consummation of: (i) A merger, consolidation or reorganization with or into the Company or in which securities of the Company are issued, unless such merger, consolidation or reorganization is a "Non-Control Transaction." A "Non-Control Transaction" shall mean a merger, consolidation or reorganization with or into the Company or in which securities of the Company are issued where: (A) the stockholders of the Company, immediately before such merger, consolidation or reorganization, own directly or indirectly immediately following such merger, consolidation or reorganization, at least sixty percent (60%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation or reorganization (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation or reorganization, (B) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least two-thirds of the members of the board of directors of the Surviving Corporation, or a corporation beneficially directly or indirectly owning a majority of the Voting Securities of the Surviving Corporation, and (C) no Person other than (1) the Company, (2) any Majority-Owned Subsidiary, (3) any employee benefit plan (or any trust forming a part thereof) that, immediately prior to such merger, consolidation or reorganization, was maintained by the Company or any Majority-Owned Subsidiary, or (4) any Person who, immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of thirty percent (30%) or more of the then outstanding Voting Securities or Shares, has Beneficial Ownership of thirty percent (30%) or more of the combined voting power of the Surviving Corporation's then outstanding voting securities or its common stock. (ii) A complete liquidation or dissolution of the Company; or (iii) The sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a transfer to a Majority-Owned Subsidiary or the distribution to the Company's stockholders of the stock of a Majority-Owned Subsidiary or any other assets). Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the then outstanding Shares or Voting Securities as a result of the acquisition of Shares or Voting Securities by the Company which, by reducing the number of Shares or Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Persons, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of Shares or Voting Securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the Beneficial Owner of any additional Shares or Voting Securities which increases the percentage of the then outstanding Shares or Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. If an Eligible Individual's employment is terminated by the Company without Cause prior to the date of a Change in Control but the Eligible Individual reasonably demonstrates that the termination (A) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a change in control or (B) otherwise arose in connection with, or in anticipation of, a Change in Control which has been threatened or proposed, such termination shall be deemed to have occurred after a Change in Control for purposes of the Plan provided a Change in Control shall actually have occurred. 2.8 "Code" means the Internal Revenue Code of 1986, as amended. 2.9 "Committee" means a committee, as described in Section 3.1, appointed by the Board from time to time to administer the Plan and to perform the functions set forth herein. 2.10 "Community Leader" means an individual participating in the formation and dissemination of content on the Company's web site and who manages communities on the web site, highlights member content, communicates directly to members and organizes events, as determined from time to time in the Company's sole discretion. 2.11 "Company" means theglobe.com, inc., a Delaware corporation. 2.12 "Consultant" means any consultant or advisor that qualifies as an "employee" within the meaning of rules applicable to Form S-8, as in effect from time to time, of the Securities Act of 1933, as amended. 2.12 "Director" means a director of the Company. 2.13 "Disability" means: (a) in the case of an Optionee whose employment with the Company or a Subsidiary is subject to the terms of an employment agreement between such Optionee and the Company or Subsidiary, which employment agreement includes a definition of "Disability", the term "Disability" as used in the Plan or any Agreement shall have the meaning set forth in such employment agreement during the period that such employment agreement remains in effect; and (b) in all other cases, the term "Disability" as used in the Plan or any Agreement shall mean a physical or mental infirmity which impairs the Optionee's ability to perform substantially his or her duties for a period of one hundred eighty (180) consecutive days. 2.14 "Division" means any of the operating units or divisions of the Company designated as a Division by the Committee. 2.15 "Eligible Director" means a director of the Company who does not perform services as, or have the responsibilities of, an employee or officer, and who does not receive compensation or other consideration from the Company or any Subsidiary, other than in his or her capacity as a director. 2.16 "Eligible Individual" means any of the following individuals: (a) any director, officer or employee of the Company or a Subsidiary, (b) any individual to whom the Company or a Subsidiary has extended a formal, written offer of employment, or (c) any Consultant. 2.17 "Exchange Act" means the Securities Exchange Act of 1934, as amended. 2.18 "Fair Market Value" on any date means the closing sales prices of the Shares on such date on the principal national securities exchange on which such Shares are listed or admitted to trading, or, if such Shares are not so listed or admitted to trading, the average of the per Share closing bid price and per Share closing asked price on such date as quoted on the National Association of Securities Dealers Automated Quotation System or such other market in which such prices are regularly quoted, or, if there have been no published bid or asked quotations with respect to Shares on such date, the Fair Market Value shall be the value established by the Board in good faith and, in the case of an Incentive Stock Option, in accordance with Section 422 of the Code. 2.19 "Formula Option" means an Option granted pursuant to Section 6. 2.20 "Incentive Stock Option" means an Option satisfying the requirements of Section 422 of the Code and designated by the Committee as an Incentive Stock Option. 2.21 "Nonemployee Director" means a director of the Company who is a "nonemployee director" within the meaning of Rule 16b-3 promulgated under the Exchange Act. 2.22 "Nonqualified Stock Option" means an Option which is not an Incentive Stock Option. 2.23 "Option" means a Nonqualified Stock Option, an Incentive Stock Option, a Formula Option, or any or all of them. 2.24 "Optionee" means a person to whom an Option has been granted under the Plan. 2.25 "Outside Director" means a director of the Company who is an "outside director" within the meaning of Section 162(m) of the Code and the regulations promulgated thereunder. 2.26 "Parent" means any corporation which is a parent corporation (within the meaning of Section 424(e) of the Code) with respect to the Company. 2.27 "Performance-Based Compensation" means any Option that is intended to constitute "performance-based compensation" within the meaning of Section 162(m)(4)(C) of the Code and the regulations promulgated thereunder. 2.28 "Permitted Transferee" means an Optionee's immediate family, trusts solely for the benefit of such family members and partnerships in which such family members and/or trusts are the only partners. For this purpose, "immediate family" of an Optionee means the Optionee's spouse, parents, children, stepchildren and grandchildren and the spouses of such parents, children, stepchildren and grandchildren. 2.29 "Plan" means this theglobe.com, inc. 1998 Stock Option Plan, as amended from time to time. 2.30 "Pooling Transaction" means an acquisition of the Company in a transaction which is intended to be treated as a "pooling of interests" under generally accepted accounting principles. 2.31 "Shares" means the Common Stock, par value $0.001 per share, of the Company. 2.32 "Subsidiary" means any corporation which is a subsidiary corporation (within the meaning of Section 424(f) of the Code) with respect to the Company. 2.33 "Successor Corporation" means a corporation, or a parent or subsidiary thereof within the meaning of Section 424(a) of the Code, which issues or assumes a stock option in a transaction to which Section 424(a) of the Code applies. 2.34 "Ten-Percent Stockholder" means an Eligible Individual, who, at the time an Incentive Stock Option is to be granted to him or her, owns (within the meaning of Section 422(b)(6) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, or of a Parent or a Subsidiary. 3. Administration. -------------- 3.1 The Plan shall be administered by the Committee, which shall hold meetings at such times as may be necessary for the proper administration of the Plan. The Committee shall keep minutes of its meetings. A quorum shall consist of not fewer than two (2) members of the Committee and a majority of a quorum may authorize any action. Any decision or determination reduced to writing and signed by a majority of all of the members of the Committee shall be as fully effective as if made by a majority vote at a meeting duly called and held. The Committee shall consist of at least two (2) Directors and may consist of the entire Board; provided, however, that (A) if the Committee consists of less than the entire Board, each member shall be a Nonemployee Director and (B) to the extent necessary for any Option intended to qualify as Performance-Based Compensation to so qualify, each member of the Committee, whether or not it consists of the entire Board, shall be an Outside Director. For purposes of the preceding sentence, if one or more members of the Committee is not a Nonemployee Director and an Outside Director but recuses himself or herself or abstains from voting with respect to a particular action taken by the Committee, then the Committee, with respect to that action, shall be deemed to consist only of the members of the Committee who have not recused themselves or abstained from voting. 3.2 No member of the Committee shall be liable for any action, failure to act, determination or interpretation made in good faith with respect to the Plan or any transaction hereunder. The Company hereby agrees to indemnify each member of the Committee for all costs and expenses and, to the extent permitted by applicable law, any liability incurred in connection with defending against, responding to, negotiating for the settlement of or otherwise dealing with any claim, cause of action or dispute of any kind arising in connection with any actions in administering the Plan or in authorizing or denying authorization to any transaction hereunder. 3.3 Subject to the express terms and conditions set forth herein, the Committee shall have the power from time to time to: (a) determine those Eligible Individuals to whom Options shall be granted under the Plan and the number of such Options to be granted and to prescribe the terms and conditions (which need not be identical) of each such Option, including the exercise price per Share subject to each Option, and make any amendment or modification to any Agreement consistent with the terms of the Plan; (b) to construe and interpret the Plan and any Agreements granted hereunder and to establish, amend and revoke rules and regulations for the administration of the Plan, including, but not limited to, correcting any defect or supplying any omission, or reconciling any inconsistency in the Plan or in any Agreement, in the manner and to the extent it shall deem necessary or advisable, including so that the Plan complies with Rule 16b-3 under the Exchange Act, the Code to the extent applicable and other applicable law, and otherwise to make the Plan fully effective. All decisions and determinations by the Committee in the exercise of this power shall be final, binding and conclusive upon the Company, its Subsidiaries, the Optionees, and all other persons having any interest therein; (c) to determine the duration and purposes for leaves of absence which may be granted to an Optionee on an individual basis without constituting a termination of employment or service for purposes of the Plan; (d) to exercise its discretion with respect to the powers and rights granted to it as set forth in the Plan; and (f) generally, to exercise such powers and to perform such acts as are deemed necessary or advisable to promote the best interests of the Company with respect to the Plan. 4. Stock Subject to the Plan; Grant Limitations. -------------------------------------------- 4.1 The maximum number of Shares that may be made the subject of Options granted under the Plan is one million two hundred thousand (1,200,000). The maximum number of Shares that may be the subject of Options granted to any Eligible Individual during any three (3) consecutive calendar year period may not exceed 250,000 Shares. Upon a Change in Capitalization, the maximum number of Shares referred to in the first two sentences of this Section 4.1 shall be adjusted in number and kind pursuant to Section 10. The Company shall reserve for the purposes of the Plan, out of its authorized but unissued Shares or out of Shares held in the Company's treasury, or partly out of each, such number of Shares as shall be determined by the Board. 4.2 Upon the granting of an Option, the number of Shares available under Section 4.1 for the granting of further Options shall be reduced by the number of Shares in respect of which the Option is granted; provided, however, that if any Option is exercised by tendering Shares, either actually or by attestation, to the Company as full or partial payment of the exercise price, the maximum number of Shares available under Section 4.1 shall be increased by the number of Shares so tendered. 4.3 Whenever any outstanding Option or portion thereof expires, is canceled, is settled in cash (including the settlement of tax withholding obligations using Shares) or is otherwise terminated for any reason without having been exercised or payment having been made in respect of the entire Option, the Shares allocable to the expired, canceled, settled or otherwise terminated portion of the Option may again be the subject of Options granted hereunder. 5. Option Grants for Eligible Individuals. -------------------------------------- 5.1 Authority of Committee. Subject to the provisions of the Plan, the Committee shall have full and final authority to select those Eligible Individuals who will receive Options, and the terms and conditions of the grant to such Eligible Individuals shall be set forth in an Agreement. 5.2 Exercise Price. The purchase price or the manner in which the exercise price is to be determined for Shares under each Option shall be determined by the Committee and set forth in the Agreement; provided, however, that the exercise price per Share under each Incentive Stock Option shall not be less than 100% of the Fair Market Value of a Share on the date the Option is granted (110% in the case of an Incentive Stock Option granted to a Ten-Percent Stockholder). 5.3 Maximum Duration. Options granted hereunder shall be for such term as the Committee shall determine, provided that an Incentive Stock Option shall not be exercisable after the expiration of ten (10) years from the date it is granted (five (5) years in the case of an Incentive Stock Option granted to a Ten-Percent Stockholder) and a Nonqualified Stock Option shall not be exercisable after the expiration of ten (10) years from the date it is granted; provided, however, that the Committee may provide that an Option (other than an Incentive Stock Option) may, upon the death of the Optionee, be exercised for up to one (1) year following the date of the Optionee's death even if such period extends beyond ten (10) years from the date the Option is granted. The Committee may, subsequent to the granting of any Option, extend the term thereof, but in no event shall the term as so extended exceed the maximum term provided for in the preceding sentence. 5.4 Vesting. Subject to Section 7.4, each Option shall become exercisable in such installments (which need not be equal) and at such times as may be designated by the Committee and set forth in the Agreement. To the extent not exercised, installments shall accumulate and be exercisable, in whole or in part, at any time after becoming exercisable, but not later than the date the Option expires. The Committee may accelerate the exercisability of any Option or portion thereof at any time. 5.5 Deferred Delivery of Option Shares. The Committee may, in its discretion, permit Optionees to elect to defer the issuance of Shares upon the exercise of one or more Nonqualified Stock Options granted pursuant to the Plan. The terms and conditions of such deferral shall be determined at the time of the grant of the Option or thereafter and shall be set forth in the Agreement evidencing the grant. 5.6 Limitations on Incentive Stock Options. To the extent that the aggregate Fair Market Value (determined as of the date of the grant) of Shares with respect to which Incentive Stock Options granted under the Plan and "incentive stock options" (within the meaning of Section 422 of the Code) granted under all other plans of the Company or its Subsidiaries (in either case determined without regard to this Section 5.6) are exercisable by an Optionee for the first time during any calendar year exceeds $100,000, such Incentive Stock Options shall be treated as Nonqualified Stock Options. In applying the limitation in the preceding sentence in the case of multiple Option grants, Options which were intended to be Incentive Stock Options shall be treated as Nonqualified Stock Options according to the order in which they were granted such that the most recently granted Options are first treated as Nonqualified Stock Options. 6. Option Grants for Nonemployee Directors. --------------------------------------- 6.1 Grant. Formula Options shall be granted to Eligible Directors as follows: (a) Initial Grant for Current Eligible Directors. Each person who is an Eligible Director as of July 15, 1998, shall, as of such date, be granted a Formula Option in respect of 25,000 Shares. (b) Initial Grant for Subsequent Eligible Directors. Each Eligible Director who becomes a Director for the first time after July 15, 1998 and while this Plan is in effect, shall, upon becoming a Director, be granted a Formula Option in respect of 12,500 Shares. (c) Annual Grant. Each Eligible Director shall be granted a Formula Option in respect of 3,750 Shares on the first business day after the annual meeting of the stockholders of the Company in each year that the Plan is in effect provided that the Eligible Director is a Director on such date. All Formula Options shall be evidenced by an Agreement containing such other terms and conditions not inconsistent with the provisions of the Plan as determined by the Board; provided, however, that such terms shall not vary the price, amount or timing of Formula Options provided under this Section 6, including provisions dealing with vesting, forfeiture and termination of such Formula Options. 6.2 Purchase Price. The purchase price for Shares under each Formula Option shall be equal to 100% of the Fair Market Value of such Shares on the date the Formula Option is granted. 6.3 Vesting. Subject to Section 7.4, (i) each Formula Option granted pursuant to Section 6.1(a) above to a person who was also a Director as of August 13, 1997, shall be fully vested and exercisable with respect to 25% of the Shares subject thereto as of the date of grant, and with respect to an incremental 25% of the Shares subject thereto on each of the first three (3) anniversaries of the date of grant, and (ii) each other Formula Option granted pursuant to this Section 6 shall become fully vested and exercisable with respect to an incremental 25 % of the Shares subject thereto on each of the first four anniversaries of the date of grant; provided, however, in each case, that the Optionee continues to serve as a Director as of such date of vesting. Notwithstanding the foregoing (i) if an Optionee's service as a Director terminates for any reason, other than for Cause, then each Formula Option held by such Optionee shall become fully and immediately vested and exercisable as of such date of termination and (ii) if an Optionee's service as a Director terminates for Cause, then each Formula Option held by such Optionee, whether or not then vested and exercisable, shall immediately terminate and the Optionee shall have no further rights in such Formula Option as of such date of termination. 6.4 Duration. Subject to Section 7.4, each Formula Option shall terminate on the date which is the tenth anniversary of the date of grant (or if later, the first anniversary of the date of the Director's death if such death occurs prior to such tenth anniversary), unless terminated earlier as follows: (a) If an Optionee's service as a Director terminates for any reason other than for Cause, the Optionee (or in the event of death, by the person or persons to whom such rights shall pass by will or the laws of descent or distribution) may for a period of two (2) years after such termination exercise his or her Formula Option, after which time the Formula Option shall automatically terminate in full. (b) If an Optionee's service as a Director terminates for Cause, the Formula Option granted to the Optionee hereunder shall immediately terminate in full and no rights thereunder may be exercised. 7. Terms and Conditions Applicable to All Options. ---------------------------------------------- 7.1 Non-Transferability. No Option shall be transferable by the Optionee otherwise than by will or by the laws of descent and distribution or, in the case of an Option other than an Incentive Stock Option, pursuant to a domestic relations order (within the meaning of Rule 16a-12 promulgated under the Exchange Act), and an Option shall be exercisable during the lifetime of such Optionee only by the Optionee or his or her guardian or legal representative. Notwithstanding the foregoing, the Committee may set forth in the Agreement evidencing an Option (other than an Incentive Stock Option) at the time of grant or thereafter, that the Option may be transferred to a Permitted Transferee, and for purposes of the Plan, such Permitted Transferee shall be deemed to be the Optionee. The terms of an Option shall be final, binding and conclusive upon the beneficiaries, executors, administrators, heirs and successors of the Optionee. 7.2 Method of Exercise. The exercise of an Option shall be made only by a written notice delivered in person or by mail to the Secretary of the Company at the Company's principal executive office, specifying the number of Shares to be exercised and, to the extent applicable, accompanied by payment therefor and otherwise in accordance with the Agreement pursuant to which the Option was granted. The exercise price for any Shares purchased pursuant to the exercise of an Option shall be paid, as determined by the Committee in its discretion, in either of the following forms (or any combination thereof): (a) cash or (b) the transfer, either actually or by attestation, to the Company of Shares upon such terms and conditions as determined by the Committee. In addition, Options may be exercised through a registered broker-dealer pursuant to such cashless exercise procedures which are, from time to time, deemed acceptable by the Committee. Any Shares transferred to the Company (or withheld upon exercise) as payment of the exercise price under an Option shall be valued at their Fair Market Value on the day preceding the date of exercise of such Option. If requested by the Committee, the Optionee shall deliver the Agreement evidencing the Option to the Secretary of the Company who shall endorse thereon a notation of such exercise and return such Agreement to the Optionee. No fractional Shares (or cash in lieu thereof) shall be issued upon exercise of an Option and the number of Shares that may be purchased upon exercise shall be rounded to the nearest number of whole Shares. 7.3 Rights of Optionees. No Optionee shall be deemed for any purpose to be the owner of any Shares subject to any Option unless and until (a) the Option shall have been exercised pursuant to the terms thereof, (b) the Company shall have issued and delivered Shares to the Optionee, and (c) the Optionee's name shall have been entered as a stockholder of record on the books of the Company. Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such Shares, subject to such terms and conditions as may be set forth in the applicable Agreement. 7.4 Effect of Change in Control. In the event of a Change in Control, all Options outstanding on the date of such Change in Control shall become immediately and fully exercisable. In addition, to the extent set forth in an Agreement evidencing the grant of an Option, an Optionee will be permitted to surrender to the Company for cancellation within sixty (60) days after such Change in Control any Option or portion of an Option to the extent not yet exercised and the Optionee will be entitled to receive a cash payment in an amount equal to the excess, if any, of (a) (i) in the case of a Nonqualified Stock Option, the greater of (A) the Fair Market Value, on the date preceding the date of surrender, of the Shares subject to the Option or portion thereof surrendered or (B) the Adjusted Fair Market Value of the Shares subject to the Option or portion thereof surrendered or (ii) in the case of an Incentive Stock Option, the Fair Market Value, on the date preceding the date of surrender, of the Shares subject to the Option or portion thereof surrendered, over (b) the aggregate exercise price for such Shares under the Option or portion thereof surrendered. In the event an Optionee's employment with, or service as a Director of, the Company and its Subsidiaries terminates following a Change in Control, each Option held by the Optionee that was exercisable as of the date of termination of the Optionee's employment or service shall, notwithstanding any shorter period set forth in the Agreement evidencing the Option, remain exercisable for a period ending not before the earlier of (x) the first anniversary of the termination of the Optionee's employment or service or (y) the expiration of the stated term of the Option. 8. Stock Bonus for Community Leaders. --------------------------------- The Committee may grant Shares to Community Leaders from time to time. The Community Leaders to whom Shares shall be granted, and the number of Shares so granted, shall be determined by the Committee in its sole discretion. Any Shares granted under this Section 8 shall be without consideration to the Company and shall be fully and immediately vested upon grant. 9. Effect of a Termination of Employment. ------------------------------------- The Agreement evidencing the grant of each Option shall set forth the terms and conditions applicable to such Option upon a termination or change in the status of the employment of the Optionee by the Company or a Subsidiary or a Division (including a termination or change by reason of the sale of a Subsidiary or a Division), which, except for Director Options, shall be as the Committee may, in its discretion, determine at the time the Option is granted or thereafter. 10. Adjustment Upon Changes in Capitalization. ----------------------------------------- (a) In the event of a Change in Capitalization, the Committee shall conclusively determine the appropriate adjustments, if any, to (i) the maximum number and class of Shares or other stock or securities with respect to which Options may be granted under the Plan, (ii) the maximum number and class of Shares or other stock or securities with respect to which Options may be granted to any Eligible Individual during any three (3) consecutive calendar year period, (iii) the number and class of Shares or other stock or securities which are subject to outstanding Options granted under the Plan and the exercise price therefor, if applicable and (iv) the number and class of Shares or other securities in respect of which Director Options are to be granted under Section 6. (b) Any such adjustment in the Shares or other stock or securities subject to outstanding Incentive Stock Options (including any adjustments in the exercise price) shall be made in such manner as not to constitute a modification as defined by Section 424(h)(3) of the Code and only to the extent otherwise permitted by Sections 422 and 424 of the Code. (c) If, by reason of a Change in Capitalization, an Optionee shall be entitled to exercise an Option with respect to new, additional or different shares of stock or securities, such new, additional or different shares shall thereupon be subject to all of the conditions, restrictions and performance criteria which were applicable to the Shares subject to the Option prior to such Change in Capitalization. 11. Effect of Certain Transactions. ------------------------------ Subject to Section 7.4 or as otherwise provided in an Agreement, in the event of (a) the liquidation or dissolution of the Company or (b) a merger or consolidation of the Company (a "Transaction"), the Plan and the Options issued hereunder shall continue in effect in accordance with their respective terms, except that following a Transaction each Optionee shall be entitled to receive in respect of each Share subject to any outstanding Options, upon exercise of any Option, the same number and kind of stock, securities, cash, property or other consideration that each holder of a Share was entitled to receive in the Transaction in respect of a Share; provided, however, that such stock, securities, cash, property, or other consideration shall remain subject to all of the conditions, restrictions and performance criteria which were applicable to the Options prior to such Transaction. 12. Interpretation. -------------- (a) The Plan is intended to comply with Rule 16b-3 promulgated under the Exchange Act and the Committee shall interpret and administer the provisions of the Plan or any Agreement in a manner consistent therewith. Any provisions inconsistent with such rule shall be inoperative and shall not affect the validity of the Plan. (b) Unless otherwise expressly stated in the relevant Agreement, each Option (other than Formula Options) granted under the Plan is intended to be Performance-Based Compensation. The Committee shall not be entitled to exercise any discretion otherwise authorized hereunder with respect to such Options if the ability to exercise such discretion or the exercise of such discretion itself would cause the compensation attributable to such Options to fail to qualify as Performance-Based Compensation. 13. Pooling Transactions. -------------------- Notwithstanding anything contained in the Plan or any Agreement to the contrary, in the event of a Change in Control which is also intended to constitute a Pooling Transaction, the Committee shall take such actions, if any, as are specifically recommended by an independent accounting firm retained by the Company to the extent reasonably necessary in order to assure that the Pooling Transaction will qualify as such, including but not limited to (a) deferring the vesting, exercise, payment, settlement or lapsing of restrictions with respect to any Option, (b) providing that the payment or settlement in respect of any Option be made in the form of cash, Shares or securities of a successor or acquirer of the Company, or a combination of the foregoing, and (c) providing for the extension of the term of any Option to the extent necessary to accommodate the foregoing, but not beyond the maximum term permitted for any Option. 14. Termination and Amendment of the Plan or Modification of Options. ---------------------------------------------------------------- 14.1 Plan Amendment or Termination. The Plan shall terminate on the day preceding the tenth anniversary of the date of its adoption by the Board and no Option may be granted thereafter. The Board may sooner terminate the Plan and the Board may at any time and from time to time amend, modify or suspend the Plan; provided, however, that: (a) no such amendment, modification, suspension or termination shall impair or adversely alter any Options theretofore granted under the Plan, except with the consent of the Optionee, nor shall any amendment, modification, suspension or termination deprive any Optionee of any Shares which he or she may have acquired through or as a result of the Plan; and (b) to the extent necessary under any applicable law, regulation or exchange requirement, no amendment shall be effective unless approved by the stockholders of the Company in accordance with applicable law, regulation or exchange requirement. 14.2 Modification of Options. No modification of an Option shall adversely alter or impair any rights or obligations under the Option without the consent of the Optionee. 15. Non-Exclusivity of the Plan. --------------------------- The adoption of the Plan by the Board shall not be construed as amending, modifying or rescinding any previously approved incentive arrangement or as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases. 16. Limitation of Liability. ----------------------- As illustrative of the limitations of liability of the Company, but not intended to be exhaustive thereof, nothing in the Plan shall be construed to: (a) give any person any right to be granted an Option other than at the sole discretion of the Committee; (b) give any person any rights whatsoever with respect to Shares except as specifically provided in the Plan; (c) limit in any way the right of the Company or any Subsidiary to terminate the employment or service of any person at any time; or (d) be evidence of any agreement or understanding, expressed or implied, that the Company will employ any person at any particular rate of compensation or for any particular period of time. 17. Regulations and Other Approvals; Governing Law. ---------------------------------------------- 17.1 Except as to matters of federal law, the Plan and the rights of all persons claiming hereunder shall be construed and determined in accordance with the laws of the State of Delaware without giving effect to conflicts of laws principles thereof. 17.2 The obligation of the Company to sell or deliver Shares with respect to Options granted under the Plan shall be subject to all applicable laws, rules and regulations, including all applicable federal and state securities laws, and the obtaining of all such approvals by governmental agencies as may be deemed necessary or appropriate by the Committee. 17.3 The Board may make such changes as may be necessary or appropriate to comply with the rules and regulations of any government authority, or to obtain for Eligible Individuals granted Incentive Stock Options the tax benefits under the applicable provisions of the Code and regulations promulgated thereunder. 17.4 Each Option is subject to the requirement that, if at any time the Committee determines, in its discretion, that the listing, registration or qualification of Shares issuable pursuant to the Plan is required by any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the grant of an Option or the issuance of Shares, no Options shall be granted or payment made or Shares issued, in whole or in part, unless listing, registration, qualification, consent or approval has been effected or obtained free of any conditions as acceptable to the Committee. 17.5 Notwithstanding anything contained in the Plan or any Agreement to the contrary, in the event that the disposition of Shares acquired pursuant to the Plan is not covered by a then current registration statement under the Securities Act of 1933, as amended (the "Securities Act"), and is not otherwise exempt from such registration, such Shares shall be restricted against transfer to the extent required by the Securities Act and Rule 144 or other regulations thereunder. The Committee may require any individual receiving Shares pursuant to an Option granted under the Plan, as a condition precedent to receipt of such Shares, to represent and warrant to the Company in writing that the Shares acquired by such individual are acquired without a view to any distribution thereof and will not be sold or transferred other than pursuant to an effective registration thereof under said Act or pursuant to an exemption applicable under the Securities Act or the rules and regulations promulgated thereunder. The certificates evidencing any of such Shares shall be appropriately amended to reflect their status as restricted securities as aforesaid. 18. Miscellaneous. ------------- 18.1 Multiple Agreements. The terms of each Option may differ from other Options granted under the Plan at the same time, or at some other time. The Committee may also grant more than one Option to a given Eligible Individual during the term of the Plan, either in addition to, or in substitution for, one or more Options previously granted to that Eligible Individual. 18.2 Withholding of Taxes. (a) At such times as an Optionee recognizes taxable income in connection with the receipt of Shares hereunder (a "Taxable Event"), the Optionee shall pay to the Company an amount equal to the federal, state and local income taxes and other amounts as may be required by law to be withheld by the Company in connection with the Taxable Event (the "Withholding Taxes") prior to the issuance of such Shares. The Company shall have the right to deduct from any payment of cash to an Optionee an amount equal to the Withholding Taxes in satisfaction of the obligation to pay Withholding Taxes. The Committee may provide in the Agreement, at the time of grant or at any time thereafter, that the Optionee, in satisfaction of the obligation to pay Withholding Taxes, may elect to have withheld a portion of the Shares then issuable to him or her having an aggregate Fair Market Value equal to the Withholding Taxes. (b) If an Optionee makes a disposition, within the meaning of Section 424(c) of the Code and regulations promulgated thereunder, of any Share or Shares issued to such Optionee pursuant to the exercise of an Incentive Stock Option within the two-year period commencing on the day after the date of the grant or within the one-year period commencing on the day after the date of transfer of such Share or Shares to the Optionee pursuant to such exercise, the Optionee shall, within ten (10) days of such disposition, notify the Company thereof, by delivery of written notice to the Company at its principal executive office. 18.3 Effective Date. The effective date of the Plan shall be as determined by the Board, subject only to the approval by the affirmative vote of the holders of a majority of the securities of the Company present, or represented, and entitled to vote at a meeting of stockholders duly held in accordance with the applicable laws of the State of Delaware within twelve (12) months of the adoption of the Plan by the Board. EX-10.11 8 EXHIBIT 10.11 AGREEMENT NO. EFFECTIVE DATE OCTOBER 31ST, 1998 -------- ---------- LICENSE AGREEMENT BETWEEN: Engage Technologies, Inc. AND: Legal Company Name: theGlobe.com 100 Brickstone Square Contact Person: Will Margiloff Andover, MA 01801 Address: 31 West 21st Street, 6th Floor, NY, NY 10010 ("ENGAGE") Telephone: 1-212-886-0837 Fax: 1-212-367-8603 email: will@corp.theGlobe.com ("CUSTOMER") Customer contracts for and Engage agrees to provide, on the terms and conditions set forth in this License Agreement ("Agreement"), the product selections identified below:
- ----------------------------------------------------------------------------------------------------- SELECTIONS RECURRING FEE ONE-TIME FEE - ----------------------------------------------------------------------------------------------------- BASE PRODUCTS: Specify Tier for each: Lite, Standard, Gold, Platinum or Platinum Plus (for Platinum Plus specify Maximum Average Daily Page Requests or Ads Served) Tier Upgrade - ------------------------------------------ ------- AdManager (Attachment A) _______ $___________ $_________ DSServer (Attachment B) _______ $___________ $_________ ____ Additional Seats of Marketing Workbench $___________ $_________ ____ Additional Seats of Business Objects $___________ $_________ ProfileServer (Attachment C) _______ $___________ $_________ LICENSE TERM: Perpetual Subscription Pilot - ----------------------------------------------------------------------------------------------------- PROFILE OPTIONS: Specify Tier for each: Lite, Standard, Gold, Platinum or Platinum Plus (for Platinum Plus specify Maximum Average Daily Page Requests or Ads Served) Local Declared Tier Local Behavior Tier -------------- ---- -------------- ---- AdManager ________ AdManager ________ $_________(mo.) DSServer ________ DSServer ________ $_________(mo.) ProfileServer ________ ProfileServer ________ $_________(mo.) Global Behavior (Attachment D) ------ -------- AdManager ________ $_________(qtr.) ProfileServer Usage Based Fee $_________(mo.) - ----------------------------------------------------------------------------------------------------- SOFTWARE MAINTENANCE AND SUPPORT SERVICES (Attachment E): Standard Premium $_________ $___________ - ----------------------------------------------------------------------------------------------------- OTHER SERVICES (Attachment F): Installation (8 days installation) Training $___________ $___________ Public Class $___________ $___________ On Site (3 days of training defined as follows: Two (2) $___________ $___________ days of AdManager for up to 5 Customer employees, 1/2 day of DSS $___________ $___________ and 1/2 day of Profile Server for up to 3 Customer employees) $___________ $___________ Consulting # of days - ----------------------------------------------------------------------------------------------------- GEOGRAPHIC USE: _________________ (specify country) Factored Into Factored Into NUMBER OF ENTERPRISE SERVERS OR ENGINES: ______ Above Fees Above Fees DOMAIN NAMES: - ----------------------------------------------------------------------------------------------------- CUSTOMER ACKNOWLEDGES THAT THE ATTACHMENTS MARKED WITH AN "X" ABOVE (AND ONLY THOSE ATTACHMENTS) ARE INCORPORATED INTO AND FORM PART OF THIS AGREEMENT, AND THAT THE GENERAL TERMS AND CONDITIONS APPLY TO ALL ATTACHMENTS OF THIS AGREEMENT. THIS AGREEMENT IS NOT VALID UNTIL ACCEPTED BY ENGAGE. ENGAGE: CUSTOMER: Initials Initials Engage:___ Customer:_____ Initials Initials
Pricing Options: Platinum Plus: Up to Average Daily Ads Served or Page Requests Average Daily Ads Served or Page Requests: There would be a one-time cost of an additional for each of the AdManager and Profile Server Software and no additional cost for DSS. Total additional cost would be . Average Daily Ads Served or Page Requests: There would be a one-time cost of an additional for each of the AdManager and Profile Server Software and no additional cost for DSS. Total additional cost would be . Option: Notwithstanding the foregoing, within 180 days of the Effective Date, Customer may elect to pay Engage an additional license fee of for an unlimited number of Average Daily Ads Served or Page Requests. *Installation: Within 5 business days after the Effective Date, Engage shall deliver to Customer a detailed plan regarding the implementation of the Software acceptable to Customer, Including scheduled activity and deliverables for each day, milestone schedule, personnel list, and list of Customer responsibilities prior to installation. If the installation process takes less than 8 business days, Engage shall provide Customer with additional consulting days for each day remaining unused. Customer acknowledges that the Attachments marked with an "X" above (and only those Attachments) are incorporated into and form part of this Agreement, and that the General Terms and Conditions apply to all Attachments of this Agreement. This Agreement is not valid until accepted by Engage. GENERAL TERMS AND CONDITIONS I. DEFINITIONS. Defined terms in this Agreement are capitalized and have the meanings indicated in the Appendix attached hereto. II. RIGHT TO USE SOFTWARE; DELIVERY; ESCROW. Customer's right to use the Software is set forth in the applicable Attachment(s). On the Effective Date, Engage will deliver or make available for downloading at an FTP site the Software. Within five (5) business days of the Effective Date, Engage will name Customer a beneficiary of Engage's source code escrow agreement with Data Securities International, Inc., dated November 12, 1997. Upon the occurrence of a "Release Condition" (as defined in the escrow agreement), Customer shall be entitled to have access to and use the source code form of the Software for the sole purpose of supporting its use of the Software as permitted herein until such time as the Release Condition is corrected. Customer shall bear the expense of being named a beneficiary of said agreement. All source code made available to Customer shall be Confidential Information used only by employees of Customer. III. RESTRICTIONS ON USE OF SOFTWARE. Customer's use of the Software is subject to the following restrictions. Except as expressly permitted in this Agreement, Customer shall not, and shall not permit others to, (a) use, modify, copy (except for one back-up copy containing Engage's copyright notices and other proprietary marks), or otherwise reproduce the Software in whole or in part; (b) reverse engineer, decompile, disassemble, or otherwise attempt to derive the source code form or structure of the Software; (c) distribute, sublicense, assign, share, timeshare, sell, rent, lease, grant a security interest in, use for Service Bureau purposes, or otherwise transfer the Software or Customer's right to use the Software; or (d) remove any proprietary notices or labels on the Software. All rights not expressly granted to Customer are reserved by Engage. There are no implied rights. Customer shall install the Software only on Enterprise Servers and/or Engines, as the case may be, located in the country specified on the Cover Page. Customer shall be responsible for ensuring that its Average Daily Ads served or Page Requests does not exceed the number permitted for the Applicable Tier (an "Overage"), and Customer shall promptly report any Overage to Engage, which shall have the right to require Customer to upgrade its Tier. IV. TERM OF AGREEMENT; TERMINATION. A. This Agreement shall commence upon the Effective Date and, unless terminated in accordance with subsection (b) or (c) below, shall remain in effect for the term specified on the Cover Page (either perpetual, subscription, or pilot, each as defined below). 1. Pilot Term. If pilot term is selected on the Cover Page, the term of this License shall be from the Effective Date until thirty (30) days thereafter. 2. Subscription Term. If subscription term is selected on the Cover Page, this License shall have an initial term of 12 (twelve) months and shall renew automatically for subsequent periods of 12 (twelve) months unless otherwise terminated in accordance with Section 4(b) or (c) below or Engage receives a written notice of non-renewal from Customer at least thirty (30) days prior to the expiration of the initial term or the current renewal term. 3. Perpetual Term. If perpetual term is selected on the Cover Page, the term of this License shall be perpetual with respect to the Software licensed hereunder (unless this Agreement is otherwise terminated in accordance with Section 4(b) or (c) below). B. Either party may terminate this Agreement in the event of a material breach of this Agreement by the other party that is not cured within thirty (30) days of written notice thereof from the other party. Without limitation, the following events shall constitute a material breach: violation by Customer of the terms of the license granted (as set forth in Sections 2 and 3), failure by Customer to pay any amount when due, and violation by either party of the confidentiality duties set forth in Section 13 hereof. C. This Agreement shall automatically terminate if either party ceases doing business, is the subject of a voluntary bankruptcy, insolvency or similar proceeding, is the subject of an involuntary state or federal bankruptcy, insolvency, or similar proceeding that is not dismissed within sixty (60) days of filing, makes an assignment for the benefit of creditors, becomes unable to pay its debts when due, or enters into an agreement with its creditors providing for the extension or composition of debt. V. EFFECT OF TERMINATION OR EXPIRATION. A. Each party shall immediately surrender all rights, licenses, and privileges granted under this Agreement. B. Each party shall promptly pay to the other any amounts due and owing. No termination of this Agreement shall release Customer from any obligation to pay Engage any amount that has accrued or will accrue or become payable prior to, at or after the date of termination. C. Each party shall immediately cease using and return all property in its possession belonging to the other party, including without limitation all Software, Documentation, and tangible embodiments of Confidential Information. D. Customer shall not, in advertising or otherwise, use or display any of Engage's trademarks or any name, mark, or logo that is the same as or similar to Engage's trademarks, represent itself to be a licensee of Engage, or in any way identify itself with Engage. E. Customer shall not be entitled to a refund, in whole or in part, of any amounts paid hereunder, other than in accordance with Section 9. F. Sections 3, 5, 6(f), 7, 9, 10, 11(e), 12, 13 and 14 hereof, together with Customer's obligation to pay outstanding amounts due Engage, will survive termination or expiration of this Agreement. VI. PAYMENTS AND OTHER CHARGES. A. All fees shall be paid in U.S. dollars and shall be made to Engage at the address set forth on the Cover Page. B. Customer agrees to pay all invoices within 30 days after the invoice date. Engage shall invoice Customer for software and support and other services forty (40) days after the commencement of the Warranty Period. Engage shall invoice Customer for all recurring fees listed on the Cover Page on a monthly basis in advance; provided that (i) fees for the Global Behavior Profile option with either AdManager or DSServer shall be invoiced on a quarterly basis in advance, and (ii) fees for the Global Behavior Profile option with Profile Server shall be invoiced on a monthly basis in arrears based on a cost-per-thousand ("CPM") Page Request basis. C. A finance charge in an amount equal to one and one-half percent (1.5%) per month or, if lower, the maximum rate allowed by law will be assessed on payments not received by Engage on or prior to the due date. D. Customer agrees to pay when due (or, if necessary, reimburse Engage for) all sales, use, property, excise, and other similar taxes resulting from this Agreement, excluding taxes on the net income of Engage. E. The amount and structure of all fees and rates may be adjusted for subsequent renewal periods if Engage notifies Customer at least sixty (60) days prior to the renewal date . F. Customer agrees to make and maintain for a period of two (2) years after the end of the year to which they pertain, sufficient books, records and accounts regarding Customer's use of the Software, in order to calculate and confirm Customer's payment obligations hereunder. No more frequently than once each twelve (12) month period, Engage will have the right, at its expense, to examine and copy such books, records, and accounts upon reasonable prior notice during Customer's business hours to verify reports on the amount of payments made to Engage under this Agreement. All such books, records, and accounts shall constitute Confidential Information. In the event such inspection discloses an underpayment of amounts due Engage from Customer, Customer will promptly remit the amounts due, and if an audit discloses an underpayment of the fees payable by Customer for the audited period of more than five percent (5%), Customer shall pay for the expenses of the audit together with the amount of such underpayment. VII. PROPRIETARY RIGHTS. Engage and its licensors shall have sole and exclusive ownership of all right, title, and interest in and to the Software and Documentation, including all associated intellectual property rights. Customer acknowledges that Engage represents the Software, including associated screen displays and menu features, constitutes the valuable trade secrets of Engage or its licensors and are copyrighted works owned by Engage or its licensors and protected by federal and international copyright laws. Customer shall not permit any personnel to remove any proprietary or other legends or restrictive notices contained or included in any materials provided by Engage. VIII. SOFTWARE MAINTENANCE AND SUPPORT SERVICES; OTHER SERVICES. Customer may purchase Maintenance and Support Services, and installation, training, and consulting services together with the license of any Software. If selected by Customer on the Cover Page, all such services will be provided by Engage in accordance with the terms set forth in Attachment E (Software Maintenance and Support Services) or Attachment F (Other Services). Customer will be entitled to receive Updates only if Customer is a paid-up Maintenance and Support Services customer at the time an Update is commercially released. Customer also shall be entitled to receive Upgrades if Customer is a paid-up Maintenance and Support Services Customer at the time an Upgrade is commercially released. I. ENGAGE'S DUTY OF INDEMNIFICATION. Engage, at its expense, shall defend any action, suit or proceeding brought against Customer which alleges (1) facts constituting a breach of an Engage representation or warranty in Sections 11(a) and (c) or (2) that any Software infringes any worldwide copyright or misappropriates any trade secret and Engage shall pay damages finally awarded against Customer (including court costs and attorneys' reasonable fees), provided that (a) Customer notifies Engage promptly in writing of the claim, (b) Engage has sole control of the defense and all related settlement negotiations, and (c) Customer provides Engage with all commercially reasonable assistance, information and authority to perform the above at Engage's expense. In the event that Customer's use of the Software is enjoined by a court of competent authority, Engage shall, at its sole option and at its expense, either: (i) procure for Customer the right to use the Software or (ii) modify the Software to avoid infringement without material impairment of its functionality or (iii) if neither of the foregoing remedies can be obtained upon commercially reasonable terms, require Customer to remove and return to Engage the Software involved and, if Perpetual Term is selected on the Cover Page, refund Customer a portion of the price thereof as depreciated over a three (3) year life of the Software commencing on the date of delivery. The foregoing indemnity shall not apply if the alleged infringement is attributable to the combination of the Software and products not provided by Engage, or if the Software is modified or altered by any person or entity other than Engage, or if the Software is used outside the scope of this Agreement. THIS SECTION STATES ENGAGE'S SOLE LIABILITY HEREUNDER WITH RESPECT TO INFRINGEMENT OF ANY INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS. II. CUSTOMER'S DUTY OF INDEMNIFICATION. Customer agrees to defend and/or settle, indemnify and hold harmless Engage from and against any claim brought by a third party against Engage and any liability, damage or expense (including court costs and attorneys' reasonable fees) arising from or in any manner connected with Customer's breach of a provision of this Agreement; and Customer shall pay all costs, expenses, damages or settlement amounts to the extent based on such a third party claim, provided that (a) Engage notifies Customer promptly in writing of the claim, (b) Customer has sole control of the defense and all related settlement negotiations, and (c) Engage provides Customer with all commercially reasonable assistance, information and authority to perform the above at Customer's expense. III. LIMITED WARRANTY. A. Engage represents and warrants to Customer that Engage has full power and authority to enter into this Agreement and to grant the license provided for herein, and that this Agreement has been duly authorized, executed and delivered by Engage and constitutes a valid, binding and legally enforceable agreement of Engage. Engage represents and warrants that, to its knowledge, the Software does not infringe upon any third party right. B. Customer represents and warrants to Engage that Customer has full power and authority to enter into this Agreement and that this Agreement has been duly authorized, executed and delivered by Customer and constitutes a valid, binding and legally enforceable agreement of Customer. C. Engage represents and warrants that it shall use best efforts to ensure that the Software, if operated on the Specified Configuration, will manage and manipulate data involving dates in material conformity with the Documentation before, during and after the year 2000. Engage disclaims responsibility for the date-related and other performance of hardware, software, telecommunications facilities and other materials not owned and originally supplied by Engage. D. If Customer has elected a perpetual license term on the Cover Page, Engage warrants that for a period of seventy (70) days following delivery of the Software to Customer ("Warranty Period"), Engage will use commercially reasonable efforts to resolve programming errors in the Software or Documentation to make the Software function in material conformity with the Documentation, provided that the Software is operated on the Specified Configuration and in accordance with the Documentation and provided further that Engage receives a written claim from Customer under this limited warranty within the Warranty Period. This Warranty does not apply if Customer or any third party changes or modifies the Software without the authorization of Engage. Engage does not warrant that the Software will be error free or that all errors can be remedied. Engage warrants that the services provided by Engage in connection with this Agreement will be rendered by qualified personnel and consistent with commercial practices standard in the industry. The foregoing shall be Engage's entire liability and Customer's sole and exclusive remedy under this warranty. E. THE EXPRESS WARRANTIES GRANTED UNDER THIS AGREEMENT ARE THE ONLY WARRANTIES MADE BY ENGAGE WITH RESPECT TO THE SOFTWARE AND SERVICES, EXPRESS OR IMPLIED, AND THEY ARE MADE IN LIEU OF ALL OTHER WARRANTIES OR REMEDIES. ENGAGE HEREBY EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT, AND WARRANTIES ARISING BY STATUTE OR OTHERWISE IN LAW OR FROM A COURSE OF DEALING OR USE OF TRADE, AS TO ANY MATTER, INCLUDING BUT NOT LIMITED TO, FEATURES OR CAPABILITIES OF THE SOFTWARE, ENGAGE'S COMPUTERS AND SERVERS, INFORMATION, REPORTS OR OTHER MATTERS PRODUCED OR PROVIDED IN CONNECTION WITH THIS AGREEMENT. IN ADDITION TO AND WITHOUT LIMITATION OF THE FOREGOING, ENGAGE SPECIFICALLY DOES NOT WARRANT, GUARANTEE, OR MAKE ANY REPRESENTATIONS OTHER THAN AS SET FORTH IN SECTION 11(d) REGARDING THE USE, OR THE RESULTS OF THE USE, OF ANY SOFTWARE OR FEATURE OR CAPABILITY OF THE SOFTWARE, IN TERMS OF CORRECTNESS, ACCURACY, RELIABILITY, CURRENTNESS, SECURITY, OR OTHERWISE. ENGAGE EXPRESSLY DISCLAIMS ANY WARRANTY WITH RESPECT TO THE QUALITY OR CONTINUITY OF THIRD-PARTY TELECOMMUNICATION OR INFORMATION SYSTEMS OR SERVICES, SERVER CONNECTION SPEEDS, OR THE FUNCTIONALITY, OPERABILITY, OR RELIABILITY OF ENGAGE'S OR ANY THIRD PARTY'S DATA SECURITY FEATURES OR SYSTEMS. THIS DISCLAIMER OF WARRANTY CONSTITUTES AN ESSENTIAL PART OF THIS AGREEMENT. IV. LIMITATION OF LIABILITY. CUSTOMER'S SOLE REMEDY AND ENGAGE'S SOLE OBLIGATION WITH RESPECT TO ANY CLAIMS, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE AND PRODUCT LIABILITY) OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, OR RESULTING FROM THIS AGREEMENT SHALL BE GOVERNED BY THIS AGREEMENT, AND IN ALL CASES CUSTOMER'S REMEDY SHALL BE LIMITED TO MONEY DAMAGES NOT EXCEEDING THE SOFTWARE LICENSE FEES PAID TO ENGAGE BY CUSTOMER DURING THE 12-MONTH PERIOD IMMEDIATELY PRECEDING THE EVENT GIVING RISE TO SUCH DAMAGES. WITHOUT LIMITING THE FOREGOING, IT IS EXPRESSLY AGREED THAT IN NO EVENT SHALL ENGAGE OR ITS SUPPLIERS OR ANYONE ELSE WHO HAS BEEN INVOLVED IN THE PERFORMANCE OF THIS AGREEMENT ON BEHALF OF ENGAGE, INCLUDING ITS EMPLOYEES, AGENTS, PARTNERS, REPRESENTATIVES, OR SUBCONTRACTORS, BE LIABLE FOR ANY (A) DAMAGES CAUSED BY CUSTOMER'S FAILURE TO PERFORM ITS OBLIGATIONS UNDER THIS AGREEMENT (B) CLAIMS AGAINST CUSTOMER BY ANY THIRD PARTY EXCEPT AS PROVIDED IN SECTION 9, OR (C) DAMAGES, INCLUDING PRODUCT LIABILITY DAMAGES, CAUSED BY ANY NON-ENGAGE PRODUCT. NEITHER PARTY SHALL BE LIABLE FOR INDIRECT, INCIDENTAL, SPECIAL, RELIANCE, INCIDENTAL, EXEMPLARY, COVER OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO LOST PROFITS OR REVENUE, LOST BUSINESS OPPORTUNITIES, LOST SAVINGS, LOST DATA, LOSSES CAUSED BY DELAY OR THE DOWNTIME OF ENGAGE COMPUTERS OR SERVERS, OR LOSSES FROM INTERRUPTION, TERMINATION, OR FAILED OPERATION OF THE INTERNET OR THIRD-PARTY TELECOMMUNICATION SERVICES, EVEN IF A PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THE FOREGOING LIMITATIONS SHALL NOT APPLY TO (I) EITHER PARTY'S DUTY OF INDEMNIFICATION, (II) EITHER PARTY'S UNCURED MATERIAL BREACH OF ITS DUTY OF CONFIDENTIALITY HEREUNDER, OR (III) ENGAGE'S UNCURED MATERIAL BREACH OF ATTACHMENT D, SECTION D-7. CUSTOMER RECOGNIZES THAT THE FEES HEREUNDER ARE BASED IN PART ON THE LIMITED WARRANTY AND LIMITATION OF LIABILITY AND REMEDIES SET FORTH HEREIN. V. CONFIDENTIALITY. Each party acknowledges that by reason of its relationship to the other party under this Agreement it may have access to Confidential Information. Each party agrees to maintain in confidence and use only as expressly permitted in this Agreement all Confidential Information received from the other, both orally and in writing, provided that the parties' obligations of non-disclosure under this Agreement shall not apply to Confidential Information which the receiving party can demonstrate: (i) is or becomes a matter of public knowledge through no fault of the receiving party; (ii) was rightfully in the receiving party's possession prior to disclosure by the disclosing party; (iii) subsequent to disclosure, is rightfully obtained by the receiving party from a third party in lawful possession of such Confidential Information; (iv) is independently developed by the receiving party without reference to Confidential Information; or (v) is required to be disclosed by law. Each party may seek equitable relief (as well as money damages) to protect its interests under this Section. VI. MISCELLANEOUS. A. ASSIGNMENT. Customer may not sublicense, assign (by operation of law or otherwise) or otherwise transfer this Agreement or any license or any right, duty or obligation under this Agreement without Engage's prior written consent, and any attempt to do so shall be null and void. Engage shall not unreasonably withhold its consent to the assignment of this Agreement by Customer to an affiliate, to its successor in connection with a merger, acquisition or consolidation, or to the purchaser in connection with the sale of all or substantially all of Customer's assets. Subject to the foregoing limitations, this Agreement will mutually benefit and be binding upon the parties, their successors and assigns. B. EXPORT CONTROL. Customer acknowledges that the export of any Software is or may be subject to export or import control and Customer agrees that any Software or the direct or indirect product thereof will not be exported (or reexported from a country of installation) directly or indirectly, unless Customer obtains all necessary licenses from the U.S. Department of Commerce or other agency as required by law. C. U.S. GOVERNMENT RESTRICTED RIGHTS. Use, duplication, or disclosure of the Software by the U.S. government is subject to the restrictions set forth in subparagraph (C)(1)(ii) of the Rights in Technical Data and Computer Software clause at DFARS 252.227-7013, and subparagraphs (C)(1) and (2) of the Commercial Computer Software-Restricted Rights at 48 CFR 52.227-19, as applicable. D. LICENSE SUBJECT TO LICENSOR'S RIGHTS. Customer acknowledges that portions of the Software may have been licensed to Engage by one or more third parties. All rights and obligations provided by Engage to Customer under this Agreement shall be limited to the extent that such underlying rights and obligations have been provided to Engage. This Section 14(d) does not limit Engage's representations and warranties in Section 11. E. INDEPENDENT CONTRACTORS. Nothing in this Agreement shall be construed to imply a joint venture, partnership or agency relationship between the parties; Engage shall be considered an independent contractor when performing any services in connection with this Agreement. F. NOTICES. Any notice required to be provided pursuant to this Agreement shall be in writing and shall be deemed given (a) if by hand delivery, upon receipt thereof or (b) if mailed, three (3) days after deposit in the U.S. mails, postage prepaid, registered or certified mail, return receipt requested. A facsimile shall be deemed to be received upon completion of transmission, as verified by a printout showing satisfactory transmission, except that should a facsimile be sent on a nonbusiness day, receipt shall be deemed to occur on the next business day. All notices shall be addressed to the parties at the respective addresses indicated herein. If Customer is located in a country other than the U.S., all notices shall be sent by facsimile. Each party shall promptly notify the other party of any address change. G. WAIVER. A failure or delay by either party to enforce any right under this Agreement shall not at any time constitute a waiver of such right or any other right, and shall not modify the rights or obligations of either party under this Agreement. Any waiver by either party of any right under this Agreement shall not constitute a waiver of such right in the future. All rights and remedies evidenced hereby are in addition to and cumulative to rights and remedies available at law or equity or otherwise available under any other contract. H. SEVERABILITY. If any provision or portion of this Agreement is held to be unenforceable or invalid, the remaining provisions and portions shall nevertheless be given full force and effect, and the parties agree to negotiate, in good faith, a substitute valid provision which most nearly effects the parties' intent in entering this Agreement. I. FORCE MAJEURE. Neither party will be deemed in default of any obligation hereunder nor be liable for any failure or delay in performance which results directly or indirectly from any cause beyond its reasonable control, including without limitation, "Acts of God," delays or failures in the Internet or related carriers and third-party equipment, acts of civil or military authority, strikes, fire, theft, delays by suppliers, or action or inaction by the other party or any third party. J. GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the Commonwealth of Massachusetts, without regard to principles of conflicts of laws. Application of the U.N. Convention of Contracts for the International Sale of Goods is expressly excluded. K. ENTIRE AGREEMENT. This Agreement, including the Appendix and all Attachments, is the entire agreement of the parties, and supersedes all prior agreements and communications, whether oral or in writing, between the parties with respect to the subject matter of this Agreement. Except as expressly provided herein, no amendment or modification of this Agreement shall be effective unless made in writing and signed by Engage and Customer. If there is any conflict between the provisions of the General Terms and Conditions and any Attachment, the provisions of the Attachment shall control. L. COMPLIANCE WITH LAW. Customer is solely responsible for ensuring that its use of the Software and Profiles is in compliance with all foreign, federal, state, and local laws and regulations, and Customer represents and warrants to Engage that it will comply with this subsection. M. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives. ENGAGE TECHNOLOGIES, INC. CUSTOMER: By: By: ----------------------------- ------------------------------- Signature Signature Printed Name Printed Name Title Title APPENDIX -------- DEFINITIONS ----------- "AD INSERTION" means the software-automated process performed by AdManager which results in the insertion of an advertising image into a page at a Customer Site. "ADMANAGER" means the release (in object code form) of Engage's AdManager software that is current as of the Effective Date, any Updates and Upgrades thereto, and related Documentation. "AGREEMENT" means this License Agreement, together with the Appendix and all Attachments designated on the Cover Page. "APPLICABLE TIER" means the Tier selected by Customer on the Cover Page. "AVERAGE DAILY ADS SERVED" means the total number of Ad Insertions in a given month divided by the number of calendar days in such month. "AVERAGE DAILY PAGE REQUESTS" means the total number of Page Requests initiated by users visiting Customer Sites in a given month divided by the number of calendar days in such month. "BUSINESS OBJECTS" means the release (in object code form) of the Business Objects Reporter and Explorer software licensed by Engage that is current as of the Effective Date, any Updates and Upgrades thereto, and related Documentation. "CONFIDENTIAL INFORMATION" means the Documentation, information about the Software, the terms of this Agreement, and any other non-public information or materials that, if disclosed in written form, is labeled "confidential" or, if disclosed orally, is identified as confidential prior to disclosure and submitted to the other party within thirty (30) days in a writing labeled "confidential." "COVER PAGE" means the first two pages of this Agreement. "CUSTOMER SITE" means the collection of pages operated by or under the control of Customer within the Domain Name(s). "DATA" means the past, present and future compilation of "clickstream" data generated by user activity on the web, as well as such data itself, within the Data Repository. "DATA REPOSITORY" means the proprietary global repository of Data compiled and maintained by Engage. "DOCUMENTATION" means end user materials, in any form or medium, provided by Engage for use with the Software. "DOMAIN NAME" means the alphanumeric phrase used by Customer to designate a particular site on the Internet or an intranet and identified on the Cover Page. "DOWNTIME" means the interruption or failed initiation of services caused by the operational failure of a computer, or of a system transmitting or receiving information from a computer. "DSSERVER" means the release (in object code form) of Engage's DecisionSupportServer software that is current as of the Effective Date, any Updates and Upgrades thereto, and related Documentation. "EFFECTIVE DATE" means the effective date indicated on the Cover Page. "ENGINE" means the single processing system consisting of either a single or multiple processor unit and its associated RAM memory and disk storage units, regardless of platform or operating environment, on which Customer will load, execute, and use AdManager. "ENTERPRISE SERVER" means a computer server used by Customer to collect or combine information from one or more Local Servers. "GLOBAL BEHAVIOR PROFILE" means a unique record, resident in the Data Repository, that characterizes the behavior of a web browser on the worldwide web. "LOCAL BEHAVIOR PROFILE" means a unique record characterizing the behavior of a Customer Site visitor, as created by ProfileServer. "LOCAL DECLARED PROFILE" means a unique record containing information provided by a Customer Site visitor who has completed a registration form. "LOCAL SERVER" means a computer server used by Customer to host one or more Customer Sites. "MAINTENANCE AND SUPPORT SERVICES" means the services provided to Customer by Engage in accordance with the terms set forth in Attachment E. "MARKETING WORKBENCH" means the release (in object code form) of the Marketing Workbench software licensed by Engage that is current as of the Effective Date, any Updates and Upgrades thereto, and related Documentation. "PAGE REQUEST" means the request for part or all of a web page (including the request for a new frame) that results from a user action such as the input of a URL, a click on a link, a "refresh" command, or navigation. The automatic presentation of images or content without any additional action by the user does not constitute a Page Request. "PERMITTED ENGINES" means the number of Engines specified on the Cover Page. "PERMITTED ENTERPRISE SERVERS" means the number of Enterprise Servers specified on the Cover Page. "PERSONAL INFORMATION" means the name, phone number, mailing address, and social security number of a person, or any other number assigned by an organization that can be correlated with a person's personal identity. "PROFILE" means a set of Data associated with a unique web browser, which Data provides a demographic and/or interest description of such web browser. "PROFILE OPTION" means any of the Local Declared Profile, Local Behavior Profile, or Global Behavior Profile options, as selected by Customer on the Cover Page, to be used in conjunction with the Software. "PROFILESERVER" means the release (in object code form) of Engage's ProfileServer software that is current as of the Effective Date, any Updates and Upgrades thereto, and related Documentation. "SEATS" means the maximum number of concurrent users authorized to access the Software at a given time, as designated on the Cover Page. "SERVICE BUREAU" means a person or entity that uses the Software to deliver a data profile, report or other services to a third party where such person or entity receives directly or indirectly in return anything of value. "SOFTWARE" means one or more of the following software products, as specified on the Cover Page: AdManager, DSServer, Business Objects, Marketing Workbench, and ProfileServer, as well any Updates and Upgrades thereto. "SPECIFIED CONFIGURATION" means the software products specified in Attachment G. Engage may change the Specified Configuration as required for operation of an Update. Any such change shall be set forth in the release notes accompanying an Update. "TIER" means "UPDATE" means any update, version, release, revision, patch, bug fix or modified form of the Software that Engage, in its sole discretion, elects to make available at no additional charge to licensees of the Software that have purchased Maintenance and Support Services. "UPGRADE" means an improved and enhanced version of the Software released by Engage subsequent to the version licensed by Customer hereunder. "VISITOR DATA" means any data generated by a web browser's http requests and posts within a Customer Site that is collected by Customer using the Software. "WARRANTY PERIOD" has the meaning set forth in Section 11(d). ATTACHMENT A ------------ ADMANAGER --------- A-1. GRANT OF RIGHTS. Subject to the terms and conditions of this Agreement, Engage grants Customer a royalty-free, nonexclusive, nontransferable (except for temporary transfer for the limited duration of a CPU malfunction), worldwide license to use AdManager with the Profile Option, if any, on the Permitted Engines solely for the purpose of operating the Customer Sites, provided that the Average Daily Ads Served does not exceed the maximum number permitted for the Applicable Tier, and provided further that Customer may use the Profile Option solely for purposes of Ad Insertion. ACCEPTED BY: ACCEPTED BY: ENGAGE: CUSTOMER: ------------------ ----------------- Initials Initials ATTACHMENT B ------------ DECISIONSUPPORTSERVER --------------------- B-1. GRANT OF RIGHTS. Subject to the terms and conditions of this Agreement, Engage grants Customer a royalty-free, nonexclusive, nontransferable (except for temporary transfer for the limited duration of a CPU malfunction), worldwide license to use (a) DSServer with the Profile Option, if any, on the Permitted Enterprise Servers, provided that the Average Daily Page Requests does not exceed the maximum number permitted for the Applicable Tier, and (b) Marketing Workbench and Business Objects for one Seat plus the number of Additional Seats specified on the Cover Page, in each case solely for the purpose of operating the Customer Sites. ACCEPTED BY: ACCEPTED BY: ENGAGE: CUSTOMER: ------------------ ----------------- Initials Initials ATTACHMENT C ------------ PROFILESERVER ------------- C-1. GRANT OF RIGHTS. Subject to the terms and conditions of this Agreement, Engage grants Customer a royalty-free, nonexclusive, nontransferable (except for temporary transfer for the limited duration of a CPU malfunction), worldwide license to use ProfileServer with the Profile Option, if any, on the Permitted Enterprise Servers solely for the purpose of operating the Customer Sites, provided that the Average Daily Page Requests does not exceed the maximum number permitted for the Applicable Tier. ACCEPTED BY: ACCEPTED BY: ENGAGE: CUSTOMER: ------------------ ----------------- Initials Initials ATTACHMENT D ------------ GLOBAL BEHAVIOR PROFILE OPTION ------------------------------ I. GRANT OF RIGHTS TO ACCESS DATA REPOSITORY. Subject to the terms and conditions of this Agreement, Engage grants Customer a royalty-free, nonexclusive, nontransferable, worldwide right to request and be served Profiles from the Data Repository for use in conjunction with the Software on the Permitted Enterprise Servers or Permitted Engines (as the case may be) solely for the purpose of operating the Customer Sites, provided that the Average Daily Page Requests or Average Daily Ads Served (as the case may be) does not exceed the maximum number permitted for the Applicable Tier. II. RESTRICTIONS. Use of a Profile other than as expressly permitted in Section D-1 is prohibited, and all rights in the Profiles, Data, and Data Repository other than those expressly granted to Customer are reserved by Engage. Customer has no implied rights. Without limiting the generality of the foregoing, Customer will not (i) retain a Profile or a copy of a Profile, in whole or in part, (ii) use a Profile, through combination with other data or otherwise, to attempt to derive Personal Information or associate Personal Information with a Profile, (iii) combine a Profile with other information and store the results for later use, or (iv) resell or transfer a Profile to a third party. Any violation of this Section D-2 will constitute a material breach of this Agreement. This Section D-2 applies to Customer's use of Profiles (i.e., composite data drawn from Engage's repository) and is not intended to limit Customer's use of data that Customer collects. III. FEE SCHEDULE FOR PROFILESERVER WITH GLOBAL BEHAVIOR PROFILE OPTION. ------------------------------------------------------------------ * If Customer uses the Global Behavior Profile Option other than in connection with AdManager, Customer shall pay Engage at the following rates: --------------------------------------------- Number of Monthly Page Requests Monthly Fee ============================================= Up to 99,000 --------------------------------------------- 100,000 - 1,999,999 + CPM --------------------------------------------- 2,000,000 and above + CPM --------------------------------------------- Note: CPM pricing is based on an accumulated decreasing scale I. ENGAGE'S DUTIES. Engage shall make good faith, reasonable efforts to maintain operation of the Data Repository on a 24 hours per day, 365 days per year basis. From time to time, however, and as may be necessary to maintain the proper operation of the Data Repository, Engage may take the Data Repository's web server(s) down for repairs, upgrades or routine maintenance. Engage will use best efforts to minimize Downtime and to notify Customer reasonably in advance of scheduled Downtime. Engage shall have no obligation with respect to Downtime except to restore service as soon as reasonably possible. In the event of Downtime for a period of 48 consecutive hours, Engage will provide Customer a credit against payment of future fees, which credit shall be equal to a pro-rated portion of the then-current monthly fee based on the duration of the Downtime. II. ACCESS TO DATA REPOSITORY. Customer access to the Data Repository shall be through the Internet or, at Customer's option and expense, through a dedicated telecommunications line. III. CONTRIBUTION OF VISITOR DATA. The Software automatically will deliver the Visitor Data from each Customer Site from Customer to Engage. IV. ENGAGE'S USE OF VISITOR DATA. Engage will not (i) collect or store Personal Information, (ii) sell, report or transfer unprocessed Visitor Data from Customer to any third party, or (iii) aggregate or present Visitor Data from Customer in a form or manner that would permit a third party to (a) identify any individual's Personal Information or identity or (b) identify the data as originating from Customer. V. CLASSIFICATION FILE. The Software includes a classification table permitting Customer to map Visitor Data to predefined demographic and other categories ("Classification File"). Customer will actively maintain and manage the Classification File in cooperation with Engage so that the Classification File is accurate and comprehensive in its mapping of Visitor Data. In the event that Engage reasonably believes that Customer is failing to meet the foregoing standard, Engage will notify Customer of such failure and, unless Customer cures the failure within 30 days from such notification, Engage may terminate this Agreement or impose a surcharge on Customer in accordance with Engage's then-current fees. VI. PROPRIETARY RIGHTS TO VISITOR DATA. Customer shall own its Visitor Data. Customer hereby grants to Engage and its successors a paid up, royalty-free, perpetual, irrevocable license to use such Visitor Data in any manner necessary to operate the Data Repository and successor products and services thereto; provided that Engage's use of Visitor Data shall at all times be in compliance with the restrictions set forth herein. VII. PRIVACY POLICY. Customer will at all times during the term of this Agreement establish, maintain and post on each Customer Site a written policy regarding the collection and use by Customer of visitor information, including disclosure of participation in the Data Repository and a reference to the web address of the Engage privacy page. Customer shall act in accordance with its published privacy policy. D-11. TERM. The initial term of the Global Operation Profile shall be three (3) months ("Quarter.") commencing on the Effective Date. The Quarter shall automatically renew for successive Quarters unless either party elects not to renew by providing the other party with written notice at least thirty (30) days prior to the expiration of a Quarter. ACCEPTED BY: ACCEPTED BY: ENGAGE: CUSTOMER: ------------------ ----------------- Initials Initials ATTACHMENT E ------------ SOFTWARE MAINTENANCE AND SUPPORT SERVICES ----------------------------------------- 1 MAINTENANCE AND SUPPORT SERVICES. Engage will provide Customer with the Software maintenance and support services set forth in the table below at either the Standard or Premium level as indicated on the Cover Page for the most current release of the Software and the most current previous release of the Software ("Maintenance and Support Services"). The Maintenance and Support Services shall apply only to the Software licensed by Customer as specified on the Cover Page; Engage is not responsible for the configuration, maintenance or correction of third-party software, hardware or communications facilities. Engage shall not be obligated to provide Maintenance and Support Services if such services are required as a result of (a) Customer's neglect or misuse of the Software, (b) modification of the Software by a person or entity than other than Engage without the prior written consent of Engage, (c) Customer's failure to implement and use the Specified Configuration, or (d) any other cause beyond the reasonable control of Engage. Engage shall not be obligated to respond to requests for support from any person or entity other than a representative of Customer who has attended a training session provided by Engage. Engage shall have no liability to any third party with respect to the Maintenance and Support Services. 2 UPDATES. Upon commercial release of an Update, Engage shall provide such Update to paid-up Maintenance and Support Services Customers. 3 ERROR CORRECTION. Customer may call to report an "Error" in the Software (i.e., a failure of the Software to function in material conformity with the Documentation) during the hours specified in the table below and shall provide Engage all information necessary for diagnosis of the Error. Engage shall verify receipt of such requests and assign an appropriate Severity Level classification. Depending on the classification, Engage will use commercially reasonable efforts to either: provide a software solution or workaround; provide an avoidance procedure; address the request in the next revision/iteration; or discuss with Customer possible custom professional services to resolve Customer's request. Telephone support during the hours specified in the table below is unlimited in any given month. 4 TELEPHONE SUPPORT. If a support call is made outside the specified hours and is not of Severity Level 1, Customer shall pay $125 for each such call for the first hour (or any part of such hour). Each additional hour will be billed at a rate of $125 per hour. Customer shall cooperate with Engage to allow the Software to automatically communicate its status to Engage via Email. 5 TERM. The initial term of Maintenance and Support Services shall be one year (the "Term") commencing on the expiration of the Warranty Period if Customer has elected a perpetual term on the Cover Page, and commencing on the Effective Date if Customer has elected a subscription term on the Cover Page. Maintenance and Support Services shall automatically renew for successive Terms unless either party elects not to renew by providing the other party with written notice at least thirty (30) days prior to the expiration of a Term. Termination or expiration of the Maintenance and Support Services shall not affect any other term of this Agreement. In the event that Customer elects to reinstate Maintenance and Support Services following termination of such services by Customer, Customer shall first pay Engage all fees that would have been paid had Customer not cancelled such services. 6 PAYMENT. Fees for the initial Term of Maintenance and Support Services shall be billed upon the Effective Date. Fees for renewal Terms shall be billed forty-five (45) days prior to the expiration of the then-current Term. 7 ENGAGE PERSONNEL. In the performance of the Maintenance and Support Services, Engage reserves the right to determine the assignment of Engage personnel, to replace or reassign such personnel and to subcontract with qualified third persons for part or all of the services. No person performing services on behalf of Engage hereunder shall be restricted or prevented from performing services for others that are similar to the services provided under this Agreement. 8 ON-SITE VISITS. For purposes of performing the Maintenance and Support Services, Customer may permit authorized Engage service engineers to inspect periodically during normal business hours Customer's computer systems operating the Software. If Engage is unable by remote telephone support to address an Error, then Engage, at its sole discretion, may dispatch a software engineer to Customer's site to address the Error. The travel and other reasonably-incurred expenses of such on-site assistance (excluding the personnel cost) shall be borne by Customer. Dispatch shall be within twenty four (24) hours after Engage has determined at its sole discretion that telephone assistance is not sufficient. If Customer requests an on-site software support visit and Engage reasonably determines that the reported problem is not the responsibility of Engage, Customer shall reimburse Engage for the cost of such personnel (at Engage's then-current consulting rate) as well as the costs reasonably incurred by the Engage personnel in making such visit. In the event of a Severity 1 problem, Engage shall dispatch, at minimum the Account Manager to coordinate from the site any Engage related response efforts within 24 hours.
- ---------------------------------------------------------------------------------------------------- DELIVERABLE STANDARD LEVEL SUPPORT PREMIUM LEVEL SUPPORT - ---------------------------------------------------------------------------------------------------- Support Provided Toll Free Phone Support during Support Toll Free Phone Support during Hours Support Hours - ---------------------------------------------------------------------------------------------------- Support Hours Monday - Friday 6 A.M. to 8 P.M. Monday - Friday 6 A.M. to 8 P.M. Eastern time Eastern time Severity Levels 1-4 Severity Levels 1-4 24 x 7 Beeper support (only Severity 1 and 2) - ---------------------------------------------------------------------------------------------------- Staff Access to technical support staff Named Account Manager - ---------------------------------------------------------------------------------------------------- Diagnostics Remote diagnostics available Remote diagnostics available - ---------------------------------------------------------------------------------------------------- Customer Feedback Quarterly Product Enhancement Ballot Quarterly Product Enhancement Ballot - ---------------------------------------------------------------------------------------------------- Customer Quarterly Newsletter Quarterly Newsletter Communication - ---------------------------------------------------------------------------------------------------- Web site Access to technical support web site 24 Access to technical support web site x 7 for: 24 x 7 for: o Problem reporting and tracking o Problem reporting and tracking via the web via the web o Web accessible knowledge base o Web accessible knowledge base o Patches and fixes available for o Patches and fixes available download for download o Web based books such as Release o Web based books such as Release Notes, Installation Guides, etc. Notes, Installation Guides, etc. - ---------------------------------------------------------------------------------------------------- Proactive Support: 1 Proactive Patch Reporting 1 Proactive Patch Reporting 2 Notification of known problems 2 Notification of known and fixes problems and fixes 3 Monthly "Wellness Check" and 3 Monthly "Wellness Check" and call review call review 4 O/S upgrade impact planning 4 O/S upgrade impact planning 5 Site scans on primary URL 5 Site scans on up to 15 URL address addresses 6 Quarterly review of operations o One site visit by a support rep at least once per year. - ----------------------------------------------------------------------------------------------------
Severity Levels Defined: Severity 1 - Critical Business Impact The Service or Software, regardless of the environment or product usage, has complete loss of service or resources for which no workaround exists and Customer's work cannot reasonably continue. Severity 2 - Serious Business Impact The Service or Software, regardless of the environment or product usage is causing significant or degraded loss of Customer's service or resources. A major product flaw with a workaround, or a minor product flaw without a workaround. Severity 3 - Minor Business Impact. The Service or Software, regardless of the environment or product usage, has minor loss of Customer's service or resources. A minor product flaw with a workaround. Severity 4 - No Business Impact. The Service or Software is in full working mode; Customer's work is not being impeded at this time. Information is requested or reported. A minor irritant. For Severity Level 1 and 2 Errors, Engage shall use best efforts to respond to the Error report and resolve issues within 1 hour. For Severity Level 3 and 4 Errors, Engage shall use best efforts to respond to the Error report and resolve issues within 2 hours. ACCEPTED BY: ACCEPTED BY: ENGAGE: CUSTOMER: ------------------ ----------------- Initials Initials ATTACHMENT F ------------ OTHER SERVICES -------------- F-1. INSTALLATION. Engage will provide the number of days indicated below of on-site service with the purchase of either a Perpetual or Subscription license for the Software as specified by Customer on the Cover Page. Customer shall reimburse Engage travel costs and expenses in accordance with Engage's expense policy. ---------------------------------------------------------------------- ADMANAGER DOMESTIC INTERNATIONAL ON-SITE DSSERVER ON-SITE DAYS OF SERVICE PROVIDED PROFILESERVER DAYS OF SERVICE PROVIDED ---------------------------------------------------------------------- Lite 2 4 ---------------------------------------------------------------------- Standard 2 4 ---------------------------------------------------------------------- Gold 4 6 ---------------------------------------------------------------------- Platinum 4 6 ---------------------------------------------------------------------- F-2. TRAINING. a. Public Class. From time to time, Engage in its discretion may offer a two-day training class for one or more Software products. Engage shall notify Customer of the times and locations of such classes. The cost of attendance is $1,100 per person, and Customer is responsible for all travel and living expenses. The size of each class is limited; accordingly, admission is on a first-come first served basis. b. On Site. If customer has elected on-site training on the Cover Page, Engage shall provide a two-day training for the Software product specified by Customer at a location specified by Customer. The cost of such attendance is as follows: ---------------------------------------------------------------------- NUMBER OF COST ATTENDEES ---------------------------------------------------------------------- 1-3 $3,000 ---------------------------------------------------------------------- 4-7 $4,500 ---------------------------------------------------------------------- 7-12 $6,000 ---------------------------------------------------------------------- In addition, Customer shall reimburse Engage training personnel for travel and living expenses in accordance with Engage's expense policy. F-3. CONSULTING SERVICES. ------------------- a. Statement of Services. --------------------- 1. Scope of Work. Subject to the following terms and conditions, Engage shall provide Customer with consulting services ("Consulting Services"), if elected by Customer on the Cover Page, in accordance with the written work order(s) agreed to by the parties (each a "Work Order"). Attached hereto as Schedule A is the first such Work Order. Each additional Work Order shall set forth the respective obligations of the parties and parameters of the project in a fashion substantially similar to Schedule A. Upon execution by an authorized representative of each of Engage and Customer, a Work Order shall be deemed fully incorporated herein by reference. In the event of any conflict between this Section F-3 and any Work Order, this Section F-3 shall control; in the event of any conflict between two or more Work Orders, the most recently executed Work Order shall control. 2. Estimated Completion Dates. Each Work Order may specify an estimated completion date for completion of the Consulting Services. At Customer's request, Engage shall use reasonable efforts to estimate such a due date based on Engage's thencurrent understanding of the requirements involved in performing the Consulting Services. Any such estimated completion date is made for project planning purposes only and is not a guarantee; Engage may revise an estimated completion date at any time should events beyond Engage's control or the assumptions upon which Engage relied in calculating its initial estimate change the scope or magnitude of the Consulting Services. b. Duties of Engage. The Consulting Services shall be performed in a workmanlike and professional manner by personnel assigned by Engage having a level of skill in the area commensurate with the requirements of the Consulting Services to be performed. Engage alone shall control the manner, means and method by which Engage performs the Consulting Services. Engage shall have sole responsibility for payment of compensation to its personnel. Engage shall have the right to engage contractors, temporary employees, consultants, vendors, and suppliers at its discretion to assist in delivering or performing the Consulting Services. In such event, any such individuals or entities shall be subject to confidentiality provisions consistent with those set forth in the Agreement, and Engage shall remain primarily liable to Customer for the performance of Engage's obligations hereunder. c. Duties of Customer. Customer shall fully cooperate with and assist Engage in the performance of the Consulting Services and shall undertake the responsibilities specified in this Section F-3 and any additional responsibilities specified in a Work Order at its own expense. Customer shall appoint a qualified project manager who shall be authorized to make binding decisions for Customer regarding this Agreement, and who shall review all specifications, technical materials and other documents submitted by Engage, request necessary corrections, and approve such documents; provide to Engage requested Customer information and data and assume responsibility for the accuracy of the same; advise Engage of Customer's requirements; and upon request, provide access to Customer's staff, facilities and hardware and software as necessary for Engage to perform the Consulting Services. d. Dependencies on Customer. Engage shall have no liability to Customer for Customer's damages, expenses or costs from delays or failures in Engage's performance of the Consulting Services under this Agreement resulting from Customer "change orders" (i.e., work not specified in the Work Order), failure of Customer to perform its responsibilities, or failure of Customer to provide accurate and complete data and instructions in accordance with the procedures set forth in a Work Order. Any such Customer changes or delays in performance by Customer may result in a corresponding extension in the time periods for performance by Engage and/or adjustment to the fees specified in the Work Order. Engage's sole liability to Customer or to any third party for claims, regardless of the form of such claims (e.g., contract, negligence, or other), arising out of any delay in the performance of the Consulting Services for any reason shall be to use commercially reasonable efforts to provide the Consulting Services as promptly as reasonably practicable thereafter. e. Compensation. Unless otherwise specified in a Work Order, the Consulting Services shall be rendered on a time and materials basis at the rate stated in each Work Order. In addition, Customer shall reimburse Engage for outofpocket expenses incurred in connection with the Consulting Services in accordance with Engage's expense policy. Estimates of total fees for projects may be provided in a Work Order solely for project planning purposes. Engage does not guarantee such estimates. Engage shall, however, notify Customer if it becomes aware that its completion of the Consulting Services will exceed the estimate, and Customer may then terminate the Work Order and pay only for the Consulting Services actually rendered. f. Term and Termination. The Consulting Services shall become effective on the Effective Date and shall continue in effect through the earlier of (a) completion of all Consulting Services to be rendered under this Section F-3, (b) termination of the Agreement, or (c) termination of Consulting Services by either party as permitted below. Either party may terminate the Consulting Services generally or the applicable Work Order in the event that the other party materially breaches a provision of this Section F-3 and fails to cure such breach within thirty (30) days of receiving written notice of such breach from the other party. Termination of the Consulting Services shall terminate all Work Orders but shall not affect any other provision of the Agreement; termination of a Work Order shall not affect any provision of this Section F-3 or of the Agreement. Customer may terminate a Work Order at any time by giving Engage no less than sixty (60) days prior written notice. g. Proprietary Rights. ------------------ 1. Engage Ownership; Customer License. Except as provided in Section F-3(g)(2) below, the Consulting Services and related documentation, together with all other data and materials, all software codes, trade secrets, design concepts, discoveries, ideas, enhancements, improvements and inventions related thereto ("Proprietary Information") supplied by Engage to Customer pursuant to this Agreement: (i) are the exclusive property of Engage and shall remain so; and (ii) are confidential and proprietary trade secrets of Engage, protected by law, and of substantial value to Engage, and may not be used or disclosed without the written consent of Engage. Customer shall retain in strict confidence the Proprietary Information, shall not disclose the Proprietary Information to others, and may use the Proprietary Information solely in connection with this Agreement. The Consulting Services shall only be used by Customer for the purposes set forth in this Agreement. Engage hereby grants Customer a license, under the same terms and conditions in the Agreement governing the Software to which the Consulting Services pertain, to use the elements of the work product identified expressly on the applicable Work Order ("Licensed Materials"). If the Licensed Materials consist of computer code, Engage hereby grants Customer a license to use the source code form of the Licensed Materials solely for purposes of performing error correction, subject to the other terms and conditions of this Agreement. 2. Customer Ownership. In the event that Proprietary Information, in whole or in part, is not included in the base form of any Engage product or service and will not be so included in the future in the sole judgment of Engage, the applicable Work Order shall indicate that the Proprietary Information shall be owned by Customer; provided, however, that as between Engage and Customer, Engage shall own all pre-existing and pre-owned elements of the Proprietary Information and shall have the right to commercialize any such materials for any purpose. All Proprietary Information that is not identified expressly in a Work Order as owned by Customer shall be owned by Engage. h. Support. For a period of thirty (30) days following delivery of the work product under a Work Order, Engage will use commercially reasonable efforts to address Severity Level 1 and 2 Errors (as defined in Attachment E, Section E-3). Customer shall be solely responsible for maintenance and support of the work product in all other respects; Maintenance and Support Services do not apply to work product delivered to Customer under this Section F-3. ACCEPTED BY: ACCEPTED BY: ENGAGE: CUSTOMER: ------------------ ----------------- Initials Initials ATTACHMENT G ------------ SPECIFIED CONFIGURATION ----------------------- PROFILESERVER / DSSERVER: ---------------------------------------------------------------- Enterprise Server Microsoft SQL Server 6.5 on Windows NT 4.0 Oracle Server 8.0 on Sun Solaris 2.6 Informix Online Dynamic Server 7.2 on Sun Solaris 2.6 ---------------------------------------------------------------- Local Server Microsoft Internet Information Server 4.0 on Windows NT 4.0 Netscape Enterprise Server 3.51 on Solaris 2.6 Netscape Enterprise Server 3.51 on Windows NT 4.0 ---------------------------------------------------------------- ADMANAGER: ---------------------------------------------------------------- Operating Sun Solaris 2.5.1, 2.6 System/Clients MS Windows NT Server 4.0 ---------------------------------------------------------------- Web Server Plug-Ins Apache 1.2.5 ISAPI (IIS 2.0, 3.0, 4.0) NSAPI (Netscape FastTrack 3.0, Netscape Enterprise 3.01) ---------------------------------------------------------------- Client Libraries MS Windows NT Server 4.0 Solaris 2.5.1, 2.6 BSD Dec Alpha NT Dec Alpha Unix Linux ---------------------------------------------------------------- Databases Informix 7.2.4 on Windows NT 4.0 SP3 Oracle 7.3.3.0.0 for Solaris 2.5 and 2.6 Oracle 7.3.3.0.0 for Windows NT SP3 Sybase 11.0 1.1 on Solaris 2.5.1 MS SQL Server 6.05.02 on NT 4.0 Server SP1 ---------------------------------------------------------------- ACCEPTED BY: ACCEPTED BY: ENGAGE: CUSTOMER: ------------------ ----------------- Initials Initials EX-10.16 9 EXHIBIT 10.16 theglobe.com, inc. 1999 Employee Stock Purchase Plan ARTICLE I INTRODUCTION 1.01 Purpose. theglobe.com, inc. 1999 Employee Stock Purchase Plan (the "Plan") is intended to provide a method whereby employees of theglobe.com, inc. (the "Company") and its Eligible Subsidiary Corporations (as defined below) will have an opportunity to acquire a proprietary interest in the Company through the purchase of shares of the Common Stock (as defined below). 1.02 Rules of Interpretation. It is the intention of the Company to have the Plan qualify as an "employee stock purchase plan" under ss. 423 of the Internal Revenue Code of 1986, as amended (the "Code"). The provisions of the Plan shall be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code. ARTICLE II DEFINITIONS 2.01 "Code" shall have the meaning set forth in Section 1.02. 2.02 "Company" shall have the meaning set forth in Section 1.01. 2.03 "Compensation" shall mean the gross cash compensation (including wage, salary and overtime earnings) paid by the Company or any Eligible Subsidiary Corporation to a participant in accordance with the terms of employment, but excluding all bonus payments, expense allowances and compensation paid in a form other than cash. 2.04 "Committee" shall have the meaning set forth in Section 11.01. 2.05 "Common Stock" shall mean the common stock, par value $.001, of the Company. 2.06 "Eligible Subsidiary Corporation" shall mean each Subsidiary Corporation the employees of which are entitled to participate in the Plan, as listed or referred to on Schedule 2.04 hereto. 2.07 "Employee" shall have the meaning set forth in Section 3.01. 2.08 "Offering Commencement Date" shall have the meaning set forth in Section 4.02. 2.09 "Offering Price" shall have the meaning set forth in Section 6.02. 2.10 "Offering Termination Date" shall have the meaning set forth in Section 4.02. 2.11 "Offerings" shall have the meaning set forth in Section 4.02. 2.12 "Plan" shall have the meaning set forth in Section 1.01. 2.13 "Plan Representative" shall mean the person designated from time to time by the Committee to receive certain notices and take certain other administrative actions relating to participation in the Plan. 2.10 "Subsidiary Corporation" shall mean any present or future corporation which (i) is or becomes a "subsidiary corporation" (as that term is defined in ss. 424 of the Code) of the Company, and (ii) is designated as a participating employer in the Plan by the Committee. ARTICLE III ELIGIBILITY AND PARTICIPATION 3.01 Initial Eligibility. Each employee who shall have completed six consecutive months of full-time employment with the Company and/or any Eligible Subsidiary Corporation shall be eligible to participate in Offerings which commence after such six-month period has concluded, provided he or she is employed on a full-time basis by the Company or an Eligible Subsidiary Corporation as of the relevant Offering Commencement Date (any such eligible employee, an "Employee"). Persons who are not Employees shall not be eligible to participate in the Plan. 3.02 Restrictions on Participation. Notwithstanding any provision of the Plan to the contrary, no Employee shall be granted an option to purchase shares of Common Stock under the Plan: (a) if, immediately after the grant, such Employee would own stock and/or hold outstanding options to purchase stock possessing 5% or more of the total combined voting power or value of all classes of stock of the Company (for purposes of this paragraph, the rules of ss. 424(d) and ss. 423(b)(3) of the Code shall apply in determining stock ownership of any Employee); or (b) which permits such Employee's rights to purchase stock under all employee stock purchase plans of the Company to accrue at a rate which exceeds $25,000 of fair market value of the Common Stock (determined at the time such option is granted) for each calendar year in which such option is outstanding at any time. 3.03 Commencement of Participation. An eligible Employee may become a participant by completing an authorization for payroll deductions on the form provided by the Company and filing the completed form with the Plan Representative on or before the filing date set therefor by the Committee, which date shall be prior to the Offering Commencement Date for the next following Offering. Payroll deductions for a participant shall commence on the next following Offering Commencement Date after the Employee's authorization for payroll deductions becomes effective and shall continue until termination of the Plan or the participant's earlier termination of participation in the Plan. Each participant in the Plan shall be deemed to continue participation until termination of the Plan or such participant's earlier termination of participation in the Plan pursuant to Article VIII below. ARTICLE IV STOCK SUBJECT TO THE PLAN AND OFFERINGS 4.01 Stock Subject to the Plan. Subject to the provisions of Section 12.04, the Company's Board of Directors shall reserve initially for issuance under the Plan an aggregate of two hundred thousand (200,000) shares of Common Stock, which shares shall be authorized but unissued. The Company's Board of Directors may from time to time reserve additional shares of authorized and unissued Common Stock for issuance pursuant to the Plan; provided, however, that at no time shall the number of shares of Common Stock reserved be greater than permitted by applicable law. 4.02 Offerings. The Plan will be implemented by four offerings of the Common Stock during each twelve-month period (the "Offerings"). For so long as the Plan is in effect, an Offering will begin on May 1 and end on July 31, begin on August 1 and end on October 31, begin on November 1 and end on January 31, and begin on February 1 and end on April 30. The first day of an Offering shall be deemed the "Offering Commencement Date" and the last day the "Offering Termination Date" for such Offering. ARTICLE V PAYROLL DEDUCTIONS 5.01 Amount of Deduction. The form described in Section 3.03 will permit a participant to elect payroll deductions of any whole percentage from one percent (1%) through ten percent (10%) of such participant's Compensation for each pay period during an Offering. 5.02 Participant's Account. All payroll deductions made for a participant shall be credited to an account established for such participant under the Plan. A participant may not make any separate cash payment into such account. 5.03 Changes in Payroll Deductions. A participant may reduce or increase future payroll deductions (within the limits described in Section 5.01) by filing with the Plan Representative a form provided by the Company for such purpose. The effective date of any increase or reduction in future payroll deductions will be the first day of the next Offering following processing of the change form. A participant may increase or reduce the amount of his or her payroll deductions only once with respect to any Offering. ARTICLE VI GRANTING OF OPTION 6.01 Number of Option Shares. On the Offering Commencement Date (for each Offering), each participating Employee shall be deemed to have been granted an option to purchase a maximum number of shares of Common Stock the fair market value of which is equal to (i) that percentage of the Employee's Compensation which the Employee has elected to have withheld (but not in any case in excess of 10%) multiplied by (ii) the Employee's Compensation during the Offering then divided by (iii) the applicable Offering Price determined as provided in Section 6.02 below. Notwithstanding the foregoing, the maximum number of shares of Common Stock that a participant may purchase pursuant to an Offering is 2,000. 6.02 Option Price. The option price of stock purchased with payroll deductions made during any Offering (the "Offering Price") for a participant therein shall be the lower of: (a) 85% of the closing price of the stock on the Offering Commencement Date for such Offering or the nearest prior business day on which trading occurred on the NASDAQ National Market System; or (b) 85% of the closing price on the Offering Termination Date for such Offering or the nearest prior business day on which trading occurred on the NASDAQ National Market System. If the Common Stock of the Company is not admitted to trading on any of the aforesaid dates for which closing prices of the stock are to be determined, then reference shall be made to the fair market value of the stock on each such date, as determined on such basis as shall be established or specified by the Committee. ARTICLE VII EXERCISE OF OPTION 7.01 Automatic Exercise. Subject to Section 6.01, each Plan participant's option for the purchase of stock with payroll deductions made during any Offering will be deemed to have been exercised automatically on the applicable Offering Termination Date for the purchase of the number of full shares of Common Stock which the accumulated payroll deductions in the participant's account at the time will purchase at the applicable Offering Price. 7.02 Withdrawal of Account. No participant in the Plan shall be entitled to withdraw any amount from the accumulated payroll deductions in his or her account; provided, however, that a participant's accumulated payroll deductions shall be refunded to the participant as and to the extent specified in Section 8.01 below upon termination of such participant's participation in the Plan. 7.03 Fractional Shares. Fractional shares of Common Stock will not be issued under the Plan. Any accumulated payroll deductions which would have been used to purchase fractional shares, unless refunded pursuant to Section 7.02 above, will be held for the purchase of Common Stock in the next following Offering, without interest. 7.04 Exercise of Options. During a participant's lifetime, options held by such participant shall be exercisable only by such participant. 7.05 Delivery of Stock. As promptly as practicable after the Offering Termination Date of each Offering, the Company will deliver to each participant in such Offering, as appropriate, the shares of Common Stock purchased therein upon exercise of such participant's option. The Company may deliver such shares in certificated or book entry form, at the Company's sole election. The Company may require a participant to dispose of the shares of Common Stock acquired pursuant to the Plan through one or more brokers designated by the Company. 7.06 Stock Transfer Restrictions. The Plan is intended to satisfy the requirements of ss. 423 of the Code. A participant will not obtain the benefits of this provision if such participant disposes of shares of Common Stock acquired pursuant to the Plan within two (2) years from the applicable Offering Commencement Date. ARTICLE VIII WITHDRAWAL 8.01 In General. A participant may stop participating in the Plan at any time by giving written notice to the Plan Representative. Upon processing of any such written notice, no further payroll deductions will be made from the participant's Compensation during such Offering or thereafter, unless and until such participant elects to resume participation. Such participant's payroll deductions accumulated prior to processing of such notice to stop participation shall be applied toward purchasing full shares of Common Stock in the then-current Offering as provided in Section 7.01 above. Any cash balance remaining after the purchase of shares in such Offering shall be refunded promptly to such participant. A participant may elect to resume participation in the Plan by providing written notice to the Plan Representative pursuant to Section 3.03 above. Such election to resume participation shall be effective as of the first Offering commencing following the processing of such election. 8.02 Effect on Subsequent Participation. A participant's withdrawal from any Offering will not have any effect upon such participant's eligibility to participate in any succeeding Offering or in any similar plan which may hereafter be adopted by the Company and for which such participant is otherwise eligible. 8.03 Termination of Employment. Upon termination of a participant's employment with the Company or any Eligible Subsidiary Corporation (as the case may be) for any reason, including retirement or death, the participant's payroll deductions accumulated prior to such termination, if any, shall be applied toward purchasing full shares of Common Stock in the then-current Offering, and any cash balance remaining after the purchase of shares in such Offering shall be refunded to him or her, or, in the case of his or her death, to the person or persons entitled thereto under Section 12.01, and his or her participation in the Plan shall be deemed to be terminated. ARTICLE IX INTEREST 9.01 Payment of Interest. No interest will be paid or allowed on any money paid into the Plan or credited to the account of or distributed to any participant. ARTICLE X STOCK 10.01 Participant's Interest in Option Stock. No participant will have any interest in shares of Common Stock covered by any option held by such participant until such option has been exercised as provided in Section 7.01 above. 10.02 Registration of Stock. Shares of Common Stock purchased by a participant under the Plan will be recorded in the books and records of the Company in the name of the participant. 10.03 Restrictions on Exercise. The Board of Directors of the Company may, in its discretion, require as conditions to the exercise of any option that the shares of Common Stock reserved for issuance upon the exercise of such option shall have been duly listed, upon official notice of issuance, upon a stock exchange or market, and that either: (a) a registration statement under the Securities Act of 1933, as amended, with respect to said shares shall be effective, or (b) the participant shall have represented at the time of purchase, in form and substance satisfactory to the Company, that it is his or her intention to purchase the shares for investment and not for resale or distribution. ARTICLE XI ADMINISTRATION 11.01 Appointment of Committee. The Board of Directors of the Company shall appoint a committee (the "Committee") to administer the Plan, which shall consist solely of no fewer than two "non-employee directors" (as defined in Rule 16b-3(a)(3) promulgated under the Securities Exchange Act of 1934, as amended). 11.02 Authority of Committee. Subject to the express provisions of the Plan, the Committee shall have plenary authority in its discretion to interpret and construe any and all provisions of the Plan, to adopt rules and regulations for administering the Plan, and to make all other determinations deemed necessary or advisable for administering the Plan. The Committee's determination of the foregoing matters shall be conclusive. 11.03 Rules Governing the Administration of the Committee. The Board of Directors of the Company may from time to time appoint members of the Committee in substitution for or in addition to members previously appointed and may fill vacancies, however caused, in the Committee. The Committee may select one of its members as its chairman, shall hold its meetings at such times and places as it shall deem advisable, and may hold telephonic meetings. All determinations of the Committee shall be made by a majority of its members. A decision or determination reduced to writing and signed by a majority of the members of the Committee shall be as fully effective as if it had been made by a majority vote at a meeting duly called and held. The Committee may appoint a secretary and shall make such rules and regulations for the conduct of its business as it shall deem advisable. ARTICLE XII MISCELLANEOUS 12.01 Designation of Beneficiary. A participant may file with the Plan Representative a written designation of a beneficiary who is to receive any shares of Common Stock and/or cash under the Plan upon the participant's death. Such designation of beneficiary may be changed by the participant at any time by written notice to the Plan Representative. Upon the death of a participant and receipt by the Company of proof of identity and existence at the participant's death of a beneficiary validly designated by the participant under the Plan, and subject to Article VIII above concerning withdrawal from the Plan, the Company shall deliver such shares of Common Stock and/or cash to such beneficiary. In the event of the death of a participant lacking a beneficiary validly designated under the Plan who is living at the time of such participant's death, the Company shall deliver such shares of Common Stock and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares of Common Stock and/or cash to the spouse or to any one or more dependents of the participant, in each case without any further liability of the Company whatsoever under or relating to the Plan. No beneficiary shall, prior to the death of the participant by whom he or she has been designated, acquire any interest in the shares of Common Stock and/or cash credited to the participant under the Plan. 12.02 Transferability. Neither payroll deductions credited to any participant's account nor any option or rights with regard to the exercise of an option or the receipt of Common Stock under the Plan may be assigned, transferred, pledged, or otherwise disposed of in any way by the participant other than by will or the laws of descent and distribution. Any such attempted assignment, transfer, pledge or other disposition shall be without effect, except that the Company may, in its discretion, treat such act as an election to withdraw from participation in the Plan in accordance with Section 8.01. 12.03 Use of Funds. All payroll deductions received or held by the Company under the Plan may be used by the Company for any corporate purpose. The Company shall not be obligated to segregate such payroll deductions. 12.04 Adjustment Upon Changes in Capitalization. (a) If, while any options are outstanding under the Plan, the outstanding shares of Common Stock of the Company have increased, decreased, changed into, or been exchanged for a different number or kind of shares or securities of the Company through any reorganization, merger, recapitalization, reclassification, stock split, reverse stock split or similar transaction, appropriate and proportionate adjustments may be made by the Committee in the number and/or kind of shares which are subject to purchase under outstanding options and in the Option Price applicable to such outstanding options. In addition, in any such event, the number and/or kind of shares which may be offered in the Offerings described in Article IV hereof shall also be proportionately adjusted. (b) Upon the dissolution or liquidation of the Company, or upon a reorganization, merger or consolidation of the Company with one or more corporations as a result of which the Company is not the surviving corporation, or upon a sale of substantially all of the property or capital stock of the Company to another corporation, the holder of each option then outstanding under the Plan will thereafter be entitled to receive at the next Offering Termination Date, upon the exercise of such option, for each share as to which such option shall be exercised, as nearly as reasonably may be determined, the cash, securities and/or property which a holder of one share of the Common Stock was entitled to receive upon and at the time of such transaction. The Board of Directors of the Company shall take such steps in connection with such transactions as it shall deem necessary to assure that the provisions of this Section 12.04 shall thereafter be applicable, as nearly as reasonably may be determined, in relation to the said cash, securities and/or property as to which each such holder of any such option might hereafter be entitled to receive. 12.05 Amendment and Termination. The Board of Directors of the Company shall have complete power and authority to terminate or amend the Plan; provided, however, that the Board of Directors of the Company shall not, without the approval of the shareholders of the Company, alter (i) the aggregate number of shares of Common Stock which may be issued under the Plan (except pursuant to Section 12.04 above), or (ii) the class of employees eligible to receive options under the Plan, other than to designate additional Subsidiary Corporations as Eligible Subsidiary Corporations; and provided further, however, that no termination, modification, or amendment of the Plan may, without the consent of an Employee then having an option under the Plan to purchase shares of Common Stock, adversely affect the rights of such Employee under such option, except that the foregoing shall not prohibit the Company from terminating the Plan at any time (including during an Offering) and applying the amounts theretofore withheld from participants to the purchase of shares of Common Stock as if the termination date of the Plan were an Offering Termination Date. 12.06 Effective Date. The Plan shall become effective as of May 1, 1999, subject to approval by the holders of a majority of the shares of Common Stock present and represented at any special or annual meeting of the shareholders of the Company duly held within 12 months after adoption of the Plan. If the Plan is not so approved, the Plan shall not become effective. 12.07 No Employment Rights. The Plan does not, directly or indirectly, create in any person any right with respect to continuation of employment by the Company or any Subsidiary Corporation, and it shall not be deemed to interfere in any way with the Company's or any Subsidiary Corporation's right to terminate, or otherwise modify, any Employee's employment at any time. 12.08 Effect of Plan. The provisions of the Plan shall, in accordance with its terms, be binding upon, and inure to the benefit of, all successors of each Employee participating in the Plan, including, without limitation, such Employee's estate and the executors, administrators or trustees thereof, heirs and legatees, and any receiver, trustee in bankruptcy or representative of creditors of such Employee. 12.09 Governing Law. The law of the State of New York will govern all matters relating to this Plan except to the extent superseded by the federal laws of the United States. Schedule 2.04 to theglobe.com, inc. 1999 Employee Stock Purchase Plan Eligible Subsidiary Corporations -------------------------------- 1. Each Subsidiary Corporation organized under the laws of any of the states of the United States of America. EX-11.1 10 EXHIBIT 11.1
loss per share COMPUTATION OF LOSS PER SHARE YEAR ENDED DECEMBER 31, 1998 1997 1996 -------------- ------------- --------------- Basic: Net loss ($ 16,045,640) ($ 3,584,400) ($ 750,180) Net loss applicable to common stockholders ($ 16,045,640) ($ 3,584,400) ($ 750,180) ============== ============= =============== Basic weighted average shares outstanding 2,381,140 1,146,773 1,125,000 ============== ============= =============== Basic loss per common share ($6.74) ($3.13) ($0.67) ============== ============= =============== Diluted: Net loss applicable to common stockholders ($ 16,045,640) ($ 3,584,400) ($ 750,180) ============== ============= =============== Basic weighted average shares outstanding 2,381,140 1,146,773 1,125,000 Net effect of dilutive securities 0 0 0 -------------- ------------- --------------- Diluted weighted average shares outstanding 2,381,140 1,146,773 1,125,000 ============== ============= =============== Diluted loss per common share ($6.74) ($3.13) ($0.67) ============== ============= ===============
EX-23.1 11 EXHIBIT 23.1 ACCOUNTANTS' CONSENT The Board of Directors theglobe.com, inc. We consent to incorporation by reference in the registration statement (No. 333-67217) on Form S-8 of theglobe.com, inc. of our report dated February 20, 1999, relating to the balance sheets of theglobe.com, inc. as of December 31, 1998 and 1997, and the related statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1998, and related schedule, which report appears in the December 31, 1998, annual report on Form 10-K of theglobe.com, inc. (signed) KPMG LLP New York, New York March 29, 1999 EX-27 12 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE. THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEETS OF THEGLOBE.COM AS OF DECEMBER 31, 1998 AND 1997, RESPECTIVELY, AND THE RELATED STATEMENTS OF OPERATIONS, STOCKHOLDERS' EQUITY (DEFICIENCY) AND CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1998 AND 1997, RESPECTIVELY, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
5 12-MOS 12-MOS Dec-31-1998 Dec-31-1997 Jan-01-1998 Jan-01-1997 Dec-31-1998 Dec-31-1997 29,250,572 5,871,291 898,546 13,003,173 2,305,011 266,209 300,136 12,000 0 0 32,832,824 19,128,673 4,387,521 435,394 824,962 109,552 38,129,878 19,462,172 5,823,531 2,011,297 0 0 0 0 0 1,450 10,312 1,154 30,290,311 17,346,840 38,129,878 19,462,172 0 0 5,509,818 770,293 0 0 2,238,871 423,706 20,129,680 4,229,607 0 0 123,724 0 (15,966,722) (3,548,300) 78,918 36,100 (16,045,640) (3,584,400) 0 0 0 0 0 0 (16,045,640) (3,584,400) (6.74) (3.13) (6.74) (3.13)
EX-99.1 13 EXHIBIT 99.1 SCHEDULE II
theglobe.com, inc. VALUATION AND QUALIFYING ACCOUNTS ALLOWANCE FOR DOUBTFUL ACCOUNTS BALANCE AT ADDITIONS BALANCE AT BEGINNING CHARGED END OF PERIOD TO EXPENSE DEDUCTIONS OF PERIOD ---------------- --------------- --------------- --------------- Year ended December 31, 1996 $ - $ - $ - $ - Year ended December 31, 1997 $ - $ 12,000 $ - $ 12,000 Year ended December 31, 1998 $ 12,000 $ 387,878 $ 99,742 $ 300,136
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