-----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, E/XF+an6I2RzmIRaJtmSx0jP2U/fybaFJ8u5+isAQADXnBw1DjaI/htAfIwshSnp q+Ms52RZ4m656uasVrYe2g== 0000950123-01-002866.txt : 20010330 0000950123-01-002866.hdr.sgml : 20010330 ACCESSION NUMBER: 0000950123-01-002866 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EDGAR ONLINE INC CENTRAL INDEX KEY: 0001080224 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 061447017 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-26071 FILM NUMBER: 1584693 BUSINESS ADDRESS: STREET 1: 50 WASHINGTON ST CITY: NORWALK STATE: CT ZIP: 06854 BUSINESS PHONE: 2038525666 MAIL ADDRESS: STREET 1: 50 WASHINGTON ST CITY: NORWALK STATE: CT ZIP: 06854 10-K 1 y46941e10-k.txt EDGAR ONLINE INC 1 UNITED STATES 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, 2000 COMMISSION FILE NO. 0-26071 EDGAR ONLINE, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Delaware 06-1447017 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 50 Washington Street, Norwalk CT 06854 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (203) 852-5666 Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 par value (Title of Class) 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 as 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 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. [ ] As of March 20, 2001, the aggregate market value of voting stock held by non-affiliates of the registrant, based on the closing sales price for the registrant's common stock, as reported by the Nasdaq National Market was approximately $13,854,303 (calculated by excluding shares owned beneficially by directors and officers). As of March 20, 2001 there were 14,908,917 shares of the registrant's common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE: NONE 2 PART I FORWARD LOOKING STATEMENTS This report 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 that involve risks and uncertainties, including statements regarding our capital needs, business strategy, expectations and intentions. We urge you to consider that statements that use the terms "believe," "do not believe," "anticipate," "expect," "plan," "estimate," "intend" and similar expressions are intended to identify forward-looking statements. These statements reflect our current views with respect to future events and because our business is subject to numerous risks, uncertainties and risk factors, our actual results could differ materially from those anticipated in the forward-looking statements, including those set forth below under "Item 1. Business," "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this report. Actual results will most likely differ from those reflected in these statements, and the differences could be substantial. We disclaim any obligation to publicly update these statements, or disclose any difference between our actual results and those reflected in these statements. The information constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The factors set forth below under "Item 1. Business," "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and other cautionary statements made in this report should be read and understood as being applicable to all related forward-looking statements wherever they appear in this report. Although we believe that the expectations in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. ITEM 1. BUSINESS THE COMPANY Overview We are an Internet-based provider of business, financial and competitive information about public companies. We also provide Internet-based information and technology solutions to the financial services industry. We derive the information we sell primarily from the SEC's EDGAR (Electronic Data Gathering Analysis and Retrieval) filing system and provide it to corporations, Web sites and individuals on a real-time basis. We enhance raw SEC filings by organizing and processing them into an easily accessible and searchable format and use proprietary software to extract specific information requested by our customers. Our three primary sources of revenue are contracts with corporate customers for customized data and related technology systems, subscribers to our Web site services and advertising revenues. EDGAR Trademark EDGAR is a federally registered trademark of the U.S. Securities and Exchange Commission (SEC). EDGAR Online is a product of EDGAR Online, Inc. and is neither approved by, nor affiliated with, the SEC. The SEC has granted us a non-exclusive, royalty-free license to use the name EDGAR in our logo and corporate name initially through 2008. We have applied for and received from the U.S. Patent and Trademark Office certified registration for our EDGAR Online trademark. Corporate Sales Sales of data and information systems to corporate customers is the fastest growing segment of our business. These customers purchase our data for use on corporate intranets, private networks and Web sites. Our proprietary data mining technology allows us to provide specific information to our corporate customers, as well as the related technology systems which facilitate the use of such information for their particular business purposes. Our corporate customers include companies in a broad range of industries including financial service organizations, such as The Nasdaq Stock 1 3 Market, Merrill Lynch and Zurich Reinsurance, and news service providers, such as Reuters and Standard & Poors. Within these organizations, we tailor our services to various departments including marketing, sales, human resources, financial and legal. Subscriptions We believe that EDGAR Online is the preeminent brand for EDGAR-based business, financial and competitive information over the Internet. As of March 20, 2001, we had more than 593,000 registered users, of which 16,000 were paying subscribers. We offer these services through our Web sites, located at www.edgar-online.com, www.ipo-express.com, www.insidertrader.com, www.fd-express.com, www.compensation-express.com and www.freeedgar.com. Revenues from these sites are generated through the sale of subscriptions and other premium services. Advertising We also generate advertising revenues through the sale of advertising banners and sponsorships on our six Web sites and sponsored email newsletters to our registered users. In the first quarter of 2001, our six Web sites delivered in excess of 82 million ad impressions. In addition to our Web sites, we have contracts to deliver content to major portals including Yahoo!, Lycos and America Online. These content distribution agreements increase traffic to our Web sites and promote our brand name. INDUSTRY BACKGROUND AND OPPORTUNITY The EDGAR System The SEC began to require electronic filings of compliance documents such as prospectuses and annual and quarterly reports in 1994 and, since May 1996, all U.S. public companies have been required to make their SEC filings in an electronic format through the EDGAR system. Certain foreign issuers have also chosen to make their filings with the SEC through the EDGAR system. The SEC established this system to perform automated collection and acceptance of submissions by companies and others who are required to file disclosure documents with the SEC. Prior to the introduction of the EDGAR system, SEC filings were only available on a delayed basis in costly paper or CD-ROM format from a limited number of document providers or SEC public reference rooms. Business Information Today's business environment is characterized by a rapidly growing demand for fast and easy access to corporate and financial information. As a result of the rapid growth of the Internet, corporate and financial information can now be delivered in a more efficient and less expensive manner. Businesses are using their intranets, private networks and Web sites to deliver competitive and financial information to employees, customers and shareholders. SEC filings are a primary source of this information. Veronis Suhler reports that total U.S. spending on Business Information Services is expected to grow at a compound annual growth rate of 7.8% from 1999 through 2004 reaching approximately $65 billion. We believe that our proprietary data mining technology and brand name recognition will enable us to take advantage of the growth in this market. 2 4 STRATEGY Our goal is to become the leading provider of EDGAR-based business, financial and competitive information and related technology systems. We aim to meet the increasing market demand for information on a real-time, value-added and cost-effective basis, by providing our customers with sophisticated methods of obtaining and using information derived from EDGAR filings and other sources. We strive to maintain EDGAR Online as the most reliable and trusted source of EDGAR-based information for corporate customers and users of our Web services. Increase Corporate Sales Our objective is to continue to increase the number of corporate customers purchasing our services and the amount of revenue generated by each customer. We will use our proprietary technology to extract information for our corporate customers and tailor this information to their specific needs. We offer our services to a broad range of business and professional customers who have a variety of needs for the types of services we provide. We are continuing to expand our sales force to target this market. Expand Beyond the Internet to Reach New Customers We believe that we have established EDGAR Online as a leading Internet provider of EDGAR-based information. We intend to maintain this leadership position on the Internet and are now beginning to target other existing and emerging technologies to reach new customers. For example, we have developed products and services for use in wireless network applications and are expanding our sales efforts to news services and data vendors that are using proprietary private networks. Expand Internationally Approximately eight percent of our current registered users are located outside the United States. We intend to market our services more aggressively in international markets. We intend to expand our database to include filings made outside of the United States and provide our users with access to corporate and financial information from these filings. This will enable us to meet both foreign and domestic demand for information on non-U.S. based companies. Expand Functionality and Content Offerings We intend to introduce new value-added services to increase revenues from our existing customer base and to attract new customers. We have sophisticated search technology under development to further mine the data in EDGAR filings and plan to market tailored products to specific end users. We are also incorporating additional sources of business and financial information into the services we offer to our clients. Enhance Brand Recognition We have established strong brand identity in the EDGAR-based retrieval market, in large part due to the high quality of our services and the extensive availability of our branded information on the Internet. We intend to continue to encourage our brand recognition by marketing higher value 3 5 services to registered users of our Web sites, by implementing aggressive sales campaigns to corporate clients and by entering into additional strategic distribution relationships. Pursue Additional Strategic Alliances and Acquisitions We will seek additional distribution relationships to ensure that we remain the leading provider of EDGAR-based information and related information technology solutions on the Internet. We will also seek additional strategic alliances or acquisitions that will enable us to offer additional services, strengthen our selling efforts, improve technology and gain access to complementary services or information that will be of interest to our customer base. PRODUCTS AND SERVICES Corporate Sales As of March 20, 2001, we had over 250 corporate customers representing a broad range of industry sectors. These corporate customers pay for having the content of SEC filings processed and delivered to them in ways that best meet their internal needs. We believe that our corporate contract services are attractive to professional firms and large corporations who benefit from using our services to generate valuable business, financial and competitive information to help them conduct their businesses more effectively. Through our corporate contracts, we supply our information to customers for use on their corporate intranets and extranets, subscription Web sites, corporate Web sites and wireless and private networks. Corporate intranets and extranets We provide EDGAR content to corporate customers for their internal use, including on their intranets and extranets. Each of these corporate customers receives a tailored application for their internal use at a price based on content and degree of customization. These services include real-time delivery of selected types of filings or specific elements of filings that contain information for such purposes as sales leads, tracking competitor activity or comparing executive compensation levels. In addition, we offer bulk sales of subscriptions to our Web site services to firms for use by their employees. Subscription Web sites We deliver EDGAR content to other subscription Web sites, such as Multex.com, Newstraders, Scottrade Securities and StreetFusion, that bundle our content into their service offerings to the business and investment community. These Web sites either integrate our services into their comprehensive offerings or offer our services as higher cost options. Corporate Web sites Many public companies maintain Web sites that contain information about their businesses, management, press releases and other public information. For a monthly fee, we supply a broad range of companies with their company-specific EDGAR filings for display on their Web sites. This content is typically part of the investor relations section of these companies' Web sites. For example, many of these Web sites provide links to these companies' Form 10-K and Form 10-Q filings, which 4 6 we provide from our database of EDGAR filings. By contracting with us, these companies are assured that their Web sites contain their most recent EDGAR filings. Private Networks We deliver EDGAR content to other information vendors such as Reuters, ILX and Perfect Information, who make EDGAR Online information available to their private network customers. These information vendors either integrate our service into their comprehensive offerings or offer our services for an additional fee. Our Web Sites We operate six Web sites, each catering to the specific needs of a different target audience. Together, these sites provide services that appeal to both casual users of EDGAR information and to business professionals who require a broader range of value-added services. We seek to capture the fast-growing market of users of business and financial information by offering low cost, value-added services to our paying subscribers. We offer basic free content that encourages repetitive usage by visitors to our Web sites. As of March 20, 2001, we had over 593,000 registered users, of which approximately 16,000 were paying subscribers. Based on information from @plan, Inc., an Internet-focused market research provider, we believe our individual users represent a demographic group characterized by levels of education and personal income that are well above the average profile of an Internet user. According to the registration data we collect, these individuals are typically executives, research analysts, bankers, journalists, attorneys, accountants, sales representatives, recruiters, business development and marketing professionals. We provide them with cost-effective and flexible tools to obtain information about companies' financial performance, competitive position, strategic plans, products, expenditure plans, management changes, shareholder changes, capital raising and other information reported in SEC filings. The EDGAR Online Web site, located at www.edgar-online.com, is our premium value-added content service site. This site features up-to-the-second listing of new EDGAR filings received by the SEC which can be sorted by company name, form type or filing date. Users to the site are offered advanced searching and filtering capabilities that allow users to combine multiple criteria to search EDGAR filings using a company's name, ticker symbol, central index key (CIK) code, industry, city, state, SEC form type and filing date range. Our proprietary software also adds navigation features which makes it easier to find specific information within the EDGAR filings. The site also allows users to search the EDGAR database for information about individuals named in SEC filings. Individual users who wish to access these services pay a monthly fee starting at $9.95. Our highest standard subscription rate of $99.95 per month entitles a user to unlimited access to real-time filings and Form 144 filings. Selected services are also available to non-paying registered and non-registered users of our Web site. Our service also allows users to store queries and sends e-mail or Web-based alerts immediately when new filings come in that match the user's search criteria. Our software enables users the option of viewing filings in either Hypertext Markup Language, Rich Text Format or on Excel Spreadsheet Format. For an additional fee, users can obtain a hard copy of any filing by overnight delivery. 5 7 The FreeEDGAR Web site, located at www.freeedgar.com, is our value brand site. This site offers free access to all EDGAR filings as well as limited navigation tools to help users find specific sections of the EDGAR filing. The Web site also offers certain searching, display and alerting features which are generally less comprehensive then the features on our premium Web site. This Web site appeals to users of EDGAR information who are willing to forego certain value-added features in exchange for free access to the EDGAR filings. This site is supported by advertising revenues and provides an opportunity to market the value-added services of our premium Web sites. The EDGAR Online IPO Express Web site, located at www.ipo-express.com, is a specialized site which displays new public offerings as they are filed, priced, postponed or withdrawn and provides daily and weekly summaries of all companies filing IPO prospectuses with the SEC. Users can quickly and easily access key sections of the prospectus, including competition, risk factors, management and financial data, as well as key details such as underwriters and ticker symbols. Users subscribing to our IPO Alert services can also obtain e-mail or web-based alerts when IPO filings are made and when specific IPO stocks begin trading. The EDGAR Online Compensation Express Web site, located at www.compensation-express.com is a specialized site which displays compensation information for the executives listed in IPO prospectuses and proxy statements. Users can review salary levels, stock options and bonus levels for all listed executives for a particular company or they can look at yearly figures for a particular named executive in the company. The EDGAR Online Insider Trader Web site, located at www.insidertrader.com is a specialized site which displays the insider transactions and institutional ownership data filed with the SEC on Forms 3, 4, 144 and 13F and schedules 13D and 13G. The site has numerous value added features to assist investors in using the data to research new investment ideas, and to follow present investments. Insider Trader also presents original research reports by financial analysts who combine the site's data with fundamental research to reach investment decisions. The EDGAR Online Fair Disclosure Web site, located at www.fd-express.com is a specialized site which displays filing and information concerning the SEC's new Regulation FD - commonly referred to as Fair Disclosure. The site allows users to view filings made for the purpose of complying with the new Fair Disclosure requirements. Advertising We have a contract with DoubleClick, an Internet advertising services provider, to sell advertising on our Web sites. In March 2001, DoubleClick sold advertising on our sites to over 300 companies. Our advertisers represent a broad cross section of industries that are attracted by the subject matter of our Web sites and by the demographics of the users of our Web sites. These advertisers include companies such as Datek Online Brokerage Services, Fidelity Investments, Arthur Andersen and Harvard Business School Publishing. KEY CONTENT DISTRIBUTION RELATIONSHIPS In order to enhance our brand recognition and audience reach, we provide selected EDGAR content to major portals including Yahoo!, Lycos and America Online. For example, we provide the Yahoo! Finance Web site with headline information about SEC filings and the extracted Management's 6 8 Discussion and Analysis section of Forms 10-K and 10-Q on a real-time basis. In return, EDGAR Online sites benefit from increased traffic and advertising revenues, which occurs when users of these sites seek additional EDGAR-related information. MARKETING AND SALES Historically, we have focused our business on building content distribution relationships with major search engines and financially-oriented and general information Web sites to build our brand recognition. These co-branded relationships and our well-known presence on the Internet have allowed us to attract individual subscribers and corporate customers. As of March 20, 2001, we have a staff of 12 professionals dedicated to supporting our sales and marketing efforts. The exclusive focus of our sales staff is to market our services to corporate customers. We believe that corporate customers will continue to represent an important source of revenue growth in the next few years, as we continue to introduce value-added search and extraction products and customized fee-based services to corporate purchasers of sophisticated financial information. We intend to continue to increase the number of sales professionals dedicated to marketing our services exclusively to corporate accounts. We promote our services through on-line advertising, direct mail, trade shows and telemarketing. We also use free-trial offers on our Web sites to encourage registered users and visitors to subscribe to our services and to encourage existing subscribers to purchase additional value-added services. PROPRIETARY DATA MINING SOFTWARE Historically, we used database technology designed for us by iXL. The acquisition of Financial Insight Systems ("FIS") in October 2000 has enabled us to bring development and maintenance of our technology in-house. We are no longer reliant on iXL personnel for design and support of our hardware and software systems. The acquisition of FIS also brought us additional proprietary database technology related to the extraction of data from EDGAR filings and the creation, operation and maintenance of applications services used by our clients. Our proprietary technology integrates software that was developed exclusively for us with software systems obtained commercially. The software developed exclusively for us includes our database of EDGAR filings, Web-based customer interfaces, data mining capabilities and customer support and billing systems. The software systems obtained commercially include the Great Plains Accounting System, the Verity Search Engine and NetOwl Extractor. The nature of our proprietary system allows us to enhance our service offerings by rapidly integrating new technology developed by third parties. Over the last five years we have accumulated a large set of unique software programs that enable us to perform the many complex data mining functions necessary to deliver our services on a real-time and cost-effective basis to both our Web and corporate customers. We believe these proprietary programs, and the way we integrate them into a scalable system, give us a significant advantage over any competitors who might attempt to match our speed and accuracy in extracting data from the EDGAR database and delivering that data to a large number of customers in a variety of formats. 7 9 INFRASTRUCTURE, OPERATIONS AND TECHNOLOGY All of our development programming, as well as management of our Web sites, is now performed in-house by our own employees. We own all the programs that run our Web sites, including those developed in the past by iXL. The largest portion of our development team is located in our Rockville, Maryland office. We also have teams of development and IT professionals located in Kirkland, Washington, Owings Mill, Maryland and Norwalk, Connecticut. The Web sites developed and maintained for some of our largest corporate customers are hosted in our offices in Rockville using predominately Microsoft NT Operating systems. Our EDGAR Online and IPO Express Web sites are hosted at facilities located at Globix Corporation in New York City. Globix maintains multiple Web servers owned by us, which run Microsoft NT operating systems and use Microsoft Internet Information Server. Our systems are maintained on a 24 hours-a-day, 7 days-a-week basis by our own technicians with the exception of our networking communications for our New York City servers which are managed by Globix. Our professionals in Kirkland, Washington are responsible for hosting the FreeEDGAR.com and InsiderTrader.com Web sites and supporting the services being provided to a number of our major corporate customers. They work closely with our operations and development people in Norwalk, Connecticut and Rockville, Maryland to create and support new service offerings which can be deployed on each of our Web sites and offered to our business-to-business customers. All our systems, including our accounting system, user database and database of EDGAR filings, and all proprietary software are backed up on a daily basis and stored offsite. Our software and database are replicated across multiple servers, using the clustering facilities of Microsoft Windows NT Server, Enterprise edition. This provides us with both resilience against hardware failure and scalability to handle our increasing traffic loads. The flow of information in and out of our Web sites operates as follows: - - the live feed of EDGAR filings comes from the SEC's dissemination agent, TRW, which sends this feed to Globix in New York City, our office in Kirkland, Washington and our office in Rockville, Maryland via private high speed T-1 connections; and - - the raw EDGAR filings are processed independently by our proprietary software, stored in databases in New York City, Rockville, and Kirkland and posted to our Web sites and distributed to third parties with which we have distribution contracts via our production servers located at Globix's facilities and at Kirkland, Washington and at Rockville, Maryland. Our services are available to users 24 hours a day, 7 days a week. Customer service is available weekdays 9:00 AM to 5:00 PM (ET). Inquiries come in through our Web sites and via e-mail and telephone. As of March 20, 2001, we had 12 employees engaged in customer service and network support for our public Web sites. 8 10 COMPETITION The market for Internet information services and products is relatively new, has no substantial barriers to entry and is intensely competitive and rapidly changing. The number of Web sites competing for consumers' and advertisers' attention and spending has proliferated, and we expect that competition will continue to intensify. We currently compete, directly and indirectly, for corporate customers with vendors of financial information such as Bloomberg and Disclosure and for subscribers, viewers and advertisers with Web-based providers of free EDGAR information, such as 10KWizard.com and Global Security Information's LIVEDGAR. Many of our existing competitors, as well as a number of potential new competitors, have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical and marketing resources than we do. This may allow them to devote greater resources than we can to the development and promotion of their services. These competitors may also engage in more extensive research and development, undertake more far-reaching marketing campaigns, adopt more aggressive pricing policies and make more attractive offers to existing and potential employees, content distribution partners and advertisers. Our competitors may offer EDGAR content that achieves greater market acceptance than ours. It is also possible that new competitors may emerge and rapidly acquire significant market share. While we have good relationships with our growing list of customers, we may not be able to retain these customers. Increased competition could result in price reductions, reduced margins or loss of market share, any of which could materially adversely affect our business, results of operations and financial condition. We also compete with other Web sites, television, radio and print media for a share of advertisers' total advertising budgets. If advertisers perceive the Internet in general or our Web sites in particular to be a limited or an ineffective advertising medium, they may be reluctant to devote a portion of their advertising budget to Internet advertising or to advertising on our Web sites. INTELLECTUAL PROPERTY Our success depends significantly upon our proprietary technology. We currently rely on a combination of copyright and trademark laws, trade secrets, confidentiality procedures and contractual provisions to protect our proprietary rights. All of our employees have executed confidentiality and non-use agreements which provide that any rights they may have in copyrightable works or patentable technologies belong to us. In addition, prior to entering into discussions with third parties regarding our proprietary technologies, we typically require that such parties enter into a confidentiality agreement. If these discussions result in a license or other business relationship, we typically also require that the agreement setting forth the parties' respective rights and obligations include provisions for the protection of our intellectual property rights. The SEC has granted us a non-exclusive, royalty-free license to use the name EDGAR in our logo and corporate name initially through 2008. We have applied for and received from the U.S. Patent and Trademark Office certified registration for our EDGAR Online trademark. GOVERNMENT REGULATION We are subject, both directly and indirectly, to various laws and governmental regulations relating to our business. There are currently few laws or regulations directly applicable to online services of the 9 11 Internet. However, due to the increasing popularity and use of commercial online services and the Internet, it is possible that a number of laws and regulations relating to commercial online services and the Internet may be adopted. Such laws and regulations may cover issues such as user privacy, pricing and characteristics and quality of products and services. Moreover, the applicability to commercial online services and the Internet of existing laws governing issues such as property ownership, libel and personal privacy is uncertain and could expose us to substantial liability. Any such new legislation or regulation or the application of existing laws and regulations to the Internet could have a material adverse effect on our business, results of operations and financial condition. Tax authorities in a number of states are currently reviewing the appropriate tax treatment of companies engaged in Internet commerce. New state tax regulations may subject us to additional state sales and income taxes. As our service is available over the Internet anywhere in the world, multiple jurisdictions may claim that we are required to qualify to do business as a foreign corporation in each such jurisdiction. The failure by us to qualify as a foreign corporation in a jurisdiction where we are required to do so could subject us to taxes and penalties for the failure to qualify. It is also possible that state and foreign governments might attempt to regulate our transmissions of content on our Web sites. EMPLOYEES As of March 20, 2001, we had 131 full-time employees. We believe that we have good relations with our employees. CORPORATE HISTORY We are a Delaware corporation and were formed in November 1995 under the name Cybernet Data Systems, Inc. In January 1999, we changed our name to EDGAR Online, Inc. Our executive offices are located at 50 Washington Street, Norwalk, Connecticut 06854 and our telephone number is (203) 852-5666. RISK FACTORS THAT MAY AFFECT FUTURE RESULTS The following risk factors and other information included in this Form 10-K should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks actually occurs, our business, financial condition and operating results could be materially adversely affected. WE HAVE A LIMITED OPERATING HISTORY AND OUR FUTURE SUCCESS WILL DEPEND ON OUR ABILITY TO INCREASE REVENUES. As an early stage company in the new and rapidly evolving market for the delivery of financial and business information over the Internet, we face numerous risks and uncertainties in achieving increased revenues. We were incorporated in November 1995 and launched our EDGAR Online Web site in January 1996. Accordingly, we have a limited operating history on which you can evaluate our business and prospects. During this period, we have invested heavily in our proprietary technologies to enable us to carry out our business plan. These expenditures, in advance of revenues, have resulted in operating losses in each of the last three years. In order to be successful, we must increase our 10 12 revenues from the sale of our services to corporate customers, individual subscription fees and advertising sales. In order to increase our revenues, we must successfully: - implement our marketing plan to (1) increase corporate sales, (2) attract more individual online users to our services and (3) convert visitors to paying subscribers; - continue to improve our market position as a commercial provider of information services based on EDGAR filings; - maintain our current, and develop new, content distribution relationships with popular Web sites and providers of business and financial information; - maintain our current, and continue to increase, advertising revenues by increasing traffic to our Web sites and by increasing the number of advertisers; - respond effectively to competitive pressures from other Internet providers of EDGAR content; - continue to develop and upgrade our technology; - integrate our acquisition of Financial Information Systems, Inc.; and - attract, retain and motivate qualified personnel with Internet experience to serve in various capacities, including sales and marketing positions. If we are not successful in addressing these uncertainties through the execution of our business strategy, our business, results of operations and financial condition will be materially adversely affected. WE HAVE A HISTORY OF LOSSES AND CANNOT ASSURE THAT WE WILL ATTAIN PROFITABILITY. We incurred net losses of $2,221,474 for the year ended December 31, 1998, $4,162,861 for the year ended December 31, 1999 and $15,237,305 for the year ended December 31, 2000. In addition, as of December 31, 2000, we had an accumulated deficit of $24,146,626. We expect to continue to incur significant operating costs and capital expenditures. As a result, we will need to generate significant additional revenues to achieve and maintain profitability. Even if we do achieve profitability, we cannot assure you that we can sustain or increase profitability on a quarterly or annual basis in the future. In addition, if revenues grow slower than we anticipate, or if operating expenses exceed our expectations or cannot be adjusted accordingly, our business, results of operations and financial condition will be materially adversely affected. As a result of these and other costs, we may incur operating losses in the future, and we cannot assure you that we will attain profitability. WE MAY NOT BE ABLE TO OBTAIN ADDITIONAL FINANCING. We currently anticipate that our available cash resources combined with cash generated from operations will be sufficient to meet our anticipated working capital and capital expenditure requirements for at least the next 12 months. We may need to raise additional funds, however, to fund potential acquisitions, more rapid expansion, to develop new or enhance existing services, or to respond to competitive pressures. We cannot assure you that additional financing will be available on 11 13 terms favorable to us, or at all. If adequate funds are not available or are not available on acceptable terms, our ability to fund our expansion, take advantage of unanticipated opportunities, develop or enhance services or products or otherwise respond to competitive pressures would be significantly limited. Our business, results of operations and financial condition could be materially adversely affected by these financing limitations. FUTURE ENHANCEMENTS TO THE SEC'S EDGAR SYSTEM MAY ERODE DEMAND FOR OUR SERVICES. Our future success will depend on our ability to continue to provide value-added services that distinguish our Web sites from the type of EDGAR-information available from the SEC on its Web site. Through its Web site, the SEC provides free access to EDGAR filings on a time-delayed basis of 24 to 72 hours. If the SEC, which has announced that it intends to modernize the EDGAR system, were to make changes to its Web site such as providing (1) free real-time access to EDGAR filings or (2) value-added services comparable to those provided on our Web sites, our business, results of operations and financial condition would be materially adversely affected. WE FACE INTENSE COMPETITION FROM OTHER PROVIDERS OF BUSINESS AND FINANCIAL INFORMATION. We compete with many providers of business and financial information, including other Internet companies, for consumers' and advertisers' attention and spending. Because our market poses no substantial barriers to entry, we expect this competition to continue to intensify. The types of companies with which we compete for users and advertisers include: - traditional vendors of financial information, such as Disclosure; - proprietary information services and Web sites targeted to business, finance and investing needs, including those providing EDGAR content, such as Bloomberg, and LIVEDGAR; and - Web-based providers of free EDGAR information such as 10K Wizard.com. Our future success will depend on our ability to maintain and enhance our market position by: (1) using technology to add value to raw EDGAR information, (2) keeping our pricing models below those of our competitors, (3) maintaining a strong corporate sales presence in the marketplace and (4) signing high-traffic Web sites to distribution contracts. Our potential commercial competitors include entities that currently license our content, but which may elect to purchase a real-time EDGAR database feed (called a Level I EDGAR feed) directly from the SEC and use it to create value-added services, similar to services provided by us, for their own use or for sale to others. This risk is particularly serious in light of the fact that the cost of Level I feed has fallen significantly since we started our business. The cost of the feed is now approximately $45,000 per year. Many of our existing competitors, as well as a number of potential competitors, have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical and marketing resources than we do. This may enable them to respond more quickly to new or emerging technologies and changes in the types of services sought by users of EDGAR-based information, or to devote greater resources to the development, promotion and sale of 12 14 their services than we can. These competitors and potential competitors may be able to undertake more extensive marketing campaigns, adopt more aggressive pricing policies and make more attractive offers to potential employees, subscribers and content distribution partners. Our competitors may also develop services that are equal or superior to the services offered by us or that achieve greater market acceptance than our services. In addition, current and prospective competitors may establish cooperative relationships among themselves or with third parties to improve their ability to address the needs of our existing and prospective customers. If these events occur, they could have a materially adverse effect on our revenue. Increased competition could also result in price reductions, reduced margins or loss of market share, any of which would adversely affect our business, results of operations and financial condition. WE RISK BEING DELISTED FROM NASDAQ WHICH COULD REDUCE OUR ABILITY TO RAISE FUNDS If our stock price were to drop below $1.00 per share and remain below $1.00 per share for an extended period of time, we would be in violation the continued listing requirements of The Nasdaq Stock Market ("Nasdaq") and we risk the delisting of our shares from Nasdaq. Delisting from Nasdaq and inclusion of our common stock on the OTC Bulletin Board or similar quotation system could adversely affect the liquidity and price of our common stock and make it more difficult for us to raise additional capital on favorable terms, if at all. Even if the minimum per share bid price of our common stock is maintained, the Company must also satisfy other listing requirements of the Nasdaq National Market ("NNM"), such as maintaining net tangible assets of at least $4 million. Failure to satisfy any of the maintenance requirements could result in our common stock being delisted from the NNM. Although in that event we could apply to list our shares with the Nasdaq SmallCap Market, its delisting from the NNM could adversely affect the liquidity of our common stock. In addition, delisting from the NNM might negatively impact the Company's reputation and, as a consequence, its business. THE PRICE OF OUR COMMON STOCK HAS BEEN VOLATILE. The market price of our common stock has been, and is likely to continue to be, volatile, experiencing wide fluctuations. In recent years, the stock market has experienced significant price and volume fluctuations that have particularly affected the market prices of equity securities of many technology companies. Some of these fluctuations appear to be unrelated or disproportionate to the operating performance of such companies. Future market movements may materially and adversely affect the market price of our common stock. WE MAY NOT BE SUCCESSFUL IN INCREASING BRAND AWARENESS. Our future success will depend, in part, on our ability to increase the brand awareness of our Web-based customized corporate services. If our marketing efforts are unsuccessful or if we cannot increase our brand awareness, our business, financial condition and results of operations would be materially adversely affected. In order to build our brand awareness, we must succeed in our marketing efforts, provide high quality services and increase the number of people who are aware of the services we offer. We have devoted significant funds to expand our sales and marketing efforts as part of our brand-building efforts. These efforts may not be successful. 13 15 WE MAY NOT BE SUCCESSFUL IN DEVELOPING NEW AND ENHANCED SERVICES AND FEATURES FOR OUR WEB SITES. Our market is characterized by rapidly changing technologies, evolving industry standards, frequent new product and service introductions and changing customer demands. To be successful, we must adapt to our rapidly changing market by continually enhancing our existing services and adding new services to address our customers' changing demands. We could incur substantial costs if we need to modify our services or infrastructure to adapt to these changes. Our business could be adversely affected if we were to incur significant costs without generating related revenues or if we cannot adapt rapidly to these changes. Our business could also be adversely affected if we experience difficulties in introducing new or enhanced services or if these services are not favorably received by users. We may experience technical or other difficulties that could delay or prevent us from introducing new or enhanced services. Furthermore, after these services are introduced, we may discover errors in these services which may require us to significantly modify our software or hardware infrastructure to correct these errors. WE ARE DEPENDENT ON THE CONTINUED GROWTH OF THE EMERGING MARKET FOR ONLINE BUSINESS AND FINANCIAL INFORMATION. The success of our business will depend on the growing use of the Internet for the dissemination of business and financial information. The number of individuals and institutions that use the Internet as a primary source of business and financial information may not continue to grow. The market for the distribution of business and financial information, including EDGAR-based content, over the Internet has only recently begun to develop, is rapidly evolving and is characterized by an increasing number of market entrants who have introduced or developed electronic distribution services over the Internet and private networks. As is typical of a rapidly evolving industry, demand and market acceptance for new services are subject to a high level of uncertainty. Because the market for our products and services is new and rapidly evolving, it is difficult to predict with any certainty what the growth rate, if any, and the ultimate size of this market will be. We cannot be certain that the market for our services will continue to develop or that our services will ever achieve a significant level of market acceptance. If the market fails to continue to develop, develops more slowly than expected or becomes saturated with competitors, or if our services do not achieve significant market acceptance, or if pricing becomes subject to considerable competitive pressures, our business, results of operations and financial condition would be materially adversely affected. MAINTAINING EXISTING AND ESTABLISHING NEW CONTENT DISTRIBUTION RELATIONSHIPS WITH HIGH-TRAFFIC WEB SITES IS CRUCIAL TO OUR FUTURE SUCCESS. Because our advertising revenues depend to a great extent on the traffic to our Web sites, our business could be adversely affected if we do not maintain our current, and establish additional, content distribution relationships on commercially reasonable terms or if a significant number of our content distribution relationships do not result in increased use of our Web sites. We rely on establishing and maintaining content distribution relationships with high-traffic Web sites for a significant portion of the traffic on our Web sites. There is intense competition for placements on 14 16 high-traffic Web sites, and we may not be able to maintain our present contractual relationships or enter into any additional relationships on commercially reasonable terms, if at all. Even if we maintain our existing relationships or enter into new content distribution relationships with other Web sites, they themselves may not continue to attract significant numbers of users. Therefore, our Web sites may not continue to receive significant traffic or receive additional new users from these relationships. OUR BUSINESS COULD BE ADVERSELY AFFECTED BY A DOWNTURN IN THE FINANCIAL SERVICES INDUSTRY. We are dependent upon the continued demand for the distribution of business and financial information over the Internet, making our business susceptible to a downturn in the financial services industry. For example, a decrease in the expenditures that corporations and individuals are willing to make to purchase these types of information could result in a decrease in the number of customers purchasing our information services and subscribers utilizing our Web sites. This downturn could have a material adverse effect on our business, results of operations and financial condition. SOME OF OUR CLIENTS MAY BE UNABLE TO RAISE ADDITIONAL CAPITAL NEEDED TO RETAIN OUR SERVICE OR PAY US FOR SERVICES PERFORMED. Some of our current and potential clients need to raise additional funds in order to continue their business and operations as planned. We cannot be certain that these companies will be able to obtain additional financing on favorable terms or at all. As a result of their inability to raise additional financing, some clients may be unable to pay us for services we have already provided them or they may terminate our services earlier than planned, either of which could have a material adverse effect on our business, financial condition and operating results. WE DEPEND ON DOUBLECLICK FOR ADVERTISING REVENUES. We anticipate that our results of operations in any given period will continue to depend to a significant extent upon advertising revenues generated through our relationship with DoubleClick, Inc., which has provided us with a full range of advertising services for the last three years. DoubleClick's failure to enter into a sufficient number of advertising contracts during a particular period could have a material adverse effect on our business, financial condition and results of operations. Historically, a limited number of customers, all represented by DoubleClick, have accounted for a significant percentage of our paid advertising revenues. For the twelve months ended December 31, 2000, our DoubleClick-related paid advertising revenue was 17% of our total 2000 revenues. Our existing agreement with DoubleClick can be canceled by either party on 90 days notice. In addition, this agreement does not prohibit DoubleClick from selling the same type of service that we currently receive from them to Web sites that compete with our Web sites. If DoubleClick is unable or unwilling to provide these advertising services to us in the future, we would be required to obtain them from another provider or perform them ourselves. We would likely lose significant advertising revenues while we are in the process of replacing DoubleClick's services. 15 17 WE FACE INTENSE COMPETITION FOR ADVERTISING REVENUES AND THE VIABILITY OF THE INTERNET AS AN ADVERTISING MEDIUM IS UNCERTAIN. We compete with both traditional advertising media, such as print, radio and television, and other Web sites for a share of advertisers' total advertising budgets. Paid advertising revenues represented 17% and 22% of our total revenues for the years ended December 31, 2000 and December 31, 1999, respectively. If advertisers do not perceive the Internet to be an effective advertising medium, companies like ours will be unable to compete successfully with traditional media for advertising revenues. In addition, if we are unable to generate sufficient traffic on our Web sites, we could potentially lose advertising revenues to other Web sites that generate higher user traffic. If advertising on the Web shrinks due to a general business downturn, this could also cause us to lose advertising revenue. Because advertising sales make up a significant component of our revenues, any of these developments could have a significant adverse impact on our business, results of operations or financial condition. WE MAY NOT BE ABLE TO CREATE AND DEVELOP AN EFFECTIVE DIRECT SALES FORCE. Because a significant component of our growth strategy relates to increasing our revenues from sales of our corporate services, our business would be adversely affected if we were unable to develop and maintain an effective sales force to market our services to this customer group. Until mid-1999, we had not employed any sales executives to sell our corporate services. Our sales force now consists of 12 people. Six of these people were added during the period January 1, 2001 through March 20, 2001. Nine of our sales people have been hired from outside the company. Three of our sales people have been reassigned from other duties within the company. Our efforts to build an effective sales force may not be successful. WE MAY NOT BE ABLE TO SUCCESSFULLY MANAGE OUR GROWTH. We have experienced and are currently experiencing a period of significant growth. If we are unable to manage our growth effectively, our business will be adversely affected. This growth has placed, and our anticipated future growth will continue to place, a significant strain on our technical, financial and managerial resources. As part of this growth, we may have to implement new operational and financial systems and procedures and controls to expand, train and manage our employees, especially in the areas of sales and product development. WE FACE RISKS IN CONNECTION WITH OUR RECENT ACQUISITION AND OTHER ACQUISITIONS AND BUSINESS COMBINATIONS THAT WE MAY CONSUMMATE. We plan to continue to expand our operations and market presence by making acquisitions, such as the recent acquisition of Financial Insight Systems, Inc. and entering into business combinations, investments, joint ventures or other strategic alliances with other companies. These transactions create risks such as: - difficulty assimilating the operations, technology and personnel of the combined companies; - disruption of our ongoing business; 16 18 - problems retaining key technical and managerial personnel; - expenses associated with amortization of goodwill and other purchased intangible assets; - additional operating losses and expenses of acquired businesses; and - impairment of relationships with existing employees, customers and business partners. We may not succeed in addressing these risks. In addition, some of the businesses we have acquired, and in the future may acquire, may continue to incur operating losses. WE DEPEND ON KEY PERSONNEL. Our future success will depend to a significant extent on the continued services of our senior management and other key personnel, particularly Susan Strausberg, Chief Executive Officer, Marc Strausberg, Chairman and Chief Information Officer, Albert E. Girod, Executive Vice President and Chief Technology Officer, Tom Vos, President and Chief Operating Officer, Greg Adams, Chief Financial Officer and Jay Sears, Senior Vice President, Strategy and Business Development, each of whom are parties to written employment agreements. The loss of the services of these, or certain other key employees, would likely have a material adverse effect on our business. We do not maintain "key person" life insurance for any of our personnel. Our future success will also depend on our continuing to attract, retain and motivate other highly skilled employees. Competition for personnel in our industry is intense. We may not be able to retain our key employees or attract, assimilate or retain other highly qualified employees in the future. If we do not succeed in attracting new personnel or retaining and motivating our current personnel, our business will be adversely affected. In addition, the employment agreements with our key employees contain restrictive covenants that restrict their ability to compete against us or solicit our customers. These restrictive covenants, or some portion of these restrictive covenants, may be deemed to be against public policy and may not be fully enforceable. If these provisions are not enforceable, these employees may be in a position to leave us and work for our competitors or start their own competing businesses. WE MAY NOT ADEQUATELY PERFORM CERTAIN ASPECTS OF OUR BUSINESS WHICH WERE PREVIOUSLY PROVIDED BY THIRD PARTIES. Until February 2001, we depended on third parties to develop and maintain the software and hardware we use to operate a number of our Web sites. Prior to this date, iXL Enterprises, Inc., an Internet strategy consulting company, developed, maintained and upgraded our proprietary software, including those features which enable users to locate and retrieve data, as well as one of our databases of EDGAR filings, Web-based customer interfaces and customer support and billing systems. Beginning in December 2000, we started to assume full responsibility from iXL for the development and maintenance of our own software and hardware configurations. As of the end of February 2001, we have become solely responsible for these functions. If we are unable to perform these services as well as iXL did previously, this could materially adversely affect our business, results of operations and financial condition. 17 19 WE DEPEND ON THIRD PARTIES FOR IMPORTANT ASPECTS OF OUR BUSINESS OPERATIONS. We have a hosting contract with Globix Corporation, a provider of Internet services, pursuant to which Globix operates and maintains the Web servers owned by us in their New York City data center. Our hosting contract with Globix expires in July 2003. If Globix were unable or unwilling to provide these services, we would have to find a suitable replacement. Our operations could be disrupted while we were in the process of finding a replacement for Globix and the failure to find a suitable replacement or to reach an agreement with an alternate provider on terms acceptable to us could materially adversely affect our business, results of operations and financial condition. WE FACE A RISK OF SYSTEM FAILURE. Our ability to provide EDGAR content on a real-time basis and technology-based solutions to our corporate clients depends on the efficient and uninterrupted operation of our computer and communications hardware and software systems. Similarly, our ability to track, measure and report the delivery of advertisements on our site depends on the efficient and uninterrupted operation of a third-party system provided by DoubleClick. These systems and operations are vulnerable to damage or interruption from human error, natural disasters, telecommunication failures, break-ins, sabotage, computer viruses, intentional acts of vandalism and similar events. Any system failure, including network, software or hardware failure, that causes an interruption in our service or a decrease in responsiveness of our Web sites could result in reduced traffic, reduced revenue and harm to our reputation, brand and relations with advertisers. Our operations depend on Globix's ability to protect its and our systems in its data center against damage from fire, power loss, water damage, telecommunications failure, vandalism and similar unexpected adverse events. Although Globix provides comprehensive facilities management services, including human and technical monitoring of all production servers 24 hours-per-day, seven days-per-week, Globix does not guarantee that our Internet access will be uninterrupted, error-free or secure. Any disruption in the Internet access to our Web sites provided by Globix could materially adversely affect our business, results of operations and financial condition. Our insurance policies may not adequately compensate us for any losses that we may incur because of any failures in our system or interruptions in the delivery of our services. Our business, results of operations and financial condition could be materially adversely affected by any event, damage or failure that interrupts or delays our operations. THERE ARE RISKS OF INCREASED USERS STRAINING OUR SYSTEMS AND OTHER SYSTEM MALFUNCTIONS. In the past, our Web sites and the technology-based solutions we sell to our corporate customers have experienced significant increases in traffic when there have been important business or financial news stories and during the seasonal periods of peak SEC filing activity. In addition, the number of users of our information and technology-based solutions has continued to increase over time and we are seeking to further increase the size of our user base and the frequency with which they use our services. Therefore, our Web sites and business solutions must accommodate an increasingly high volume of traffic and deliver frequently updated information. Our Web sites and business solutions have in the past, and may in the future, experience slower response times or other problems for a variety of reasons, including hardware capacity restraints and software failures. These strains on our system could cause customer dissatisfaction and could discourage visitors from becoming paying subscribers. We also depend on the Level I EDGAR feed we purchase in order to provide SEC 18 20 filings on a real-time basis. Our Web sites could experience disruptions or interruptions in service due to the failure or delay in the transmission or receipt of this information. These types of occurrences could cause users to perceive our Web sites and technology solutions as not functioning properly and cause them to use other methods, including the SEC's Web site or services of our competitors, to obtain EDGAR-based information and technology solutions. WE LICENSE THE TERM EDGAR FROM THE SEC AND DEPEND ON OTHER INTELLECTUAL PROPERTY. Trademarks and other proprietary rights, principally our proprietary database technology, are important to our success and our competitive position. The SEC is the owner of a United States trademark registration covering the use of the term EDGAR. We have obtained a non-exclusive, royalty-free license from the SEC to use the term EDGAR in our trademarks, service marks and corporate name. This license is due to expire in September 2008. Since we have built significant brand recognition through the use of the term EDGAR in our service offerings, company name and Web sites, our business, results of operations and financial condition could be adversely affected if we were to lose the right to use the term EDGAR in the conduct of our business. We seek to protect our trademarks and other proprietary rights by entering into confidentiality agreements with our employees, consultants and content distribution partners, and attempting to control access to and distribution of our proprietary information. Despite our efforts to protect our proprietary rights from unauthorized use or disclosure, third parties may attempt to disclose, obtain or use our proprietary information. The precautions we take may not prevent this type of misappropriation. In addition, our proprietary rights may not be viable or of value in the future since the validity, enforceability and scope of protection of proprietary rights in Internet-related industries is uncertain and still evolving. Finally, third parties could claim that our database technology infringes their proprietary rights. Although we have not been subjected to litigation relating to these types of claims, such claims and any resultant litigation, should it occur, could subject us to significant liability for damages and could result in the invalidation of our proprietary rights. Even if we prevail, such litigation could be time-consuming and expensive, and could result in the diversion of our time and attention, any of which could materially adversely affect our business, results of operations and financial condition. Any claims or litigation could also result in limitations on our ability to use our trademarks and other intellectual property unless we enter into license or royalty agreements, which agreements may not be available on commercially reasonable terms, if at all. WE ARE DEPENDENT ON THE INTERNET INFRASTRUCTURE. Our future success will depend, in significant part, upon the maintenance of the various components of the Internet infrastructure, such as a reliable backbone network with the necessary speed, data capacity and security, and the timely development of enabling products, such as high-speed modems, which provide reliable and timely Internet access and services. To the extent that the Internet continues to experience increased numbers of users, frequency of use or increased user bandwidth requirements, we cannot be sure that the Internet infrastructure will continue to be able to support the demands placed on it or that the performance or reliability of the Internet will not be adversely affected. Furthermore, the Internet has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure or otherwise, and such outages or delays could adversely 19 21 affect our Web sites and the Web sites of our co-branded partners, as well as the Internet service providers and online service providers our customers use to access our services. In addition, the Internet could lose its viability as a commercial medium due to delays in the development or adoption of new standards and protocols that can handle increased levels of activity. We cannot predict whether the infrastructure and complementary products and services necessary to maintain the Internet as a viable commercial medium will be developed or maintained. WE ARE SUBJECT TO UNCERTAIN GOVERNMENT REGULATION AND OTHER LEGAL UNCERTAINTIES RELATING TO THE INTERNET. There are currently few laws or regulations that specifically regulate communications or commerce on the Internet. Any new laws or regulations relating to the Internet could adversely affect our business. In addition, current laws and regulations may be applied and new laws and regulations may be adopted in the future that address issues such as user privacy, pricing, taxation and the characteristics and quality of products and services offered over the Internet. For example, several telecommunications companies have petitioned the Federal Communications Commission to regulate Internet service providers and online service providers in a manner similar to long distance telephone carriers and to impose access fees on these companies. This could increase the cost of transmitting data over the Internet, which could increase our expenses and discourage people from using the Internet to obtain business and financial information. Moreover, it may take years to determine the extent to which existing laws relating to issues such as property ownership, libel and personal privacy are applicable to the Internet. WE FACE WEB SECURITY CONCERNS THAT COULD HINDER INTERNET COMMERCE. Any well-publicized compromise of Internet security could deter more people from using the Internet or from using it to conduct transactions that involve transmitting confidential information, such as stock trades or purchases of goods or services. Because a portion of our revenue is based on individuals using credit cards to purchase subscriptions over the Internet and a portion from advertisers who seek to encourage people to use the Internet to purchase goods or services, our business could be adversely affected by this type of development. We may also incur significant costs to protect against the threat of security breaches or to alleviate problems, including potential private and governmental legal actions, caused by such breaches. WE COULD FACE LIABILITY AND OTHER COSTS RELATING TO OUR STORAGE AND USE OF PERSONAL INFORMATION ABOUT OUR USERS. Our policy is not to willfully disclose any individually identifiable information about any user to a third party without the user's consent. This policy statement is available to users of our subscription services when they initially register. We also alert and seek the consent of registered subscribers and users to use some of the information that they provide to market them additional services provided by EDGAR Online or third party providers. Despite this policy and consent, however, if third persons were able to penetrate our network security or otherwise misappropriate our users' personal or credit card information, we could be subject to liability. These could include claims for unauthorized purchases with credit card information, impersonation or other similar fraud claims. They could also include claims for other misuses of personal information such as for unauthorized marketing purposes. These claims could result in litigation. In addition, the Federal Trade Commission and several states have been investigating certain Internet companies regarding their use of personal 20 22 information. We could incur additional expenses if new regulations regarding the use of personal information are introduced or if these regulators chose to investigate our privacy practices. WE MAY BE LIABLE FOR INFORMATION DISPLAYED ON OUR WEB SITES. We may be subjected to claims for defamation, negligence, copyright or trademark infringement, violation of the securities laws or other claims relating to the information that we publish on our Web sites, which may materially adversely affect our business. These types of claims have been brought, sometimes successfully, against online services as well as other print publications in the past. We could also be subjected to claims based upon the content that is accessible from our Web sites through links to other Web sites. Our general liability insurance may not cover these claims and may not be adequate to protect us against all liabilities that may be imposed. ITEM 2. PROPERTIES Our principal executive offices are located in Norwalk, Connecticut, where we lease 7,500 square feet of office space. The term of this lease expires June 2006. We also lease approximately 4,900 square feet of office space at 122 East 42nd Street, New York, New York. This facility houses sales and administrative personnel. The term of this lease expires April 2007. We also lease an aggregate of approximately 7,200 square feet of office in Linbrook Office Park located at 10628 NE 37th Circle and 10635 NE 38th Place, Kirkland, Washington, pursuant to two separate lease agreements. These facilities house our West Coast development and operations personnel, the computer and communications equipment needed to operate our FreeEDGAR.com Web site and supports certain corporate offerings. The terms of these leases expire in January 2003. We also lease approximately 14,200 square feet of office space at 11200 Rockville Pike, Suite 310, Rockville, Maryland and approximately 2,900 square feet of office space at 100 Painters Mill Road, Suite 208 Owings Mills, Maryland. The term of these leases expire in October 2005 and March 2004, respectively. The Company also leases approximately 8,800 square feet of office space at 11200 Rockville Pike, Suite 340 on a month-to-month basis. Collectively, these facilities house our FIS development and operations personnel as well as the computer and communications equipment needed to operate FIS. We believe that, in general, our physical properties are well maintained, in good operating condition and adequate for their intended purposes. ITEM 3. LEGAL PROCEEDINGS We are not party to any material legal proceedings. 21 23 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to security holders through the solicitation of proxies or otherwise during the fourth quarter of our fiscal year ended December 31, 2000. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET PRICE FOR COMMON STOCK Our common stock has been quoted on the Nasdaq National Market under the symbol "EDGR" since our initial public offering on May 26, 1999. The following table sets forth, for the periods indicated, the high and low sales prices per share of common stock as reported on the Nasdaq National Market: On March 20, 2001, the last reported sales price of the common stock on the Nasdaq National Market was $1.50. As of March 20, 2001, there were approximately 122 holders of record of our common stock.
High Low FISCAL YEAR ENDED DECEMBER 31, 1999 Second Quarter (from May 26, 1999) $ 8.8125 $ 6.2500 Third Quarter $ 19.0625 $ 7.3125 Fourth Quarter $ 9.5000 $ 6.7500 FISCAL YEAR ENDED DECEMBER 31, 2000 First Quarter $ 16.0000 $ 6.8750 Second Quarter $ 9.8130 $ 3.1250 Third Quarter $ 5.5000 $ 3.0000 Fourth Quarter $ 5.1250 $ 1.4380 FISCAL YEAR ENDED DECEMBER 31, 2001 First Quarter (through March 20, 2001) $ 2.7500 $ 1.3438
DIVIDEND POLICY We have not declared or paid any cash dividends on our capital stock since inception. We intend to retain any future earnings to finance the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. ITEM 6. SELECTED FINANCIAL DATA The selected data presented below for, and as of the end of, each of the years in the five-year period ended December 31, 2000 are derived from our audited consolidated financial statements. The financial statements for, and as of the end of, each of the years in the three-year period ended December 31, 2000 have been audited by KPMG LLP, independent certified public accountants, and those financial 22 24 statements and the report thereon are included elsewhere in this Form 10-K. The data set forth below should be read in connection with, and are qualified by reference to, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and the related notes included elsewhere in this Form 10-K.
YEAR ENDED DECEMBER 31, ---------------------------------------------------------------------------------------- 1996 1997 1998 1999 2000 ------------ ------------ ------------ ------------ ------------ STATEMENT OF OPERATIONS DATA:(1) Revenues ............................... $ 169,822 $ 1,044,138 $ 1,822,555 $ 4,730,614 $ 9,741,669 Cost of revenues ....................... 226,514 448,890 619,475 1,489,585 3,021,615 ------------ ------------ ------------ ------------ ------------ Gross profit ........................... (56,692) 595,248 1,203,080 3,241,029 6,720,054 Operating expenses: Selling, general and administrative and development ...................... 688,676 1,739,002 3,175,246 7,264,124 13,238,473 Amortization and depreciation .......... 17,688 55,334 116,767 893,614 3,484,491 Write-down of intangible assets ........ -- -- -- -- 6,151,074 ------------ ------------ ------------ ------------ ------------ Loss from operations ................... (763,056) (1,199,088) (2,088,933) (4,916,709) (16,153,984) Interest income (expense) and other, net ........................... (72,547) (298,561) (132,291) 754,098 974,118 ------------ ------------ ------------ ------------ ------------ Loss before income taxes ............... (835,603) (1,497,649) (2,221,224) (4,162,611) (15,179,866) Income tax expense ..................... 250 250 250 250 57,439 ------------ ------------ ------------ ------------ ------------ Net loss ............................... $ (835,853) $ (1,497,899) $ (2,221,474) $ (4,162,861) $(15,237,305) ============ ============ ============ ============ ============ Basic and diluted net loss per share(2) ............................. $ (0.19) $ (0.26) $ (0.36) $ (0.42) $ (1.18) ============ ============ ============ ============ ============ Basic and diluted weighted average shares outstanding(2) ................ 4,302,466 5,655,151 6,129,116 9,805,456 12,862,604 ============ ============ ============ ============ ============
DECEMBER 31, ---------------------------------------------------------------------------------- 1996 1997 1998 1999 2000 ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA: Cash and cash equivalents ................. $ 17,086 $ 16,809 $ 148,380 $10,051,473 $ 2,283,811 Available-for-sale investments ............ -- -- -- 14,534,836 1,497,930 Working capital (deficit) ................. (481,091) (1,339,280) (440,754) 23,529,849 3,703,935 Total assets .............................. 200,368 366,254 784,943 37,739,114 39,466,359 Long-term debt ............................ -- -- 1,473,858 -- 6,000,000 Stockholders' equity (deficit) ............ (356,837) (1,588,811) (2,220,946) 35,086,383 29,483,401
(1) During the third quarter of 1999, development expenses were reclassified to operating expenses from cost of revenues. In addition, during the first quarter of 2000, the Company began recording certain advertising revenues net of the related commissions and amounts previously recorded as stock compensation expense have been reported within the functional expense category for which the employee worked. Prior comparative amounts have been reclassified to conform to the year 2000 presentation. (2) Diluted loss per share has not been presented separately, as the outstanding stock options, warrants and convertible debenture are anti-dilutive for each of the periods presented. Anti-dilutive potential common shares outstanding were 1,489,099, 829,545, 653,400, 1,047,207 and 523,293 for the period ended December 31, 1996, and the years ended December 31, 1997, 1998, 1999, and 2000, respectively. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion of our financial condition and results of operations should be read together with our consolidated financial statements and the related notes thereto. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in those forward-looking statements. 23 25 OVERVIEW We are a global business-to-business and Web-based provider of business, financial and competitive information derived from U.S. Securities and Exchange Commission data and a developer of Internet-based financial and business system solutions. We sell to the corporate market and Internet portals as well as running six destination Web sites. We were founded in November 1995 as Cybernet Data Systems, Inc. In January 1999, we changed our corporate name to EDGAR Online, Inc. We had no revenue in 1995. Our primary activities in 1995 related to beginning development of our proprietary systems. In January 1996, we launched our Web site and began selling our subscription services and establishing contractual relationships with large Web portal and business and financial information sites to supply EDGAR content for display on these sites. We started selling advertising banners and sponsorships on our site in February 1997. We derive revenues from three primary sources: corporate contracts, individual subscriptions, and advertising. Revenue from corporate contracts consists of sales of data and information systems to corporate customers and is recognized over the term of the contract. Services related to corporate contracts are typically billed either monthly or quarterly in advance. Revenue from individual subscriptions is deferred and recognized as income over the subscription period. Individual subscriptions are typically billed in advance to subscribers' credit cards and are collected, net of credit card transaction fees deducted by the credit card processing institution, within one week of the sale. Revenue from advertising is recognized as the services are provided. Advertising revenue is paid to us by DoubleClick, net of advertising placed and commission fees. In addition, a portion of our revenues is derived from barter transactions. Barter advertising revenue is a non-cash item and relates to advertising placed on our Web sites by other Internet companies in exchange for our advertising placed on their Web sites. Barter advertising revenue is recorded in the month that banners are exchanged. The amount of barter advertising revenue and expense is recorded at the fair market value of the services received or provided, whichever is more objectively determinable. Other barter revenue is also non-cash and relates to corporate contract sales for which we received computer equipment or other non-cash consideration for services provided. The amount of such revenues are recorded at the fair market value of the equipment or services received or services provided, whichever is more objectively determinable. Barter expenses reflect the expense offset to barter revenue. We intend to increase our operating expenses to fund increased sales and marketing, to enhance our Web sites and to continue to establish relationships critical to our success. In May 1999, we sold 3,600,000 shares of our common stock at a price of $9.50 per share resulting in net proceeds of approximately $30.4 million. After the application of a portion of the proceeds as described in our prospectus, we have continued to fund our sales, product development and general and administrative expenses and in 1999 and 2000 we used approximately $14 million in connection with the acquisitions of Financial Insight Systems, Inc., Partes Corporation and various other strategic assets. 24 26 RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999 Revenues Revenues increased 106% to $9.7 million for the year ended December 31, 2000, from $4.7 million for the year ended December 31, 1999. The growth in revenues is primarily attributable to a $3.6 million or 320% increase in corporate contract revenues to $4.7 million in 2000 from $1.1 million in 1999, a $744,000 or 52% increase in individual subscription revenues to $2.2 million in 2000 from $1.4 million in 1999, a $616,000 or 58% increase in advertising revenues to $1.7 million in 2000 from $1.1 million in 1999, and an increase of $76,000 or 7% in barter revenues to $1.2 million in 2000 from $1.1 million in 1999. The increase in corporate contract revenue resulted from the FIS acquisition and an increase in the number of corporate contracts in excess of $500 per month to approximately 110 at December 31, 2000 from approximately 47 at December 31, 1999. The number of individual subscriptions increased to approximately 16,000 subscriptions at December 31, 2000 from approximately 13,000 subscriptions at December 31, 1999. The increase in advertising revenues is primarily due to the increase in the number of advertisers and ads delivered, offset by a decrease in advertising rates. Revenue increases were primarily due to increased marketing efforts, which resulted in an expanded customer base of individual subscribers, a larger number of corporate contracts and additional content distribution agreements with other Web sites. All of these increases contributed to increased traffic on our Web sites. The increase in barter advertising revenue is a result of additional exchange of advertising with other Web sites, offset by the decrease in advertising rates. Cost of Revenues Cost of revenues consist primarily of fees paid to acquire the Level I EDGAR database feed from the SEC, Web site maintenance charges, salaries and benefits of our employees and the costs associated with our computer equipment and communications lines used in conjunction with our Web sites. In addition, for each period, online barter advertising expense is recorded equal to the online barter advertising revenue for that period. Total cost of revenues increased $1.5 million or 103% to $3.0 million for the year ended December 31, 2000, from $1.5 million for the year ended December 31, 1999. The increase in cost of revenues is primarily attributable to the FIS acquisition and increases in software and Web site maintenance, billed employees and communications lines needed to handle increased traffic. Gross margins were consistent at 69% for the year ended December 31, 2000 and for the year ended December 31, 1999. Operating Expenses Selling and Marketing. Sales and marketing expenses consist primarily of salaries and benefits, advertising expenses, public relations, and costs of marketing materials. Sales and marketing expenses increased $2.3 million or 97% to $4.6 million for the year ended December 31, 2000 from $2.3 million for the year ended December 31, 1999. As a percentage of revenues, sales and 25 27 marketing expenses decreased to 47% for year ended December 31, 2000 from 49% for the year ended December 31, 1999. The increase in sales and marketing expenses in dollar terms was due to an expansion of our sales force and increased marketing activities. Development. Development expenses increased $1.5 million or 182% to $2.4 million for the year ended December 31, 2000 from $842,000 for the year ended December 31, 1999. As a percentage of revenues, development expenses increased to 24% for the year ended December 31, 2000 from 18% for the year ended December 31, 1999. The increase in development is primarily due to the expansion of content on our web site and the development of corporate products. General and Administrative. General and administrative expenses consist primarily of salaries and benefits, fees for professional services, general corporate expenses and facility expenses. General and administrative expenses increased $2.2 million or 53% to $6.3 million for the year ended December 31, 2000 from $4.1 million for the year ended December 31, 1999. As a percentage of revenues, general and administrative expenses decreased to 64% for the year ended December 31, 2000 from 87% for the year ended December 31, 1999. The increase in general and administrative expenses in dollar terms was primarily due to increased personnel, professional service fees and general corporate expenses necessary to support our growth. We expect that general and administrative expenses will continue to increase in future periods as we hire additional personnel and incur additional costs related to the growth or our business and our operations as a public company. Depreciation and Amortization. Depreciation and amortization expenses include the depreciation of property and equipment and the amortization of intangible assets. Depreciation and amortization increased $2.6 million or 290% to $3.5 million for the year ended December 31, 2000 from $894,000 for the year ended December 31, 1999. As a percentage of revenues, depreciation and amortization increased to 36% for the year ended December 31, 2000 from 19% for the year ended December 31, 1999. The increase is due to the additional amortization expense related to the Partes and FIS acquisitions and the increase in property and equipment. During the fourth quarter of 2000, the Company performed a reassessment of the recovery of the goodwill and other long-lived assets related to its acquisition of Partes Corporation, owner of the FreeEDGAR.com Website. The revaluation was triggered by the continued decline in Internet advertising throughout 2000, which significantly impacted current and projected advertising revenue generated from the FreeEDGAR Web site. Based on revised projections of Partes Corporation's revenues and costs, the Company determined that the undiscounted cash flows from the operation of the FreeEDGAR Web site, including its estimated terminal value, were less than the remaining book value of recorded goodwill and other long-lived assets and an other than temporary impairment had occurred. The Company measured the amount of the impairment by comparing the anticipated future discounted cash flow from the operation of the FreeEDGAR Web site and terminal value to the remaining book value of recorded goodwill and other long-lived assets and recorded an impairment charge of $5,673,000. The methodology used to test for and measure the amount of the impairment charge was based on the same methodology used during the Company's initial valuation of Partes Corporation in 1999. Also during the fourth quarter of 2000, the Company performed a reassessment of the recovery of the goodwill and other long-lived assets related to its acquisition of certain of the assets of Individual Investor Group including the Web site InsiderTrader.com and related user data. The revaluation was triggered by the lower than anticipated assimilation of historical users of the acquired Web site which limited the future revenue potential to be generated from the assets acquired. Based on revised projections of InsiderTrader.com's revenues and costs, the Company determined that the undiscounted cash flows from the operation of the InsiderTrader.com Web site and other assets were less than the remaining book value of recorded goodwill and other long-lived assets and an other than temporary impairment had occurred. The Company measured the amount of the impairment by comparing the anticipated future discounted cash flow from the operation of the InsiderTrader.com Web site to the remaining book value of recorded goodwill and other long-lived assets and recorded an impairment charge of $362,000. The methodology used to test for and measure the amount of the impairment charge was based on the same methodology used during the Company's initial acquisition valuation of InsiderTrader.com in 2000. Lastly, during the fourth quarter of 2000, the Company discontinued the use of the edgar.com URL which it acquired in 1999 for $150,000, and recorded an impairment charge for the unamortized book value of $117,000. YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998 Revenues Revenues increased 160% to $4.7 million for the year ended December 31, 1999, from $1.8 million for the year ended December 31, 1998. The growth in revenues is primarily attributable to a $805,000 or 258% increase in corporate contract revenues to $1.1 million in 1999 from $311,000 in 1998, a $552,000 or 63% increase in individual subscription revenues to $1.4 million in 1999 from $876,000 in 1998, a $768,000 or 263% increase in advertising revenues to $1.1 million in 1999 from $292,000 in 1998, and an increase of $783,000 or 229% in barter revenues to $1.1 million in 1999 from $342,000 in 1998. The increase in corporate contract revenue resulted from an increase in the number of corporate contracts in excess of $500 per month to approximately 47 at December 31, 1999 from approximately 13 at December 31, 1998 and from the addition of corporate contracts obtained in connection with the FreeEDGAR.com acquisition. The number of individual 26 28 subscriptions increased to approximately 13,000 subscriptions at December 31, 1999 from approximately 6,000 subscriptions at December 31, 1998, offset by a decrease in average revenue per subscriber due to a larger percentage of new subscribers joining at our lowest subscription rate of $9.95 per month. The increase in advertising revenues is primarily due to the purchase of FreeEDGAR.com, the increase in the number of advertisers and ad impressions delivered, offset by a decrease in advertising rates. Revenue increases were primarily due to increased marketing and corporate sales efforts, which resulted in an expanded customer base of individual subscribers, a larger number of corporate contracts and additional content distribution agreements with other Web sites. All of these increases contributed to increased traffic on our Web sites. The increase in barter advertising revenue is a result of additional exchange of advertising with other Web sites, offset by the decrease in advertising rates noted above. Cost of Revenues Cost of revenues consist primarily of fees paid to acquire the Level I EDGAR database feed from the SEC, Web site maintenance charges and the costs associated with our computer equipment and communications lines used in conjunction with our Web sites. In addition, for each period, online barter advertising expense is recorded equal to the online barter advertising revenue for that period. Total cost of revenues increased $870,000 or 140% to $1.5 million for the year ended December 31, 1999, from $619,000 for the year ended December 31, 1998. The increase in cost of revenues is primarily attributable to increases in software and Web site maintenance and communications lines needed to handle increased traffic. Gross margins increased to 69% for the year ended December 31, 1999 from 66% for the year ended December 31, 1998. In connection with the preparation of the 1999 financial statements, the Company reclassified product development expenses from cost of revenues to operating expenses in order to better conform with industry presentation. Operating Expenses Sales and Marketing. Sales and marketing expenses consist primarily of salaries and benefits, advertising expenses, public relations, and costs of marketing materials. Sales and marketing expenses increased $1.9 million or 479% to $2.3 million for the year ended December 31, 1999 from $402,000 for the year ended December 31, 1998. As a percentage of revenues, sales and marketing expenses increased to 49% for year ended December 31, 1999 from 22% for the year ended December 31, 1998. The increase in sales and marketing expenses in dollar terms was due to an expansion of our sales force, increased marketing activities, including the development of our marketing materials and expenditures to increase the EDGAR brand awareness. Sales and marketing expenses included stock compensation expense of $8,000 in the year ended December 31, 1999 and $215,000 in the year ended December 31, 1998. Development. Development expenses increased $415,000 or 97% to $842,000 for the year ended December 31, 1999 from $427,000 for the year ended December 31, 1998. As a percentage of revenues, development expenses decreased to 18% for the year ended December 31, 1999 from 23% for the year ended December 31, 1998. The increase in development expenses in dollar terms is primarily due to the expansion of content on our Web sites and development of corporate products. General and Administrative. General and administrative expenses consist primarily of salaries and benefits, fees for professional services, general corporate expenses and facility expenses. General and administrative expenses increased $1.7 million or 74% to $4.1 million for the year ended 27 29 December 31, 1999 from $2.3 million for the year ended December 31, 1998. As a percentage of revenues, general and administrative expenses decreased to 87% for the year ended December 31, 1999 from 129% for the year ended December 31, 1998. The increase in general and administrative expenses in dollar terms was primarily due to increased personnel, professional service fees and general corporate expenses necessary to support our growth. General and administrative expenses include stock compensation expense of $918,000 in the year ended December 31, 1998. Depreciation and Amortization. Depreciation and amortization expenses include the depreciation of property and equipment and the amortization of intangible assets. Depreciation and amortization increased $777,000 or 665% to $894,000 for the year ended December 31, 1999 from $117,000 for the year ended December 31, 1998. As a percentage of revenues, depreciation and amortization increased to 19% for the year ended December 31, 1999 from 6% for the year ended December 31, 1998. The increase is primarily due to the increase in property and equipment as well as amortization expense related to the Partes acquisition in 1999. SELECTED QUARTERLY REVENUE RESULTS The following table sets forth unaudited revenue results for each of our last eight fiscal quarters. In the opinion of management, this unaudited quarterly information has been prepared on a basis consistent with our audited consolidated financial statements and includes all adjustments (consisting of normal and recurring adjustments) that management considers necessary for a fair presentation of the data. These quarterly revenue results are not necessarily indicative of future quarterly patterns or revenue results. This information should be read in conjunction with our financial statements and the related notes included elsewhere in this Form 10-K. Revenue for the first three quarters of 2000 have been restated by reducing corporate contract revenue by $97,242, $123,735 and $169,635, respectively, as compared to amounts previously reflected in the Company's Form 10-Q's to reflect the retroactive application of SAB 101 as of January 1, 2000. The deferral relates to revenue associated with certain up-front fees charged to customers to build customized applications to access information contained in the Company's databases. At December 31, 2000, the aggregate amount deferred is $306,711 and will be recognized over the future estimated life of the customer relationship. The impact of the change for the first three quarters of 2000 is to increase the net loss by $97,242, $123,735 and $169,635, respectively. The impact of the restatement was to increase basic and diluted net loss per share for the first three quarters of 2000 by $(0.01), $(0.01), and $(0.01), respectively. There were no such arrangements prior to 2000 and accordingly, there is no cumulative effect adjustment for prior periods. THREE MONTHS ENDED (unaudited)
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, 1999 1999 1999 1999 2000 2000 2000 2000 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- REVENUE SOURCES: Corporate contracts ...... $ 151,844 $ 159,503 $ 271,652 $ 533,359 $ 639,209 $ 800,718 $ 923,015 2,328,709 Individual subscriptions.. 273,603 331,314 387,083 435,834 493,805 547,824 577,038 $ 553,181 Advertising .............. 54,079 171,095 323,423 512,105 407,309 577,962 323,961 367,362 Barter advertising ....... 96,775 242,875 346,350 297,611 319,445 469,104 227,852 166,307 Other barter ............. 35,501 34,500 32,999 39,109 18,868 -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total .................... $ 611,802 $ 939,287 $1,361,507 $1,818,018 $1,878,636 $2,395,608 $2,051,866 $3,415,559 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
LIQUIDITY AND CAPITAL RESOURCES In May 1999 we completed an IPO of 3,600,000 shares of our common stock resulting in net proceeds of approximately $30.4 million. On October 30, 2000, the Company acquired all the outstanding equity of Financial Insight Systems, Inc. (FIS), pursuant to the terms and conditions of an agreement and plan of merger dated October 18, 2000 for approximately $27.9 million. The purchase price included (1) the issuance of 2,450,000 restricted shares of EDGAR Online common stock valued at approximately $9.6 million, (2) the 28 30 payment of $17,765,000 consisting of (i) a cash payment of $11,765,000 and (ii) a series of two-year 7.5% senior subordinated secured promissory notes in the total principal amount of $6,000,000 and (3) approximately $0.6 million in cash for the payment of fees and acquisition related expenses. Net cash used in operating activities was $6,990,024 and $4,270,437 for the years ended December 31, 2000 and 1999, respectively. We have historically financed these activities through private debt placements and the sale of equity instruments to investors. In connection with our acquisition of FIS, our continued focus on growing our corporate customer base, and recent expense reductions, we expect to be cash flow positive by the third quarter of 2001. In addition, we expect to receive approximately $1 million in tax refunds during the third quarter of 2001 as a result of tax loss carrybacks available as a result of our acquisition of FIS. Capital expenditures, primarily for computers, office and communications equipment, totaled $1,443,828 for the year ended December 31, 2000 and $ 1,023,419 for the year ended December 31, 1999. The purchases were required to support our expansion and increased infrastructure. At December 31, 2000, we had cash and cash equivalents on hand of $2,283,811 and available-for-sale investment of $1,497,930. We believe that our existing capital resources, cash generated from operations and the tax refund referred to above, will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12 months. Thereafter, if cash generated from operations is insufficient to satisfy our liquidity requirements, we may need to raise additional funds through public or private financings, strategic relationships or other arrangements. There can be no assurance that such additional funding, if needed, will be available on terms attractive to us, or at all. The failure to raise capital when needed could materially adversely affect our business, results of operations and financial condition. If additional funds are raised through the issuance of equity securities, the percentage ownership of our then-current stockholders would be reduced. In connection with our acquisition of FIS, we issued $6,000,000 in notes with all principal due October 27, 2002. We expect that our cash generated from operations will be sufficient to pay the debt upon maturity. If cash generated from operations is insufficient to satisfy the debt redemption, we may need to raise additional funds through public or private financings, strategic relationships or other arrangements. There can be no assurance that such additional funding, if needed, will be available on terms attractive to us, or at all. The failure to raise capital when needed could materially adversely effect our business, results of operations and financial condition. If additional funds are raised through the issuance of equity securities, the percentage ownership of our then-current stockholders would be reduced. YEAR 2000 ISSUE We have not experienced any material problems with network infrastructure, software, hardware and computer systems relating to the inability to recognize appropriate dates related to the Year 2000. We are also not aware of any material Year 2000 problems with customers, suppliers or vendors. Accordingly, we do not anticipate incurring future material expenses or experiencing any material operational disruptions as a result of Year 2000 issues. ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. INTEREST RATE FLUCTUATIONS We are exposed to market risk primarily through our investments in available-for-sale investments. Our policy calls for investment in short-term, low risk investments. As of December 31, 2000, available-for-sale investments were $1.5 million. Due to the short-term maturity of these investments, any decrease in interest rates would not have a material effect on our financial statements. CURRENCY RATE FLUCTUATIONS Our results of operations, financial position and cash flows are not materially affected by changes in the relative values of non-U.S. currencies to the U.S. dollar. We do not use derivative financial instruments to limit our foreign currency risk exposure. 29 31 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements required by this Item 8 are set forth in Item 14 of this Form 10-K. All information which has been omitted is either inapplicable or not required. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. During fiscal year 2000 there were no changes in or disagreements with our independent accountant on accounting or financial disclosure. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. As of March 20, 2001, the directors and executive officers of EDGAR Online, Inc. were as follows:
NAME AGE POSITION - ---- --- -------- Susan Strausberg (1) .............................. 61 Chief Executive Officer, Secretary and Director Marc Strausberg (1) ............................... 66 Chairman of the Board, Chief Information Officer and Director Tom Vos (1) ....................................... 53 President, Chief Operating Officer and Director Greg D. Adams ..................................... 39 Chief Financial Officer Albert E. Girod ................................... 49 Chief Technology Officer, Executive Vice President and Director Jay Sears ......................................... 34 Senior Vice President of Business Strategy and Development Bruce Bezpa (3) ................................... 44 Director Stefan Chopin (2) ................................. 41 Director Mark Maged (2)(3) ................................. 66 Director
- ------------------------- (1) Member of the Outside Directors Compensation Committee. (2) Member of the Compensation Committee. (3) Member of the Audit Committee. Susan Strausberg, a co-founder of EDGAR Online, has served as Chief Executive Officer and Secretary since EDGAR Online was formed in November 1995. From December 1994 until the formation of EDGAR Online, Ms. Strausberg was a consultant to Internet Financial Network. In her capacity as Chief Executive Officer, Ms. Strausberg oversees strategic planning and development and is responsible for the production of the EDGAR Online Web site. Ms. Strausberg has served on 30 32 the Board of Directors of RKO Pictures since December 1998. Ms. Strausberg, the wife of Mr. Strausberg, EDGAR Online's Chairman, has a B.A. degree from Sarah Lawrence College. Marc Strausberg, a co-founder of EDGAR Online, has served as Chairman of the Board of Directors and President since EDGAR Online was formed in November 1995. Mr. Strausberg resigned as President upon the election of Tom Vos to this position in March 1999. In December 1994, Mr. Strausberg co-founded Internet Financial Network, an EDGAR based financial information vendor and served as IFN's co-chairman until founding EDGAR Online. From 1992 to 1994, Mr. Strausberg was the publisher of the Livermore Report, a newsletter that focused on the valuation of initial public offerings. From August 1987 to December 1994, Mr. Strausberg served as Chairman and President of Sindex Inc., which provided computer-based trading systems to hedge funds and brokerage firms. Mr. Strausberg oversees product development for EDGAR Online. Mr. Strausberg, the husband of Ms. Strausberg, EDGAR Online's Chief Executive Officer, has a B.A. degree from Muhlenberg College. Tom Vos joined EDGAR Online as a Director in August 1996 and was elected Chief Operating Officer in March 1998. Mr. Vos was elected President in March 1999. Mr. Vos is responsible for EDGAR Online's day-to-day operations. From September 1986 until March 1998, Mr. Vos was Vice President of Marketing at Bowne & Co., Inc. In that capacity, Mr. Vos was responsible for strategic planning, acquisitions and new product development. While at Bowne, Mr. Vos was also responsible for advertising and public relations and for the development of both Bowne's Web site and its EDGAR services department. Mr. Vos has a B.S. degree in Physics from Notre Dame University, an M.S. degree in Electrical Engineering from Ohio State University and an M.B.A. degree from Pace University. Greg D. Adams joined EDGAR Online as Chief Financial Officer in March 1999. Mr. Adams is a Certified Public Accountant with diversified business experience in both the public and private sectors. Prior to joining EDGAR Online, Mr. Adams served as SVP - Finance and Administration of PRT Group Inc., a technology solutions and services company. From 1994 to 1996, Mr. Adams was the Chief Financial Officer of the Blenheim Group Inc., a publicly held UK information technology exposition and conference management company. Prior to that, Mr. Adams worked for 11 years as an accountant with KPMG Peat Marwick. He is a member of the New York State Society of Certified Public Accountants and the American Institute of Certified Public Accountants. Mr. Adams has a B.B.A. degree in Accounting from the College of William & Mary. Albert E. Girod joined EDGAR Online as a Director and Chief Technology Officer following EDGAR Online's acquisition of Financial Insight Systems, Inc. ("FIS") in October 2000. Mr. Girod founded FIS in 1995 and served as President and Chief Executive Officer from 1995 until October 2000. FIS was and remains a leading provider of computer related financial information systems to the institutional investment community. Mr. Girod also served as Chief Executive Officer (1992-1995) and Vice President (1982-1992) of CDA Investment Technologies, Inc., a provider of computer related financial services to the institutional community. From 1976 until 1982, Mr. Girod served as Vice President of Product Development for SEI Corporation, a provider of automated trust accounting and banking services and a registered investment advisor. Mr. Girod holds a B.S. degree from Villanova University. 31 33 Jay Sears joined EDGAR Online as Vice President of Marketing and Business Development in May 1997. He is currently Senior Vice President of Business & Strategy Development for EDGAR Online. Mr. Sears is responsible for web strategy and strategic alliances and runs the Company's Web sites and business development efforts including content and advertising sales, membership and public relations. From September 1995 to April 1997, Mr. Sears was Vice President of Marketing for Wolff Media, a publisher of Internet and printed guides to the Internet. From July 1991 to August 1995, Mr. Sears was a Senior Account Supervisor at Creamer Dickson Basford, an international marketing, communications and public relations firm. Mr. Sears has B.A. degree from Kenyon College. Bruce Bezpa joined EDGAR Online as a member of the Board of Directors in March 1999. Since October 1999 Mr. Bezpa has provided consulting services with a focus on strategic development and helping companies create value. Previously, he had worked for Bowne & Co., Inc., a leading financial printer and provider of Internet, localization and outsourcing services, for 15 years in various capacities including as Vice President-Strategic Development from July 1996 to October 1999, Director-Mutual Funds Services from August 1994 to June 1996 and Director-Marketing from April 1989 to July 1994. Mr. Bezpa holds B.A. and M.B.A. degrees from Rutgers University. Stefan Chopin joined EDGAR Online as a member of the Board of Directors in 1996. Mr. Chopin is the Senior Vice President of Technology for iXL Enterprises, Inc., an e-business solutions provider. Prior to joining iXL in 1998, Mr. Chopin was the founder and President of Pequot Systems, a software development and consulting firm. In October 1998, Pequot was acquired by iXL Enterprises, Inc. which formed the basis of the iXL Financial Services Industry Practices. Prior to founding Pequot Systems in November 1995, Mr. Chopin served as the Vice President of Engineering for Micrognosis, Inc., a leading provider of trading room systems. Mark Maged joined EDGAR Online as a member of the Board of Directors in March 1999. Since June, 2000 and during the eight years prior to becoming Chief Executive Officer of Internet Tradeline as described below, Mr. Maged, either individually or as Chairman of MJM Associates, LLC, has engaged in various private investment banking activities in the United States and internationally. From September 1995 through May 2000, he was chairman of Internet Tradeline, Inc. From 1975 through 1983, he served as President and Chief Executive Officer of Schroder's Incorporated, which operated banking, investment banking and investment management businesses as the United States arm of Schroders PLC, an international merchant bank. He is currently a member of the Boards of Directors of Commodore Holdings Limited and Cachier Corporation. He holds a bachelor's degree from the City College of New York and both a master's degree and a law degree from Harvard University. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Exchange Act generally requires the Company's executive officers and directors, and persons who own more than ten percent of the Company's Common Stock, to file reports of beneficial ownership and changes in beneficial ownership with the SEC. The Company became subject to the requirements of Section 16(a) on May 26, 1999. Regulations promulgated by the SEC require the Company to disclose in this Form 10-K any reporting violations with respect to the 2000 fiscal year which came to the Company's attention based on a review of the applicable filings required by the SEC to report the status of an officer or director, or such changes in beneficial ownership as submitted to the Company. Based solely on review of such forms received by the Company, Stefan Chopin is the only reporting person to have made a late filing under Section 16(a). Mr. Chopin filed a Form 4 on October 10, 2000, to report five sale transactions relating to the Company's Common Stock that were consummated in August 2000. These transactions were required to be reported on a Form 4 by September 10, 2000. This statement is based solely on a review of the copies of such reports furnished to the Company by its officers, directors and security holders and their written representations that such reports accurately reflect all reportable transactions and holdings. ITEM 11. EXECUTIVE COMPENSATION The following table sets forth the total compensation paid or accrued for the fiscal years ended December 31, 2000 and 1999 by our Chief Executive Officer and our four most highly compensated executive officers (other than our Chief Executive Officer) (collectively, the "Named Executive Officers"). 32 34 SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ANNUAL COMPENSATION SECURITIES ------------------------------------ UNDERLYING NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER OPTIONS (#) - --------------------------- ---- ------ ----------- ----- ----------- Susan Strausberg........................... 2000 $150,000 $20,000 --- 35,000 Chief Executive Officer 1999 $150,000 $70,000 (2) --- --- 1998 $150,000 (3) --- --- --- Marc Strausberg............................ 2000 $150,000 $20,000 --- 35,000 Chairman and Chief Information Officer 1999 $150,000 $70,000 (2) --- --- 1998 $150,000 (3) --- --- --- Tom Vos.................................... 2000 $125,000 $20,000 --- 70,000 President and Chief Operating Officer 1999 $125,000 $70,000 (2) --- 100,000 1998 $ 93,750 (4) --- --- 200,000 Greg Adams................................. 2000 $125,000 $20,000 $ 8,100 70,000 Chief Financial Officer 1999 $ 93,269 (5) $62,500 $ 3,254 125,000 Albert E. Girod (1)........................ 2000 $ 25,035 $ 5,000 --- --- Chief Technology Officer, Executive Vice President and Director Jay Sears.................................. 2000 $125,000 $20,000 $ 5,100 65,000 Senior Vice President 1999 $115,096 $70,000 $11,760 25,000 of Business and Strategy Development 1998 $ 97,400 $10,000 --- 65,000
- ---------------------------- (1) Mr. Girod joined EDGAR Online as Executive Vice President and Chief Technology Officer, and Director on October 30, 2000 and earns a salary at the rate of $150,000 per annum. (2) These bonuses have been awarded as deferred compensation. (3) In 1998, $92,788 of this amount was deferred and not paid. (4) Mr. Vos joined EDGAR Online as Chief Operating Officer on March 31, 1998 and earns salary at the rate of $125,000 per annum. He was elected by the Board of Directors to the additional position of President in March, 1999. (5) Mr. Adams joined EDGAR as Chief Financial Officer in May 1999 and earns salary at the rate of $125,000 per annum. OPTION GRANTS IN LAST FISCAL YEAR The following table sets forth certain information regarding stock options granted to the Named Executive Officers during 2000. We have never granted any stock appreciation rights.
INDIVIDUAL GRANTS (1) NUMBER OF PERCENT OF SECURITIES TOTAL OPTIONS POTENTIAL REALIZABLE VALUE UNDERLYING GRANTED TO EXERCISE AT ASSUMED ANNUAL RATES OF OPTIONS EMPLOYEES IN PRICE PER STOCK PRICE APPRECIATION NAME GRANTED 2000 (2) SHARE ($) EXPIRATION DATE FOR OPTION TERM (3) 5% 10% Susan Strausberg 35,000 5.11% $3.85 August 1, 2010 -- (4) 9,937 Marc Strausberg 35,000 5.11% $3.85 August 1, 2010 -- (4) 9,937
33 35 Tom Vos 40,000 5.84% $9.00 January 26, 2010 -- (4) -- (4) 30,000 4.38% $3.06 July 14, 2010 -- (4) 32,142 Greg Adams 40,000 5.84% $9.00 January 26, 2010 -- (4) -- (4) 30,000 4.38% $3.06 July 14, 2010 -- (4) 32,142 Jay Sears 40,000 5.84% $9.00 January 26, 2010 -- (4) -- (4) 25,000 3.65% $3.06 July 14, 2010 -- (4) 26,785
(1) Each option represents the right to purchase one share of common stock. The options shown in this table were all granted under our 1999 Stock Option Plan, as amended. (2) In the year ended December 31, 2000, we granted options to employees to purchase an aggregate of 684,750 shares of common stock. (3) Amounts represent hypothetical gains that could be achieved for the respective options if exercised at the end of the option term. The 5% and 10% assumed annual rates of compounded stock price appreciation are mandated by the rules of the SEC and do not represent our estimate or projection of future common stock price growth. These amounts represent certain assumed rates of appreciation in the value of our common stock from the fair market value on the date of grant. Actual gains, if any, on stock option exercises are dependent on the future performance of the common stock and overall stock market conditions. The amounts reflected in the table may not necessarily be achieved. (4) Value less than zero (0). AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES The following table sets forth information concerning the exercise of stock options during the fiscal year ended December 31, 2000 by each of the Named Executive Officers and the fiscal year-end value of unexercised options. No options were exercised by any of the Named Executive Officers during this period.
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT DECEMBER 31, 2000 DECEMBER 31, 2000 (1) NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---- ----------- ------------- ----------- ------------- Susan Strausberg................. 0 35,000 --- --- Marc Strausberg.................. 0 35,000 --- --- Tom Vos.......................... 263,334 106,666 $268,760 --- Greg Adams....................... 80,576 114,424 --- --- Jay Sears........................ 93,334 61,666 $87,347 ---
34 36 (1) The fair market value of the common stock as of December 31, 2000 was $1.594. EMPLOYMENT AGREEMENTS We entered into a five-year amended and restated employment agreement dated as of May 6, 1999 with Susan Strausberg. The agreement extends automatically for an additional year at the end of the initial term and each anniversary thereafter unless 30-day prior notice of termination is provided by either Ms. Strausberg or EDGAR Online. The agreement provides for an annual salary of $150,000, and an annual bonus at the discretion of the Board. In the event there is a change of control (as defined in the agreement) and Ms. Strausberg's employment is terminated (either by her or the employer) within one year thereafter, Ms. Strausberg will receive a severance benefit equal to the product of 2.99 times the sum of (1) her then applicable annual base salary and (2) the average of her last two annual cash bonuses. Additionally, the agreement contains non-compete and non-solicitation provisions effective during the term of her employment and for one year thereafter. We entered into a five-year amended and restated employment agreement dated as of May 6, 1999 with Marc Strausberg. The agreement extends automatically for an additional year at the end of the initial term and each anniversary thereafter unless 30-day prior notice of termination is provided by either Mr. Strausberg or EDGAR Online. The agreement provides for an annual salary of $150,000, and an annual bonus at the discretion of the Board. In the event there is a change of control (as defined in the agreement) and Mr. Strausberg's employment is terminated (either by him or the employer) within one year thereafter, Mr. Strausberg will receive a severance benefit equal to the product of 2.99 times the sum of (1) his then applicable annual base salary and (2) the average of his last two annual cash bonuses. Additionally, the agreement contains non-compete and non-solicitation provisions effective during the term of his employment and for one year thereafter. We have entered into a two-year employment agreement dated April 23, 1999 with Tom Vos to serve as President and Chief Operating Officer. The agreement extends automatically for an additional year at the end of the initial term and each anniversary thereafter unless 30-day prior notice of termination is provided by either Mr. Vos or EDGAR Online. The agreement provides Mr. Vos with an annual salary of $125,000 and an annual bonus at the discretion of the Board. In addition, if Mr. Vos remains employed by us at the end of the initial term, he will be entitled to receive a retention bonus equal to two years of his then applicable base salary, plus the average of his last two annual cash bonuses. Mr. Vos will also receive a severance payment identical to the retention bonus described above in the event there is a change of control (as defined in the agreement) and Mr. Vos' employment is terminated (either by him or the employer) within one year thereafter. Additionally, the agreement contains a non-compete and non-solicitation provision effective during the term of his employment and for one year thereafter. We have entered into a three-year amended and restated employment agreement dated May 3, 1999 with Greg Adams to serve as Chief Financial Officer. The agreement extends automatically for an additional year at the end of the initial term and each anniversary thereafter unless 30-day prior notice of termination is provided by either Mr. Adams or EDGAR Online. The agreement provides Mr. Adams with (1) an annual salary of $125,000, (2) an annual bonus at the discretion of the Board, and (3) a $500 monthly car allowance. Mr. Adams also received options to purchase (a) 109,000 shares of common stock at an exercise price of $4.50 per share, which will vest 25% in year one and 75% in year two and (b) 16,000 shares of common stock at the initial public offering price per share, which will vest equally over a three-year period. In addition, the agreement contains a severance 35 37 arrangement whereby Mr. Adams is entitled to receive a payment in the event he is terminated without cause of eighteen months salary if the termination occurs at anytime following the eighteenth month of his employment. Additionally, the agreement contains a non-compete and non-solicitation provision effective during the term of his employment and for one year thereafter. We entered into a two-year employment agreement dated as of October 1, 2000 with Albert E. Girod. The agreement extends automatically for an additional year at the end of the initial term and each anniversary thereafter unless 30-day prior notice of termination is provided by either Mr. Girod or EDGAR Online. The agreement provides for an annual salary of $150,000, and an annual bonus at the discretion of the Board. In the event there is a change of control (as defined in the agreement) and Mr. Girod's employment is terminated (either by him or the employer) within one year thereafter, Mr. Girod will receive a severance benefit equal to the product of 2.00 times the sum of (1) his then applicable annual base salary and (2) the average of his last two annual cash bonuses. Additionally, the agreement contains non-compete and non-solicitation provisions effective during the term of his employment and for one year thereafter. We have entered into an employment agreement dated May 19, 1997 with Jay Sears, which may be terminated by either party upon 30-days prior notice. The agreement provides Mr. Sears with an annual salary of $80,000 and an annual bonus at the discretion of the Board. Mr. Sears' annual salary was increased to $100,000 effective August 1998 and $125,000 effective January 2000. If Mr. Sears' employment is terminated without cause, we will pay him six months of his total annual compensation. Additionally, the agreement contains non-compete and non-solicitation provisions effective during the term of his employment and for six months thereafter in the case of the non-compete provision and one year thereafter in the case of the non-solicitation provision. STOCK OPTION PLANS EDGAR Online's currently active stock option plans include our 1996 Stock Option Plan, 1999 Stock Option Plan, as amended, and 1999 Outside Directors Stock Option Plan. Each of the plans, except for the 1999 Outside Directors Stock Option Plan, provide for: - the grant of incentive stock options and non-qualified stock options; and - the current administration of the plans by the Compensation Committee. The exercise price of options granted under each plan are determined by the Compensation Committee, except that the exercise price of incentive stock options must be at least as equal to the fair market value of EDGAR Online's common stock on the date of grant. Each of the plans authorizes the Board to provide for option vesting to accelerate and become fully vested in the event of certain significant corporate transactions if the options are not assumed or substituted by a successor corporation. The 1996 Stock Option Plan (the "1996 Plan"), which provides for the granting of options to purchase up to an aggregate of 800,000 shares of our authorized but unissued common stock (subject to adjustment in certain cases, including stock splits, recapitalization and reorganizations) to our officers, directors, employees and consultants, was ratified and confirmed in November 1998. The 1999 Stock Option Plan (the "1999 Plan"), which provided for the granting of options to purchase up to an aggregate of 800,000 shares of our authorized but unissued common stock (subject to 36 38 adjustment in certain cases, including stock splits, recapitalization and reorganizations) to our officers, directors, employees and consultants, was adopted in March 1999 and amended to increase the number of shares reserved for issuance under the Plan from 800,000 to 1,400,000 at the Annual Shareholder Meeting held on August 1, 2000. The 1996 and 1999 Stock Option Plans are intended as an incentive to encourage stock ownership by officers and certain of our other employees in order to increase their proprietary interest in our continued growth and success and to encourage such employees to remain in the employ of EDGAR Online. No incentive stock option may be granted to an individual who, at the time the option is granted, owns, directly or indirectly, stock possessing more than 10% of the total combined voting power of all classes of our common stock, unless (1) such option has an exercise price of at least 110% of the fair market value of the common stock on the date of the grant of such option and (2) such option cannot be exercised more than five years after the date it is granted. Under the 1999 Outside Directors Stock Option Plan, there are up to 100,000 shares authorized for issuance. Each new non-employee director will be granted, at the time of his or her appointment and on each third anniversary thereafter, a nonstatutory option to purchase 7,500 shares of common stock. The exercise price of each of these options will be equal to the fair market value of our common stock on the date of grant. These options will vest equally over a three-year period. Under the 1999 Outside Directors Stock Option Plan, our existing non-employee directors will not be eligible for options grants until the date of our annual stockholders' meeting to be held in 2002. As of March 20, 2001, 800,000 options were authorized under the 1996 Plan and options to purchase 753,500 shares were outstanding and 36,500 options were available for future grants. As of March 20, 2001, 1,400,000 options were authorized under the 1999 Plan, options to purchase 1,190,484 shares were outstanding and 209,516 options were available for future grants. As of March 20, 2001, 100,000 options were authorized under the 1999 Outside Directors Stock Option Plan, no options to purchase shares had been granted and 100,000 options were available for future grants. As of March 20, 2001, 100,000 options were authorized under the FreeEDGAR Stock Option Plan and no shares were available for future grant under the FreeEDGAR Stock Option Plan. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION No interlocking relationships exist between any members of EDGAR Online's Board of Directors or Compensation Committee and the board of directors or compensation committee of any other company, nor has any such interlocking relationship existed in the past. The Company has business and financial relationships with Globix Corporation and iXL Enterprises, Inc. Marc Bell, a director of the Company until October 27, 2000, is the President and Chief Executive Officer of Globix Corporation. Stefan Chopin is a Vice President of iXL Enterprises, Inc. Our relationships with Globix and iXL are described below. Globix In July 1998, we issued a 10% convertible debenture in the principal amount of $1,000,000 to Globix Corporation along with warrants to purchase 666,667 shares of common stock at an exercise price of $1.50 per share. The terms of the transaction were determined as the result of arm's length bargaining between the parties. As part of this transaction, our agreement with Bowne was amended to modify certain of Bowne's rights and to include Globix as a party, thereby providing Globix with the same 37 39 anti-dilution rights, tag-along rights and Board participation rights as Bowne. In May 1999, Globix converted its debenture and exercised its warrants, thereby acquiring 1,336,667 shares of our common stock. In July 1998, we also entered into a five-year hosting contract with Globix that requires us to co-locate our Internet servers at the Globix facility in New York City. During 2000, 1999 and 1998, we paid Globix a total of $298,042, $546,111, and $6,513, respectively, under this contract. We believe that the terms of our agreements with Globix are beneficial to EDGAR Online and no less favorable to EDGAR Online than terms which might be available to us from unaffiliated third parties. Pequot Systems (iXL) EDGAR Online and Pequot Systems ("Pequot") shared equally the costs of a single lease on 6,600 square feet of space. We occupy half of this space and were jointly obligated with Pequot on the lease. This arrangement with Pequot ended in June 1999, when we entered into a separate lease for our facilities in Norwalk, Connecticut. Since our inception, we have outsourced our technology development to Pequot. During 1995, in partial payment for services rendered, Pequot received warrants to purchase shares of common stock at an exercise price of $.05 per share. The warrants were exercised in May 1997. In March 1998, Pequot agreed to accept shares of our common stock valued at $1.25 per share in partial payment for services rendered. As a result of these two transactions, Pequot received 359,384 shares of common stock. In 2000, 1999 and 1998, we paid Pequot a total of $2,725,770, $989,368 and $610,073, respectively, for services provided. As a result of the acquisition of Pequot by iXL, an unrelated company, in 1998, the shares owned by Pequot were transferred to Pequot's founders, including Stefan Chopin, the founder and President of Pequot. Mr. Chopin has been a member of our Board of Directors since 1996. We believe that the terms of our agreements with Pequot are beneficial to EDGAR Online and no less favorable to EDGAR Online than terms which might be available to us from unaffiliated third parties. DIRECTOR COMPENSATION No cash compensation has ever been paid to any of the directors of EDGAR Online for service in such capacity. However, directors are currently eligible to receive stock options every three years under EDGAR Online's 1999 Stock Option Plan. In March 1999, each of our non-employee directors was granted options to purchase 10,000 shares of common stock at an exercise price of $4.50 per share. In August 2000, each of our non-employee directors was granted options to purchase 7,500 shares of common stock at an exercise price of $3.50 per share. Non-employee directors of EDGAR Online will be eligible to receive non-discretionary, automatic grants of options to purchase common stock as part of our 1999 Outside Directors Stock Option Plan. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth certain information with respect to the beneficial ownership of our common stock as of March 20, 2001 by (1) each of our directors, including our Chief Executive Officer, (2) our four most highly compensated executive officers, other than our Chief Executive Officer, who were serving as executive officers at the end of 2000, (3) all our executive officers and directors as a group and (4) each person who we know owns beneficially more than 5% of our common stock. Unless otherwise indicated, the address of each beneficial owner listed below is c/o EDGAR Online, Inc., 50 Washington Street, Norwalk, CT 06854. 38 40
NUMBER PERCENT OF OF NAME OF BENEFICIAL OWNER SHARES (1) CLASS Executive Officers and Directors: Susan Strausberg (2)....................... 3,063,426 20.55% Marc Strausberg (3)........................ 3,063,426 20.55% Tom Vos (4)................................ 428,333 2.87% Greg Adams (5) ............................ 200,791 1.35% Albert E. Girod............................ 2,082,500 13.97% Jay Sears (6).............................. 98,334 * Stefan Chopin (7)(8)....................... 299,384 2.01% c/o iXL Enterprises, Inc. 50 Washington Street Norwalk, CT 06854 Bruce Bezpa (8)............................ 12,381 * 405 Patton Avenue Piscataway, NJ 08854 Mark Maged (8)............................. 29,310 * c/o Internet Tradeline, Inc. 111 West 40th Street New York, NY 10018 Marc Bell (9).............................. 986,242 6.62% c/o Globix Corporation 295 Lafayette Street New York, NY 10012 All executive officers and directors as a group (10 persons)........... 7,206,034 48.33% Other 5% Stockholders: Globix Corporation......................... 986,242 6.62% 295 Lafayette Street New York, NY 10012
39 41 Bowne & Co., Inc........................... 1,000,000 6.71% 345 Hudson Street New York, NY 10014 Par Investment Partners, L.P............... 934,000 (10) 6.26% One Financial Center, Ste 1600 Boston, MA 02111 Hathaway & Associates, Ltd................. 819,500 (11) 5.50% 119 Rowayton Avenue Rowayton, CT 06853
- --------------------------- * Represents beneficial ownership of less than 1%. (1) Shares of common stock subject to options currently exercisable or exercisable within 60 days of March 20, 2001 are deemed outstanding for the purpose of computing the percentage ownership of the person holding such options but are not deemed outstanding for computing the percentage ownership of any other person. Unless otherwise indicated below, the persons and entities named in this table have sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable. (2) Includes 156,000 shares owned by Ms. Strausberg's husband, Marc Strausberg, EDGAR Online's Chairman of the Board and 2,751,426 shares owned by TheBean LLC. Ms. Strausberg is a managing member of TheBean LLC and as such she may be deemed to be the beneficial owner of all the shares held by TheBean LLC. Ms. Strausberg disclaims beneficial ownership of the shares owned by her husband. (3) Includes 156,000 owned by Mr. Strausberg's wife, Susan Strausberg, EDGAR Online's Chief Executive Officer and 2,751,426 shares owned by TheBean LLC. Mr. Strausberg is a managing member of TheBean LLC and as such he may be deemed to be the beneficial owner of all the shares held by TheBean LLC. Mr. Strausberg disclaims beneficial ownership of the shares owned by his wife. (4) Includes 288,333 shares issuable upon exercise of options exercisable within 60 days of March 20, 2001. (5) Includes 135,076 shares issuable upon exercise of options exercisable within 60 days of March 20, 2001. (6) Includes 98,334 shares issuable upon exercise of options exercisable within 60 days of March 20, 2001. (7) Includes shares owned jointly with Barbara Chopin, his wife. (8) Includes 6,667 shares issuable upon exercise of options exercisable within 60 days of March 20, 2001. (9) Includes 986,242 shares owned by Globix Corporation. Mr. Bell is the President and Chief Executive Officer of Globix Corporation. In such capacities, Mr. Bell may be deemed to be the (10) Reflects amount derived from this entity's Schedule 13G filed with the SEC on February 14, 2001. (11) Reflects amount derived from this entity's Schedule 13G filed with the SEC on January 5, 2001 and subsequent communication with such entity. 40 42 beneficial owner of such shares, although he disclaims beneficial ownership except to the extent of his pecuniary interest, if any. Mr. Bell resigned from the Board of Directors on October 27, 2000. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Employee Loans In January 2001, we loaned the sum of $400,000 to certain executives, employees and outside directors of the Company for the purpose of purchasing shares of our common stock from TheBean LLC, an entity in which Susan Strausberg, our Chief Executive Officer and Marc Strausberg, our Chairman of the Board are beneficial owners. The common stock was purchased at a price of $1.75 per share, the closing Nasdaq market price on the date of sale. The loan was evidenced by separate loan and pledge agreements with, and three-year promissory notes of, each of the borrowers. The promissory notes are full recourse and secured by the common stock purchased with the proceeds of the individual loans. The executive officers and outside directors participating in this transaction were Tom Vos ($175,000 Note and 100,000 shares), Greg Adams ($115,001 Note and 65,715 shares), Bruce Bezpa ($10,001 Note and 5,715 shares) and Mark Maged ($30,000 Note and 17,143 shares). Globix Corporation For information regarding our relationship with Globix, see "Item 11. Executive Compensation -- Compensation Committee Interlocks and Insider Participation." Pequot Systems (iXL) For information regarding our relationship with iXL, see "Item 11. Executive Compensation - Compensation Committee Interlocks and Insider Participation." Susan Strausberg And Marc Strausberg From time to time, we have received cash loans from and have made cash advances to Susan Strausberg and Marc Strausberg, our founders. These loans bear interest at the prime rate applied to the net outstanding balance. The net amounts owed to EDGAR Online as of December 31, 2000 and 1999 were $269,206 and $0 respectively. As of March 20, 2001, EDGAR Online owed Susan Strausberg and Marc Strausberg the sum of $128,623. 41 43 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) EXHIBITS.
EXHIBIT NUMBER DESCRIPTION ------- -------------------------------------------------------------- 2.1 Agreement and Plan of Merger dated as of September 10, 1999 among EDGAR Online, Inc., FreeEDGAR Acquisition Corp. and FreeEDGAR.com, Inc. (7) 2.2 Agreement and Plan of Merger dated as of October 18, 2000 among Registrant, FIS Acquisition Corp., Financial Insight Systems, Inc. and the Principal Stockholders named therein. (6) 3.01 Certificate of Incorporation (1) 3.02 Amended and Restated Certificate of Incorporation (2) 3.03 Bylaws (2) 4.01 Form of Specimen Stock Certificate for Registrant's Common Stock (2) 4.02 10% Convertible Subordinated Debenture due 2001(1) 4.03 Warrant to Purchase Common Stock (1) 10.01 Form of Indemnity Agreement to be entered into between the Registrant with each of its directors and executive officers (2) 10.02 1996 Stock Option Plan (1) 10.03 1999 Stock Option Plan (2) 10.04 1999 Outside Directors Stock Option Plan (2) 10.05 Amended and Restated Employment Agreement dated as of May 6, 1999 between the Registrant and Marc Strausberg (2) 10.06 Amended and Restated Employment Agreement dated as of May 6, 1999 between the Registrant and Susan Strausberg (2) 10.07 Employment Agreement, dated as of April 23, 1999, between the Registrant and Tom Vos(2) 10.08 Employment Agreement, dated as of May 3, 1999, between the Registrant and Greg Adams (2) 10.09 Employment Agreement, dated as of March 11, 1997, between the Registrant and Brian Fitzpatrick(2) 10.10 Employment Agreement, dated as of May 19, 1997, between the Registrant and Jay Sears (2) 10.11 Employment Agreement, dated as of May 3, 1999, between Registrant and David Trenck (2) 10.12 Securities Purchase Agreement, dated as of July 23, 1998 by and between the Registrant and Globix Corporation (1) 10.13 Form of Registration Rights Agreement for December 1998 Investors (2) 10.14 Form of Subscription Agreement, including registration rights, for March 1999 Investors(2) 10.15 Lease Agreement, dated April 4, 1997 by and between 50
42 44
EXHIBIT NUMBER DESCRIPTION ------- -------------------------------------------------------------- Washington Street Realty Corp., Pequot Systems, Inc. and the Registrant (1) 10.16 Dissemination Services Agreement dated September 11, 1998 by and between TRW, Inc. and the Registrant (1) 10.17 Trademark License Agreement dated March 26, 1999 between the U.S. Securities and Exchange Commission and the Registrant (2) 10.18 Agreement dated March 1, 1998 by and between the Registrant and Pequot Systems, Inc. (2) 10.19 Form of Content License Agreement (2) 10.20 Restated Equity Purchase Agreement by and among the Registrant, Bowne & Co., Inc., Globix Corporation, Marc Strausberg, Susan Strausberg and Michael Horowitz (2) 10.21 Procurement and Trafficking Agreement dated August 29, 1997 by and between the Registrant and DoubleClick Inc. (3) 10.22 Agreement dated July 23, 1998 by and between the Registrant and Globix Corporation with annexed Co-location Service Agreement (3) 10.23 Agreement of Lease, dated June 7, 1999, by and between Sono Equities LLC and 1122 Associates LLC, as Owner, and the Registrant, as Tenant. (4) 10.24 Office Lease Agreement, dated January 28, 2000, by and between Yett Family Partnership, L.P. and the Registrant, regarding 10628 NE 37th Circle, Kirkland, Washington. (4) 10.25 Office Lease Agreement, dated January 28, 2000, by and between Yett Family Partnership, L.P. and the Registrant, regarding 10635 NE 38th Place, Kirkland, Washington. (4) 10.26 Office Building Lease Agreement, dated February 7, 2000, between 122 East 42nd Street LLC and Registrant. (5) 10.27 Employment Agreement, dated as of October 1, 2000, between the Registrant and Albert E. Girod. (6) 10.28 Office Building Lease Agreement, dated July 1, 1998, as amended September 24, 1998 by and between OTR and Financial Insight Systems, Inc. regarding 11200 Rockville Pike, Suite 310, Rockville Maryland. 17.1 Resignation Letter of Marc Bell (6) 21.1 Subsidiaries of EDGAR Online, Inc.
- ------------ (1) Incorporated by reference to exhibit with corresponding number filed with the registrant's Registration Statement on Form S-1 (the "Registration Statement"), as filed with the Commission on March 30, 1999. (2) Incorporated by reference to exhibit with corresponding number filed with Amendment No.1 to the Registration Statement, as filed with the Commission on May 7, 1999. (3) Incorporated by reference to exhibit with corresponding number filed with Amendment No.2 to the Registration Statement, as filed with the Commission on May 19, 1999. (4) Incorporated by reference to exhibit with corresponding number filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1999. (5) Incorporated by reference to exhibit with corresponding number filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000. (6) Incorporated by reference to exhibit with corresponding number filed with Registrant's Current Report on Form 8-K dated November 9, 2000. 43 45 (7) Incorporated by reference to exhibit with corresponding number filed with Registrant's Current Report on Form 8-K dated September 24, 1999. (b) REPORTS ON FORM 8-K -- Reports on Form 8-K, dated October 20, 2000 and November 9, 2000 filed with the Securities and Exchange Commission reporting our acquisition of Financial Insight Systems, Inc. pursuant to the terms and conditions of an Agreement and Plan of Merger. Report on Form 8-K dated October 27, 2000 filed with the Securities and Exchange Commission reporting third quarter operating results. (c) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES The consolidated financial statements of the Company filed as part of this Form 10-K are filed on pages F-1 to F-22 to this Form 10-K. The financial statement schedule required by Regulation S-X follows. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS EDGAR ONLINE, INC. FINANCIAL STATEMENT SCHEDULE VALUATION AND QUALIFYING ACCOUNTS
- ---------------------------------------------------------------------------------------------------------------------------------- Balance at Charged to Charged to Balance at Description Beginning Costs and Other End of of Period Expenses Accounts Deductions(1) Period - ---------------------------------------------------------------------------------------------------------------------------------- Allowance for Doubtful Accounts Receivable - ---------------------------------------------------------------------------------------------------------------------------------- Year ended December 31, 1998 $22,500 62,207 -- (53,165) 31,542 - ---------------------------------------------------------------------------------------------------------------------------------- Year ended December 31, 1999 $31,542 84,000 154,661 (82,311) 187,892 - ---------------------------------------------------------------------------------------------------------------------------------- Year ended December 31, 2000 $187,892 245,000 57,375 (145,583) 344,684 - ----------------------------------------------------------------------------------------------------------------------------------
(1) Write-offs of receivables. All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission have been omitted because they are not required under the related instructions or are inapplicable, or because the information has been provided in the Financial Statement or the Notes thereto. 44 46 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. EDGAR Online, Inc. By: /s/ SUSAN STRAUSBERG Susan Strausberg Chief Executive Officer 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. /s/ SUSAN STRAUSBERG Chief Executive Officer, March 29, 2001 - -------------------------- and Director Susan Strausberg /s/ GREG D. ADAMS Chief Financial Officer March 29, 2001 - -------------------------- Greg D. Adams /s/ MARC STRAUSBERG Chairman of the Board March 29, 2001 - -------------------------- Marc Strausberg /s/ TOM VOS President, Director March 29, 2001 - -------------------------- Tom Vos /s/ ALBERT E. GIROD Chief Technology Officer, March 29, 2001 - -------------------------- Executive Vice President Albert E. Girod and Director /s/ STEFAN CHOPIN Director March 29, 2001 - -------------------------- Stefan Chopin /s/ MARK MAGED Director March 29, 2001 - -------------------------- Mark Maged /s/ BRUCE BEZPA Director March 29, 2001 - -------------------------- Bruce Bezpa 45 47 EDGAR ONLINE, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE Independent Auditors' Report F-2 Consolidated Balance Sheets as of December 31, 2000 and 1999 F-3 Consolidated Statements of Operations for the Years ended December 31, 2000, 1999, and 1998 F-4 Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the Years ended December 31, 2000, 1999, and 1998 F-5 Consolidated Statements of Cash Flows for the Years ended December 31, 2000, 1999, and 1998 F-6 Notes to Consolidated Financial Statements F-7
48 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders EDGAR Online, Inc.: We have audited the accompanying consolidated balance sheets of EDGAR Online, Inc. as of December 31, 2000 and 1999 and the related consolidated statements of operations, changes in stockholders' equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 2000. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule listed under Item 14(c). These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of EDGAR Online, Inc. and subsidiaries as of December 31, 2000 and 1999 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents, fairly, in all material respects, the information set forth therein. KPMG LLP Stamford, CT February 1, 2001 F-2 49 EDGAR ONLINE, INC. CONSOLIDATED BALANCE SHEETS
December 31, 2000 December 31, 1999 ----------------- ----------------- ASSETS Current assets: Cash and cash equivalents $ 2,283,811 $ 10,051,473 Available-for-sale investments 1,497,930 14,534,836 Accounts receivable, less allowance for doubtful accounts of $344,684 and $187,892 respectively 2,790,277 1,117,636 Income tax receivable 979,500 -- Other current assets 127,078 407,048 ------------- ------------- Total current assets 7,678,596 26,110,993 Property and equipment, net 3,355,823 2,024,431 Intangible assets 27,306,891 9,303,948 Investments 575,000 278,167 Employee loans and advances 270,225 -- Other assets 279,824 21,575 ------------- ------------- Total assets $ 39,466,359 $ 37,739,114 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 1,191,281 $ 722,436 Accrued expenses 1,166,858 1,426,568 Deferred revenues 965,916 353,905 Capital lease payable, current portion 67,821 78,235 Current portion of notes payable 507,785 -- Accrued interest 75,000 -- ------------- ------------- Total current liabilities 3,974,661 2,581,144 Capital lease obligation, long-term 8,297 71,587 Notes payable, long-term 6,000,000 -- ------------- ------------- Total liabilities 9,982,958 2,652,731 Stockholders' equity Common stock, $0.01 par value, 30,000,000 shares authorized, 14,908,917 and 12,457,989 shares issued and outstanding at December 31, 2000 and 1999, respectively 149,089 124,580 Preferred stock, $0.01 par value, 1,000,000 shares authorized, no shares issued or outstanding -- -- Additional paid-in capital 53,483,008 43,915,642 Unrealized holding losses (2,070) (44,518) Accumulated deficit (24,146,626) (8,909,321) ------------- ------------- Total stockholders' equity 29,483,401 35,086,383 ------------- ------------- Total liabilities and stockholders' equity $ 39,466,359 $ 37,739,114 ============= =============
See accompanying notes to consolidated financial statements. F-3 50 EDGAR ONLINE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, ---------------------------------------------- 2000 1999 1998 ------------ ----------- ----------- Revenues: Corporate contract revenue $ 4,691,651 $ 1,116,358 $ 311,609 Individual subscription revenue 2,171,848 1,427,834 876,146 Advertising revenue 1,676,594 1,060,702 292,360 Barter advertising revenue 1,182,708 983,611 263,440 Other barter revenue 18,868 142,109 79,000 ------------ ----------- ----------- 9,741,669 4,730,614 1,822,555 ------------ ----------- ----------- Cost of revenues: Software and Web site development 1,838,907 505,974 356,035 Barter advertising expense 1,182,708 983,611 263,440 ------------ ----------- ----------- 3,021,615 1,489,585 619,475 ------------ ----------- ----------- Gross profit 6,720,054 3,241,029 1,203,080 Operating expenses: Sales and marketing 4,582,809 2,328,113 401,771 General and administrative 6,278,231 4,094,421 2,346,621 Product development 2,377,433 841,590 426,854 Amortization and depreciation 3,484,491 893,614 116,767 Writedown of intangible assets 6,151,074 -- -- ------------ ----------- ----------- 22,874,038 8,157,738 3,292,013 ------------ ----------- ----------- Loss from operations (16,153,984) (4,916,709) (2,088,933) Interest income 1,055,273 903,256 5,618 Interest expense and other, net (81,155) (149,158) (137,909) ------------ ----------- ----------- Loss before income taxes (15,179,866) (4,162,611) (2,221,224) Income tax expense 57,439 250 250 ------------ ----------- ----------- Net loss $(15,237,305) $(4,162,861) $(2,221,474) ============ =========== =========== Basic and diluted net loss per share $ (1.18) $ (0.42) $ (0.36) ============ =========== =========== Basis and diluted weighted average shares outstanding 12,862,604 9,805,456 6,129,116 ============ =========== ===========
See accompanying notes to consolidated financial statements. F-4 51 EDGAR ONLINE, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK ADDITIONAL ----------------------- PAID-IN ACCUMULATED SHARES AMOUNT CAPITAL DEFICIT ---------- -------- ----------- ------------ Balance at December 31, 1997 6,074,000 $ 60,740 $ 875,435 $ (2,524,986) Exercise of warrants 53,957 540 49,461 -- Issuance of common stock 103,333 1,033 143,967 -- Issuance of common stock in satisfaction of trade payable 100,000 1,000 124,000 -- Stock compensation expense -- -- 1,133,000 -- Issuance of warrants for services provided and debt financing -- -- 136,338 -- Net loss -- -- -- (2,221,474) ---------- -------- ----------- ------------ Balance at December 31, 1998 6,331,290 63,313 2,462,201 (4,746,460) Comprehensive loss: Net loss -- -- -- (4,162,861) Other comprehensive loss: Unrealized loss on investments -- -- -- -- Total comprehensive loss Issuance of common stock 240,000 2,400 1,052,850 -- Initial Public Offering, net of issuance costs 3,600,000 36,000 30,362,794 -- Issuance of common stock in satisfaction of notes payable 670,000 6,700 935,488 -- Exercise of stock options and warrants 707,822 7,078 1,013,379 -- Issuance of common stock in connection with a purchase business combination 908,877 9,089 7,795,892 -- Issuance of stock options and warrants in connection with purchase business combination -- -- 259,176 -- Issuance of warrants for services provided -- -- 26,197 -- Stock compensation expense -- -- 7,665 -- ---------- -------- ----------- ------------ Balance at December 31, 1999 12,457,989 124,580 43,915,642 (8,909,321) Comprehensive loss: Net loss -- -- -- (15,237,305) Other comprehensive loss: Unrealized gain on investments -- -- -- -- Total comprehensive loss Issuance of common stock in connection with a purchase business combination 2,450,000 24,500 9,555,000 -- Exercise of stock options 928 9 2,366 -- Stock compensation expense -- -- 10,000 -- ---------- -------- ----------- ------------ Balance at December 31, 2000 14,908,917 $149,089 $53,483,008 $(24,146,626) ========== ======== =========== ============
See accompanying notes to consolidated financial statements. F-5 52
UNREALIZED HOLDING GAIN/LOSS TOTAL ------------------ ------------ Balance at December 31, 1997 -- $ (1,588,811) Exercise of warrants -- 50,001 Issuance of common stock -- 145,000 Issuance of common stock in satisfaction of trade payable -- 125,000 Stock compensation expense -- 1,133,000 Issuance of warrants for services provided and debt financing -- 136,338 Net loss -- (2,221,474) ------------ ------------ Balance at December 31, 1998 -- (2,220,946) Comprehensive loss: Net loss -- (4,162,861) Other comprehensive loss: Unrealized loss on investments (44,518) (44,518) ------------ Total comprehensive loss (4,207,379) ------------ Issuance of common stock -- 1,055,250 Initial Public Offering, net of issuance costs -- 30,398,794 Issuance of common stock in satisfaction of notes payable -- 942,188 Exercise of stock options and warrants -- 1,020,457 Issuance of common stock in connection with a purchase business combination -- 7,804,981 Issuance of stock options and warrants in connection with a purchase business combination -- 259,176 Issuance of warrants for services provided -- 26,197 Stock compensation expense -- 7,665 ------------ ------------ Balance at December 31, 1999 (44,518) 35,086,383 Comprehensive loss: Net loss -- (15,237,305) Other comprehensive loss: Unrealized gain on investments 42,448 42,448 ------------ Total comprehensive loss -- (15,194,857) ------------ Issuance of common stock in connection with a purchase -- 9,579,500 business combination Exercise of stock options -- 2,375 Stock compensation expense -- 10,000 ------------ ------------ Balance at December 31, 2000 $ (2,070) $ 29,483,401 ============ ============
See accompanying notes to consolidated financial statements. F-5 (continued) 53 EDGAR ONLINE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, ----------------------------------------------- 2000 1999 1998 ------------ ------------ ----------- Cash flow from operating activities: Net loss $(15,237,305) $ (4,162,861) $(2,221,474) Adjustments to reconcile net loss to net cash used in operating activities: Stock compensation expense 10,000 7,665 1,133,000 Depreciation 949,480 312,431 116,767 Accretion and amortization of debt discount -- 14,000 17,118 Amortization of intangibles 2,535,011 581,183 -- Write-down of intangible assets 6,151,074 -- -- Provisions for bad debt 106,792 146,428 62,207 Non-cash service revenue, net -- (33,251) (8,620) Changes in assets and liabilities: Accounts receivable (761,236) (1,077,684) (147,932) Other, net 36,407 (324,315) 13,096 Accounts payable and accrued expenses (976,343) 973,865 (205,419) Accrued interest 75,000 (133,804) 133,804 Due to employee -- (14,575) 14,575 Due to officers, net (269,425) (644,023) 95,137 Deferred revenues 390,521 84,504 130,096 ------------ ------------ ----------- Total adjustments 8,247,281 (107,576) 1,353,829 ------------ ------------ ----------- Net cash used in operating activities (6,990,024) (4,270,437) (867,645) ------------ ------------ ----------- Cash flow from investing activities: Purchase of available-for-sale investments (7,010,000) (16,079,354) -- Sale of available-for-sale investments 20,089,354 1,500,000 -- Purchase of other investments (520,000) (283,000) -- Capital expenditures (1,443,828) (1,023,419) (78,127) Cash portion of purchase price of business combinations (12,265,000) (968,355) -- Net cash acquired in business combination 443,166 41,346 -- ------------ ------------ ----------- Net cash used in investing activities (706,308) (16,812,782) (78,127) ------------ ------------ ----------- Cash flow from financing activities: Proceeds from issuance of common stock 2,374 35,280,333 155,000 Proceeds upon exercise of stock options and warrants -- 1,020,457 50,001 Proceeds from issuance of notes payable -- -- 1,000,000 Costs incurred in connection with the sales of common stock -- (3,826,289) (10,000) Principal payments on notes payable -- (1,419,879) -- Payments on capital lease obligations (73,704) (68,310) (28,218) Cost incurred in connection with debt financing -- -- (89,440) ------------ ------------ ----------- Net cash provided by (used in) financing activities (71,330) 30,986,312 1,077,343 ------------ ------------ ----------- Net increase (decrease) in cash and cash equivalent (7,767,662) 9,903,093 131,571 Cash and cash equivalents at beginning of year 10,051,473 148,380 16,809 ------------ ------------ ----------- Cash and cash equivalents at end of year $ 2,283,811 $ 10,051,473 $ 148,380 ============ ============ =========== Supplemental disclosure of cash flow information: Cash paid for: Taxes 2,439 250 250 Interest 21,832 21,689 7,751 Fair value of securities issued in connection with purchase business combination 9,579,500 8,064,157 -- Accounts payable settled upon issuance of common stock -- -- 125,000 Notes payable settled in exchange for services provided -- 59,448 42,250 Stock warrants issued in exchange for services provided -- 26,197 33,630 Equipment acquired under capital lease -- 82,662 163,688
See accompanying notes to consolidated financial statements. F-6 54 EDGAR ONLINE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 (1) DESCRIPTION OF BUSINESS EDGAR Online, Inc. (EDGAR Online or the Company), formerly Cybernet Data Systems, Inc., was incorporated in the State of Delaware in November 1995 and launched its "EDGAR Online" Internet Web site in January 1996. EDGAR Online is a global business-to-business and Web-based provider of business, financial and competitive information derived from U.S. Securities and Exchange Commission (SEC) data and, as a result of our acquisition of Financial Insight Systems, Inc. in October 2000 a developer of Internet-based financial and business system solutions. The Company sells to the corporate market and Internet portals as well as running six destination Web sites. The Company has entered into several arrangements with other Internet service providers to market financial information services. Inherent in the Company's mission 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 and acceptance of the Internet as a communication and information medium, prospective project development efforts and the acceptance by the market place of the Company's products and services. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) REVENUE RECOGNITION Revenue from subscriptions and corporate contracts are recognized either over the subscription period, which is typically one, three, six or twelve months or, in the case of certain up-front fees, over the estimated customer relationship period. Revenue from consulting services and advertising is recognized as the services are provided. (b) BARTER TRANSACTIONS Barter advertising revenue is non-cash and relates to advertising placed on the Company's Web site by other Internet service providers. Barter advertising expense is non-cash and relates to Company advertising placed on the Web sites of other Internet service providers. The amount of barter advertising revenue and expense is recorded at the estimated fair value of the services received or the services provided, whichever is more objectively determinable. During 2000, 1999, and 1998, the Company also received computer equipment and publication advertisements in exchange for use of the Company's Web site services. The Company accounts for such barter transactions at the estimated fair value of goods or services received or services provided, whichever is more objectively determinable. Barter revenues related to the computer equipment barter transaction and the publication advertisements are recognized ratably over the term of the contract. Barter expense related to the publications advertisements transaction is recognized ratably over the year, which approximates the timing of the publications printing. Expense for the computer equipment exchange is recognized as depreciation expense over the useful lives of the assets. The Company expects that barter transactions will represent a increasing smaller percentage of total activity in the future. F-7 55 EDGAR ONLINE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 (c) WEB SITE DEVELOPMENT COSTS In accordance with Emerging Task Force Issue No. 2000-2, "Accounting for Web Site Development Costs", and Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" (SOP 98-1), the Company capitalizes certain Web site costs for computer software developed or obtained for internal use. Capitalized software development costs totaled $422,373 and $85,525 at December 31, 2000 and 1999, respectively, and are being amortized over their estimated useful life of three years. Prior to January 1, 1999, substantially all Web site development costs were expensed as incurred. (d) CASH AND CASH EQUIVALENTS The Company considers cash and all highly liquid investments with original maturities of ninety days or less to be cash and cash equivalents. (e) AVAILABLE-FOR-SALE INVESTMENTS The Company's investments comprise government and corporate obligations and foreign and domestic marketable securities. At December 31, 2000 and 1999, all of the Company's investments were classified as available-for-sale and, accordingly, unrealized gains and losses are included as a separate component of shareholders' equity, net of any related tax effect. Realized gains and losses are recognized on the specific identification basis. (f) PROPERTY AND EQUIPMENT Property and equipment are stated at cost or at estimated fair value if part of a barter transaction. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets, generally three to seven years. Leasehold improvements are amortized using the straight-line method over the estimated useful lives of the assets or the term of the leases, whichever is shorter. (g) LONG-LIVED ASSETS The Company accounts for long-lived assets in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This Statement requires that long-lived assets and certain intangibles assets, including goodwill, be reviewed 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 undiscounted 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 discounted cash flows of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. F-8 56 EDGAR ONLINE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 (h) ADVERTISING EXPENSES The Company expenses advertising costs as incurred. Advertising expenses were $2,473,213, $1,022,664 and $123,699 for the years ended December 31, 2000, 1999, and 1998, respectively. (i) INCOME TAXES 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, and 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 income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. (j) DEFERRED FINANCING COSTS Deferred financing costs related to the issuance on a convertible debenture and was being amortized over the term of the related debt, using the effective interest method. Amortization expense was $77,018 and $12,422 for the years ended December 31, 1999 and 1998, respectively. (k) STOCK-BASED TRANSACTIONS The Company accounts for stock-based transactions in accordance with SFAS No. 123, "Accounting for Stock-Based Compensation". In accordance with SFAS No. 123, the Company has elected to measure stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board (APB) No. 25, "Accounting for Stock Issued to Employees," and comply with the disclosure provisions of SFAS No. 123. Under APB No. 25, compensation cost is recognized based on the difference, if any, on the date of grant between the fair value of the Company's common stock and the exercise price. The Company accounts for the issuance of equity instruments to non-employees in exchange for services at either the fair value of the equity instrument given or the fair value of the services rendered, whichever is more reliably measurable. (l) CONCENTRATION OF RISK AND FINANCIAL INSTRUMENTS Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of accounts receivable. The most significant concentration of credit risk relates to NASDAQ, which comprised 31% and 0%, and DoubleClick, which comprised 14% and 53% of the Company's total gross receivable balance at December 31, 2000 and 1999, respectively. No other customer accounted for more than 10% of accounts receivable at December 31, 2000 or 1999. The Company's other customers are geographically dispersed throughout the United States with no one customer accounting for more than 10% of sales during 2000, 1999 or 1998. In addition, the Company has not experienced any significant credit losses to date from any one customer. The fair value of the Company's cash and cash equivalents, accounts receivable, accounts payable F-9 57 EDGAR ONLINE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 and accrued liabilities at December 31, 2000 and 1999, approximate their financial statement carrying value because of the short-term maturity of these instruments. The fair values of the Company's long-term obligations are discussed in note 7. (m) LOSS PER SHARE Loss per share is presented in accordance with the provisions of SFAS No. 128, "Earnings Per Share", and the Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 98. Under SFAS No. 128, Basic EPS excludes dilution for common stock equivalents and is computed by dividing income or loss available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted and resulted in the issuance of common stock. Basic earnings per share are computed using the weighted average number of common shares outstanding during the period. Diluted loss per share has not been presented separately, as the outstanding stock options, warrants and convertible debentures are anti-dilutive for each of the periods presented. Anti-dilutive potential common shares outstanding were 523,293, 1,047,207 and 653,400, for the years ended December 31, 2000, 1999, and 1998, respectively. (n) BUSINESS SEGMENTS In June 1997, the Financial Accounting Standard 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. The Company has determined that it does not have any separately reportable business segments. (o) COMPREHENSIVE INCOME The Company adopted the provisions of SFAS No. 130, "Reporting Comprehensive Income" during 1998. SFAS No. 130 requires the Company to report in its financial statements, in addition to its 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 certain investments in debt and equity securities. Comprehensive income (loss) is presented within the statement of changes in stockholders' equity (deficit). (p) USE OF ESTIMATES IN FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates impacting the financial statements include the allowance for doubtful accounts, recoverability assessments and useful lives of goodwill and other long-lived assets, fair value of barter arrangements, and the length of certain customer relationships. Actual results could differ from those estimates. F-10 58 EDGAR ONLINE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 (q) RECENT ACCOUNTING PRONOUNCEMENTS In March 2000, the FASB issued Interpretation No. 44 "Accounting For Certain Transactions Involving Stock Compensation--An Interpretation Of APB Opinion No .25." This interpretation provides guidance on the application of APB Opinion No. 25, including (i) the definition of an employee, (ii) the criteria for determining whether a plan qualifies as a non-compensatory plan, (iii) the accounting consequence of various modifications to the terms of a previously fixed stock option or award and (iv) the accounting for an exchange of stock compensation award in a business combination. This interpretation is effective July 1, 2000 and the effects of applying the interpretation are recognized on a prospective basis. The adoption of this interpretation did not have a material impact on the Company's results of operations or financial condition. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including derivative instruments embedded in other contracts, and for hedging activities. During June 1999, SFAS No. 137 was issued which delayed the effective date of SFAS No. 133. SFAS No. 137 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company does not expect this statement to affect the Company, as it does not have any derivative instruments or hedging activities. (r) RECLASSIFICATIONS During the third quarter of 1999, development expenses were reclassified to operating expenses from cost of revenues. In addition, during the first quarter of 2000, the Company began recording certain advertising revenues net of the related commissions and amounts previously recorded as stock compensation expense have been reported within the functional expense category for which the employee worked. Prior comparative amounts have been reclassified to conform to the year 2000 presentation (3) ACQUISITIONS On October 30, 2000, the Company acquired all the outstanding equity of Financial Insight Systems, Inc. (FIS), pursuant to the terms and conditions of an agreement and plan of merger dated October 18, 2000 for approximately $27.9 million. The purchase price included (1) the issuance of 2,450,000 restricted shares of EDGAR Online common stock valued at approximately $9.6 million, (2) the payment of $17,765,000 consisting of (i) a cash payment of $11,765,000 and (ii) a series of two year 7.5% senior subordinated secured promissory notes in the total principal amount of $6,000,000 and (3) approximately $0.6 million in cash for the payment of fees and acquisition related expenses. F-11 59 EDGAR ONLINE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 The aggregate purchase price of $27,931,038 has been allocated to the purchased assets and liabilities based on their relative fair market values at the date of acquisition. The following summarizes the allocation: Cash $ 443,166 Accounts receivable 1,018,197 Income taxes recoverable 979,500 Fixed assets 837,043 Other assets 14,686 Accounts payable and accrued expenses (1,225,648) Intangible assets 25,864,094 ------------ Total purchase price $ 27,931,038
The Company is in the process of finalizing valuations that will be used in the assignment of the FIS excess purchase price to certain intangible assets acquired and to goodwill. At December 31, 2000, this valuation was not completed, and the entire FIS excess purchase price has been included within intangible assets in the accompanying balance sheet. The asset is being amortized using a useful life of ten years, the estimated blended useful life of the excess purchase price. A one year difference in the estimated useful life of the FIS excess purchase price would increase or decrease the annual amortization expense by $287,319 or $235,128, respectively. Amortization expense for the period from November 1, 2000 to December 31, 2000 was $431,068. On September 10, 1999, the Company acquired Partes Corporation (Partes), owner of the FreeEDGAR.com Web site. Under the terms of the agreement, the Company purchased all of the outstanding equity of Partes for $9,901,054. The purchase price included (1) the issuance of 908,877 shares of EDGAR Online common stock valued at $7,804,981, (2) the issuance of 75,039 EDGAR Online stock options and warrants, with a fair value of $259,176, in exchange for all outstanding Partes stock options, (3) the assumption of net liabilities totaling $847,786 and (4) $989,111 in fees and acquisition related expenses. Subsequent to the acquisition, the Company repaid Partes bank indebtedness of $919,879. The aggregate purchase price of $9,901,054 has been allocated to the purchased assets and liabilities based on their relative fair market value on the date of acquisition. The excess purchase price over the estimated fair value of the tangible net liabilities acquired has been allocated (1) $2,496,246 to customer lists with an estimated useful life of 5 years, (2) $3,155,966 to technology with an estimated useful life of 5 years, (3) $ 699,280 to established workforce with a useful life of 3 years and (4) $3,549,562 to goodwill with an estimated useful life of 6 years. Since the acquisition was a tax-free transaction, the $6,351,492 allocated to identifiable intangible assets created a book-tax basis difference for which a corresponding deferred tax liability of $2,540,000 was established at the acquisition date. In addition, at the date of acquisition, the Company had deferred tax assets of approximately $2,635,000 for which a valuation allowance of like amount had been recorded. The establishment of the FreeEdgar deferred tax liability eliminated the need for substantially all of the valuation allowance on the Company's deferred tax assets and resulted in a purchase accounting adjustment to reduce the Company's valuation allowance by the amount of the FreeEdgar deferred tax liability. The recognition of the FreeEdgar deferred tax liability and the reduction in the Company's valuation allowance increased and decreased goodwill by a like amount. See note 4 for a discussion of subsequent intangible asset impairment. F-12 60 EDGAR ONLINE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 The acquisitions were accounted for under the purchase method of accounting and accordingly the estimated fair value of FIS' and Partes' assets and liabilities and the operating results of FIS and Partes from the effective dates of the acquisition have been included in the accompanying financial statements. The following unaudited pro forma results of operations assume the acquisitions occurred as of January 1, 1999 and includes amortization of intangibles. The pro forma financial information is not necessarily indicative of operating results that would have occurred had the acquisitions been consummated as of January 1, 1999 nor of future operating results.
Pro forma results for the year end Pro forma results for the year end December 31, 2000 December 31, 1999 ---------------------------------- ---------------------------------- Revenues $ 16,576,000 $ 11,514,000 Loss from operations $(19,178,000) $(12,654,000) Net loss $(18,261,000) $(12,222,000) Basic and diluted loss per share $ (1.23) $ (0.93) Basic and diluted weighted average shares 14,904,000 13,164,000
(4) IMPAIRMENTS OF LONG-LIVED ASSETS During the fourth quarter of 2000, the Company performed a reassessment of the recovery of the goodwill and other long-lived assets related to its acquisition of Partes Corporation, owner of the FreeEDGAR.com Website. The revaluation was triggered by the continued decline in Internet advertising throughout the year ended December 31, 2000, which significantly impacted current and projected advertising revenue generated from the FreeEDGAR Web site. Based on revised projections of Partes Corporation's revenues and costs, the Company determined that the undiscounted cash flows from the operation of the FreeEDGAR Web site, including its estimated terminal value, were less than the remaining book value of recorded goodwill and other long-lived assets and an other than temporary impairment had occurred. The Company measured the amount of the impairment by comparing the anticipated future discounted cash flow from the operation of the FreeEDGAR Web site and terminal value to the remaining book value of recorded goodwill and other long-lived assets and recorded an impairment charge of $5,673,000. The methodology used to test for and measure the amount of the impairment charge was based on the same methodology used during the Company's initial valuation of Partes Corporation in 1999. Also during the fourth quarter of 2000, the Company performed a reassessment of the recovery of the goodwill and other long-lived assets related to its acquisition of certain of the assets of Individual Investor Group including the Web site InsiderTrader.com and related user data. The revaluation was triggered by the lower than anticipated assimilation of historical users of the acquired Web site which limited the future revenue potential to be generated from the assets acquired. Based on revised projections of InsiderTrader.com's revenues and costs, the Company determined that the undiscounted cash flows from the operation of the InsiderTrader.com Web site and other assets were less than the remaining book value of recorded goodwill and other long-lived assets and an other than temporary impairment had occurred. The Company measured the amount of the impairment by comparing the anticipated future discounted cash flow from the operation of the InsiderTrader.com Web site to the remaining book value of recorded goodwill and other long-lived assets and recorded an impairment charge of $362,000. The methodology used to test for and measure the amount of the impairment charge was based on the same methodology used during the Company's initial acquisition valuation of F-13 61 EDGAR ONLINE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 InsiderTrader.com in 2000. Lastly, during the fourth quarter of 2000, the Company discontinued the use of the edgar.com URL which it acquired in 1999 for $150,000, and recorded an impairment charge for the unamortized book value of $117,000. (5) AVAILABLE-FOR-SALE INVESTMENTS The following table summarizes the Company's investment in available-for-sale investments at December 31, 2000 and 1999.
December 31, ------------------------------------------------------ 2000 1999 ------------------------ -------------------------- Cost Fair Value Cost Fair Value ---------- ---------- ----------- ----------- U.S. Government and agency obligations $ --- $ --- $ 2,536,932 $ 2,524,675 Corporate bonds and commercial paper 1,500,000 1,497,930 12,042,422 12,010,161 ---------- ---------- ----------- ----------- Total $1,500,000 $1,497,930 $14,579,354 $14,534,836 ========== ========== =========== ===========
Substantially all investments with maturity dates mature within the year ended December 31, 2001. Individual unrealized gains and unrealized losses were not significant at December 31, 2000 or 1999. (6) PROPERTY AND EQUIPMENT Property and equipment at December 31, 2000 and 1999 is summarized as follows:
December 31, --------------------------- 2000 1999 ----------- ----------- Equipment $3,255,646 $1,518,972 Furniture and fixtures 487,693 209,328 Purchased software 587,730 492,678 Software development costs 507,898 85,525 Leasehold improvements 235,586 60,318 Automobiles 64,754 --- ----------- ----------- Subtotal 5,139,307 2,366,821 Less accumulated depreciation (1,783,484) (342,390) ----------- ----------- Total $3,355,823 $2,024,431 =========== ===========
Depreciation expense for the years ended December 31, 2000, 1999 and 1998 was $949,480, $312,431, and $116,767 respectively. (7) ACCRUED EXPENSES Accrued expenses consist of the following at December 31, 2000 and 1999.
December 31, ------------------------- 2000 1999 ---------- ---------- Professional fees $ 113,603 $ 127,000 Web site development and support --- 280,798 Licensing fees --- 111,438
F-14 62 EDGAR ONLINE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 Compensation and related benefits 987,888 739,215 Other 65,367 168,117 ---------- ---------- Total $1,166,858 $1,426,568 ========== ==========
(8) NOTES PAYABLE Notes payable consist of the following at December 31, 2000:
December 31, 2000 ------------ Promissory notes $6,000,000 Line of credit 475,000 Other 32,785 ---------- Total notes payable 6,507,785 Less: Current portion (507,785) ---------- Notes payable, long-term $6,000,000 ==========
In connection with the FIS acquisition, the Company issued a series of two-year senior subordinated secured promissory notes with a total principal amount of $6,000,000. Interest accrues at 7.5% annually and is payable quarterly in arrears on January 27, April 27, July 27 and October 27. The entire principal is payable in one installment on October 27, 2002. Interest expense for the year ended December 31, 2000 was $75,000. The fair value of the senior subordinated secured promissory notes at December 31, 2000 was estimated at approximately $6,000,000 based on the amount of future cash flows associated with the notes, discounted using an appropriate interest rate. In October 1998, FIS entered into an agreement with a bank for a $200,000 line of credit. This agreement was increased in April 2000 to $500,000. At December 31, 2000, $475,000 was outstanding under the facility and is repayable on demand. The interest rate at December 31, 2000 was 10.0% which is 1/2% over the bank's prime rate of interest. Interest expense for the year ended December 31, 2000 was $5,049. The fair value of the line of credit at December 31, 2000 approximated its carrying value given the variable nature of the interest rate. In July 1998, the Company received $1,000,000 in exchange for a $1,000,000 Convertible Debenture due July 2001 with interest accruing at 10% in years two and three. The terms of this financing enabled the lender to convert the debenture into 670,000 shares of the Company's common stock. The lender also received a warrant, expiring July 23, 1999, to purchase an additional 666,667 shares of the Company's common stock at $1.50 per share. The Company estimated the fair value of the warrant at the date of issue and recorded $102,708 of the consideration received as a credit to additional paid-in capital. On May 11, 1999, in connection with the Company's IPO, the holder of the Company's $1,000,000 face amount Convertible Debenture exercised its right to convert the Convertible Debenture into 670,000 shares of Company common stock. In addition, the holder exercised their warrant to purchase 666,667 shares of Company common stock at $1.50 per share. Interest expense for 1999 and 1998 includes $27,778 and $17,118, respectively, of accretion of the debt discount resulting from the fair value of the warrants and $33,333 relating to the year one interest holiday. In January 1997, the Company entered into an agreement with a stockholder for a $500,000 line of credit, which was originally due on December 31, 1997, but was extended to February 28, 2000. F-15 63 EDGAR ONLINE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 Interest accrued at 12% of the face amount annually. All borrowings were guaranteed by a principal stockholder of the Company. The agreement originally provided that the outstanding borrowings could be converted at the sole discretion of the lending stockholder into common stock at a conversion rate of $1.50 worth of common stock for each $1.00 of borrowings converted. The favorable conversion rate represented a beneficial conversion feature and, accordingly, $250,000 was recorded as a credit to additional paid-in capital at the issue date. Additional interest expense of $250,000 was recorded in 1997, as the original maturity of the borrowing was December 31, 1997. In July 1998, the conversion feature was deleted in connection with the issuance of the Convertible Debenture. The note was repaid using proceeds from the IPO in June 1999. In connection with a $100,000 loan under a line of credit established in December 1995, the Company had arranged with the lender to apply a portion of the proceeds of credit card payments processed by the lender for the Company to the loan balance. The loan was further reduced by the offsetting of balances due from the lender for its monthly subscription charge for use of the Company's Internet service. Interest accrued at 2% over the prime established by a financial institution. The loan was repaid during 1999. Interest expense and other financing charges for the years ended December 31, 2000, 1999, and 1998 totaled $95,027, $149,436, and $137,909, respectively. (9) INCOME TAXES Since its inception, the Company has incurred net operating losses and has incurred no federal or state income tax expense. The net provision for income taxes for the year ended December 31, 2000 consists primarily of a State of Connecticut capital tax and for 1999 and 1998, a State of Connecticut minimum tax. At December 31, 2000, the Company has approximately $12 million in federal and state operating loss carry forwards, which begin to expire in 2010. As discussed in note 3, the Company allocated $6,351,492 of the FreeEdgar purchase price to identifiable intangible assets creating a book-tax basis difference for which a corresponding deferred tax liability of $2,540,000 was established at the acquisition date. In addition, at the date of acquisition, the Company had deferred tax assets of approximately $2,635,000 for which a valuation allowance of a like amount had been recorded. The establishment of the FreeEdgar deferred tax liability eliminated the need for $2,540,000 of the valuation allowance on the Company's deferred tax assets and resulted in a purchase accounting adjustment to reduce the Company's valuation allowance. The federal and state deferred tax provision for the years ended December 31, 2000 and 1999 includes a tax benefit of approximately $1,709,000 and $225,000, respectively, representing the decrease in the FreeEdgar deferred tax liability as a result of the amortization and impairment write-off of the FreeEdgar intangible assets offset by a like amount of expense to increase the valuation allowance necessitated by the decreases in the FreeEdgar deferred tax liability. F-16 64 EDGAR ONLINE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 The Company's tax provision differed from the amount computed using the federal statutory rate of 34% as follows:
Year Ended December 31, ------------------------------------------- 2000 1999 1998 ----------- ----------- --------- Expected federal income tax benefit at 34% $(5,161,154) $(1,415,288) $(765,650) State taxes, net of federal effect 39,363 (247,834) (134,280) Amortization and write-off of non-deductible intangibles $ 1,288,032 58,324 -- Other permanent differences 3,602 44,261 3,882 Valuation allowance 3,887,596 1,560,787 896,298 ----------- ----------- --------- $ 57,439 $ 250 $ 250 =========== =========== =========
The Company's deferred tax assets and liabilities and related valuation allowance as of December 31, 2000 and 1999 are as follows:
December 31, 2000 1999 ----------- ----------- Deferred tax assets (liabilities): Net operating loss carryforwards $ 5,021,559 $ 2,742,435 Deferred compensation 192,882 -- Accruals and other, net 397,230 171,163 Stock compensation expense 478,354 484,783 Identifiable intangibles (605,415) (2,314,217) Valuation allowance (5,484,610) (1,084,164) ----------- ----------- $ 0 $ 0 =========== ===========
Realization of the net operating loss carry forward and other future deductible differences is dependent on the Company being able to generate sufficient taxable income prior to the expiration of the operating loss carryforwards. Due to the Company's short operating history, a valuation allowance has been recorded for the entire amount of the net deferred tax asset as the Company has concluded that it is not more likely than not that there will be future taxable income sufficient to realize the future taxable temporary differences and operating loss carryforwards prior to their expiration. Under Section 382 of the Internal Revenue Code of 1986, as amended, the utilization of net operating loss carryforwards may be limited under the change in stock ownership rules. The Company has not yet determined whether such an ownership change has occurred. (10) STOCKHOLDERS' EQUITY COMMON STOCK On March 24, 1997, the Board of Directors of the Company declared and approved a 4 for 1 stock split on its common shares. All share and per share data has been retroactively adjusted to reflect this common stock split. Upon the formation of the Company, the founders were issued 4,000,000 shares of the Company's common stock. In 1996, the Company sold 400,000 shares of its common stock to an investor for F-17 65 EDGAR ONLINE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 $462,500 and issued an additional 400,000 shares of its common stock for $5,000 in connection with the exercise of previously issued warrants. In 1997, the Company issued 1,274,000 shares of its common stock for $15,925 in connection with the exercise of previously issued warrants. In 1998, the Company sold an additional 103,333 shares of common stock for $145,000 in cash, net of related offering expenses, issued 100,000 shares of common stock in satisfaction of $125,000 of indebtedness and issued 53,957 shares in connection with the issuance of previously issued warrants. On March 25, 1999, the Board of Directors of the Company declared and approved an increase in the number of authorized shares of common stock to 30,000,000, par value $0.01 per share, and authorized 1,000,000 shares of preferred stock, par value $0.01 per share. There are no preferred shares issued or outstanding at December 31, 1999. On March 30, 1999, the Company completed the sale of an aggregate of 240,000 shares of its common stock to three investors at $4.50 per share resulting in net proceeds of $1,055,250. On May 26, 1999, the Company sold 3,600,000 shares of its common stock to the public (IPO) at $9.50 per share for net proceeds of $30,448,815. In connection with this offering, the Company, its underwriters and the holder of the Convertible Debenture agreed that such holders would convert the Convertible Debenture into 670,000 shares of the Company's common stock prior to the close of the IPO. In addition, certain holders of warrants to purchase Company common stock also agreed to exercise the warrants into an aggregate of 696,667 shares of common stock prior to the close of the IPO. During 2000 and 1999, additional shares were issued in connection with the exercise of stock options totaling 928 and 11,155, respectively. In addition, during 2000 and 1999, 2,450,000 and 908,877 shares were issued in connection with purchase business combinations. STOCK WARRANTS Since its inception, the Company has issued warrants to purchase Company common stock in return for various services rendered or in connection with certain debt and equity financings. Warrants issued in exchange for services totaled 23,167 and 63,333 for the years ended December 31, 1999 and 1998 respectively. Based on estimated fair values at the respective dates of issuance the Company has recorded professional services expense and additional paid-in capital of $26,197 in 1999 and $33,630 in 1998. In 1998, the Company issued 706,668 warrants in connection with debt financings which have been fair valued at their date of issuance. Additional interest expense has been recorded for the years ended December 31, 1999 and 1998 of $27,778 and $17,118, respectively. The credit to additional paid-in-capital relating to the fair value of warrants issued in connection with the debt financing during 1998 was $102,708. The related debt was repaid during 1999. During 1999, the Company issued 11,299 warrants in connection with the Partes acquisition and 523,500 warrants in connection with equity financing, including the Company's IPO. F-18 66 EDGAR ONLINE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 Warrant activity during the periods indicated is as follows:
Number of Weighted Average Warrants Exercise Price --------- ---------------- Outstanding at December 31, 1997 13,956 $ 0.00 Issued 770,001 1.45 Exercised (53,957) 0.93 Cancelled -- -- -------- Outstanding at December 31, 1998 730,000 1.46 Issued 557,966 7.31 Exercised (696,667) 1.46 Cancelled (240,000) 4.50 -------- Outstanding at December 31, 1999 351,299 8.68 Issued -- -- Exercised -- -- Cancelled -- -- -------- Balance at December 31, 2000 351,299 $ 8.68 ========
Included in the above table are 13,956 warrants outstanding at December 31, 1997 that were granted pursuant to certain anti-dilution provisions of the original warrant grant and, accordingly, have a $0.00 exercise price. The weighted average contractual life of warrants outstanding at December 31, 2000 and 1999 was 3.41 and 4.42 years, respectively. (11) STOCK OPTION PLANS In November 1998, the Company adopted the 1996 Stock Option Plan (the 1996 Plan) whereby the Company's Board of Directors may grant stock options to officers, employees, directors and consultants. The 1996 Plan authorizes the issuance of options to purchase up to 800,000 shares of the Company's common stock. Options granted may be either incentive stock options (ISOs) or non-qualified stock options. The exercise price and vesting schedule of the options will be established on the grant date. However, the established exercise price for ISOs may not be less than the fair market value of the Company's common stock on the grant date. The 1996 Plan also provides that no options will have a term of longer than ten years. On March 25, 1999, the Company adopted the 1999 Stock Option Plan (the 1999 Plan) and the 1999 Outside Directors Stock Option Plan (the 1999 Directors Plan). The 1999 Plan authorizes the issuance of options to purchase up to 600,000 shares of the Company's common stock under the same provisions as the 1996 Plan. At the Annual Shareholder Meeting held on August 1, 2000, the Plan was amended to increase the number of shares available for grant to 1,400,000. The 1999 Directors Plan authorizes the issuance of options to purchase up to 100,000 shares of the Company's common stock. Option activity for the 1996 Plan, the 1999 Plan and the 1999 Directors Plan during the periods indicated is as follows: F-19 67 EDGAR ONLINE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000
Weighted Average Number of Options Option Price ----------------- ---------------- Outstanding at December 31, 1997 --- --- Issued 400,000 $0.29 Exercised --- --- Cancelled --- --- ----------------- Outstanding at December 31, 1998 400,000 0.29 Issued 604,928 5.47 Exercised (11,155) 0.49 Cancelled (42,314) 6.35 ----------------- Outstanding at December 31, 1999 951,459 3.64 Issued 684,750 5.71 Exercised (928) 2.56 Cancelled (143,975) 7.27 ----------------- Balance at December 31, 2000 1,491,306 4.06 =================
The Company recorded $10,000, $7,665 and $1,133,000 of compensation expense in the years ended December 31, 2000, 1999 and 1998, respectively, calculated as the difference between the exercise price and the estimated fair value of stock options at the grant date, allocated over the vesting periods of the options. $10,000 and $7,665 has been included within sales and marketing expenses for the years ended December 31, 2000 and 1999, respectively. $214,600 and $918,400 has been included within sales and marketing and general and administrative expenses, respectively, for the year ended December 31, 1998. Options outstanding and exercisable at December 31, 2000 are as follows: Options Outstanding
Weighted Average Range of Remaining Weighted Average Exercise Price Number Outstanding Contractual Life Exercise Price - --------------------------------------- ----------------- ----------------- $ 0.25 to 2.50 415,500 6.88 $ 0.38 2.51 to 5.00 718,027 8.86 3.84 5.01 to 10.00 350,834 8.99 8.65 10.01 t0 15.00 4,940 5.66 10.23 15.01 to 20.00 --- --- --- 20.01 to 25.00 1,076 6.33 20.87 25.01 to 30.00 --- --- --- 30.01 to 35.00 929 6.54 34.05 --------------- ---------- ----------------- 0.25 to 35.00 1,491,306 8.33 4.06 =============== ========== =================
Options Exercisable
Range of Exercise Price Number Exercisable Weighted Average Exercise Price - ---------------------------------------------- ------------------------------- $ 0.25 to 2.50 380,000 $0.26 2.51 to 5.00 191,668 4.23 5.01 to 10.00 36,170 8.37 10.01 to 15.00 3,911 10.23 15.01 to 20.00 --- --- 20.01 to 25.00 769 20.74 25.01 to 30.00 --- --- 30.01 to 35.00 554 34.05 --------- ------------------- 0.25 to 35.00 613,072 $2.10 ========= ===================
At December 31, 2000, 835,166 options are available for grant. F-20 68 EDGAR ONLINE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 As discussed in note 2, the Company has elected to continue to use APB No. 25 to measure compensation expense related to employee stock options and has recorded compensation expense where the exercise price of the option was less than the fair value of the stock on the date of grant. Had the Company determined compensation expense based on the fair value of the option on the grant date under SFAS No. 123, the Company's results of operations for the years ended December 31, 2000 and 1999 would have been as follows:
2000 1999 1998 ---- ---- ---- Net loss - as reported $ (15,237,305) (4,162,861) (2,221,474) Net loss - pro forma $ (17,334,373) (4,992,836) (3,004,873) Basic and diluted net loss per share - as reported $ (1.18) (0.42) (0.36) Basic and diluted net loss per share - pro forma $ (1.35) (0.51) (0.49)
The fair value of the options granted to employees in 2000, 1999 and 1998 as calculated under SFAS 123, ranged from $1.62 to $8.70, $0.12 to $9.40, and $1.57 to $2.45, respectively, with a weighted average fair value of $5.49, $2.35, and $1.96 respectively. For options granted during the year ended December 31, 2000, the fair value of the options was calculated using risk free interest rates of 4.49% to 4.67%, expected life of 10 years, no expected dividend yield and an actual volatility which averaged 129% during the year ended December 31, 2000. For options granted after the Company's IPO in May 1999 through December 31, 1999, the fair value of the options was calculated using risk free interest rates of 6.5% to 6.52%, expected life of 10 years, no expected dividend yield and an actual volatility which averaged 153% from the date of the Company's IPO to December 31, 1999. For grants made through the date of the Company's IPO in May 1999, the fair value of the options was calculated using risk free interest rates of 6.51% or 6.52%, expected life of 10 years and no expected dividend yield or volatility. (12) COMMITMENTS AND CONTINGENCIES The Company leases space in Norwalk, Connecticut, New York, New York, and Kirkland, Washington for its primary offices. Rent expense totaled $589,239 and $149,308, and $57,983 for the years ended December 31, 2000, 1999 and 1998, respectively. Future minimum lease payments under non-cancelable operating leases and capital leases (with initial or remaining lease terms in excess of one year) as of December 31, 2000 are as follows:
Year ending December 31, : Operating Leases Capital Leases ---------------- -------------- 2001 $ 1,014,514 $ 77,407 2002 1,039,115 9,003 2003 888,406 --- 2004 839,215 --- Thereafter 1,115,817 --- ---------------- ------------ Total $ 4,897,067 86,410 ================ Amount representing interest (10,292) ------------ Net capital leases obligation $ 76,118 ============
(13) RELATED PARTY TRANSACTIONS The Company provides services to three shareholders. Revenues from these related parties totaled F-21 69 EDGAR ONLINE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 $709,200, $383,000, and $69,600 in 2000, 1999 and 1998, respectively. Of the revenues received, $75,000, and $17,250 in 1999 and 1998 were used to satisfy a note payable and related accrued interest to one shareholder. The Company also purchased services from three shareholders, which totaled $3,078,741, $1,535,479, and $610,073, in 2000, 1999 and 1998, respectively. The Company entered into compensation agreements with its two founding stockholders that provide for combined annual compensation of $300,000 commencing in January 1996, payment of which is dependent upon the availability of cash and other factors. Compensation expense of $300,000 has been recorded in each of the years ended December 31, 2000, 1999, and 1998. In addition, at December 31, 2000, the Company has advanced $269,206 to the founding stockholders. (14) SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The following is a summary of the quarterly results of operations for the years ended December 31, 2000 and 1999 (in thousands, except for per share data):
First Second Third Quarter Quarter Quarter Fourth Restated Restated Restated Quarter -------- -------- -------- -------- Year Ended December 31, 2000 Net Revenues $ 1,879 $ 2,396 $ 2,052 $ 3,415 Loss from Operations $ (2,932) $ (2,337) $ (2,247) $ (8,638) Net loss $ (2,597) $ (2,047) $ (1,967) $ (8,626) Basic and diluted net loss per share $ (0.21) $ (0.16) $ (0.16) $ (0.61) Basic and diluted weighted average shares outstanding 12,458 12,459 $ 12,459 $ 14,074 ======== ======== ======== ======== Year Ended December 31, 1999 Net Revenues $612 $ 939 $ 1,362 $ 1,818 Loss from Operations (548) $ (847) $ (1,240) $ (2,282) Net loss $ (586) $ (807) $ (864) $ (1,906) Basic and diluted net loss per share $ (0.08) $ (0.09) $ (0.07) $ (0.15) Basic and diluted weighted average shares outstanding 6,367 8,662 11,736 12,457 ========== ========= ========= ========
[CAPTION] Revenue for the first three quarters of 2000 have been restated by reducing corporate contract revenue by $97,242, $123,735 and $169,635, respectively, as compared to amounts previously reported in the Company's Form 10-Q's to reflect the retroactive application of SAB 101 as of January 1, 2000. The deferral relates to revenue associated with certain upfront fees charged customers to build customized applications to access information contained in the Company's databases. At December 31, the aggregate amount deferred is $306,711 and will be recognized over the future estimated life of the customer relationship. The impact of the change for the first three quarters of 2000 is to increase the net loss by $97,242, $123,735 and $169,635, respectively. The impact of the restatement was to increase basic and diluted net loss per share for the first three quarters of 2000 by $(0.01), $(0.01) and $(0.01), respectively. There were no such arrangements prior to 2000 and accordingly, there is no cumulative effect adjustment for prior periods. Loss per share data are computed independently for each of the periods presented; therefore the sum of the loss per share amounts for the quarters may not equal the total for the year. F-22 EX-10.28 2 y46941ex10-28.txt OFFICE BUILDING LEASE AGREEMENT 1 FIRST AMENDMENT TO LEASE THIS FIRST AMENDMENT TO LEASE (this "Amendment") is made and entered into as of September 24, 1998, by and between OTR, an Ohio general partnership acting on behalf of the State Teachers Retirement System ("Landlord"), and FINANCIAL INSIGHT SYSTEMS, INC., a Maryland corporation ("Tenant"). RECITALS A. 11200 RP Associates, LLP., Landlord's predecessor-in-interest, and Tenant have previously entered into an Office Building Lease dated July 1, 1998 (the "Lease"), with respect to premises containing approximately 10,414 rentable square feet (the "Original Premises") located in a building having a street address of 11200 Rockville Pike, Rockville, Maryland 20852 (the "Building"). B. Pursuant to the terms of Section 4.11 of the Lease, Tenant had the conditional right to lease approximately 3,780 rentable square feet of area located on the third (3rd) floor of the Building, which area is more particularly depicted on Exhibit A which is attached to and made a part hereof (the "Expansion Premises"). C. Tenant has exercised its right to lease the Expansion Premises. NOW, THEREFORE, in consideration of the sum of Ten and 00/100 Dollars ($10.00), and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by Landlord and Tenant, Landlord and Tenant covenant and agree as follows: 1. Lease of Expansion premises. Subject to the terms of this Amendment, Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the Expansion Premises. Notwithstanding anything herein to the contrary, Landlord shall have no obligation to make any alterations or improvements to the Expansion Premises in Connection with Tenant's initial occupancy of the Expansion Premises. 2. Term. The term of the Lease with respect to the Expansion Premises shall commence on the date that Landlord tenders possession of the Expansion Premises to Tenant (the "Expansion Premises Commencement Date") and shall be coterminous with the term of the Lease with respect to the Original Premises. As of the date of this Amendment, it is anticipated that the existing occupant of the Expansion Premises will vacate the Expansion Premises on or about January 1, 1999. Tenant acknowledges that the Expansion Premises (or a portion thereof) is occupied by an existing tenant (the "Existing Tenant"). In the event the Existing Tenant has not vacated the Expansion Premises by February 1, 1999, then, upon reasonable prior written notice from Tenant to Landlord, Landlord shall use commercially reasonable efforts to cause the Existing Tenant to vacate the Expansion Premises. 3. Construction. Tenant shall perform or cause the performance of alterations in and to the Expansion Premises ("Tenant's Expansion Alteration") to prepare the same for Tenant's 2 initial occupancy thereof. Such occupancy shall be deemed to be under all the terms, covenants, conditions and provisions of the Lease, except that Tenant shall not be obligated to pay the "Expansion Premises Base Rent" (as defined below) until such amount is due and payable in accordance with the provisions of Section 5 below. Landlord has previously delivered to Tenant's architect as-built drawings for the Expansion Premises. Tenant shall submit to Landlord, for Landlord's written approval, an initial space plan and complete and detailed architectural, mechanical, electrical and plumbing working drawings, which plans and drawings shall be prepared by Tenant, at Tenant's own cost and expense, subject to the provisions of Section 4 hereof, in a timely manner so as to enable Tenant to obtain a building permit for Tenant s Expansion Alteration. Landlord shall respond to Tenant's request for approval of Tenant's plans and drawings with respect to Tenant's Expansion Alteration within seven (7) business days after Landlord's receipt of same, which approval shall not be unreasonably withheld or conditioned. The plans and drawings, as approved in writing by Landlord, are hereinafter collectively referred to as the "Final Expansion Plans" and shall be deemed an authorization by Landlord for Tenant to proceed with Tenant's Expansion Alteration, which shall be performed by licensed, bondable contractors approved by Landlord (such approval not to be unreasonably conditioned, withheld or delayed) and otherwise in accordance with the provisions of the Lease. Landlord's approval of Tenant's Final Expansion Plans shall not be deemed to create any liability on the part of Landlord with respect to the design or specifications set forth therein or be deemed an acknowledgment by Landlord that Tenant's architectural drawings are in compliance with all applicable laws, rules and regulations relating thereto. 4. Construction Allowance. (a) Landlord shall provide Tenant with a construction allowance in an amount equal to the product of (such product shall hereinafter be referred to as the "Landlord's Expansion Contribution") (i) Fifty-Six Thousand Seven Hundred and No/l00 Dollars ($56,700.00), multiplied times (ii) a fraction, the numerator of which shall be the number of months which will remain in the initial term of the Lease as of the "Expansion Premises Rent Commencement Date" (as hereinafter defined), and the denominator of which shall be eighty-four (84). Notwithstanding anything herein to the contrary, subject to the provisions of Section 4(c) below, after the Landlord's Expansion Contribution has been fully exhausted, Tenant shall pay all costs of performing the Tenant's Expansion Alteration that are in excess of the Landlord Expansion Contribution. (b) To the extent that any portion of the Landlord's Expansion Contribution is being utilized by Tenant in accordance with the terms of this Amendment, Landlord shall disburse the applicable portion of the Landlord's Expansion Contribution to Tenant within thirty (30) days after Landlord has received (i) releases of lien from all contractors and materialmen who have supplied labor or material for such items (collectively the "Lien Waivers"), and (ii) paid invoices indicating that Tenant has actually paid to materialmen and contractors who have supplied materials or labor for such items an amount which is at least equal to or in excess of the amount for which Tenant is seeking reimbursement. Despite the foregoing, in the event that 2 3 Tenant requests that Landlord pay any portion of the Landlord's Expansion Contribution to the contractors or materialmen who performed such work or provided such materials, then, provided such work or material has been installed in the Original Premises or the Expansion Premises and Tenant has delivered to Landlord the Lien Waivers from the contractors or materialmen who have performed such work or supplied such materials, Landlord shall pay the applicable portion of the Landlord's Expansion Contribution to the contractors or materialmen, as applicable. (c) Tenant shall not be required to pay a construction administration or supervisory fee to Landlord in connection with Tenant's Expansion Alteration. (d) Notwithstanding anything in the Lease or in this Amendment to the contrary, Tenant shall have the right to: (i) apply all or any portion of the Landlord's Expansion Contribution towards making improvements to the Expansion Premises, including special installations, finishes, telephone and computer wiring, architectural fees and design fees, mechanical, electrical, plumbing and structural engineering fees, reproduction costs, costs of permits and inspections, and/or towards the items listed in the second sentence of Section 2.0 1(A) of the Lease (i.e., the Landlord's Expansion Contribution may be applied towards the cost of building out the Original Premises and/or towards the cost of building out the Expansion Premises); and (ii) apply all or any portion of the "Tenant Improvement Allowance" [as defined in Section 2.01(A) of the Lease] towards the cost of Tenant's Expansion Alteration. 5. Base Rent. In addition to the Base Rent payable by Tenant with respect to the Original Premises, Tenant shall pay to Landlord, as Additional Rent, Base Rent with respect to the Expansion Premises (the "Expansion Premises Base Rent") as follows:
Expansion Premises Expansion Premises Base Rent Period Annual Base Rent Monthly Base Rent Per Sq. Ft. ------ ---------------- ----------------- ----------- Expansion Premises Rent Commencement Date - "Rent Year" (as defined in the Lease) 1 -- $ 8,190.00 $26.00 Rent Year 2 $101,228.40 $8,435.70 $26.78 Rent Year 3 $104,252.40 $8,687.70 $27.58 Rent Year 4 $107,389.80 $8,949.15 $28.41 Rent Year 5 $110,602.80 $9,216.90 $29.26 Rent Year 6 $113,929.20 $9,494.10 $30.14 Rent Year 7 $117,369.00 $9,780.75 $31.05
The first monthly installment of Expansion Premises Base Rent shall be due and payable upon execution of this Amendment. The second installment shall be due and payable on the first (1st) day of the first (1st) calendar month that occurs after the Expansion Premises Rent Commencement Date and each subsequent monthly installment shall be due and payable on the 3 4 first day of each calendar month of the term thereafter. Except as otherwise provided herein, all installments of Expansion Premises Base Rent shall be payable in accordance with the terms of the Lease governing the payment of Base Rent. In the event the Expansion Premises Rent Commencement Date is not the first day of a month, or the expiration date is not the last day of a month, the amounts payable by Tenant under this Section 5 shall be appropriately prorated for the month in which the Expansion Premises Rent Commencement Date occurs, or for the month in which the Lease expires, as applicable. As used herein, "Expansion Premises Rent Commencement Date" shall mean the date that is sixty (60) days after the date that Landlord tenders possession of the Expansion Premises; provided, however, if Landlord does not provide Tenant with at least fifteen (15) days prior notice of the date Landlord shall tender the Expansion Premises to Tenant, such sixty (60) day period shall be extended on a day-for-day basis [not to exceed fifteen (15) days in the aggregate] for each day that Landlord fails to provide such fifteen (15) day prior notice. Upon Landlord's request, Tenant shall execute a certificate or other written document which establishes the Expansion Premises Rent Commencement Date. 6. Operating Payment. From and after the Expansion Premises Rent Commencement Date and continuing throughout the balance of the Term, Tenant's "Pro-Rata Share" (as defined in the Lease) shall be increased to 7.79%. 7. Expansion Premises. From and after the date of this Amendment, Section 4.11 of the Lease shall be deleted in its entirety and be of no further force or effect. 8. Premises. (a) From and after the Expansion Premises Commencement Date, Section 1.01(K) of the Lease shall be deleted in its entirety and shall be replaced with: (K) "Premises" shall mean (i) that space shown hatched on the floor plan annexed hereto as Exhibit A, known as Suite 220, located on the third (3rd) floor of the Office Building, containing approximately 10,414 rentable square feet, and (ii) that space shown hatched on Exhibit A hereto, known as Suite 330, located on the third (3rd) floor of the Office Building, containing approximately 3,780 rentable square feet. (b) From and after the Expansion Premises Commencement Date, Exhibit A is hereby deleted from the Lease and is hereby replaced with Exhibit A which is attached to and made a part of this Amendment. (c) From and after the Expansion Premises Commencement Date, except where the context plainly requires otherwise, the term "Premises" shall mean the Original Premises and the Expansion Premises, and all references in the Lease to the term "Premises" shall mean the Original Premises and the Expansion Premises. 4 5 10. Parking. (a) Parking Rights. In addition to Tenant's parking allotment as provided for in the Original Lease and the First Amendment, Landlord shall require that any garage operator shall offer to Tenant ten (10) monthly parking contracts to park an automobile (collectively, the "Expansion Premises Parking Rights") in the parking garage under the Building (the "Parking Facilities"). The Expansion Premises Parking Rights shall (i) be unassigned, and (ii) be on a self-park or attendant parking basis (or a combination thereof), as determined by the garage operator. (b) Parking Fees. The monthly parking rate for the Expansion Premises Parking Rights shall be the same rate that is charged to Tenant for "Parking Rights" (as defined in the Lease) under the Lease. Except as otherwise provided in the Lease or in this Amendment, contracts for the Expansion Premises Parking Rights shall be with the garage operator and shall contain the same terms as are usually contained in contracts with other similar office customers of the garage operator. 11. Brokers. Landlord and Tenant each represents and warrants to the other that, except for the Meridian Management and The Fred Ezra Company ("Ezra"), it has not employed any broker in connection with this Amendment. Landlord and Tenant shall each indemnify and hold harmless the other from and against any claims for brokerage or other commission arising by reason of a breach by the indemnifying party of the aforesaid representation and warranty. Landlord shall pay Ezra a commission, which commission shall be payable in accordance with a separate written agreement between Landlord and Ezra. 12. Governing Document. Except as otherwise amended by this Amendment, the Lease shall remain in full force and effect. In the event of any conflict between the terms and conditions of the Lease, and the terms and conditions of this Amendment, the terms and conditions of this Amendment shall govern and control. 13. Incorporation of Recitals. The Recitals set forth herein are incorporated in and made a part of this Amendment. 14. Counterparts. This Amendment may be executed in two (2) or more counterpart copies, all of which counterparts shall have the same force and effect as if all parties hereto had executed a single copy of this Amendment. 5 6 IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first set forth above. ATTEST/WITNESS: LANDLORD: OTR, an Ohio general partnership acting on behalf of the State Teachers Retirement System By: /s/ Matthew I. Vulanich ------------------------------------------ Name: Matthew I. Vulanich Title: Director, Eastern Region - Real Estate ATTEST/WITNESS: TENANT FINANCIAL INSIGHT SYSTEMS, INC., a Maryland corporation By: [ILLEGIBLE] ------------------------------------------ Name: [ILLEGIBLE] Title: [ILLEGIBLE] Date: 10/5/98 6 7 EXHIBIT A [Recital B] Sketch Depicting Original Premises and Expansion Premises 7 8 [EXECUTION] 1000/213 - -------------------------------------------------------------------------------- OFFICE BUILDING LEASE Between 11200 RP ASSOCIATES L.P., Landlord And FINANCIAL INSIGHT SYSTEMS, INC., Tenant Premises: Suite 310 11200 Rockville Pike Rockville, Maryland 20852 - -------------------------------------------------------------------------------- COPYRIGHTED MATERIAL; ALL RIGHTS RESERVED. 1991, CITICORP REAL ESTATE, INC. 9 TABLE OF CONTENTS Page Index of Defined Terms .....................................................iii ARTICLE 1 Definitions, Demise, Premises, Term, Rent Section 1.01 Definitions....................................................1 Section 1.02 Demise Date....................................................2 Section 1.03 Commencement Date..............................................2 Section 1.04 Base Rent......................................................3 Section 1.05 Additional Rent................................................3 Section 1.06 Intentionally Deleted..........................................3 Section 1.07 Temporary Space................................................3 Section 1.08 Intentionally Deleted..........................................3 ARTICLE 2 Alterations and Additions Section 2.01 Landlord's Work................................................4 Section 2.02 Intentionally Deleted..........................................6 Section 2.03 Alterations....................................................6 ARTICLE 3 Operating Expenses Section 3.01 Base Year Stop.................................................6 Section 3.02 Estimates and Payments.........................................7 Section 3.03 Operating Expenses Defined.....................................7 Section 3.04 Pro Rata Share.................................................8 ARTICLE 4 Tenant's Covenants and Rights Section 4.01 Parking........................................................9 Section 4.02 Assignment and Subletting......................................9 Section 4.03 Care of Premises...............................................14 Section 4.04 Compliance with Law............................................14 Section 4.05 Tenant's Insurance.............................................15 Section 4.06 Tenant's Indemnification.......................................16 Section 4.07 Utilities......................................................16 Section 4.08 Security Deposit...............................................17 Section 4.09 Signs..........................................................18 Section 4.10 Tenant's Option to Extend......................................18 Section 4.11 Expansion Premises.............................................19 Section 4.12 Satellite Antenna..............................................21 ARTICLE 5 Landlord's Covenants and Rights Section 5.01 Quiet Enjoyment and Subordination..............................22 Section 5.02 Landlord's Services............................................23 Section 5.03 Alterations and Entry by Landlord..............................25 Section 5.04 Landlord's Right to Cure.......................................25 Section 5.05 Abatement Condition............................................25 Section 5.06 Landlord's Insurance...........................................26 Section 5.07 Landlord's Indemnification.....................................26 i 10 ARTICLE 6 Eminent Domain, Casualty Section 6.01 Eminent Domain.................................................27 Section 6.02 Damage by Fire or Other Casualty...............................27 Section 6.03 Subrogation....................................................28 ARTICLE 7 Events of Default, Remedies Section 7.01 Events of Default..............................................28 Section 7.02 Remedies upon Default..........................................29 Section 7.03 Cure by CMSFS..................................................31 ARTICLE 8 Miscellaneous Provisions Section 8.01 [Intentionally Deleted]........................................32 Section 8.02 Late Charges...................................................32 Section 8.03 Holding Over...................................................32 Section 8.04 Notices........................................................32 Section 8.05 Authority of Tenant............................................32 Section 8.06 Financial Statements...........................................33 Section 8.07 Brokerage......................................................33 Section 8.08 Definition of Landlord.........................................33 Section 8.09 Entire Agreement...............................................33 Section 8.10 Force Majeure..................................................34 Section 8.11 No Setoff......................................................34 Section 8.12 Interpretation.................................................34 Section 8.13 Enlarging the Office Building..................................34 Section 8.14 Limitation of Landlord Liability...............................35 Section 8.15 Short Form Lease...............................................35 Section 8.16 [Intentionally Deleted]........................................35 Section 8.17 Estoppel.......................................................35 Section 8.18 No Waiver......................................................35 Section 8.19 No Merger......................................................35 Section 8.20 Attorneys' Fees................................................35 Section 8.21 JURY TRIAL AND COUNTERCLAIM WAIVER.............................36 Section 8.22 Monument Sign..................................................36 Section 8.23 Joinder........................................................36 EXHIBITS Exhibit A: Floor Plan Exhibit B: [Intentionally Deleted] Exhibit C: Tenant Acceptance Letter Exhibit D: Rules and Regulations Exhibit E-1: Temporary Space Exhibit E-2: Intentionally Deleted Exhibit F: Form of Letter of Credit Exhibit G: Expansion Space Exhibit H: Cleaning Specifications Exhibit I: Form of Subordination, Non-Disturbance and Attornment Agreement ii 11 INDEX OF DEFINED TERMS TERM SECTION - ---- ------- Abatement Condition ....................................................5.05(A) Abatement Space ........................................................5.05(A) Acceptance Letter ......................................................1.03(A) ADA ....................................................................4.04(A) Additional Rent ...........................................................1.05 Aggregate Gross Rent ................................................7.02(C)(1) Alterations ...............................................................2.03 Base Expenses .............................................................3.01 Base Operating Year .......................................................3.01 Base Rent ..............................................................1.01(B) Broker .................................................................1.01(C) Building ...............................................................1.01(D) Code ......................................................................7.01 Commencement Date ......................................................1.01(E) Completion Date ........................................................2.02(B) Date of Such Taking ...................................................6.0 1(A) Easement ...............................................................5.01(B) Elimination Date .......................................................4.02(D) Elimination Space ......................................................4.02(D) Event of Default ..........................................................7.01 Excess .................................................................4.02(C) Expansion Space ...........................................................4.11 Expiration Date ........................................................1.01(F) Extension Term .........................................................4.10(A) Final Plans ............................................................2.02(B) Guarantor .................................................................7.01 Hazardous Materials ....................................................4.04(A) HVAC Abatement Condition ...............................................5.05(B) iii 12 Indemnities ............................................................4.06(A) Independent Broker .....................................................4.10(B) Installation Area .........................................................4.12 Landlord .........................................................Preface, 8.08 Landlord's Contribution ................................................2.02(C) Landlord's Letter ......................................................4.10(B) Landlord's Maximum Architectural Contribution ..........................2.02(C) Landlord's Maximum Contribution ........................................2.02(C) Landlord's Maximum Non-Architectural Contribution ......................2.02(C) Landlord's Notice .........................................................4.11 Landlord's Notice Address ..............................................1.01(G) Landlord's Work ...........................................................2.01 Lease ..................................................................Preface Letter of Credit ..........................................................4.08 Mortgage ...............................................................5.01(B) Notice ....................................................................8.04 Office Building ........................................................1.01(H) Operating Expenses ........................................................3.03 Operating Payment .........................................................3.01 Operating Statement .......................................................3.02 Parking Spaces .........................................................1.01(1) Permitted Uses .........................................................1.01(J) Premises ...............................................................1.01(K) Progress Schedule ......................................................2.02(C) Prior Lease ...............................................................1.06 Pro Rata Share ............................................................3.04 Property ...............................................................1.01(L) Reletting Costs .....................................................7.02(C)(l) Rent Commencement Date ...............................................1.01 (LL) Rent Payment Address ...................................................1.01(M) iv 13 Rules and Regulations ..................................................4.04(A) Satellite Antenna .........................................................4.12 Security Deposit .................................................1.01(N); 4.08 Superior Lease .........................................................5.01(B) Taxes ..................................................................3.03(A) Temporary Space ...........................................................1.07 Temporary Space A .........................................................1.07 Temporary Space B .........................................................1.07 Tenant .................................................................Preface Tenant's Architectural Expenses ........................................2.02(C) Tenant's Initial Alteration ............................................2.02(B) Tenant's Letter ........................................................4.10(B) Tenant's Notice Address ................................................1.01(0) Term ...................................................................1.01(P) Threshold ..............................................................2.02 (E) v 14 OFFICE BUILDING LEASE 11200 Rockville Pike Rockville, Maryland 20852 THIS OFFICE BUILDING LEASE (this "Lease") is made as of the 1st day of July, 1998, by and between 11200 RP ASSOCIATES L.P. ("Landlord"), a Maryland limited partnership, having an office c/o The Meridian Group, 11200 Rockville Pike, Suite 205, Rockville, Maryland 20852 and FINANCIAL INSIGHT SYSTEMS, INC. ("Tenant"), a Maryland corporation, having a principal place of business at 11200 Rockville Pike, Suite 310, Rockville, Maryland 20852. W I T N E S S E T H: The parties hereto, for themselves, their heirs, distributees, executors, administrators, legal representatives, successors and assigns, hereby covenant and agree as follows: ARTICLE 1 Definitions, Demise, Premises, Term, Rent Section 1.01 Definitions. The following terms shall have the meanings hereinafter set forth throughout this Lease. (A) [Intentionally Deleted]. (B) "Base Rent" shall mean the base rent payable by Tenant during the Term, as follows:
Base Rent Rent Year Annual Base Rent Monthly Base Rent Per SQ. Ft. --------- ---------------- ----------------- ----------- 1 $270,764.00 $22,563.67 $26.00 2 $278,886.92 $23,240.58 $26.78 3 $287,253.52 $23,937.80 $27.58 4 $295,871.12 $24,655.93 $28.41 5 $304,747.25 $25,395.61 $29.26 6 $313,889.66 $26,157.48 $30.14 7 $323,306.34 $26,942.20 $31.05
"Rent Year" shall mean each twelve (12) month period occurring during the Term, the first of which shall commence on the Rent Commencement Date, and each subsequent Rent Year shall commence on the day immediately following the last day of the preceding Rent Year, provided, however, that if the Rent Commencement Date shall be deemed to have occurred on a day other than the first day of a calendar month (i) Rent Year 1 shall end on the last day of the calendar month immediately preceding the month in which the twelve (12) month anniversary of the Rent Commencement Date shall occur and (ii) Rent Year 7 shall end on the last day of the calendar month in which the seventh (7th) anniversary of the Rent Commencement Date shall occur. (C) "Broker" shall mean, collectively (i) The Carey Winston Company ("Landlord's Broker") and (ii) The Fred Ezra Company ("Tenant's Broker"). (D) "Building" shall mean, collectively, the Office Building (as defined in Section 1.01(H) hereof), the Property (as defined in Section 1.01(L) hereof), and any other building or improvements now or hereafter constructed on the Property. (E) "Commencement Date" shall mean the date hereof. (F) "Expiration Date" shall mean the last day of Rent Year 7. 15 (G) "Landlord's Notice Address" shall mean c/o The Meridian Group, 11200 Rockville Pike, Suite 205, Rockville, Maryland 2082, Att: Bruce Lane, with a copy to Shulman, Rogers, Gandal, Pordy & Ecker, P.A., 11921 Rockville, Maryland 20852, Attn: David A. Pordy, Esquire. (H) "Office Building" shall mean that certain building and other improvements having a street address of 11200 Rockville Pike, Rockville, Maryland 20852. (I) "Parking Spaces" shall mean 2.5 parking spaces in the underground parking facility, if any, from time to time associated with the Building for each 1,000 rentable square feet then contained in the Premises, of which one (1) shall be designated as a reserved space and the balance shall be non-reserved spaces, subject to the provisions of Section 4.01 hereof. (J) "Permitted Uses" shall mean general office use. (K) "Premises" shall mean that space shown hatched on the floor plan annexed hereto as Exhibit A, known as Suite 310, located on the third (3rd) floor of the Office Building, containing approximately 10,414 rentable square feet. (L) "Property" shall mean that certain real property on which the Office Building is situated, located in the City of Rockville, County of Montgomery and State of Maryland. (LL) "Rent Commencement Date" shall mean the date Landlord delivers possession of the Premises to Tenant with the "Landlord's Work" (as defined below) "Substantially Completed" (as defined below). (M) "Rent Payment Address" shall mean 11200 RP Associates L.P., c/o The Meridian Group, 11200 Rockville Pike, Suite 205, Rockville, Maryland 20852. (N) "Security Deposit" shall mean the amount of Three Hundred Eighty Thousand and 00/100 Dollars ($380,000.00). (0) "Tenant's Notice Address" shall mean 11200 Rockville Pike, Rockville, Maryland 20852, Attention: Mr. Albert Girod, with a copy of each Notice to Tenant to be sent to (i) Mr. Mark Ezra, The Fred Ezra Company, 4520 East West Highway, Suite 650, Bethesda, Maryland 20814, and (ii) Ronald Shapiro, Esq., Shapiro, Lifschitz & Schram, 1101 Pennsylvania Avenue, N.W., Suite 1050, Washington, D.C. 20004. (P) "Term" shall mean the period commencing on the Commencement Date and ending on the Expiration Date, including approximately seven (7) years from and after the Rent Commencement Date. Section 1.02 Demise Date. Subject to and upon the terms and conditions set forth herein, Landlord hereby leases to Tenant and Tenant hereby hires from Landlord (the Premises located in the Office Building for the period commencing on the Commencement Date and ending on the Expiration Date. The Premises shall be used and occupied by Tenant solely for the Permitted Uses, and for no other purpose without the prior written consent of Landlord, which consent may be withheld for any or for no reason. Section 1.03 Commencement Date. If the Commencement Date occurs on a date other than the first day of a calendar month or if the Term expires or is terminated on a day other than the last day of a calendar month, Base Rent and any Additional Rent (as defined in Section 1.05 hereof) payable hereunder shall be prorated for such partial month on the basis of a thirty (30) day month. Within ten (10) days after the Commencement Date, Tenant shall execute an acceptance letter substantially in the form of Exhibit C annexed hereto (the "Acceptance Letter"), but the failure by Tenant to execute the Acceptance Letter shall not affect the Commencement Date. 2 16 Section 1.04 Base Rent. Tenant shall pay Landlord at the Rent Payment Address set forth in Section 1.01(M) hereof or at such other address as may be designated by Landlord, monthly, in advance, on the first day of each calendar month during the Term, monthly installments of Base Rent, without notice or demand and without any setoff or offset, or, except as specifically set forth in Section 5.05 or Section 6.01 hereof, any abatement or deduction whatsoever. Section 1.05 Additional Rent. All sums other than Base Rent payable by Tenant under this Lease, including, without limitation, late fees, interest, attorneys' fees, Court costs and other costs incurred in connection with the enforcement of this Lease as specifically set forth herein, shall be deemed additional rent ("Additional Rent"), regardless of whether any such sum is expressly characterized as additional rent herein, and shall be payable on demand unless other payment dates are set forth herein. Section 1.06 Intentionally Deleted. Section 1.07 Temporary Space. (A) Landlord hereby agrees to permit Tenant the right to use and occupy (i) that portion of the third (3rd) floor of the Building, containing approximately 2,852 rentable square feet arid shown cross-hatched on Exhibit E-1 annexed hereto ("Temporary Space") for a term to commence as of June 1, 1998 and to end and expire on a date (the "Temporary Space Expiration Date") which shall be the Rent Commencement Date (the "Temporary Space Term"). Tenant shall use and occupy the Temporary Space for general and executive offices only and for no other purpose. Such use and occupancy shall be pursuant to all of the terms, covenants and conditions of this Lease except as otherwise provided in this Section 1.07. All furniture or other personalty used by Tenant in the Temporary Space shall be placed in the Temporary Space in an office-like manner. During the Temporary Space Term, Tenant shall pay Base Rent in respect of the Temporary Space at the rate of $5,140.73 per month, and Tenant shall pay Tenant's share of operating expense escalations in respect of the Temporary Space as though the Temporary Space were part of the space leased to Tenant under the Lease. The aforesaid sums shall be prorated for any partial calendar month occurring during the Temporary Space Term. (B) Landlord, at Landlord's expense, shall redistribute or furnish electrical energy to or for the use of Tenant in the Temporary Space for the operation of the lighting fixtures and the electrical receptacles installed in the Temporary Space on the commencement of the Temporary Space Term. (C) Tenant acknowledges that Landlord shall have no obligation to perform any work or make any installations whatsoever in order to prepare all or any part of the Temporary Space for occupancy by Tenant. Tenant acknowledges that the Temporary Space is in good and satisfactory condition. (D) Anything in this Lease to the contrary notwithstanding, Tenant shall not sublet the Temporary Space or permit any other entities or individuals to use or occupy the Temporary Space without Landlord's consent. (E) From and after the Rent Commencement Date, the Temporary Space shall constitute a portion of the Premises. (F) Intentionally Deleted. (G) A default by Tenant in the performance or observance of any of the terms, covenants, provisions or conditions contained in this Section 1.07 on the part of Tenant to be performed or observed, shall be deemed a default by Tenant under this Lease. Section 1.08 Intentionally Deleted. 3 17 ARTICLE 2 Alterations and Additions Section 2.01 Landlord's Work. (A) Landlord agrees to construct in a good and workman-like manner the "Landlord's Work" (as defined below) according to the space plans and working drawings approved by Landlord. Landlord shall provide Tenant with an improvement allowance (the "Tenant Improvement Allowance") not to exceed One Hundred Fifty-Seven Thousand Two Hundred Fifty-One and 40/100 Dollars ($157,251.40) [i.e Fifteen and 10/100 Dollars ($15.10) per rentable square foot of area contained within the Premises] for expenditure on Landlord's Work. The term "Landlord's Work" shall mean all work set forth on the "Working Drawings" (as defined below) which are approved by Landlord. The Tenant Improvement Allowance shall be applied to the cost of Landlord's Work (including mechanical, electrical, plumbing and structural engineering fees, reproduction costs, and costs of permits and inspections for Landlord's Work), special installations, finishes, telephone and computer wiring, architectural fees and design fees. At least eighty percent (80%) of the Tenant Improvement Allowance shall be utilized in the Premises and up to, but no more than, twenty percent (20%) of the Tenant Improvement Allowance, may be utilized in the premises that National Foundation For Affordable Housing Solutions, Inc. is leasing in the Building and/or the premises that Capital Management Strategies Financial Services, Inc. is leasing in the Building. To the extent that any portion of the Tenant Improvement Allowance is being utilized for any of the items set forth in the immediately preceding sentence and which do not constitute items of the Landlord's Work, Landlord shall reimburse Tenant for such items within thirty (30) days after Landlord has received (i) releases of lien from all contractors and materialmen who have supplied labor or material for such items, and (ii) paid invoices indicating that Tenant has actually paid to materialmen and contractors who have supplied materials or labor for such items an amount which is at least equal to or in excess of the amount for which Tenant is seeking reimbursement. Despite the foregoing, (i) Landlord shall be obligated to pay the Tenant Improvement Allowance (or applicable portion thereof) directly to the general contractor who is performing the Landlord's Work in accordance with the terms of the construction contract that is entered into by Landlord and such general contractor, and (ii) Landlord shall not charge any construction management fee or supervisory fee to Tenant in connection with the performance of the Landlord's Work. If the aggregate total of the costs outlined herein, including the cost of any changes to Landlord's Work, exceeds the amount of Tenant Improvement Allowance, Tenant agrees to pay Landlord the amount of such excess costs within fifteen (15) days after being invoiced by Landlord. (B) Tenant shall meet with and cooperate, as necessary, with Landlord and/or Landlord's representatives, so that the following schedule for drawings, construction and moving can be met ("Critical Dates"): (i) Landlord, at Landlord's sole cost, shall provide Tenant with any existing "as-built" drawings for the Premises that are currently in Landlord's possession. On or before July 13, 1998, Tenant, at Tenant's sole cost (subject to the Tenant Improvement Allowance), shall submit to Landlord, for its approval, complete architectural and engineering working drawings and specifications for the Premises, as required for construction of Landlord's Work (the "Working Drawings"). Within seven (7) business days after Landlord's receipt of the Working Drawings, Landlord shall provide Tenant with its comments on the Working Drawings. (ii) Within five (5) business days after the date that Landlord provides Tenant with Landlord's comments on the Working Drawings, Tenant shall revise the Working Drawings in accordance with Landlord's comments and resubmit the same for Landlord's approval, which approval shall not be unreasonably withheld, conditioned or delayed. 4 18 (iii) Upon Landlord's receipt of the Working Drawings, Landlord shall promptly make application for the building permit. (iv) Upon Landlord's receipt of the Working Drawings, Landlord shall promptly submit drawings for bidding to three (3) general contractors, one of which general contractor shall, subject to Landlord's reasonable right of approval, be selected by Tenant. The bid packages shall require the general contractor to (x) specify any long lead items that are contained in the Working Drawings, and (ii) require the general contractor to provide a one (1) year guaranty of its work. Bids shall be due within ten (10) business days after the date the drawings are submitted to the three (3) general contractors. (v) Tenant shall have five (5) business days to review, approve and select the bidder who will perform Landlord's Work, Immediately upon selection by Tenant, Landlord shall enter into a construction contract with such bidder to perform such work. (C) Intentionally Deleted. (D) Upon receipt of a signed copy of the approved Working Drawings, the required permits and the execution of the construction contract by Landlord, construction will commence. Any changes or additions requested by Tenant shall require Landlord's prior written approval (which shall not be unreasonably withheld, conditioned or delayed) and written authorization executed by Tenant or Tenant's authorized representative, and to the extent applicable, approval of any municipality or other authority having jurisdiction. (E) "Tenant Delay" shall mean the actual amount of delay caused by (i) Tenant's failure to perform any of its obligations with respect to the construction of the Premises within the time frames for such performance set forth in this Lease, (ii) any modifications to the Working Drawings requested by Tenant (including change orders) following approval thereof, (iii) the work of Tenant, its employees, agents, licensees or invitees or the work of Tenant's independent contractors during the improvement period, if such work continues following notice from Landlord that such work is actually delaying Substantial Completion, or (iv) the delivery or installation of long lead items. It is expressly agreed that the general contractor who is selected to perform the Landlord's Work shall not, in its capacity of performing the work that is set forth on the Working Drawings, be deemed to be an employee or contractor of Tenant. (F) In the event of any Tenant Delay, then any delay in completing the Premises shall not in any manner affect or delay the Rent Commencement Date or Tenant's liability for the payment of Base Rent and Additional Rent with respect to the Premises for the number of days of delay caused by such Tenant Delay, and Tenant shall commence to pay Base Rent and Additional Rent on the date that the Premises would have been "Substantially Completed" (as defined below) but for such Tenant Delay. Under such circumstances, Landlord agrees to make the ready for Tenant's occupancy not later than the Rent Commencement Date, plus the number of days delay resulting from the Tenant Delay. (G) The Premises shall be deemed ready for occupancy if "Substantially Completed". As used in this Lease "Substantial Completion" and "Substantially Completed" shall mean the date that Landlord's Work is completed in accordance with the Working Drawings, except for Long Lead Items and except for "punch list" items that will not materially affect the use of the Premises for Tenant's intended purposes, or the date upon which the Premises would have been ready for occupancy and Substantially Competed but for a Tenant Delay. In the event that any governmental authority prohibits Tenant from using the Premises for office purposes as a result of the Landlord's Work failing to be performed in accordance with applicable law, then Tenant's obligation to pay Base Rent with respect to the Premises shall be postponed until the date that the Landlord's Work is corrected so that Tenant can lawfully use the Premises for office purposes. (H) Landlord, at Tenant's sole cost and expense, shall be responsible for obtaining (i) the construction permits for Landlord's Work, and (ii) a certificate of occupancy for the Premises, if necessary. Tenant shall be responsible for obtaining all other permits or licenses (collectively, "Tenant's Permits") necessary for its lawful occupancy of the Premises. This requirement shall 5 19 not relieve Tenant of its liability for Base Rent with respect to the Premises from the Rent Commencement Date in the event Tenant's Permits have not been acquired prior thereto. (I) Upon substantial completion of Landlord's Work, Landlord and Tenant shall inspect Landlord's Work and prepare a punch list of incorrect or incomplete items. Landlord shall, in good faith, use diligent efforts to complete or correct the punch list items within thirty (30) days after creation of the punch list. Section 2.02 Intentionally Deleted. Section 2.03 Alterations. Tenant shall not make or allow to be made any alterations, additions or improvements (collectively, "Alterations") to the Premises or any part thereof unless in accordance with the Final Plans without the prior consent of Landlord. Notwithstanding anything herein to the contrary, Landlord shall not unreasonably withhold or delay its consent to any Alterations proposed to be made by Tenant to adapt the Premises for the Permitted Uses which (i) are nonstructural, (ii) do not affect the Building's HVAC, plumbing, electrical, life safety or mechanical systems or services, (iii) do not affect any part of the Building other than the Premises, (iv) do not adversely affect any service required to be furnished by Landlord to Tenant or to any other tenant or occupant of the Building and (v) do not reduce the value or utility of the Building. Landlord's consent shall not be required with respect to purely decorative Alterations which satisfy the criteria set forth in the immediately preceding sentence and which, together with all such other purely decorative Alterations performed within any twelve (12) month period during the Term, do not in the aggregate cost more than $10,000.00. Any other Alteration may be approved or disapproved by Landlord for any reason or for no reason. If Landlord shall consent to any Alterations to the Premises, such Alterations shall be subject to all of the terms, covenants, conditions and agreements which Landlord may, in its reasonable discretion, prescribe from time to time, including the requirement that, prior to the commencement of any Alterations to the Premises Tenant deliver to Landlord written acknowledgments from all materialmen, contractors, artisans, mechanics, laborers and any other persons furnishing any labor, services, materials, supplies or equipment to Tenant with respect to the Premises that they will look exclusively to Tenant to obtain payment of all sums due in connection therewith and that Landlord shall have no liability for such costs. Anything in this Lease to the contrary notwithstanding, Landlord shall not require Tenant to provide a bond in connection with any Alterations. All Alterations to the Premises made or requested by Tenant shall be at Tenant's sole cost and expense and shall be performed in compliance with all applicable laws and regulations, including, without limitation, Title III of the Americans with Disabilities Act. Upon the Expiration Date or sooner termination of the Term, any Alterations to the Premises, excepting movable furniture and trade fixtures and moveable equipment, shall become the property of Landlord and shall be surrendered with the Premises, unless, at the time Landlord consents to any such Alterations, Landlord reserves the right to require Tenant to remove same at the expiration of the Term, and Landlord shall thereafter direct Tenant to remove any such Alterations, in which event Tenant shall remove same at its sole cost and expense and repair in a good and workmanlike manner any damage to the Premises occasioned by such removal and restore the Premises to the condition existing prior to such Alterations, normal wear and tear excepted. Tenant shall not be required to pay a construction administration or supervisory fee to Landlord in connection with any Alterations. ARTICLE 3 Operating Expenses Section 3.01 Base Year Stop. The term "Base Operating Year" shall mean Rent Year 1. In the event that Operating Expenses (as defined in Section 3.03 hereof) for any calendar year subsequent to the Base Operating Year during the Term or any renewal or extension thereof exceed the total Operating Expenses for the Base Operating Year ("Base Expenses"), Tenant shall pay Landlord, as Additional Rent, Tenant's Pro Rata Share (as defined in Section 3.04 herein) of such excess Operating Expenses (the "Operating Payment"). The Operating Payment shall be made pursuant to the provisions of Section 3.02 hereof. 6 20 Section 3.02 Estimates and Payments. Tenant agrees to pay monthly, as Additional Rent, one-twelfth (1/12) of Landlord's estimate of Tenant's Operating Payment for the then current calendar year. Landlord will give Tenant written notice from time to time of such estimated amounts, and Tenant shall pay such amounts monthly to Landlord in the same manner and at the same time as Base Rent. As soon as is reasonably practicable following the end of each calendar year, Landlord will submit to Tenant a statement showing in reasonable detail Operating Expenses (including Landlord's calculations pursuant to Subsection 3.03(B) hereof) on a per rentable square foot basis for the preceding calendar year along with a reconciliation of estimated payments made by Tenant as compared to Tenant's actual Operating Payment for such calendar year (each, an "Operating Statement"). Within thirty (30) days after receipt of an Operating Statement, Tenant shall pay to Landlord any additional amounts owed to Landlord as shown on the Operating Statement. In the event the Operating Statement shall indicate that an overpayment has been made by Tenant, Tenant shall be entitled to a credit against payments next becoming due by it pursuant to this Lease or, in the event the Term has expired, Landlord shall refund the amount of such overpayment to Tenant. Any payments due under this Article 3 shall be prorated for any partial calendar year occurring during the Term. Tenant's obligation to pay any amounts due under this Article 3 shall survive the Expiration Date or earlier termination of this Lease. Anything herein to the contrary notwithstanding, Tenant shall have no obligation to pay any Operating Payment in respect of any period prior to the first day of Rent Year 2. Section 3.03 Operating Expenses Defined. (A) The term "Operating Expenses" shall mean the aggregate of those costs and expenses paid or incurred by or on behalf of Landlord relating to the ownership, maintenance and operation of the Building or the sidewalks or areas adjacent thereto or for any other areas for which Landlord shall have any obligation for repair or maintenance in connection with its ownership of the Building. Without limiting the generality of the foregoing, Operating Expenses shall include the following: all taxes, fees and assessments and governmental charges levied taxing the Building or its operation ("Taxes"), for any whole or partial tax year or period occurring during the Term hereof as well as all expenses, incurred in obtaining a refund of or contesting any Taxes; all insurance of any type that Landlord, in its sole discretion, shall deem necessary to carry; and all costs paid or incurred in connection with the operation or maintenance of the Building, Building systems and related facilities. If the costs of any repairs, alterations, additions, changes, replacements .or other items which would otherwise be includable in Operating Expenses are required to be capitalized under the Internal Revenue Code of 1986, as amended, then such costs shall not be included in full as Operating Expenses in the year incurred, but rather, Landlord shall only include in each calendar year the annual portion of such costs yielded by amortizing the same over the useful life thereof, together with interest on such amortized amount calculated at the lesser of (a) the prime rate of interest published from time to time in The Wall Street Journal or any successor publication plus two percent (2%) per annum or (b) the maximum legal rate of interest allowed by the state in which the Building is located. (B) In determining the amount of Operating Expenses for any calendar year during the initial Term and any Extension Term, including the Base Operating Year, if less than ninety percent (90%) of the rentable area of the Building shall have been occupied by tenant(s) at any time during any such calendar year Operating Expenses shall be determined for such calendar year to be an amount equal to the expenses which would normally be expected to be incurred had such occupancy been ninety percent (90%) throughout such calendar year. (C) Notwithstanding anything to the contrary contained herein, Landlord and Tenant agree that during the initial Term or any Extension Term (as defined in Section 4.10) hereof, Tenant's Operating Payment with respect to items other than "uncontrollable expenses" shall not increase by more than seven percent (7%) per annum, compounded annually over Tenant's Operating Payment for such items for the immediately preceding calendar year during the initial Term or, if applicable, any Extension Term hereof, and any unused portion of any limitation for a prior calendar year during the initial Term or, if applicable, any Extension Term hereof shall be added to the limitation applicable to any subsequent calendar year during the initial Term or any Extension Term hereof. For the purposes hereof, "uncontrollable expenses" shall be deemed to consist of (i) Taxes, (ii) insurance carried by Landlord, and (iii) all utility expenses incurred by 7 21 Landlord. Tenant expressly acknowledges that the seven percent (7%) limitation on increases in Tenant's Operating Payment shall not apply to "uncontrollable expenses." (D) Anything herein to the contrary notwithstanding, for purposes of this Lease, Operating Expenses shall not include (1) costs incurred in the original construction of the Building; (2) expenditures for refinancing and for mortgage debt service; (3) reserves; (4) expenses directly relating to the leasing of space in the Building (including tenant improvements, leasing commissions and advertising expenses incurred in connection with the listing of available space in the Building); (5) expenses directly relating to the transfer or disposition of ownership interests in the Building; (6) ground rent; (7) salaries or fringe benefits of any partner, shareholder, officer, director or employee of Landlord above the grade of building manager; (8) costs and expenses otherwise included in Operating Expenses, to the extent Landlord is reimbursed from other sources for such costs and expenses; (9) expenses for repairs or maintenance for which Landlord is reimbursed from or pursuant to insurance warranties, service contracts or otherwise; (10) management or other fees paid to any entity controlled by, controlling or under common control with Landlord to the extent same as substantially in excess of the industry standard for similarly situated office buildings in the general vicinity of the Building; (11) the cost of repairs or other work necessitated by a fire or other casualty or condemnation to the extent of any insurance proceeds or condemnation award received by Landlord in connection therewith; (12) Landlord's general corporate overhead and administrative expenses; (13) costs resulting from Landlord's gross negligence or willful misconduct in the performance its obligations under this Lease, including, only in the case of Landlord's failure to pay Taxes when the same are due, any penalty or interest incurred by Landlord as a result thereof; (14) the cost of operating any parking area of the Building; (15) any compensation paid to clerks, attendants or other persons in commercial concessions (including any parking garage) operated by Landlord; (16) any costs of compliance with Environmental Laws (as defined in Section 4.04(B) hereof; (17) capital expenditures other than those which (a) benefit Tenant and (b) reduce Operating Expenses (to the extent of such reduction only, after giving effect to the provisions of Section 3.03(B) hereof) or are required by laws enacted after the date hereof; (18) depreciation; (19) the rental cost of any item which, if purchased, would not be considered an Operating Expense, unless Landlord would otherwise be entitled to treat same as a capital expense (in which event such rental cost shall be included in Operating Expenses subject to the provisions of this Section 3.03 concerning capital expenditures); (20) costs for acquisitions of sculpture, paintings or other objects of art; (21) the cost of electricity provided to any other tenant of the Building outside of building standard days and hours; (22) legal fees incurred in connection with tenant disputes or in procuring tenants; (23) any cost incurred by Landlord by reason or curing any building code violation affecting the Office Building and/or complying with any laws in effect as of the date hereof; and (24) costs incurred by Landlord in maintaining its legal existence as an entity. (E) Tenant or its representative shall have the right, upon not less than ten (10) days' prior notice rendered no later than ninety (90) days after delivery of an Operating Statement, to review, at Tenant's sole cost, Landlord's books and records with respect to Operating Expenses during normal business hours, at the location of Landlord's books and records, but no more than once annually or with respect to any given calendar year. Unless Tenant shall take written exception to any item contained in the Operating Statement within ninety (90) days after delivery thereof, the Operating Statement shall be deemed final and accepted by Tenant. If Tenant disputes an Operating Statement, Tenant shall pay the amount set forth therein and any other amounts then owed by Tenant under this Lease as a condition precedent to any further review of the content of the Operating Statement. In the event that Tenant, after having the opportunity to examine such books and records shall disagree with the Operating Statement, Tenant and Landlord shall attempt to resolve such disagreement. If they are unable to do so after a period of ninety (90) days, Landlord and Tenant shall designate a mutually acceptable independent qualified professional (the "Auditor") to audit Landlord's books and records to determine the accuracy of the Operating Statement. If the audit discloses an error in the Operating Statement which resulted in an overpayment by Tenant in excess of fifteen percent (15%) of the amount due by Tenant, Landlord shall be responsible for paying the fees and costs of such audit, otherwise Tenant shall pay the fees and costs. The Auditor's determination shall be binding upon the parties. Section 3.04 Pro Rata Share. Tenant's pro rata share ("Pro Rata Share") of Operating Expenses and other amounts payable pursuant to the terms of this Lease shall be computed by 8 22 multiplying such expense or amount by a fraction, the numerator of which shall be the number of rentable square feet in the Premises as set forth in Section 1.01(K), and the denominator of which shall be the total number of rentable square feet in the Office Building as determined by Landlord. As of the date hereof, the Office Building contains 182,259 rentable square feet and Tenant's Pro Rata Share is 5.71%. ARTICLE 4 Tenant's Covenants and Rights Section 4.01 Parking. (A) Landlord shall require that any garage operator shall offer to Tenant two and one-half (2.5) monthly parking contracts for every one thousand (1,000) square feet of rentable area of the Premises to park an automobile (collectively, the "Parking Rights") in the parking garage under the Building (the "Parking Facilities"). Parking Rights shall (i) be unassigned, and (ii) be on a self-park or attendant parking basis (or a combination thereof), as determined by the garage operator. Despite the foregoing, one (1) of the parking contracts that is entered into by Tenant under the first sentence of this Section 4.01 shall be for a reserved parking space (the "Reserved Space"). The monthly parking rate for the Parking Rights (including the Reserved Space) shall be the prevailing market rate charged from time to time by the garage operator for similar monthly parking contracts, except that the initial monthly parking rate for Parking Rights (other than for the Reserved Space) shall initially be Seventy-Five and 00/100 Dollars ($75.00) per month, per space. As of the date of this Lease, the monthly rate for the Reserved Space is One Hundred Fifty and 00/100 Dollars ($150.00) per month. Except as otherwise provided herein, contracts for the Parking Rights shall be with the garage operator and shall contain the same terms as are usually contained in contracts with other similar office customers of the garage operator. (B) All parking facilities furnished by Landlord shall be subject to the reasonable control and management of Landlord, who may, from time to time, establish, modify and enforce reasonable rules and regulations with respect thereto. Landlord further reserves the right to change, reconfigure, or rearrange the parking areas, and to restrict or eliminate the use of any parking areas and do such other acts in and to such areas as Landlord deems necessary or desirable without such actions being deemed an eviction of Tenant or a disturbance of Tenant's use of the Premises. (C) During temporary periods of construction or repair, Landlord shall not be deemed to be in default hereunder, but Tenant's obligations to pay Additional Rent for the Parking Rights shall cease for so long as Tenant does not have the use of the Parking Rights (or any substitute Parking Spaces in reasonable proximity to the Building which Landlord may supply), and such abatement shall constitute full settlement of all claims that Tenant might otherwise have against Landlord by reason of such failure or inability to provide the Parking Rights. (D) Tenant shall, if requested by Landlord, furnish to Landlord a complete list of the license plate numbers of all vehicles operated by Tenant, Tenant's employees and agents. Landlord shall not be liable for any damage of any nature to, or any theft of, vehicles, or contents thereof, in or about such parking facility. Excessive use of the parking facilities by another tenant shall not be a default or breach of this Lease by Landlord, and shall not suspend or terminate any of Tenant's obligations under this Lease. Section 4.02 Assignment and Subletting. (A) Tenant covenants that it shall not, by operation of law or otherwise, assign, sublet, encumber or mortgage this Lease, or any part thereof, or permit the Premises to be used by others without the prior written consent of Landlord in each instance. The consent by Landlord to any assignment, mortgage, encumbrance, subletting or use of the Premises by others shall not constitute a waiver of Landlord's right to withhold its consent to any other assignment, subletting, mortgage, encumbrance or use by others of the Premises. Whether or not Landlord's consent shall be granted to any proposed assignment or subletting, Tenant shall reimburse Landlord for 9 23 the reasonable expenses, including attorneys' fees and disbursements, incurred by Landlord in connection with Tenant's request for such consent. In addition, Tenant shall pay to Landlord, as Additional Rent, all reasonable direct and indirect expenses incurred by Landlord due to any such assignee or sublessee taking possession of the Premises. The absolute and unconditional prohibitions set forth in this Section 4.02 and Tenant's agreement thereto are material inducements to Landlord to enter into this Lease with Tenant, and any breach or attempted breach thereof shall constitute an Event of Default (as defined in Section 7.01 hereof) for which no notice or opportunity to cure need be given. For the purposes of this Section 4.02, (i) the transfer or issuance of stock ultimately resulting in ownership of a majority of the issued and outstanding capital stock of any corporate tenant, or of a corporate subtenant, or the transfer of a majority of the total interest in any partnership tenant or subtenant, however accomplished, whether in a single transaction or in a series of related or unrelated transactions, shall be deemed an assignment of this Lease, or of such sublease, as the case may be, except that the transfer of the outstanding capital stock of any corporate tenant, or subtenant, shall not be deemed to include the sale of such stock by persons or parties through the "over-the-counter market" or through any recognized stock exchange, other than by those deemed to be a "control person" within the meaning of the Securities Exchange Act of 1934, as amended, (ii) a takeover agreement or similar agreement whereby the obligations of Tenant under this Lease are assumed by another party shall be deemed a transfer of this Lease, (iii) any person or legal representative of Tenant, to whom Tenant's interest under this Lease passes by operation of law, or otherwise, shall be bound by the provisions of this Section 4.02, (iv) a modification, amendment or extension of a sublease shall be deemed a sublease and (v) if Tenant consists of more than one person, a purported assignment, voluntary, involuntary, or by operation of law by any of the persons executing this Lease shall be deemed a voluntary assignment of this Lease by Tenant. (B) No consent by Landlord to an assignment of this Lease shall be effective until Tenant shall deliver to Landlord an agreement in form and substance satisfactory to Landlord pursuant to which such assignee assumes and agrees to be bound by all of the terms, covenants, conditions, provisions and agreements of this Lease. In no event shall Tenant be released from its obligations hereunder as a result of any assignment of this Lease, and the Tenant named herein and any assignee of such Tenant who assumes the obligations of the named Tenant under this Lease, from and after such assignment, shall be jointly and severally liable for performance of all obligations of Tenant under this Lease. (C) If the rent and other sums payable to Tenant by an assignee or sublessee for or in connection with an assignment of this Lease or the sublease of all or any part of the Premises, less the reasonable out-of-pocket brokerage commissions, tenant improvement costs and attorneys' fees incurred by Tenant in connection with such assignment or Sublet, shall be in excess (the "Excess") of the Base Rent and any Additional Rent provided for in this Lease (allocated on a per square foot basis in the event of a sublease of less than all of the Premises), Tenant shall so notify Landlord and shall pay Landlord fifty percent (50%) of the Excess as and when received by Tenant. (D) (1) In the event that Tenant shall desire Landlord's consent to the subletting of all or part of the Premises or the assignment of this Lease, Tenant shall give Landlord thirty (30) days' prior written notice thereof, which notice shall include (i) the name and address of the proposed assignee or subtenant, (ii) a reasonably detailed description of such person or entity's business, (iii) detailed financial references for such person or entity (including its most recent balance sheet and income statement, certified, as applicable, by such person or by such entity's chief financial officer as to the truth and accuracy thereof), (iv) a written authorization by such proposed subtenant or assignee for Landlord or its designee to cause a credit check to be compiled against it, (v) a statement setting forth (1) the effective date of the proposed assignment or the commencement date of the proposed sublease, (2) the base annual rent and additional rent to be paid by the proposed subtenant, and (3) the number of rentable square feet proposed to be sublet, (vi) a copy of the proposed sublease or assignment and assumption agreement, and (vii) such other information as Landlord may reasonably require. In the case of a proposed assignment of the Lease or a sublease of all or substantially all of the Premises not then subleased by Tenant, such notice shall be deemed to be an offer by Tenant (which may be accepted by Landlord by written notice to Tenant) (a) to terminate the Lease or (b) to eliminate from 10 24 the Premises and cause Tenant to surrender such portion of the Premises (the "Eliminated Space") which Tenant proposes to sublease in the case of a proposed sublease of less than all of the Premises, effective as of the effective date of the proposed assignment or the commencement date of the proposed sublease, but in no event sooner than sixty (60) days following Landlord's acceptance of Tenant's offer (the "Elimination Date"). In the event of a termination of this Lease pursuant to the provisions of clause (a) of this Subsection, Tenant's obligations hereunder shall cease from and after the date of termination, provided that Tenant shall not be relieved of any obligations which shall have accrued prior to the date of termination. In the event of a surrender of the Eliminated Space, (i) Tenant's obligations with respect to the Eliminated Space shall cease from and after the date of surrender of the Eliminated Space, provided that Tenant shall not be relieved of any obligations which shall have occurred prior to the date of surrender, (ii) Tenant's obligation for the payment of Base Rent shall be reduced as of the Elimination Date by an amount equal to the product of (xx) the Base Rent, and (yy) a fraction, the numerator of which is the number of rentable square feet proposed to be sublet and the denominator of which is the number of rentable square feet contained in the Premises, and (iii) the Operating Payment shall be proportionately reduced effective as of the Elimination Date to take into account the deletion of the Eliminated Space from the Premises. If Landlord shall exercise its option to cause a surrender of the Eliminated Space, Landlord, at Landlord's expense, may make such alterations as may be required or deemed necessary by Landlord to physically separate the Eliminated Space from the balance of the Premises and to comply with any legal insurance requirements related to such separation. If required by any applicable law in connection with a termination of this Lease, or the surrender of the Eliminated Space, Tenant shall complete, swear to and file any questionnaires, tax returns, affidavits or other documentation which may be required to be filed with the appropriate governmental agency in connection with any tax which may now or hereafter be in effect relating to any termination of this Lease or surrender of the Eliminated Space. Tenant agrees to pay any taxes which may be assessed in connection with any such termination or Surrender, if and to the extent same would have been imposed upon Tenant in the event the proposed assignment or sublet had become effective, and to defend, indemnify and hold Landlord harmless from any claims for payment of such taxes as a result of any such transactions. (2) In the event Landlord does not exercise either option provided to it pursuant to the provisions of this Subsection (D) within thirty (30) days after the date of Landlord's receipt of Tenant's notice, and providing that Tenant is not in default of any of Tenant's obligations under this Lease (after notice and the expiration of any applicable grace period) as of the time of Landlord's consent, and as of the effective date of the proposed assignment or the commencement date of the proposed sublease, Landlord's consent (which must be in writing and form reasonably satisfactory to Landlord) to the proposed assignment or sublease shall not be unreasonably withheld or delayed, provided and upon condition that: (a) In Landlord's reasonable judgment the proposed assignee or subtenant is engaged in a business or activity, and the Premises, or the relevant part thereof, will be used in a manner, which (i) is in keeping with the then standards of the Building, (ii) is limited to the use of the Premises as general and executive offices, and (iii) will not violate any negative covenant as to use contained in any other lease of office space of the Building; (b) The proposed assignee or subtenant is a reputable person with sufficient financial worth or who has provided reasonable security considering the responsibility involved, and Landlord has been furnished with reasonable proof thereof; (c) Neither (i) the proposed assignee or sublessee nor (ii) any person which, directly or indirectly, controls, is controlled by, or is under common control with, the proposed assignee or sublessee, is then an occupant of any part of the Building if there is other space available for lease in the Building; 11 25 (d) The proposed assignee or sublessee is not a person with whom Landlord is then negotiating to lease space in the Building; (e) The proposed sublease or instrument of assignment shall be in form and substance reasonably satisfactory to Landlord; (f) The rental and other terms and conditions of the sublease are the same as those contained in the proposed sublease furnished to Landlord pursuant to this Subsection; (g) [Intentionally Deleted]; and (h) The proposed subtenant or 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 in which the Building is located. (3) If Landlord shall decline to give its consent to any proposed assignment or sublease, or if Landlord shall exercise either of its options afforded it pursuant to this Subsection (D), Tenant shall indemnify, defend and hold harmless Landlord against and from any and all loss, liability, damages, costs, and expenses (including reasonable attorneys' fees and disbursements) resulting from any claims that may be made against Landlord by the proposed assignee or sublessee in connection with the proposed assignment or sublease transaction or by any brokers or other persons claiming a commission or similar compensation in connection with the proposed assignment or sublease. (4) In the event that (i) Landlord fails to exercise either of its options under this Subsection (D) and consents to a proposed assignment or sublease, and (ii) Tenant fails to execute and deliver the assignment or sublease to which Landlord consented within (90) days after the giving of such consent, then, Tenant shall again comply with all of the provisions and conditions of this Subsection (D) before assigning this Lease or subletting all or part of the Premises. (5) Each sublease shall provide that it is subject and subordinate to this Lease and to the matters to which this Lease is or shall be subordinate, and that in the event of termination, re-entry or dispossession by Landlord under this Lease Landlord may, at its option, take over all of the right, title and interest of Tenant, as sublessor, under such sublease, and such Subtenant shall, at Landlord's option, attorn to Landlord pursuant to the then executory provisions of such sublease, except that Landlord shall not (a) be liable for any previous act or omission of Tenant under such sublease, (b) be subject to any counterclaim, offset or defense, not expressly provided in such sublease, which theretofore accrued to such subtenant against Tenant, or (c) be bound by any previous modification of such sublease or by any previous prepayment of more than one (1) month's rent. The provisions of this paragraph shall be self-operative and no further instrument shall be required to give effect to this provision. (6) The consent by Landlord to any assignment or subletting shall not constitute a waiver of the necessity for Landlord's consent to any subsequent assignment or subletting. If this Lease is assigned or if the Premises or any part thereof is occupied by anybody other than Tenant, Landlord may collect rent front the assignee or occupant and apply the net amount collected to the rent herein reserved, but no such assignment, subletting, occupancy or collection shall be deemed a waiver of this provision or the acceptance of the assignee, undertenant or occupant as tenant, or as a release of Tenant from the further performance by Tenant of the provisions on its part to be observed or performed herein. Notwithstanding any assignment or sublease, Tenant shall remain fully liable and shall not be released from performing any of the terms of this Lease. (7) Notwithstanding anything to the contrary set forth in Section 4.02 of this Lease, and subject to all of the provisions of this Lease, Tenant may assign this Lease to or 12 26 permit any corporation or other business entities which control, are controlled by, or are under common control with Tenant (each, a "related corporation") to sublet the Premises for any of the purposes permitted to Tenant under this Lease (subject, however, to compliance with Tenant's obligations under this Lease) without being required to obtain Landlord's consent provided that (a) Tenant shall not then be in default (after any applicable grace and/or cure periods set forth in Section 7.01(A) in the performance of any of its obligations under this Lease), (b) prior to such assignment or subletting, Tenant furnishes Landlord with the name of any such related corporations, together with the written certification of Tenant that such entity is a related corporation of Tenant, (c) in the reasonable judgment of Landlord, the proposed assignee or subtenant is in keeping with the reasonable standards of Landlord for the Building and (d) in the event of an assignment or a sublease of all or substantially all of the Premises, the assignee or sublessee shall have a net worth computed in accordance with generally accepted accounting principles at least equal to the greater of (1) the net worth of Tenant immediately prior to such assignment or sublease or (2) the net worth of Tenant named herein on the date of this Lease, and proof satisfactory to Landlord of such net worth shall have been delivered to Landlord at least ten (10) days prior to the effective date of any such transaction. Any such subletting shall not be deemed to vest in any such related corporation any right or interest in this Lease or the Premises nor shall any subletting or assignment relieve, release, impair or discharge any of Tenant's obligations hereunder. For the purposes hereof, "control" shall be deemed to mean ownership of not less than fifty-one percent (51%) of all of the voting stock of such corporation or not less than fifty-one percent (51%) of all of the legal and equitable interest in any other business entities. (8) The provisions of this Section shall not apply and Landlord's consent shall not be required with respect to transactions with a corporation into or with which Tenant is merged or consolidated or to which substantially all of Tenant's assets are transferred, provided that in any of such events (a) the successor to Tenant has a net worth computed in accordance with generally accepted accounting principles at least equal to the greater of (1) the net worth of Tenant immediately prior to such merger, consolidation or transfer, or (2) the net worth of Tenant herein named on the date of this Lease and (b) proof satisfactory to Landlord of such net worth shall have been delivered to Landlord at least ten (10) days prior to the effective date of any such transaction. (E) Anything to the contrary contained in this Section 4.02 notwithstanding, Tenant shall have the right from time to time to sublet or enter into occupancy agreements with respect to individual offices within the Premises to Capital Management Strategies Financial Services, Inc., Stellar Advisors, LLC, and/or National Foundation For Affordable Housing Solutions, Inc., provided: (1) At the time of such subletting, Tenant named herein occupies offices in the Premises and this Lease has not been assigned by Tenant; (2) Tenant shall not create or cause the creation of any demising walls in connection with any such subletting or occupancy; (3) Notice of such subletting or occupancy is delivered to Landlord within ten (10) days of the execution of such sublease of occupancy agreement, as the case may be, together with a copy of such executed sublease or occupancy agreement; (4) At the time of such subletting or occupancy. Tenant is not in default under this Lease beyond any applicable notice and/or grace period; and (5) Such sublease or occupancy agreement shall specifically state that it is subject to the provisions of this Lease and that occupant joins in the waivers and indemnities set forth herein and such space shall be used for general office use. (F) Despite the foregoing, in the event that in accordance with the terms of this Lease Tenant sublets the Temporary Space to another party at a rent which is in excess of the rent (as 13 27 determined on a per square foot basis) that Tenant is actually paying to Landlord for such space then Tenant shall be entitled to retain one hundred percent (100%) of such excess. Section 4.03 Care of Premises. Subject to the provisions of Sections 6.01 and 6.02 hereof Tenant shall maintain and repair the Premises during the Term and preserve same in the condition delivered to Tenant on the Commencement Date, normal wear and tear excepted. Tenant shall be responsible for repainting and redecorating the Premises, and making repairs, replacements and alterations as needed, in a good and workmanlike manner in accordance with the terms and provisions of this Lease, provided that the foregoing shall not derogate from Landlord's obligations set forth in Section 5.02 hereof. Landlord shall repair or replace, at Tenant's expense any damage done to the Building or any part thereof caused by Tenant or Tenant's agents employees, contractors, invitees or visitors. Tenant agrees to give Landlord or its managing agent at least fifteen (15) days prior written notice of the necessity for any repairs to the Premises and shall not proceed to perform same until Landlord or its managing agent has consented thereto. Upon the expiration of the Term or other termination of this Lease, Tenant shall peaceably surrender to Landlord the Premises, broom clean, in the same condition as existed on the Commencement Date, excepting only ordinary wear and tear. Section 4.04 Compliance with Law. (A) Tenant, at its expense, shall comply with all laws, orders and regulations of any governmental authorities and with any directive of any public officer which shall impose any violation, order or duty upon Landlord or Tenant with respect to the Premises or the use or occupation thereof including, without limitation, any governmental law or statute, rule, regulation ordinance, code, policy or rule of common law now or hereafter in effect relating to the environment, health, safety or any Substances, materials or wastes regulated by any governmental authority or deemed or defined as a "hazardous substance", "hazardous material", "toxic substance", "toxic pollutant", "contaminant", "pollutant", "solid waste", "hazardous waste" o words of similar import under applicable laws and regulations of the United States, the state in which the Building is located and the political subdivisions thereof having jurisdiction over the Building, including, without limitation, oil and petroleum products, natural or synthetic gas asbestos in any form, urea formaldehyde and radon gas (collectively, "Hazardous Materials"). In addition, Tenant shall comply with, and shall cause compliance with the rules and regulation set forth in Exhibit D annexed hereto, as amended from time to time (the "Rules an Regulations"), which have been adopted by Landlord in its reasonable discretion for the Building Landlord shall enforce the Rules and Regulations on a non-discriminatory basis. Landlord shall maintain the common areas of the Building in compliance with Title III of the Americans with Disabilities Act of 1990 and all regulations promulgated thereunder (the "ADA"), except as provided in the following sentence. If alterations to the common areas of the Building are required in order to comply with the ADA as a result of Tenant's changes or alterations within the Premises or Tenant's use of the Premises, the cost thereof shall be paid by Tenant within twenty (20) days after demand by Landlord. Tenant shall maintain the Premises in compliance with the ADA at its cost and expense. (B) Tenant shall provide Landlord with copies of all communications and related materials regarding the Premises with any (i) governmental agency relating to any law, statute, rule regulation, article, code, policy or rule of common law and any judicial interpretation thereof relating to Hazardous Materials (collectively, "Environmental Laws") or (ii) person with respect to any claim relating in any way to any Environmental Law (each, an "Environmental Claim") Landlord or its agents may perform an environmental inspection of the Premises at Tenant's expense at any time during the Term. (C) Tenant agrees to defend, indemnify and hold harmless the Indemnitees (as defined in Section 4.06 hereof) from and against all obligations (including removal and remedial actions) losses, claims, suits, judgments, liabilities, penalties, damages (including consequential and punitive damages), costs and expenses (including attorneys' and consultants' fees and expenses of any kind or nature whatsoever that may at any time be incurred by, imposed on or asserted against such Indemnitees directly or indirectly based on, or arising or resulting from (a) the actual or alleged presence of Hazardous Materials on the Premises or in the Building which is caused or permitted by Tenant and (b) any Environmental Claim relating in any way to Tenant's 14 28 operation or use of the Premises or the Building. The provisions of this Subsection (C) shall survive the expiration or sooner termination of this Lease. (D) Tenant shall not do or permit to be done any act in, on or about the Premises or store anything therein which will in any way increase the existing rate of, or adversely affect, or cause a cancellation of, any fire or other insurance policies covering the Building or any of its contents. In addition, Tenant shall pay or cause to be paid before delinquency, any and all taxes levied or assessed and payable during the Term upon all of Tenant's leasehold improvements, equipment, furniture, fixtures, and other personal property located in the Premises. (E) Landlord shall cure any violation imposed by any applicable federal, state, county or municipal authority against Landlord with respect to the operation of the Building which violation results in the prohibition of the use and occupancy of the Premises by Tenant for the Permitted Uses provided such violation is not the result of the acts or omissions of Tenant, any other tenant in the Building, or any other third party. In no event shall the foregoing sentence be deemed to relieve Tenant of any obligations to comply with Title III of the Americans with Disabilities Act (the "ADA") within the Premises and with respect to the entranceway to the Premises; provided, however, that Landlord shall be responsible for the costs of ADA compliance required with respect to the common areas of the Building other than to the extent same is the responsibility of Tenant hereunder or the responsibility of any other tenant of the Building. (F) Tenant shall have no obligation or liability under this Section 4.04 with respect to Hazardous Materials and/or Environmental Claims based on a condition which exists within the Premises or the Building prior to the Commencement Date which was created by Landlord or any other tenant except to the extent Tenant exacerbates such condition. (G) Landlord hereby represents that, to the best of its actual knowledge as of the date of this Lease, it has not received any formal notice of a violation of any applicable Environmental Laws with respect to the presence of Hazardous Materials in the Building. Section 4.05 Tenant's Insurance. (A) Tenant shall procure and maintain throughout the Term of this Lease, at its expense, commercial general liability insurance providing coverage for bodily injury (including death) and property damage and products liability insurance, as necessary. This policy shall contain a broad form contractual liability endorsement insuring Tenant's obligations under Section 4.06(A) hereof with a combined single limit of at least One Million Dollars ($1,000,000) per occurrence and Three Million Dollars ($3,000,000) in the aggregate for all occurrences within each policy year, or such greater amounts as Landlord may require provided that such greater amounts are then generally being required by owners of similar office buildings situated in the general vicinity of the Building. Tenant shall also procure (i) fire and extended coverage insurance covering Tenant's personal property, fixtures, equipment and improvements, in an amount equal to the replacement value of the same and containing the waiver of subrogation required in Section 6.03 of this Lease, (ii) state worker's compensation in statutorily mandated limits and employer's liability insurance with limits of at least Five Hundred Thousand Dollars ($500,000), (iii) business interruption insurance with coverage for at least one (1) year and (iv) such other insurance as Landlord may reasonably require from time to time provided that such other insurance is then generally being required by owners of similar office buildings situated in the general vicinity of the Building. (B) All of the foregoing insurance policies (with the exception of worker's compensation insurance to the extent not available under statutory law) shall name Landlord, any holder of a Mortgage (as defined in Section 5.01 hereof), any managing agent for the Building and such other parties as Landlord shall designate as an additional insured as their respective interests may appear. All insurance required hereunder shall be placed with companies which are rated A:XI or better by Best's Insurance Guide and licensed to do business in the state in which the Building is located and written as primary policies with annual deductibles not to exceed Ten Thousand Dollars ($10,000), and with any other policies, including Landlord's policy, serving as excess coverage. Tenant shall deliver duplicate original copies of all such policies and all endorsements thereto, prior to the Commencement Date or, in the case of renewals thereto, fifteen (15) days 15 29 prior to the expiration of the prior insurance policy, together with evidence that such policies are fully paid for, and that no change or non-renewal thereof shall be effective except upon thirty (30) days prior written notice from the insurer to Landlord. If Tenant shall fail at any time to procure and/or maintain the insurance required herein, Landlord may procure such insurance on Tenant's behalf and the cost thereof shall be payable, within thirty (30) days after demand, as Additional Rent. Section 4.06 Tenant's Indemnification. (A) Tenant shall indemnify, defend and hold harmless Landlord and its officers, directors and employees (collectively, the "Indemnities") from and against any and all claims, demands, causes of action, judgments, costs, expenses, and all losses and damages incurred by any of the Indemnities by reason of damage to any third party arising from Tenant's use of the Premises or from the conduct of its business or from any acts permitted or suffered by Tenant in or about the Premises, and shall further indemnify, defend and hold harmless the Indemnities from and against any and all claims arising from any breach in Tenant's performance under this Lease, or arising from any act, omission or negligence or willful or criminal misconduct of Tenant, or any officer, agent, employee, independent contractor, guest, or invitee thereof, and from all costs, attorneys' fees and disbursements, and liabilities incurred in the defense of any such claim or any action or proceeding in any way related to this Lease. Upon notice from Landlord, Tenant shall defend any such claim, demand, cause of action or suit at Tenant's expense by counsel satisfactory to Landlord. As a material part of the consideration to Landlord for this Lease, Tenant hereby assumes all risk of damage to property or injury to persons in, upon or about the Premises from any cause, and Tenant hereby waives all claims with respect thereto against Landlord. Tenant shall give immediate notice to Landlord in case of casualty or accidents in the Premises. The provisions of this Section 4.06(A) shall survive the expiration or sooner termination of this Lease. (B) Landlord or its agents shall not be liable for any loss or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, water or rain which may leak from any part of the Building or from the pipes, appliances or plumbing works therein or from the roof, street or subsurface or from any other places resulting from dampness or any other cause whatsoever, or from the act or negligence of any other tenant or any officer, agent, employee, contractor or guest of any such tenant, except personal injury caused by or due to the negligence or willful or criminal misconduct of Landlord. In addition, Landlord or its agents shall not be liable for (i) interference with the electrical service, ventilation, or for any latent defect in the Premises, (ii) any loss or damage for which Tenant is required to insure or (iii) any loss or damage resulting from any construction, Alterations or repair required or permitted to be performed by Tenant under this Lease. Section 4.07 Utilities. Tenant shall not install any equipment in the Premises without Landlord's prior written consent if such equipment requires an electrical current other than 120 volt, single phase, special circuits or grounding or which, together with all other equipment installed in the Premises, consumes more than 5 watts per rentable square foot then contained in the Premises (exclusive of any electrical current consumed by heating and air conditioning equipment). Tenant shall have the right to utilize any electrical equipment existing in the Premises as of the date hereof. All costs of the installation and maintenance of special electrical facilities approved by Landlord shall be paid by Tenant, as Additional Rent, upon demand. All costs for extraordinary, unusual or excessive demand by Tenant for electrical or other utility service and all costs of submetering or monitoring such use shall be borne by Tenant. Landlord reserves the right to install, at Tenant's expense, submeters and related equipment, relating to Tenant's use of electrical or other utility services for the purposes of monitoring and billing any excessive use of electricity by Tenant. Tenant shall separately arrange with, and pay directly to, the applicable local public authorities or utilities, as the case may be, for the furnishing, installation and maintenance of all telephone services and equipment required by Tenant in the use of the Premises. Section 4.08 Security Deposit. (A) As security for the payment by Tenant of all Base Rent and any Additional Rent and for the faithful performance of all the terms, covenants and conditions hereof, Tenant shall, subject 16 30 to the provisions of Sections 4.08(C) and 4.08(D) of this Lease, deposit with Landlord a clean, irrevocable letter of credit issued by a bank acceptable to Landlord in its sole judgment in the amount of $380,000.00 in the form annexed hereto as Exhibit F (the "Letter of Credit"). At any time that Tenant is in default under this Lease beyond any applicable notice and grace period, Landlord shall have the right to draw down-the entire Letter of Credit and apply the proceeds or any part thereof in accordance with provisions of this Section 4.08. Landlord shall also have the right to draw down the entire Letter of Credit in the event Landlord receives notice that the date of expiry of the Letter of Credit will not be extended by the issuing bank, or if the issuer of the Letter of Credit shall cease to have a net worth of at least Two Hundred Million ($200,000,000.00), as determined by Landlord, or, if the Letter of Credit does not provide for automatic one-year extensions of the term of such Letter of Credit, the last of which renewals shall expire 30 days after the Expiration Date, or if a replacement letter of credit, issued in accordance with this Lease in form satisfactory to Landlord, is not delivered at least thirty (30) days before the expiration of the Letter of Credit which is then held by Landlord. If Landlord shall have drawn down the Letter of Credit and applied all or a portion thereof in accordance with the terms of this Section 4.08, then Tenant shall deposit with Landlord, within five (5) business days after notice from Landlord, an amount of cash sufficient to bring the balance of the cash then being held by Landlord under this Section 4.08 to the amount of the Security Deposit. The failure by Tenant to deposit such additional amount within the foregoing time period shall be deemed a default pursuant to Section 7.01 of this Lease. Provided Tenant is not in default hereunder, Tenant may at any time after the end of each Rent Year (i) deliver an amendment to the Letter of Credit to reduce the amount thereof to the Reduced Amount (as hereinafter defined) or (ii) deliver a substitute clean, irrevocable and unconditional letter of credit to Landlord in such Reduced Amount issued by a bank acceptable to Landlord in accordance with the terms hereof and otherwise in the form annexed hereto as Exhibit F (a "Substitute Letter of Credit"). "Reduced Amount" shall mean (i) $317,000.00 after the end of Rent Year 2, (ii) $253,000.00 after the end of Rent Year 3, (iii) $190,000.00 after the end of Rent Year 4, (iv) $126,654.00 after the end of the Rent Year 5, and (v) $63,308.00 after the end of Rent Year 6. Upon receipt of the Substitute Letter of Credit, or replacement thereof, as the case may be, delivered in compliance with all the provisions of this Subsection 4.08(B), Landlord shall return the Letter of Credit or prior Substitute Letter of Credit, as applicable, to Tenant. The Letter of Credit or Substitute Letter of Credit, as applicable, shall not be construed as liquidated damages, and if Landlord's claims hereunder exceed the Letter of Credit or Substitute Letter of Credit, as the case may be, Tenant shall remain liable for the balance of such claims. (B) In lieu of the Letter of Credit, Tenant may deposit with Landlord cash equal to the amount of the Security Deposit. If, at any time during the Term, Tenant does not fulfill any of its obligations under this Lease, Landlord shall have the right to use all or part of the cash Security Deposit to satisfy such obligations. Landlord agrees to segregate the cash Security Deposit from other funds and to deposit the Security Deposit in an interest bearing money market bank account with Citibank N.A. or such other bank which is acceptable to Landlord and Tenant. The interest shall be added to and held as part of the Security Deposit subject to and in accordance with the provisions of this Lease. Landlord shall not be required to credit Tenant with any interest for any period during which Landlord does not receive interest on the Security Deposit, nor shall Landlord have any liability or obligation for loss of all or any portion of the Security Deposit by reason of the insolvency or failure of the bank in which the Security Deposit is deposited. If, at any time during the Term, Tenant does not fulfill any of its obligations under this Lease, Landlord shall have the right to use the Security Deposit, or so much thereof as necessary, to satisfy such obligations. If any portion of the cash Security Deposit is used, applied, or retained by Landlord as herein permitted, then within five (5) business days after written demand therefor, Tenant shall deposit with Landlord an amount sufficient to restore the cash Security Deposit to its original or adjusted amount. Provided Tenant is not then in default hereunder, Landlord shall, at the end of each Rent Year, return to Tenant any portion of the Security Deposit then held by Landlord, together with all accrued interest thereon, which is in excess of the then applicable Reduced Amount. It Tenant fully performs every term, covenant, condition and obligation of this Lease, the cash Security Deposit (or any balance thereof), together with all accrued interest thereon, shall be returned to Tenant after the expiration of the Term. Landlord may deliver the cash Security Deposit to any purchaser of Landlord's interest in the Premises if such interest is sold, in which event Landlord shall be discharged from any further liability with respect to the Security Deposit. The Security Deposit shall not be construed as liquidated damages, and if 17 31 Landlord's claims hereunder exceed the Security Deposit, Tenant shall remain liable for the balance of such claims. (C) Simultaneously with the execution of this Lease, Landlord is entering into a lease (the "CMSFS Lease") with Capital Management Strategies Financial Services, Inc. ("CMSFS") for approximately 8,543 square feet of rentable area in the Building (the "CMSFS Space"). Notwithstanding anything herein to the contrary, it is the express intention of Landlord, Tenant and CMSFS that (i) Tenant and CMSFS shall, subject to the provisions of Section 4.08(D) below, be jointly and severally liable under the Lease and the CMSFS Lease for providing (x) one or more Letters of Credit in the initial aggregate amount of $380,000.00, and (y) for providing all Substitute Letters of Credits in the applicable amounts set forth above; (ii) that CMSFS and Tenant shall determine between themselves that portion of the Letter of Credit or Substitute Letter of Credit, as applicable, that each shall be obligated to post; (iii) that any default by CMSFS under the CMSFS Lease beyond the applicable notice and cure period shall also constitute a default by Tenant under this Lease such that Landlord can use the Letter of Credit or Substitute Letter of Credit, as applicable, that is required to be posted under (x) this Lease to cure (A) a default by Tenant under this Lease beyond the applicable notice and cure period, and/or (B) a default by CMSFS under the CMSFS Lease beyond the applicable notice and cure period, and (y) the CMSFS Lease to cure (A) a default by Tenant under this Lease beyond the applicable notice and cure period, and/or (B) a default by CMSFS under the CMSFS Lease beyond the applicable notice and cure period. It is expressly understood and agreed that when this Lease and the CMSFS Lease are executed, the total amount of the Security Deposit that is required to be posted under this Lease and the CMSFS Lease shall be Three Hundred Eighty Thousand and 00/100 Dollars ($380,000.00) in the aggregate (and not $380,000.00 per lease). (D) Despite the foregoing, (i) Landlord shall draw down fully on the letter of credit that was posted by CMSFS to cure a default by CMSFS under the CMSFS Lease prior to drawing down on Tenant's letter of credit, (ii) except for drawing down Tenant's letter of credit to cure a default by CMSFS, Landlord shall not be permitted to cross-default Tenant's Lease on the basis of a default by CMSFS under the CMSFS Lease, and (iii) in the event that Tenant's letter of credit has been drawn upon to cure a default by CMSFS under the CMSFS Lease, then Tenant shall not be obligated to restore such letter of credit to the balance then being held by Landlord. Section 4.09 Signs. Tenant shall not, without the prior written consent of Landlord erect or install any type of exterior or interior window or door signs, or any other type of sign or placard, whether within or without the Building. All signs and placards must comply with the sign criteria promulgated by Landlord for the Building and all applicable laws. Landlord shall not unreasonably withhold its consent with respect to any interior signs which comply with the sign criteria promulgated by Landlord for the Building and all applicable laws. Tenant shall pay all costs of fabrication, installation and maintenance of all permitted signs or placards (other than building directory signs). Prior to vacating the Premises, Tenant shall, at its expense, promptly remove its sign(s) and placards, and upon the removal or alteration of any of its sign(s) and placards for any reason, Tenant shall restore the surface beneath such signs or placards damaged by such removal. Section 4.10 Tenant's Option to Extend. (A) Tenant shall have the right, at its option, to extend the Term for a single five (5) year period (the "Extension Term"). The Extension Term shall commence on the day after the Expiration Date and shall expire on the fifth (5th) anniversary of the Expiration unless the Extension Term shall sooner end pursuant to any of the terms, covenants or conditions of this Lease or pursuant to law. Subject to Section 4.10(B), provided this Lease shall then be in full force and effect and Tenant shall not be in default hereunder beyond any applicable notice or grace period, Tenant may exercise its option to extend the Term by giving Landlord written notice of such election no sooner than three hundred sixty-five (365) days and no later than two hundred seventy (270) days prior to the Expiration Date, the time of exercise being of the essence, and upon the giving of such notice, this Lease and the Term shall be extended without execution or delivery of any other or further documents, with the same force and effect as if the Extension Term had originally been included in the Term and the Expiration Date shall thereupon be deemed to be the last day of the Extension Term. Notwithstanding Tenant's exercise of its 18 32 option under this Subsection (A), at Landlord's option the Extension Term shall not commence if Tenant shall be in default hereunder beyond any applicable notice and grace period as of the Expiration Date, in which event the Term shall expire on the Expiration Date and the provisions of this Section shall be deemed null and void and of no further force or effect. All of the terms, covenants and conditions of this Lease shall continue in full force and effect during the Extension Term, including items of Additional Rent and escalations which shall remain payable on the terms herein set forth, except that (i) the Base Rent shall be as determined in accordance with Subsection (B) of this Section 4.10, (ii) for the purposes of Calculating Operating Expenses pursuant to Section 3.03(A), the term Base Operating Year shall mean the calendar year in which the first day of the Extension Term shall occur, and (iii) Tenant shall have no further right to extend the Term of this Lease pursuant to this Section 4.10. (B) The annual Base Rent payable by Tenant for the Premises during the Extension Term shall be the fair market rental value of the Premises determined as of the day immediately preceding the Extension Term. Immediately after the exercise by Tenant of its option under Subsection (A) above, or upon Tenant's request to determine the annual Base Rent for the Premises payable during the Extension Term given no sooner than three hundred sixty-five (365) days prior to the Expiration Date but prior to the exercise by Tenant of its option under Subsection (A) above, Landlord and Tenant shall use their best efforts to agree upon the fair market rental value of the Premises. In the event Landlord and Tenant cannot reach agreement within thirty (30) days after the date of Tenant's notice of exercise of its option, Landlord and Tenant shall confer and appoint a reputable, qualified, licensed real estate broker having an office in the County in which the Building is located who is familiar with the rentals then being charged in the Building and in comparable buildings in the North Bethesda market (the "Independent Broker"). Upon the failure of Landlord and Tenant to agree upon the designation of the Independent Broker, then upon ten (10) days' notice, either party may apply to any court of the state in which the Building is located which exercises primary jurisdiction over general commercial litigation to appoint the Independent Broker. Concurrently with such appointment, Landlord and Tenant shall each submit a letter to the Independent Broker, with a copy to the other, setting forth their respective estimates of the fair market rental value of the Premises, taking into consideration the duration of the Extension Term and all other terms and conditions of this Lease which are applicable to the Extension Term (respectively, "Landlord's Letter" and "Tenant's Letter"). The Independent Broker shall use his best efforts to determine the fair market rental value of the Premises during the Extension Term and shall choose the fair market rental value set forth in either Landlord's Letter or Tenant's Letter to be the Base Rent during the Extension Term. The fees and expenses of the Independent Broker and all costs incurred in connection with the appointment of the Independent Broker shall be shared equally by Landlord and Tenant. (C) In the event the Extension Term shall commence prior to a determination of the Base Rent during the Extension Term having been made in accordance with Subsection (B) of this Section 4.10, then the Base Rent to be paid by Tenant to Landlord until such determination has been made shall be the fair market rental value (as is set forth in Landlord's Letter) plus all sums payable pursuant to Sections 1.05 and 3.01, as modified pursuant to the provisions of Subsection (A) hereof and any other Additional Rent. After such determination has been made for the Base Rent during the Extension Term, any excess rental for the Extension Term theretofore paid by Tenant to Landlord shall be credited by Landlord against the next ensuing monthly Base Rent payable by Tenant to Landlord and any deficiency in Base Rent due from Tenant to Landlord during the Extension Term shall be immediately paid. Section 4.11 Expansion Premises. (A) Provided that (i) Tenant is not in default (beyond the expiration of any applicable notice and cure period) of its obligations under this Lease, and (ii) Landlord receives a bona fide offer that Landlord is willing to accept to lease approximately three thousand seven hundred eighty (3,780) rentable square feet of space, located on the third (3rd) floor of the Building that is designated as the "Expansion Premises" on Exhibit G hereto (the "Expansion Premises"), Landlord shall deliver a written notice to Tenant (the "Expansion Notice"). In the event Tenant desires to lease all (but not less than all) of the Expansion Premises, then Tenant shall, within ten (10) days after its receipt of the Expansion Notice, deliver a notice (the "Acceptance Notice") to Landlord which states that Tenant desires to lease the entire Expansion Premises. In the event 19 33 that Tenant fails to deliver the Acceptance Notice to Landlord prior to the expiration of the applicable ten (10) day period, then, except as provided in Section 4.11(C) below, Tenant shall have no further right to lease the Expansion Premises. (B) In the event that Tenant delivers the Acceptance Notice to Landlord prior to the expiration of the applicable ten (10) day period, then Landlord shall lease the Expansion Premises to Tenant upon the following terms and conditions: (i) the commencement date of the Lease with respect to the Expansion Premises (the "Expansion Premises Commencement Date") shall be the date that Landlord tenders possession of the Expansion Premises; (ii) the expiration date of the Lease with respect to the Expansion Premises shall be coterminous with the term of the Lease (iii) the Base Rent for the Expansion Premises shall be the product of 3,780 multiplied by the amount per rentable square foot as then escalated that Tenant is then paying as the Base Rent (iv) "Tenant's Pro Rata Share" shall be increased to reflect the additional rentable square footage that is contained within the Expansion Premises; (v) Tenant shall lease the Expansion Premises from Landlord in its then "as-is" condition, (vi) in lieu an improvement allowance or construction allowance, Landlord shall provide Tenant with a construction allowance equal to the product 01 (x) Fifty-Six Thousand Seven Hundred and No/l00 Dollars ($56,700.00) [i.e., $15.00 multiplied times 3,780], multiplied by (y) a fraction, the numerator of which shall be the number of monthly which will remain in the initial term of the Lease as of the "Expansion Premises Rent Commencement Date" (as defined below) and the denominator of which shall be eighty-four (84); (vii) the rent commencement date with respect to the Expansion Premises (the "Expansion Premises Rent Commencement Date") shall be the date that is sixty (60) days after the date that Landlord tenders possession of the Expansion Premises provided, however, if Landlord does not provide Tenant with at least fifteen (15) days prior notice of the date that Landlord will tender the Expansion Premises to Tenant, such sixty (60) day period shall be extended on a day for day basis (not to exceed fifteen (15) days in the aggregate) for each day that Landlord fails to provide such fifteen (15) days prior notice; and (viii) the Base Rent that is then payable with respect to the Expansion Premises shall be increased on an annual basis on the same date and by the same increase per rentable square foot, that the Base Rent is increased; (ix) Tenant shall be entitled to ten (10) additional parking contracts in connection with its leasing of the Expansion Premises; and (x) Landlord shall approve or disapprove of Tenant's plans and specifications for the Expansion Premises within seven (7) business days after Landlord receives the same. Except as set forth in the sentence which immediately precedes this sentence, Tenant shall lease the Expansion Premises from Landlord upon all of the terms and conditions that are applicable to Tenant's leasing of the Premises. In the event Tenant timely delivers the Acceptance Notice to Landlord, then Landlord and Tenant shall, upon ten (10) days prior notice from Landlord, enter into a lease amendment to reflect the foregoing terms and conditions upon which Tenant is leasing the Expansion Premises. (C) In the event that (i) Landlord has delivered the Expansion Notice to Tenant, (ii) Tenant did not exercise its right to lease the Expansion Premises, (iii) either (x) the term of the lease for the Expansion Premises for the tenant who was the subject of the bona fide offer has ended, or (y) Landlord did not ever enter into a lease with such proposed tenant for the Expansion Premises, and (iv) Landlord receives a bona fide offer to lease the Expansion Premises that Landlord is willing to accept, then provided that Tenant is not in default under the Lease, Landlord shall deliver a written notice to Tenant (the "Expansion Notice"). In the event Tenant desires to lease all (but not less than all) of the Expansion Premises, then Tenant shall, within ten (10) days after its receipt of the Expansion Notice, deliver a notice (the "Acceptance Notice") to Landlord which states that Tenant desires to lease the Expansion Premises. In the event that Tenant fails to deliver the Acceptance Notice to Landlord prior to the expiration of the applicable ten (10) day period, then Tenant shall have no further right to lease the Expansion Premises. (D) In the event that Tenant delivers the Second Acceptance Notice to Landlord prior to the expiration of the applicable ten (10) day period, then Landlord shall lease the Expansion Premises to Tenant upon the following terms and conditions: (i) the commencement date of the Lease with respect to the Expansion Premises (the "Expansion Premises Commencement Date") shall be the date that Landlord tenders possession of the Expansion Premises; (ii) the expiration date of the Lease with respect to the Expansion Premises shall be coterminous with the term of the Lease with respect to the balance of the space being leased by Tenant in the Building; (iii) the Base Rent for the Expansion Premises shall be the fair market rent for such space after taking into 20 34 account the construction allowance for such space which shall be made available for Tenant in accordance with clause (vi) below, which fair market rent shall be determined in accordance with the procedures set forth in Section 4.10(B) of the Lease, except that the parties shall select the "Independent Broker" (as defined in the Lease) within ten (10) days after the date that Tenant delivers the Acceptance Notice; (iv) "Tenant's Expansion Space Pro Rata Share" shall be increased to reflect the additional rentable square footage that is contained within the Expansion Premises; (v) Tenant shall lease the Expansion Premises from Landlord in its then "as-is" condition, (vi) in lieu of an improvement allowance or construction allowance, Landlord shall provide Tenant with a construction allowance equal to the product of (x) Fifty-Six Thousand Seven Hundred and No/100 Dollars ($56,700.00) [i.e., $15.00 multiplied times 3,780], multiplied by (y) a fraction, the numerator of which shall be the number of months which will remain in the initial term of the Lease as of the Expansion Premises Rent Commencement Date and the denominator of which shall be eighty-four (84); (vii) the rent commencement date with respect to the Expansion Premises (the "Expansion Premises Rent Commencement Date") shall be the date that is sixty (60) days after the date that Landlord tenders possession of the Expansion Premises provided, however, if Landlord does not provide Tenant with at least fifteen (15) days prior notice of the date that Landlord will tender the Expansion Premises to Tenant, such sixty (60) day period shall be extended on a day for day basis (not to exceed fifteen (15) days in the aggregate) for each day that Landlord fails to provide such fifteen (15) days prior notice; and (viii) the Base Rent that is then payable with respect to the Expansion Premises shall be increased on an annual basis on the same date, and by the same increase per rentable square foot, that the Expansion Premises Base Rent is increased; (ix) Tenant shall be entitled to ten (10) additional parking contracts in connection with its leasing of the Expansion Premises; and (x) Landlord shall approve or disapprove of Tenant's plans and specifications for the Expansion Premises within seven (7) business days after Landlord receives the same. Except as set forth in the sentence which immediately precedes this sentence, Tenant shall lease the Expansion Premises from Landlord upon all of the terms and conditions that are applicable to Tenant's leasing of the Expansion Premises. In the event Tenant timely delivers the Acceptance Notice to Landlord, then Tenant shall, upon ten (10) days prior notice from Landlord, enter into a lease amendment to reflect the foregoing terms and conditions upon which Tenant is leasing the Expansion Premises. Section 4.12 Satellite Antenna (A) Provided this Lease shall be in full force and effect and Tenant shall not be in default hereunder beyond any applicable grace period, Tenant may, at its sole cost and expense, install and operate during the Term, a satellite antenna receiving dish or terrestrial microwave antenna (hereinafter the "Satellite Antenna") on the roof of the Building at a location (hereinafter the "Installation Area") to be designated by Landlord, and reasonably acceptable to Tenant. The installation of such Satellite Antenna shall be subject to the following: (1) Tenant shall not install or operate the Satellite Antenna until it receives prior written approval from Landlord, which approval Landlord agrees shall not be unreasonably withheld, conditioned or delayed provided, and on the condition, that Tenant submits plans and specifications for the installation of the Satellite Antenna which are reasonably acceptable to Landlord. Prior to commencing such installation Tenant shall provide Landlord with (i) copies of all required governmental and quasi-governmental permits, licenses and authorizations which Tenant will obtain at its own expense and which Tenant will maintain at all times during the operation of the Satellite Antenna; and (ii) a Certificate of Insurance evidencing insurance coverage as required by this Lease and any other insurance reasonably required by Landlord for the installation and operation of the Satellite Antenna. Landlord may withhold approval if the installation or operation of the Satellite Antenna may damage the structural integrity of the Building. (2) Tenant warrants and represents that (i) Tenant shall repair in a good and workmanlike manner any damage to the roof of the Building caused by the installation or operation of the Satellite Antenna, (ii) the maintenance of the Satellite Antenna on the roof or the operation thereof shall not cause interference with any telecommunications, mechanical or other systems either then located at or servicing the Building (whether belonging to or utilized by Landlord or any other tenant or occupant of the Building) or then located at or servicing any building, premises or location in the vicinity of the 21 35 Building limited however to that permissible under applicable F.C.C. regulations to the extent that such regulations apply, (iii) the installation, existence, maintenance and operation of the Satellite Antenna shall not constitute a violation of any applicable laws, ordinances, rules, orders, regulations, etc. of any Federal, State, county and Municipal authorities having jurisdiction thereover. (3) The installation of the Satellite Antenna shall be made subject to and in accordance with all of the provisions of this Lease. The contractors performing the installation of the Satellite Antenna and/or performing any work on or to the roof of the Building shall be approved or designated by Landlord prior to the commencement of any work. (4) Tenant covenants and agrees that the installation, operation and removal of the Satellite Antenna will be at its sole risk. Tenant agrees to indemnify and defend Landlord against all claims, actions, damages, liabilities and expenses including reasonable attorney's fees and disbursements in connection with the loss of life, personal injury, damage to property or business or any other loss or injury or as a result of any litigation arising out of the installation, operation or removal of the Satellite Antenna. (5) Landlord, at its sole option, may require Tenant, at any time prior to the Expiration Date, to terminate the operation of the Satellite Antenna if it is causing physical damage to the structural integrity of the Building, interfering with any other service provided to other tenants in the Building, interfering with any other tenant's business, in excess of that permissible under F.C.C. regulations to the extent that such regulations apply and such regulations shall not require such tenants or those providing such services to correct such interference. Notwithstanding the foregoing, if Tenant can correct the damage or disturbance caused by the Satellite Antenna to Landlord's reasonable satisfaction, Tenant may restore its operation. If the Satellite Antenna is not corrected and restored to operation within thirty (30) days, Landlord, at its sole option, may require that Tenant remove the Satellite Antenna at its own expense. (6) At the expiration or sooner termination of this Lease, or upon termination of the operation of the Satellite Antenna, or revocation of any license issued, Tenant shall remove the Satellite Antenna from the Building at its sole cost and expense. Tenant shall leave the Installation Area in good order and repair. If Tenant does not remove the Satellite Antenna when so required, Tenant hereby authorizes Landlord to remove and dispose of the Satellite Antenna and to charge Tenant for all costs and expenses incurred. ARTICLE 5 Landlord's Covenants and Rights Section 5.01 Quiet Environment and Subordination. (A) Landlord covenants and agrees that, upon performance by Tenant of all of the terms, covenants, obligations, conditions and provisions hereof on Tenant's part to be kept and performed, Tenant shall have, hold and enjoy the Premises, subject and subordinate to the terms and conditions of this Lease. (B) This Lease is subject and subordinate to any reciprocal easement agreements or any other easements (each, an "Easement") and to any renewals, modifications, increases, extensions, replacements and substitutions of any thereof now or hereafter affecting the Premises and/or the Building. In addition, this Lease is subject, and, provided that a non-disturbance agreement as described in Section 5.01(C) hereof is delivered with respect thereto, subordinate to all ground or underlying leases (each, a "Superior Lease"); any mortgage, deed of trust or deed to secure debt (each, a "Mortgage"); and to any renewals, modifications, increases, extensions, replacements, and substitutions of any thereof now or hereafter affecting the Premises and/or the Building. Tenant shall execute and deliver, upon request, such further instrument(s) in recordable form confirming this subordination as may be requested by Landlord, or the holder of any Mortgage or the lessor under any Superior Lease provided that a non-disturbance agreement as described in Section 5.01(C) hereof is delivered with respect to the applicable Mortgage or 22 36 Superior Lease. Notwithstanding anything to the contrary contained herein, at the option of the holder of any Mortgage, this Lease shall be made superior to such Mortgage by the insertion therein of a declaration that this Lease is superior. (C) Tenant agrees that Landlord may assign the rents and its interest in this Lease to the holder of any Mortgage. In the event of such an assignment, Tenant shall give the holder of such Mortgage a copy of any request for performance by Landlord or any notice of default by Landlord, and, in the event Landlord fails to cure any such default, Tenant shall give such holder a reasonable period, commencing on the last day on which Landlord could cure such default, in which to cure same. (D) Landlord hereby represents that there are no Superior Leases affecting the Building as of the date hereof. Landlord shall use reasonable efforts (which efforts shall not require Landlord to expend any sum of money) to obtain a non-disturbance agreement from the holder of any Mortgage or from the lessor under any Superior Lease hereafter encumbering the Building in the form annexed hereto as Exhibit I or in the standard form of any such holder or lessor which shall provide in substance that so long as Tenant is not in default under this Lease beyond any applicable notice and grace period (a) Tenant shall not be joined as a party defendant (unless required by applicable law) (i) in any action or proceeding which may be instituted or taken by any lessor under a Superior Lease for the purpose of terminating the Superior Lease by reason of any default thereunder or (ii) in any foreclosure action or proceeding which may be instituted by the holder of a Mortgage, and (b) Tenant shall not be evicted from the Premises, nor shall Tenant's leasehold estate or right to possession of the Premises be terminated or disturbed by reason of any default under any Superior Lease or Mortgage. Any non-disturbance agreement may also provide that Tenant will, at the option of the holder of any Mortgage or the lessor under any Superior Lease, either (i) attorn to such holder or lessor and perform for its benefit all the terms, covenants and conditions to be performed by Tenant under this Lease with the same force and effect as if the holder or lessor were the Landlord originally named in this Lease or (ii) enter into a new lease with the lessor under the Superior Lease or the holder of any Mortgage or their respective successors or assigns for the balance of the Term on the same terms and conditions as contained in this Lease. Landlord's failure to obtain a non-disturbance agreement from the holder of any future Mortgage or the lessor of any future Superior Lease encumbering the Building shall not relieve or release Tenant from any of its obligations under this Lease, provided that, in such event, this Lease shall be superior to the applicable future Superior Lease or future Mortgage. Section 5.02 Landlord's Services. (A) During the Term, Landlord shall operate and maintain the Building in accordance with the standards generally prevailing in the operation and maintenance of similar quality Class A office buildings situated in the general vicinity of the Building and in accordance with all applicable laws and regulations. Subject to the payment by Tenant of Base Rent and any Additional Rent, Landlord shall provide the following services: (1) Landlord shall provide the following services to the Premises: (a) Heating and air conditioning in season at such temperatures and in such amounts as shall be considered by Landlord to be building standard on weekdays, from 8:00 a.m. to 6:00 p.m. and on Saturdays from 9:00 a.m. to 1:00 p.m. Sundays, legal holidays (which for purposes of this Lease shall mean New Year's Day, Presidents' Day (Observed), Memorial Day (Observed), Independence Day (Observed), Labor Day (Observed), Thanksgiving Day and Christmas) and any hours other than those specified herein as building standard shall not be deemed usual and customary business hours, and such service will be provided at these times only if Tenant shall request same within a reasonable period of time prior to the need for such services. Tenant shall pay for such services at Landlord's actual cost therefor, as Additional Rent, within thirty (30) days after rendition of a bill therefor, at the rate for such services at the Building as determined by Landlord, subject to a minimum usage fee based upon the minimum overtime labor for the Building. Whenever equipment that generates abnormal heat which 23 37 affects the temperature otherwise maintained by the air conditioning system is used in the Premises, Landlord shall have the right to install supplemental air conditioning equipment in the Premises, and the cost thereof, including the cost of installation, operation, electrical use, maintenance and metering, shall be paid by Tenant to Landlord, as Additional Rent, on demand. (b) Electrical energy (not exceeding the present electrical capacity of the Premises) upon the following terms and conditions: (i) Landlord shall be responsible for replacing all light bulbs, fluorescent lamps, and all ballasts used by the Tenant in the Premises, except that Tenant shall be responsible for replacing the same in non-building standard fixtures; (ii) all equipment required to obtain additional electrical energy for Tenant from the public utility company shall be installed and maintained by Landlord at Tenant's expense; and (iii) Landlord shall not be liable for damages or consequential damages or in any other way in the event of loss, damage, failure, interruption, defect or change in the quantity or character or supply of electricity furnished to the Premises or of any other utility and Tenant agrees that such supply may be interrupted for inspection, repairs, replacement or in case of emergency. (c) Janitor service five (5) days per week (excluding legal holidays) in accordance with the cleaning specifications set forth on Exhibit H annexed hereto). (d) Access by way of a 24-hour access system the same as or substantially similar to that which is used in the Building as of the date hereof (with the provision of up to forty-nine (49) access cards at Landlord's expense and, provided that no more than forty-nine (49) access cards shall be available to Tenant at any given time, additional cards at Tenant's expense) or such other 24-hour access system which in the future is then generally used in similar quality Class A office buildings in the general vicinity of the Building, twenty-four (24) hours a day, seven (7) days a week, three hundred sixty-five (365) days a year, with access to at least one (1) elevator in operation after normal business hours. (2) Landlord shall provide the following services in the Office Building: (a) Hot and cold water; (b) Elevator service in common with other tenants; and (c) Heat, ventilation, cooling, lighting, electrical service and domestic running water, in those areas of the Office Building designated by Landlord for use during normal business hours by Tenant in common with other tenants and persons in the Office Building. (3) Landlord shall maintain and repair the foundations, structure and roof of the Office Building and shall operate, maintain, repair and replace the systems, facilities and equipment directly necessary to provide the services described in this Section 5.02 (unless same are installed by or are the property of Tenant); provided that: (a) Landlord shall use reasonable diligence in carrying out its obligations under this Section 5.02, but shall not be liable under any circumstances for any damages (including consequential damages) for any failure to do so; (b) No reduction or discontinuance of the services described in this Section 5.02 shall be construed as an eviction of Tenant or release Tenant from any of its obligations under this Lease; (c) Landlord shall have no liability to Tenant, its employees, agents, invitees or licensees for damages or consequential damages or in any other way for losses 24 38 due to any criminal act or for damage done by unauthorized persons on the Premises or in the Building; and (d) Tenant shall reimburse Landlord for the cost of any repairs or maintenance performed by Landlord if the need for same arose as a result of the negligence or criminal or willful misconduct of Tenant or its agents, employees, contractors, invitees and licensees. Section 5.03 Alterations and Entry by Landlord. (A) Landlord may from time to time: (i) make repairs, replacements, changes or additions to the structure, systems, facilities and equipment in the Premises where necessary to service the Premises or other parts of the Building; (ii) make changes in or additions to any part of the Building not in or forming part of the Premises; (iii) change or alter the location of any areas of the Building which may be designated by Landlord for use during normal business hours by Tenant in common with other tenants and persons in the Office Building but under the exclusive control of Landlord; and (iv) grant easement(s) on, over, under and above the Premises. Landlord, its agents and representatives shall have the right to enter the Premises by any and all means at any time in case of an emergency, and at all reasonable times for any purpose permitted hereunder, including, but not limited to, showing the Premises to prospective purchasers or mortgagees and, during the last six (6) months of the term, prospective tenants, and posting notices of non-responsibility. Tenant shall give Landlord a key for all of the doors of the Premises. (B) In performing its covenants under this Article 5, Landlord shall use reasonable efforts to minimize interference with the conduct of Tenant's business in connection with the performance by Landlord of any work or the provision of any services required or permitted hereunder. Section 5.04 Landlord's Right to Cure. All agreements, covenants and conditions to be performed by Tenant under this Lease shall be at Tenant's expense and without any abatement of Base Rent or any Additional Rent. If Tenant shall fail to perform any act or to pay any sum of money (other than Base Rent) required of Tenant hereunder within ten (10) days after notice (or without notice in an emergency), then Landlord may, without waiving or releasing Tenant from any of its obligations hereunder, make such payment or perform such act on behalf of Tenant. All sums paid and all costs incurred by Landlord in taking such action shall be deemed Additional Rent and shall be paid to Landlord on demand. Section 5.05 Abatement Condition. (A) In the event Landlord fails to provide an Essential Service (as hereinafter defined) which Landlord is required to provide to the Premises pursuant to the terms of Section 5.02 of this Lease (an "Abatement Condition") which prevents Tenant from occupying all or a material portion of the Premises (the "Abatement Space") (unless such failure results from Tenant's acts or omissions or by reason of force majeure), then Tenant may elect, by notice to Landlord, to have Base Rent abate, subject to the following additional provisions having occurred in each instance: (i) With respect to the Abatement Condition in question, Tenant shall have given notice to Landlord of the occurrence thereof, which notice shall designate the cause of the Abatement Condition and the portion of the Premises which is not occupiable by Tenant and the Abatement Condition in question shall have continued after Tenant has given notice, for a period of not less than seven (7) consecutive business days; and (ii) Tenant, solely because of the occurrence of the Abatement Condition, has actually vacated the Abatement Space for not less than seven (7) consecutive business days after the giving of notice of the Abatement Condition. If, with respect to the Abatement Condition in question, the conditions of this Section 5.05(A) are fulfilled, then Base Rent shall abate, in the proportion that rentable square foot area of the Abatement Space actually vacated bears to the rentable square foot area of the 25 39 Premises, for a period equal to the lesser of (i) the period during which Tenant has actually vacated the Abatement Space, but commencing no sooner than the day after the giving of notice of the Abatement Condition and (ii) the period of time between Tenant's having vacated the Abatement Space, but commencing no sooner than the day after the giving of notice of the Abatement Condition, and ending on the date following receipt by Tenant of notice of the curing of the Abatement Condition. Tenant agrees that the giving of notice of the Abatement Condition shall be an election of remedies, and Tenant shall be deemed to have waived any other rights against Landlord in law or in equity, including, but not limited to, an action for money damages in connection with the Abatement Condition in question. For purposes hereof, an "Essential Service" shall mean the services provided by the HVAC systems, life safety systems, mechanical systems, plumbing and waste disposal systems, and electrical system (to the extent required to be supplied by Landlord). (B) Anything herein to the contrary notwithstanding, except if required by any governmental regulation, in the event Landlord falls to provide HVAC service pursuant to Section 5.02 hereof so as to maintain the temperature within the majority of the area of the Premises between 68(degrees) F and 780(degrees) F on building standard days and hours as specified in said Section 5.02 (an "HVAC Abatement Condition") (unless such failure results from Tenant's acts or omissions or by reason of force majeure), then Tenant may elect, by notice to Landlord, to have Base Rent abate, subject to the following additional provisions having occurred in each instance: (i) with respect to the HVAC Abatement Condition in question, Tenant shall have given notice to Landlord of the occurrence thereof; and (ii) the HVAC Abatement Condition in question shall have continued after Tenant has given notice, for more than 4 hours per day during normal business hours and a period of not less than five (5) consecutive business days (which five (5) business day period shall be extended one (1) day for each day of delay caused by time required by Landlord to obtain equipment required to remedy such condition or any other Force Majeure Event). If, with respect to the HVAC Abatement Condition in question, the conditions of this Section 5.05(B) are fulfilled, then Base Rent shall abate in its entirety, for a period (i) commencing on the day after the giving of notice of the HVAC Abatement Condition and (ii) ending on the date following, receipt by Tenant of notice of the curing of the HVAC Abatement Condition. Tenant agrees that the giving of notice of the HVAC Abatement Condition shall be an election of remedies, and Tenant shall be deemed to have waived any other rights against Landlord in law or in equity, including, but not limited to, an action for money damages in connection with the HVAC Abatement Condition in question. Section 5.06 Landlord's Insurance. Subject to reimbursement as an Operating Expense as provided in Section 3.01 hereof, Landlord shall procure and maintain in effect throughout the Term of this Lease, (i) Commercial General Liability Insurance covering the common areas of the Building against claims for bodily injury or death or property damage occurring upon, in or about such areas, and (ii) "all-risk" insurance covering not less than eighty percent (80%) of the replacement value of the Building (excluding all foundations, fixtures and property required to be insured by Tenant under Section 4.05 hereof or by any other tenant of the Building under its lease), in such amounts and with such coverages and endorsements as Landlord deems reasonably prudent. Section 5.07 Landlord's Indemnification. Landlord shall indemnify, defend and hold harmless Tenant and its officers, directors and employees (collectively, "Tenant Indemnitees") from and against any and all claims, demands, causes of action, judgments, costs and expenses, and all losses and damages incurred by any of the Tenant Indemnitees by reason of damage to any third party resulting from any occurrence within the common areas of the Building without any negligence on the part of any of the Tenant Indemnitees and arising from the negligence or willful misconduct of Landlord or its employees or agents in failing to maintain the common areas of the Building in accordance with the provisions of this Lease. Upon notice from Tenant, Landlord shall defend any such claim, demand, cause of action or suit at Landlord's expense by counsel selected by Landlord and reasonably satisfactory to Tenant, provided, however, that any 26 40 counsel selected by Landlord's insurance carrier shall be automatically deemed acceptable to Tenant. ARTICLE 6 Eminent Domain, Casualty Section 6.01 Eminent Domain. (A) If, during the Term, all of the Premises shall be taken (or temporarily taken for a period of one (1) year or more) by a public authority under any statute or by right of eminent domain, or purchased under threat of such taking, this Lease shall automatically terminate on the date on which the condemning authority takes possession of the Premises ("Date of Such Taking"). Notwithstanding the foregoing, if more than one-third (1/3) of the number of rentable square feet in the Premises is so taken or purchased, Tenant shall have the right to terminate this Lease by giving Landlord notice no later than thirty (30) days after the Date of Such Taking, and thereupon this Lease shall terminate on the last day of the month following the month in which notice is given. In both of such events, Tenant shall have no claim for the value of any unexpired Term of this Lease. (B) If, during the Term, part of the Building is so taken or purchased, and if, in Landlord's opinion, substantial alteration of the Building is necessary or desirable as a result thereof, whether or not the Premises are affected, Landlord shall have the right to terminate this Lease by giving Tenant at least thirty (30) days written notice of such termination, and thereupon this Lease shall terminate on the date set forth in such notice. (C) If a portion of the Premises is so taken, and no rights of termination herein conferred are timely exercised, the Term of this Lease shall expire with respect to the portion so taken on the Date of Such Taking and Landlord shall adjust Base Rent and Additional Rent to account for the reduced number of rentable square feet in the Premises. Landlord shall restore and redemise the Premises to the extent required to exclude from the Premises that portion so taken; provided, however, that Landlord's obligation to restore and redemise the remainder of the Premises shall be limited to the funds available to Landlord from the condemnation award or other consideration paid for the affected portion of the Premises. In no event shall Landlord be obligated to replace or restore any improvements to the Premises or alterations thereof installed therein by or on behalf of Tenant, nor shall Landlord be obligated to replace, repair or restore Tenant's leasehold improvements, personal property, furniture, fixtures, equipment or the like. Upon any such taking or purchase, Landlord shall be entitled to receive and retain the entire award or consideration for the affected portion of the Building, and Tenant shall not have any claim against Landlord for the value of its property or its leasehold estate or the unexpired Term of the Lease, or for costs of removal or relocation, or business interruption expense or any other damages arising out of such taking or purchase. (D) If all or any portion of the Premises shall be condemned or taken for governmental occupancy for a period of less than one year, this Lease shall continue in full force and effect and Tenant shall continue to pay in full all Base Rent and any Additional Rent herein reserved, without reduction or abatement. (E) Nothing herein shall give Landlord any interest in or preclude Tenant from seeking and recovering for its own account from the condemning authority any award or compensation attributable to the taking or purchase of Tenant's improvements, chattels or trade fixtures, or the removal or relocation of its business and effects, or the interruption of its business; provided that any such award or compensation shall not reduce the amount of the award otherwise payable to Landlord. Section 6.02 Damage by Fire or Other Casualty. (A) If the Premises shall be partially damaged by fire or other casualty, then the damage shall be repaired by Landlord, except as otherwise provided in this Section 6.02, from the insurance 27 41 proceeds actually paid to Landlord. Tenant shall give immediate written notice to Landlord of any damage caused to the Premises by fire or other casualty. (B) If the Premises are totally damaged or rendered wholly untenantable by fire or other casualty, or if Landlord's architect certifies that it cannot be repaired within one hundred eighty (180) days after the casualty, or if all or any portion of the proceeds of any insurance policy are retained by the lessor under any Superior Lease or the holder of any Mortgage, or if Landlord shall decide not to repair the Building, then Landlord may, within one hundred eighty (180) days after such fire or other casualty, give Tenant notice of termination of this Lease, and thereupon the Term shall expire ten (10) days after such notice is given. (C) Landlord's obligations in connection with such restoration work shall be strictly limited to the replacement of the basic building area and in no event shall Landlord be obligated to replace or restore any improvements to the Premises or any alterations thereof which were installed therein by or on behalf of Tenant, or Tenant's leasehold improvements, personal property, furniture, fixtures, equipment or the like. (D) Notwithstanding Landlord's rights of termination set forth in subparagraph (B) above, if all or substantially all of the Premises are damaged or rendered untenantable by fire or other casualty, Tenant may deliver a notice to Landlord requesting Landlord's estimate of the period of repair or reconstruction of the Premises and a statement whether Landlord intends to repair and restore the Premises. Landlord shall thereupon give Tenant written notice ("Estimated Repair Notice") within forty-five (45) days after Tenant's request of whether Landlord intends to repair and restore the Premises and Landlord's architect's reasonable estimate of the period required to repair or reconstruct the Premises, and if such period exceeds one hundred eighty (180) days from the date of fire or other casualty, or if Landlord notifies Tenant that Landlord does not intend to repair and restore the Premises, Tenant shall have the right to terminate this Lease on ten (10) days' notice to Landlord given within twenty (20) days after delivery of the Estimated Repair Notice, time being of the essence. Section 6.03 Subrogation. Notwithstanding anything to the contrary contained herein, Landlord and Tenant hereby mutually waive and release their respective rights of recovery against one another and their officers, agents and employees for any damage to real or personal property, including resulting loss of use, interruption of business, and other expenses occurring as a result of the use or occupancy of the Premises or the Building to the extent of insurance coverage which would be included in a standard "all-risk" or special form policy of property insurance. Landlord and Tenant agree that all policies of insurance shall contain provisions or endorsements thereto waiving the insurer's rights of subrogation with respect to claims against the other, and, unless the policies permit waiver of subrogation without notice to the insurer, each shall notify its insurance companies of the existence of the waiver and indemnity provisions set forth in this Lease. ARTICLE 7 Events of Default, Remedies Section 7.01 Events or Default. In addition to any other event specified in this Lease as an event of default, the occurrence of any one or more of the following events during the Term (each, individually, an "Event of Default" and collectively, "Events of Default") shall constitute a breach of this Lease by Tenant and Landlord may exercise the rights set forth in Section 7.02 of this Lease or as otherwise provided at law or in equity: (1) Tenant shall fail to pay any sum payable hereunder within ten (10) days after the same shall become due and payable; or (2) Tenant fails to perform any of the other covenants, agreements, terms or conditions of this Lease to be performed by Tenant (other than any default curable by the payment of money), and, unless expressly provided elsewhere in this Lease that no notice and/or opportunity to cure such default is to be afforded Tenant, such default shall continue for a period of thirty (30) days after written notice thereof from Landlord to Tenant, or, in the case of a default which cannot with due diligence be cured within fifteen (15) days, Tenant fails to commence such cure promptly within such thirty (30) day period and thereafter diligently prosecute such cure to completion; or (3) Tenant shall file a voluntary petition in bankruptcy or shall be adjudicated a bankrupt or insolvent 28 42 within the meaning of the United States Bankruptcy Code, as amended (the "Code"), or shall file any petition or answer seeking any reorganization, composition, readjustment or similar relief Under any present or future bankruptcy or other applicable law, or shall seek or consent to or acquiesce in the appointment of any trustee, receiver, liquidator or other custodian for any substantial part of Tenant's properties or any part of the Premises; or (4) any Guarantor of this Lease shall default beyond any applicable notice and/or grace period under such guaranty. Section 7.02 Remedies upon Default. (A) Upon the occurrence of any Event of Default, Landlord shall have the option to pursue any one or more of the following remedies without notice or demand whatsoever, in addition to, or in lieu of, any and all remedies available to Landlord under the laws of the state in which the Building is located: (1) Landlord may give Tenant written notice of its election to terminate this Lease, effective on the date specified therein, whereupon Tenant's right to possession of the Premises shall cease and this Lease, except as to Tenant's liability determined in accordance with Section 7.02(C) hereinbelow, shall be terminated. (2) Landlord and its agents may immediately re-enter and take possession of the Premises, or any part thereof, either by summary proceedings, or by any other applicable action or proceeding, and may repossess same as Landlord's former estate and expel Tenant and those claiming through or under Tenant, and remove the effects of both or either, without being deemed guilty in any manner of trespass, and without prejudice to any remedies for arrears of rent or Tenant's breach of covenants or conditions. (3) Should Landlord elect to re-enter as provided hereinabove, or should Landlord take possession pursuant to legal proceedings or pursuant to any notice provided by law, Landlord may, from time to time, without terminating this Lease, relet the Premises or any part thereof in Landlord's or Tenant's name, but for the account of Tenant (subject to the provisions of Section 7.02(B) hereof), for such term or terms (which may be greater or less than the period which would otherwise have constituted the balance of the Term) and on such terms and conditions as Landlord, in its sole discretion, may determine, and Landlord may collect and receive the rents therefor without affecting any liability of Tenant under this Lease. Landlord shall have no obligation to relet the Premises and shall in no event be liable for failure to relet the Premises or, in the event of any such reletting, for refusal or failure to collect any rent due upon such reletting, and no such refusal or failure shall affect any liability of Tenant under this Lease. No such reentry or taking possession of the Premises by Landlord shall be construed as an election on Landlord's part to terminate this Lease unless a written notice of such intention be given to Tenant. No notice from Landlord hereunder or under a forcible entry and detainer statute or similar law shall constitute an election by Landlord to terminate this Lease unless such notice specifically so states. Landlord reserves the right following any such re-entry and/or reletting to exercise its right to terminate this Lease by giving Tenant written notice thereof. (B) Tenant, on its own behalf and on behalf of all persons claiming through or under Tenant, including all creditors, does further hereby waive any and all rights which Tenant and all such persons might otherwise have under any present or future law to redeem the Premises, or to re-enter or repossess the Premises, or to restore the operation of this Lease, after (i) Tenant shall have been dispossessed by a judgment or by warrant of any court or judge, or (ii) any re-entry by Landlord, or (iii) any expiration or termination of this Lease and the Term, whether such dispossess, re-entry, expiration or termination shall be by operation of law or pursuant to the provisions of this Lease. The words "re-enter", "re-entry" and "re-entered" as used in this Lease shall not be deemed to be restricted to their technical legal meanings. In the event of a breach or threatened breach by Tenant, or any persons claiming through or under Tenant, of any term, covenant or condition of this Lease on Tenant's part to be observed or performed, Landlord shall have the right to enjoin such breach and the right to invoke any other remedy allowed by law or in equity as if re-entry, summary proceedings and other special remedies were not provided in this Lease for such breach. 29 43 (C) (1) If this Lease is terminated in accordance with the provisions of Section 7.02(A)(1) Tenant shall remain liable to Landlord for damages in an amount equal to the Base Rent and any Additional Rent due hereunder as of the date of termination of this Lease plus the Base Rent and any Additional Rent which would have been owing by Tenant hereunder for the balance of the Term (collectively, the "Aggregate Gross Rent") had this Lease not been terminated, less the net proceeds, if any, received as a result of any reletting of the Premises by Landlord subsequent to such termination, after deducting an amount (the "Reletting Costs") equal to the product of (a) all of Landlord's expenses including, without limitation, all repossession costs, brokerage commissions, legal expenses, attorneys' fees, expenses of employees, alteration and repair costs and expenses of preparation for such resetting and (b) a fraction, the numerator of which is the total number of outstanding full calendar months of the Term had this Lease not been terminated, and the denominator of which shall be the total number of full calendar months in the initial Term or, if such termination occurs during the Extended Term, the Extended Term hereof. Landlord shall be entitled to collect Base Rent, any Additional Rent and all other damages from Tenant monthly on the days on which Base Rent and any Additional Rent would have been payable hereunder if this Lease had not been terminated. Alternatively, at the option of Landlord, in the event this Lease is so terminated, Landlord shall be entitled to recover forthwith against Tenant, as liquidated damages and not as a penalty, the then value of the Aggregate Gross Rent (discounted to the date of what would otherwise be the expiration of the then current term at the rate of four percent (4%) per annum) and Reletting Costs less the aggregate rental value of the Premises for what otherwise would have been the unexpired balance of the Term. If Landlord shall relet the Premises for the period which otherwise would have constituted the unexpired portion of the Term (or any part thereof), the amount of rent and other sums payable by the tenant thereunder shall be deemed prima facie to be the rental Value for the Premises (or the portion thereof so relet) for the term of such reletting. Tenant shall in no event be entitled to any rents collected or payable in respect of any reletting, whether or not such rents shall exceed the Base Rent and any Additional Rent reserved in this Lease. (2) In the event Landlord does not elect to terminate this Lease, but takes possession as provided in Section 7.02(A)(2), Tenant shall pay to Landlord the Base Rent and any Additional Rent which would be payable hereunder if such repossession had not occurred, less the net proceeds received by Landlord, if any, of any reletting of the Premises by Landlord after deducting the Reletting Costs to the extent not paid to Landlord pursuant to the following sentence. Tenant shall pay rent and all other sums due to Landlord, monthly, on the days on which Base Rent would have been payable hereunder if possession had not been retaken. (D) This Lease shall continue in effect for so long as Landlord does not terminate Tenant's right to possession, and Landlord may enforce all its rights and remedies under this Lease, including the right to recover the Base Rent and any Additional Rent, as the same become due under this Lease. (E) Landlord and Tenant further acknowledge that, to induce Tenant to enter into this Lease, and in consideration of Tenant's agreement to perform all of the terms, covenants and conditions to be performed by Tenant under this Lease, as and when performance is due during the Term, Landlord has agreed to waive (i) reimbursement from Tenant of the amount of any tenant improvement expenses (including, without limitation, the Tenant Improvement Allowance), which pursuant to the terms of this Lease, Landlord has agreed to be liable for in connection with the build-out of the Premises for Tenant's initial occupancy and/or (ii) payment by Tenant of Base Rent or portions thereof during the period(s) specified herein. Upon the occurrence of an Event of Default under this Lease due to (a) Tenant's filing a petition, case or proceeding under any section or chapter of the Code (as defined in Section 7.0 1(A) hereof) or any similar law or statute of the United States or (b) the filing of an involuntary bankruptcy petition, case or proceeding against Tenant under the Code or under any similar law or statute of the United States, the foregoing waiver of payment of Base Rent or portions thereof shall be of no further force and effect as to any subsequent payments of Base Rent otherwise due under this Lease, each of the foregoing waivers shall be deemed revoked retroactively and Tenant shall immediately pay to 30 44 Landlord as Additional Rent: (1) any and all payments of Base Rent which have theretofore been waived and (2) the unamortized cost of any tenant improvement expenses incurred by Landlord, which shall be equal to the product of (a) the tenant improvement expenses incurred by Landlord, and (b) a fraction, the numerator of which shall be the number of months and/or portions thereof from the date of one year beyond the occurrence of such event of Default to the Expiration Date, not to exceed the number of months in which Tenant is obligated to pay rent hereunder without any abatement or concession, and the denominator of which shall be the number of months and/or portions thereof in the Term less the number of months in the Term in which Landlord has waived payment of Base Rent or portions thereof. Landlord may, or, at Tenant's request, shall, after the occurrence of such Event of Default, forward a statement to Tenant setting forth the unamortized cost of the tenant improvement expenses incurred by Landlord and of all Base Rent payments which have heretofore been waived by Landlord and are not payable in accordance with this Subsection, but the failure to deliver such statement shall not be deemed to be a waiver of the right to collect such amounts. Section 7.03 Cure by CMSFS. (A) Upon providing Tenant any notice of a default under this Lease, or a termination of this Lease, Landlord shall, at the same time, provide a copy of such notice to CMSFS. From and after such notice has been given to CMSFS, CMSFS shall have the same period, after the giving of such notice upon it, for remedying any default, or acts or omissions which are the subject matter of such notice or causing the same to be remedied, as is given Tenant after the giving of such notice to Tenant, plus in each instance, the additional periods of time specified in Sections 7.03(B) and 7.03(C) below to remedy, commence remedying or cause to be remedied the defaults or acts or omissions which are the subject matter of such notice specified in any such notice. Landlord shall accept such performance by CMSFS as if the same had been done by Tenant. Tenant authorizes CMSFS to take any such action at CMSFS' option and does hereby authorize entry upon the Premises by CMSFS for such purpose. (B) Anything contained in this Lease to the contrary notwithstanding, if any default shall occur which entitles Landlord to terminate this Lease, Landlord shall have no right to terminate this Lease unless, following the expiration of the period of time given Tenant to cure such default or the act or omission which gave rise to such default, Landlord shall notify CMSFS of Landlord's intent to so terminate at least ten (10) days in advance of the proposed effective date of such termination. The provisions of Section 7.03(C) below shall apply if, during such ten (10) day termination notice period, CMSFS shall: (1) notify Landlord of CMSFS' desire to nullify such notice, and (2) pay or cause to be paid all rent, additional rent, and other payments then due and in arrears as specified in the termination notice to CMSFS and which may become due during such ten (10) day period, and (3) comply or in good faith, with reasonable diligence and continuity, commence to comply with all nonmonetary requirements of this Lease then in default and reasonably susceptible of being complied with by CMSFS. (C) In the event of the termination of this Lease as a result of Tenant's default, Landlord shall, in addition to providing the notices of default and termination as required above, provide CMSFS with written notice that the Lease has been terminated, together with a statement of all sums which would at that time be due under this Lease but for such termination, and of all other defaults, if any, then known to Landlord. Landlord agrees to enter into a new lease ("New Lease") of the Premises with CMSFS for the remainder of the term of this Lease, effective as of the date of termination, at the rent and additional rent, and upon the terms, covenants and conditions (including all options to renew but excluding requirements which are not applicable or which have already been fulfilled) of this Lease, provided: (1) CMSFS shall make written request upon Landlord for such New Lease within ten (10) days after the date CMSFS receives Landlord's notice of termination of this Lease given pursuant to Section 7.03(B) hereof. 31 45 (2) CMSFS shall pay or cause to be paid to Landlord, at the time of the execution and delivery of such New Lease, any and all sums which would at the time of execution and delivery thereof be due pursuant to this Lease but for such termination and, in addition thereto, all expenses, including reasonable attorney's fees, which Landlord shall have incurred by reason of such termination and the execution and delivery of the New Lease and which have not otherwise been received by Landlord from Tenant or other party in interest under Tenant. (3) CMSFS shall agree to remedy any of Tenant's defaults of which CMSFS was notified by Landlord's notice of termination and which are reasonably susceptible of being so cured by CMSFS or its designee. ARTICLE 8 Miscellaneous Provisions Section 8.01 [Intentionally Deleted]. Section 8.02 Late Charges. All amounts payable hereunder which remain unpaid for ten (10) days after their respective due dates shall bear interest from the date that the same became due and payable to and including the date of payment, whether or not demand is made therefor, at the lesser of (i) the rate of eighteen percent (18%) per annum or (ii) the maximum legal interest rate allowed by the state in which the Building is located. Section 8.03 Holding Over. If Tenant remains in possession of the Premises after the expiration or other termination of the Term, then, at Landlord's option, Tenant shall be deemed to be occupying the Premises as a month-to-month tenant only, at a monthly rental equal to one and one-half (1-1/2) times the Base Rent payable hereunder during the last month of the Term. Tenant shall also pay all Additional Rent payable under this Lease, prorated for each month during which Tenant remains in possession. Tenant shall defend, indemnify and hold Landlord harmless from and against any and all claims, losses and liabilities for damages resulting from failure to surrender possession upon the expiration date or sooner termination of the Term, and such obligations shall survive the expiration or sooner termination of this Lease. Section 8.04 Notices. Any and all notices required or which either party herein may desire to give to the other (each, a "Notice") shall be made in writing and shall be given by certified or registered mail, postage prepaid, return receipt requested, or by a nationally recognized overnight courier, and shall be deemed to be given on the third (3rd) business day after the date of posting in a United States Post Office or one day after delivery to the overnight courier, and shall be delivered to Landlord's Notice Address or Tenant's Notice Address, as appropriate. The parties agree that copies of all Notices to be delivered to Landlord and Tenant hereunder shall be simultaneously delivered to the specified addresses for copies set forth in Section 1.01(G) and Section 1.01(0). Either party may designate a different address or addresses for communications intended for it. Anything contained herein to the contrary notwithstanding, any bills or invoices for Base Rent, any Additional Rent or any Landlord's Operating Statement may be given by hand or by mail (which need not be registered or certified) and, if so given, shall be deemed given on the date of delivery or refusal, if by hand, or on the third (3rd) business day following the date of posting, if mailed. Landlord may act through its managing agent for the Building or through any other person who may from time to time be designated by Landlord in writing: Section 8.05 Authority of Tenant. (A) If Landlord or Tenant is a corporation, partnership, joint venture or unincorporated association, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on behalf of such entity and that this Lease is binding upon such entity in accordance with its terms. If this Lease is executed by more than one tenant, Tenant's obligations hereunder shall be the joint and several obligations of each tenant executing this Lease. 32 46 (B) Nothing contained in this Lease shall create any relationship between the parties hereto other than that of Landlord and Tenant, and Landlord shall not be deemed to be a partner of Tenant in the conduct of its business, or a joint venturer or a member of a joint or common enterprise with Tenant. Section 8.06 Financial Statements. Tenant shall, when requested by Landlord from time to time, which request shall not be made more frequently than once in any twelve (12) month period, furnish a true and accurate statement of its financial condition prepared in conformity with recognized accounting principles and in a form reasonably satisfactory to Landlord, certified by Tenant's chief financial officer as to the truth and accuracy thereof. Section 8.07 Brokerage. (A) Tenant represents and warrants that it has dealt only with Broker and/or with Landlord and its direct employees, and no other broker or agent, in connection with the negotiation or execution of this Lease. Tenant agrees to indemnify and hold Landlord harmless from and against any and all damage, loss, cost or expense including, without limitation, all attorneys' fees and disbursements incurred by reason of any claim of or liability to any other broker or other person for commissions or other compensation or charges with respect to the negotiation, execution and delivery of this Lease, and such obligations shall survive the expiration or sooner termination of this Lease. (B) Landlord shall pay The Fred Ezra Company ("Ezra") a commission in connection with this Lease. Such commission shall be payable in accordance with a separate written agreement between Landlord and Ezra. Section 8.08 Definition of Landlord. The term "Landlord" as used in this Lease shall mean only the owner of the Building, or the tenant under a Superior Lease. In the event of any transfer of title to or lease of the Building, the transferor shall be entirely freed and relieved of all covenants and obligations of Landlord hereunder arising after the date of transfer without further agreement between the parties or their successors in interest and Tenant shall look solely to the successor in interest of the transferor as Landlord under this Lease and it shall be deemed and construed that such transferee has assumed and agreed to carry out all of such covenants and obligations of Landlord hereunder, and, further, the transferor shall be deemed entirely freed of all obligations of Landlord hereunder arising prior to the date of transfer to the extent of an actual assumption by the transferee. This Lease shall not be affected by such transfer or lease, and Tenant agrees to attorn to the transferee or assignee, such attornment to be effective and self-operative without the execution of any further instrument by the parties to this Lease. Section 8.09 Entire Agreement. (A) Tenant acknowledges and agrees that it has not relied upon any statements, representations, agreements or warranties except those expressed in this Lease, and that this Lease contains the entire agreement of the parties. No amendment or modification of this Lease shall be binding or valid unless expressed in writing and executed and delivered by Landlord and Tenant. Except as otherwise specifically provided herein, the terms, covenants and conditions contained in this Lease shall bind and inure to the benefit of the respective heirs, successors, executors, administrators and assigns of each of the parties hereto. (B) The submission of this document for examination and review does not constitute an option, an offer to lease space, or an agreement to lease space. This document shall have no binding effect on the parties hereto unless and until executed and delivered by both Landlord and Tenant and will be effective only upon Landlord's execution and delivery of same. Except as expressly contained herein, (i) neither Landlord nor Landlord's agent or attorneys have made representations, warranties or promises with respect to the Premises, the Building or this Lease; (ii) Tenant has inspected the Premises and agrees to take same in its "as-is" condition; and (iii) Landlord shall have no obligation to do any work in and to the Premises in order to prepare the Premises for occupancy and use by Tenant. 33 47 Section 8.10 Force Majeure. Any obligation of Landlord which is delayed or not performed due to acts of God, strike, riot, shortages of labor or materials, war, governmental laws or action, or lack thereof, or any other causes of any kind whatsoever which are beyond Landlord's reasonable control (each, a "Force Majeure Event"), shall not constitute a default hereunder and shall be performed within a reasonable time after the end of such cause for delay or nonperformance. Tenant shall likewise not be deemed in default in the performance of any of its obligations under this Lease (other than monetary obligations, except as otherwise specifically provided in Section 1.01(LL) hereof with respect to the determination of the Rent Commencement Date) if it is unable to fulfill such obligations by reason of a Force Majeure Event, provided that the foregoing shall not serve to relieve Tenant from the timely obligation to pay Base Rent or Additional Rent or from the performance of any other financial obligation of Tenant under this Lease. Section 8.11 No Setoff. This Lease shall be construed as though the covenants herein between Landlord and Tenant are independent, and Tenant shall not be entitled to any setoff or offset, or, except as otherwise provided in Section 5.05 or Section 6.01 hereof, any abatement or deduction of rent or other amounts due Landlord hereunder if Landlord fails to perform its obligations hereunder. In no event shall Landlord, any holder of a Mortgage and/or lessor under a Superior Lease be responsible for any consequential damages incurred by Tenant as a result of any default by Landlord. Section 8.12 Interpretation. (A) Any remedy or election given pursuant to any provision in this Lease shall be cumulative with all other remedies at law or in equity unless otherwise specifically provided herein. (B) This Lease shall be construed in accordance with the laws of the state in which the Building is located. Unless herein waived, Landlord and Tenant acknowledge that all of the applicable statutes of such state are superimposed on the rights, duties and obligations of Landlord and Tenant hereunder. (C) Landlord and Tenant each acknowledge and warrant that each has been represented by independent counsel and has executed this Lease after being fully advised by said counsel as to its effect and significance. This Lease is the result of negotiations between the parties and their respective attorneys and shall be construed in an even and fair manner, regardless of the party who drafted this Lease. (D) [Intentionally Deleted]. (E) If any term or provision of this Lease or the application thereof to any person or circumstances shall, to any extent, be illegal, invalid or unenforceable, the remainder of this Lease, or the application of such term or provision to persons or circumstances other than those to which it is held invalid or unenforceable, shall not be affected thereby, and all other terms and provisions of this Lease shall be valid and enforced to the fullest extent permitted by law. Section 8.13 Enlarging the Office Building. Landlord hereby reserves the right to enlarge the Building by constructing additions to the improvements or other buildings on portions of the Property with or without any new parking or common areas, and by including within the Property other properties now or hereafter owned by Landlord adjacent to the Property. In such event, all new buildings, properties, common areas and parking areas shall be treated as though they are part of the Building and, at Landlord's election, all operating expenses, real property taxes and other pro rata payments required of Tenant pursuant to the terms of this Lease shall be applicable to such enlarged area and all improvements now or hereafter located thereon. In addition, upon notice to Tenant, Landlord shall have the right to designate, or to change, the name or numbers of the Building without liability to Tenant. The parties hereto agree that in the event there is an increase or decrease in the total number of rentable square feet in the Office Building after the Commencement Date, Tenant's Pro Rata Share shall be adjusted to reflect the ratio that the number of rentable square feet in the Premises bears to the total number of rentable square feet in the Office Building. 34 48 Section 8.14 Limitation or Landlord Liability. In no event shall Landlord be liable to Tenant for any failure of other tenants in the Building to operate their businesses, or for any loss or damage that may be occasioned by or through the acts or omissions of other tenants. Notwithstanding anything to the contrary provided in this Lease, neither Landlord, nor any general or limited partner in or of Landlord, whether direct or indirect, nor any direct or indirect partners in such partners, nor any disclosed or undisclosed officers, shareholders, principals, directors, employees, partners, servants or agents of Landlord, nor any of the foregoing, nor any investment adviser or other holder of any equity interest in Landlord, their successors, assigns, agents, or any mortgagee in possession shall have any personal liability with respect to any provisions of this Lease and, if Landlord is in breach or default with respect to its obligations or otherwise, Tenant shall look solely to Landlord's interest in the Building for the satisfaction of Tenant's remedies. Section 8.15 Short Form Lease. Tenant shall not record this Lease or a memorandum hereof without the prior written consent of Landlord. Upon Landlord's request, Tenant agrees to execute and acknowledge a short form lease in recordable form which is satisfactory to Landlord. Section 8.16 [Intentionally Deleted]. Section 8.17 Estoppel. (A) [Intentionally Deleted]. (B) At any time and from time to time upon written request by Landlord, Tenant hereby agrees to deliver within ten (10) days after request, a certificate to Landlord or to any present or proposed mortgagee, lessor under a Superior Lease or purchaser, in the form supplied, 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 modification), that there are no defenses or offsets thereto (or stating those claimed by Tenant), the Commencement Date, the Rent Commencement Date, the Expiration Date, the dates to which Base Rent and Additional Rent have been paid and as to any other information reasonably requested by the same. (C) At any time and from time to time upon written request by Tenant (but not more than twice in any calendar year), Landlord hereby agrees to deliver within ten (10) days after request, a certificate to Tenant, in the form supplied, which shall be reasonably satisfactory to Landlord, certifying: (1) that this Lease is in full force and effect and has not been modified (or if modified, setting forth all modifications), or, if this Lease is not in full force and effect, the certificate shall so specify the reasons therefor; (2) the Commencement Date, the Rent Commencement Date and the Expiration Date; (3) the date to which the Base Rent and any Additional Rent have been paid under this Lease and the amount thereof then payable; (4) the amount of the Security Deposit and prepaid rent, if any, being held by Landlord; and (5) to the best of Landlord's knowledge, whether there are then any existing defaults by Tenant in the performance of its obligations under this Lease, and, if there are any such defaults, specifying the nature and extent thereof. Section 8.18 No Waiver. The failure of Landlord to exercise its rights in connection with this Lease or any breach or violation of any term, covenant or condition herein contained shall not be deemed to be a waiver of such term, covenant or condition or any subsequent breach of the same or any other term, covenant or condition herein contained. Section 8.19 No Merger. The voluntary or other surrender of possession of the Premises by Tenant, or a mutual cancellation of this Lease, shall not result in a merger of Landlord's and Tenant's estates, and shall, at the option of Landlord, either terminate any or all existing subleases or subtenancies, or operate as an assignment to Landlord of any or all of such subleases or subtenancies. Section 8.20 Attorneys' Fees. In the event of any action or proceeding brought by either Landlord or Tenant against the other party under this Lease, the prevailing party shall be entitled to recover Court costs and the fees and disbursements of its attorneys in such action or proceeding (whether at the administrative, trial or appellate levels) in such amount as the court or administrative body may judge reasonable. Landlord shall also be entitled to recover 35 49 attorneys' fees and disbursements incurred in connection with a Tenant default hereunder which does not result in the commencement of any action or proceeding. Section 8.21 JURY TRIAL AND COUNTERCLAIM WAIVER. LANDLORD AND TENANT HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE, OTHER OR THEIR SUCCESSORS IN RESPECT OF ANY MATTER ARISING OUT Of OR IN CONNECTION WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY CLAIM FOR INJURY OR DAMAGE, OR ANY EMERGENCY OR STATUTORY REMEDY. IN THE EVENT LANDLORD COMMENCES ANY SUMMARY PROCEEDINGS OR ACTION FOR NON-PAYMENT OF BASE RENT OR ANY ADDITIONAL RENT, TENANT SHALL NOT INTERPOSE ANY COUNTERCLAIM OF ANY NATURE OR DESCRIPTION (UNLESS SUCH COUNTERCLAIM SHALL BE MANDATORY) IN ANY SUCH PROCEEDING OR ACTION, BUT SHALL BE RELEGATED TO AN INDEPENDENT ACTION AT LAW. Section 8.22 Monument Sign. In the event that any sign panel on the monument sign become available for use by a tenant or occupant of the Building, or a tenant who currently has the right to utilize such sign panel, elects, in its sole and absolute discretion, to cease using such sign panel, then, subject to the rights of all tenants in the Building as of the date of this Lease who have the right to place their sign panel on the monument sign, Landlord shall grant Tenant, at Tenant's sole cost and expense, the right to place one (1) sign panel on the monument sign. The size, design, color, location, style and method of installation of such sign panel shall be subject to Landlord's prior written approval, which approval shall not be unreasonably withheld, conditioned or delayed. Tenant, at Tenant's sole cost and expense, shall maintain such sign panel in a first class manner at all times in accordance with all applicable governmental laws, resolutions, codes, orders and statutes. Section 8.23 Joinder. CMSFS is joining in this Lease to evidence its agreement with, and consent to, the provisions of Section 4.08 of this Lease. IN WITNESS WHEREOF, Landlord and Tenant have respectively executed this Lease as of the day and year first above written. TENANT: LANDLORD: FINANCIAL INSIGHT SYSTEMS, INC. 11200 RP ASSOCIATES, L.P. By: Meridian/CRI Building GP, L.L.C., its general partner By: /s/ [ILLEGIBLE] By: /s/ Bruce Lane ------------------- -------------------- Name: [ILLEGIBLE] Name: Bruce Lane ------------------- ------------------ Federal Tax I.D. Number: Date: 7/14/98 ---------- ------------------- Date: July 13, 1998 36 50 JOINDER By signing below CMSFS evidences its agreement with, and hereby consents to, the provisions of Section 4.08 of the Lease. CAPITAL MANAGEMENT STRATEGIES FINANCIAL SERVICES, INC., a Maryland corporation By: /s/ Andrew Potterman ------------------------ Name: Andrew Potterman ---------------------- Date: 7/13/98 ---------------------- 51 EXHIBIT A FLOOR PLAN [FLOOR PLAN OMITTED] 52 EXHIBIT B [INTENTIONALLY DELETED] 53 EXHIBIT C TENANT ACCEPTANCE LETTER THIS CERTIFICATE OF COMMENCEMENT ("Certificate") is made this ______ day of _____________________, 19_, by and between 11200 ASSOCIATES L.P., a Maryland limited partnership ("Landlord"), and ______________________________________ _____________________ ("Tenant"). WHEREAS, Landlord and Tenant have entered into a Lease dated _______________________ 19__ ("Lease"); WHEREAS, those certain events have occurred and Landlord and Tenant now desire to specify the Rent Commencement Date of the Lease Term for purposes of establishing the term of the Lease and the schedule for payment of rent during said period. NOW, THEREFORE, in consideration of the premises, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Landlord and Tenant warrant and represent each to the other as follows: 1. The Rent Commencement Date is __________,19__. 2. The Expiration Date is ________________, 19__. 3. The Rentable Area of the Premises is ________ square feet. 4. Tenant's Pro Rata Share is _________ percent. 5. The Base Annual Base Rent is $____________. 6. The Base Monthly Base Rent is $_____________. IN WITNESS WHEREOF, Landlord and Tenant do hereby execute this Agreement under seal on the day and year first above written. WITNESS: LANDLORD: 11200 RP ASSOCIATES L.P., a Maryland limited partnership By: Meridian/CRI Building GP, L.L.C. _________________________________ By: __________________________________(SEAL) Title:______________________________________ WITNESS/ATTEST: TENANT: ___________________________________________, a _____________________________________ _________________________________ By: __________________________________(SEAL) Title:______________________________________ 54 EXHIBIT D RULES AND REGULATIONS (1) Security. Landlord may adopt systems and procedures for the security or safety of the Building, and the contents thereof, and Tenant shall comply with Landlord's reasonable requirements relating thereto. (2) Locks. Landlord may install and change locking mechanisms on entrances to the Building, common areas thereof, and the Premises and (unless 24-hour security is provided for the Building) shall provide to Tenant a reasonable number of keys and replacements therefor to meet the bona fide requirements of Tenant. Tenant shall not alter existing locking mechanisms on any door in or to the Premises without Landlord's prior written consent (which consent shall not be unreasonably conditioned, withheld or delayed). If, without Landlord's consent, Tenant installs lock(s) incompatible with the Building master locking system (a) Landlord, without abatement of rent, shall be relieved of any obligation under the Lease to provide any service to the affected areas which requires access thereto, (b) Tenant shall indemnify Landlord against any expense as a result of forced entry thereto which may be required in an emergency and (c) Tenant shall at the end of the Term and at Landlord's request remove such lock(s) at Tenant's expense. (3) Return of Keys. At the end of the Term, Tenant shall promptly return to Landlord all keys for the Building and Premises. (4) Window Coverings. Tenant shall observe Landlord's rules with respect to maintaining uniform window treatments in the Premises, and shall not install deflective film, window shades, covers or other materials on or at any window in the Premises without Landlord's prior written consent (which consent shall not be unreasonably conditioned, withheld or delayed). (5) Signs. Unless otherwise expressly agreed to in writing by Landlord (a) no signs will be allowed on the exterior of the Building or the interior or exterior of windows, (b) no signs except in uniform locations and styles designated by Landlord will be permitted in the public corridors or on corridor doors or entrances to Tenant's space and (c) the construction and/or installation of all authorized signs for Tenant (other than building directory listings) will be contracted for by Landlord at the commercially reasonable rate fixed by Landlord, and Tenant shall pay for such service promptly upon rendition of a bill therefor. (6) Water Fixtures. Tenant shall not use water closets or water fixtures for any purposes for which they are not intended and shall pay all costs incurred as a result of any misuse of water closets or fixtures by Tenant. (7) Damage to Premises. Except as permitted by Landlord, no tenant shall paint signs upon, cut, drill into, drive nails or screws into, or in any way mar or deface the walls, ceilings, partitions or floors of any premises or the Building. Notwithstanding the foregoing, normal picture hanging is permitted within the Premises. Any defacement, damage or injury caused by any tenant shall be paid for by such tenant. (8) Prohibition Against Inflammable or Hazardous Materials. Explosives, oil, gas, or other inflammable liquids or any other article deemed hazardous shall not be brought into the Premises or the Building. (9) Antennas and Aerials. No antenna or aerial shall be erected on the roof or exterior walls of the Building without the prior written consent of Landlord. Any antenna or aerial so installed without prior consent shall be subject to removal without notice at any time, and Tenant shall bear all costs of removal and any repairs necessitated by virtue of its attachment to the Building. In addition, Tenant shall not be granted access to the telephone control rooms unless 24-hours prior notice is given to Landlord. 55 (10) Heavy Articles. Tenant shall not place in or move about the Premises, without Landlord's prior written consent, any safe or other heavy article, and Landlord may designate the location of any heavy articles in the Premises. (11) [Intentionally Deleted]. (12) Bicycles, Animals. Tenant shall not bring any animals or birds into the Building, and shall not permit bicycles or other vehicles inside or on the sidewalks outside the Building except in areas designated by Landlord for such purposes. (13) Deliveries. Tenant shall insure that deliveries of materials and supplies into or out of the Premises are made through such entrances, elevators and corridors and at such times as may be designated by Landlord, and shall promptly pay to Landlord the cost of repairing any damage in or to the Building caused thereby. (14) Furniture and Equipment. All furniture and equipment being moved into or out of the Premises shall be moved by movers approved by Landlord (which approval shall not be unreasonably conditioned, withheld or delayed), and Tenant shall promptly pay or cause to be paid to Landlord the cost of repairing any damage in or to the Building caused thereby. Landlord shall not be obligated to permit Tenant to use the freight elevators at any time that Tenant is in default in the payment of Base Rent or any Additional Rent. (15) Solicitations. Landlord reserves the right to restrict or prohibit canvassing, soliciting or peddling in the Building. (16) Food and Beverage. Only persons approved by Landlord may prepare, solicit orders for, sell, serve or distribute foods or beverages in the Building, or use the elevators, corridors or common areas for any such purpose. Except with Landlord's prior written consent and in accordance with arrangements approved by Landlord, Tenant shall not permit the use of equipment for dispensing food or beverages or for the preparation, solicitation of orders for sale, serving or distribution of food or beverages at the Premises. The foregoing shall not, however, preclude Tenant from utilizing beverage dispensing equipment at the Premises or from allowing its employees to utilize a coffee machine and/or soda machine and/or microwave oven at the Premises or to eat lunch at the Premises, provided that no cooking or food preparations shall be carried out of the Premises, and further provided that Tenant shall not sell any food or beverage on either a wholesale or retail basis from the Premises. (17) Refuse. Tenant shall place all refuse in proper receptacles provided by Tenant at its expense in the Premises or in receptacles (if any) provided by Landlord for the Building, and shall keep the lobbies, corridors, stairwells, ducts and shafts of the Building free of all refuse. (18) Obstruction. Tenant shall not obstruct the sidewalks or driveways outside the Office Building or in the lobbies, corridors, stairwells or other common areas of the Building, or use such locations for any purpose except ingress to and egress from the Premises without Landlord's prior written consent. Landlord may remove, at Tenant's expense, any such obstruction or thing (unauthorized by Landlord) without notice or obligation to Tenant. (19) Proper Conduct. Tenant shall not conduct itself in any manner which is inconsistent with the character of the Building as a first quality building or which will impair the comfort and convenience of other tenants in the Building. (20) Employees, Agents and Invitees. In these Rules and Regulations, "Tenant" includes the employees, contractors, agents, invitees and licensees of Tenant and others permitted by Tenant to use or occupy the Premises. (21) Directory Listings. Landlord shall provide Tenant, at Landlord's expense, with at least four (4) listings on behalf of Tenant on the directory in the lobby of the Building. At Tenant's request, Landlord shall provide Tenant with additional listings on such directory at 56 Tenant's expense; provided that unless there is a computerized directory, Tenant shall be limited to the lesser of (i) its proportionate share of the total number of spaces for listings on such directory or (ii) the number of spaces then available on such directory. (22) Extermination. If the Premises shall become infested with vermin, Tenant, at its expense, shall cause the same to be exterminated as may be required by contractors approved by Landlord. 57 EXHIBIT E-1 TEMPORARY SPACE [FLOOR PLAN OMITTED] 58 EXHIBIT E-2 INTENTIONALLY DELETED 59 EXHIBIT F FORM OF LETTER OF CREDIT [BANK LETTERHEAD] The Meridian Group 11200 Rockville Pike, Suite 205 Rockville, Maryland 20852 Re: Irrevocable Clean Letter of Credit By order of our client, Financial Insight Systems, Inc., we hereby open our clean irrevocable Letter of Credit No. __________ in your favor for an amount not to exceed in the aggregate $_____________ Dollars effective immediately. Funds under this credit are available to you against your sight draft on us mentioning thereon our Credit No. _____________. This Letter of Credit shall expire thirteen (13) months from the date hereof; provided, however, that it is a condition of this Letter of Credit that it shall be deemed automatically extended, from time to time, without amendment, for one year from the expiry date hereof and from each and every future expiry date, unless at least thirty (30) days prior to any expiry date we shall notify you by registered mail that we elect not to consider this Letter of Credit renewed for any such additional period. This Letter of Credit is transferable and assignable in its entirety or in one or more portions to any transferee or transferees who shall be identified in your written transfer request. Upon presentation of your written transfer request and this Letter of Credit, we shall forthwith issue our Irrevocable Letter of Credit to the designated transferee or transferees for the unused portion hereof. Each Letter of Credit issued upon such transfer and assignment may be successively transferred and assigned in the same manner. We hereby agree with you that all drafts drawn with the terms of this Letter of Credit will be duly honored upon presentment and delivery to our office at on or prior to the expiry date, or as the same may from time to time be extended. Except as otherwise specified herein, this Letter of Credit is subject to the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500. Very truly yours, [Name of Bank] By: __________________________ 60 EXHIBIT G expansion space [FLOOR PLAN OMITTED] 61 EXHIBIT H CLEANING SPECIFICATIONS 1. GENERAL a. Clean all areas of the building interior including entrance lobby, corridors, loading docks, stairwells, lavatories, elevators. Not included are: stores, garages and elevator shafts. b. Employees assigned to the building shall be carefully interviewed, screened, and bonded. They shall be neat and clean in appearance and properly identified. c. Employees shall abide by all building regulations and safety rules. d. Employees shall not eat, drink, or smoke on duty. They shall not disturb paper on desks, open drawers or cabinets, use telephones, televisions or radios. e. Competent supervisory personnel shall be employed, and they will, at a minimum, have completed a supervisory training course. f. The supervisor will report to the Customer or his agent any maintenance conditions such as leaky faucets, stopped toilets and drains, broken fixtures, etc. The supervisor will also report any unusual happenings in the building noticed or called to his/her attention by Contractor's employees. g. Necessary, appropriate, tested and approved machinery and cleaning materials for the satisfactory performance of services will be provided. h. Customer shall assign sufficient space in the premises for storage of cleaning materials and machinery. Utilities will be provided without charge. i. A log book will be maintained in the building in which a record shall be made of any events requiring the Customer's or Contractor's attention. j. All office cleaning, as possible, will be performed behind locked doors. k. Upon completion of work, the Contractor will leave all slop sinks and equipment storage areas in a neat and orderly condition, all unnecessary lights out, and all doors locked. m. Regular periodic inspection of the building shall be performed by a representative of contractor's management staff with the Customer's representative. This in addition to the regular nightly inspection to be performed by the supervisor. 2. ENTRANCE LOBBY - DAILY Entrance lobby will be thoroughly cleaned. Lobby glass and metal will be cleaned and dusted. Directory glass will be damp cleaned and wiped. Lobby walls will be dusted and kept free from fingerprints and smudges. Floor and entrances are to be dust mopped as needed, and buffed and refinished as necessary to maintain a clean and glossy appearance. 3. ELEVATORS - DAILY a. All elevators will be vacuumed. b. All stainless steel and metal will be cleaned. c. All elevator tracks will be vacuumed. d. Elevator button panels, and elevator doors will be cleaned. e. Carpets will be spotted periodically. 62 f. Ceilings, overhead Plexiglass, and/or special light fixtures will be cleaned periodically. 4. LAVATORIES-DAILY a. Clean all mirrors. b. Wash basins and bright work with a non-abrasive cleanser. c. Clean urinals. d. Wash toilet seats and bowls using disinfectant in water. e. Mop floor using disinfectant in water f. Damp wipe and clean walls and partitions. They are to be free of hand prints and dust. g. Refill hand soap, towels, tissues, and sanitary napkin dispensers. h. Clean ventilating louvers. i. Power scrub floors with germicidal solution monthly. Toilet bowl finish shall be used to clean flush holes under rim of bowls and traps. Bowl cleaner shall be used at least once each week and more often it necessary. 5. OFFICES AND CORRIDORS - DAILY a. Dusting: All furniture, office equipment and appliances, window sills, etc.: will be dusted with a treated cloth or static duster. This shall include all horizontal surfaces up to 7 feet high and enough vertical surfaces daily to complete all vertical surfaces within each week. Desks and tables not cleared of paper and work materials will only be dusted where desk is exposed. Telephones will be damp wiped. b. Dust Mopping: After furniture dusting is completed, all non-carpeted floor areas will be dust mopped with a treated dust mop with special attention being given to areas under desks and furniture to prevent accumulation of dust and dirt. c. Vacuuming: All furniture and carpets in office areas, as well as public spaces, are to be vacuumed daily in all traffic areas. Hard to reach places, under desks and chairs shall be vacuumed weekly. d. Waste cans - Ashtrays: Waste cans and ashtrays will be emptied and wiped clean. Waste cans shall be damp wiped as necessary. Plastic liners where used will be changed as needed. Waste not in cans will not be removed unless clearly labeled "Trash". e. Spot Cleaning Carpets: All carpeted areas will be inspected for spots and stains will be removed as soon as possible. Where difficult spots are encountered, the Customer will be notified. f. Wet Mopping - As Needed. Extreme care shall be used in all mopping to avoid splashing walls or furniture. Moving water and other liquids over carpeted areas will be done in a manner to avoid spillage. g. Tile Floor: All tile floors will be buffed and kept in scuff/spot free condition at all times. Recoating and buffing will be done on an "as needed" basis. Care shall be taken in applying finish to keep it off of furniture, baseboards and walls. Floor machines will be used in a manner to avoid damage to the walls, baseboards and furniture. h. Water Coolers/Water Fountains: Water coolers will be cleaned and polished. 63 i. Spot Cleaning Walls, Woodwork, etc.: All hand prints and spots will be removed from doors and light switches. Walls, woodwork, and interior glass cleaned as needed. j. Cigarette Urns: Cigarette urns and ash receivers shall be cleaned and sanitized. 6. OFFICE AND CORRIDORS - PERIODIC a. High Dusting - Quarterly: Pipes, ledges, ceilings, moldings, picture frames, etc, will be cleaned quarterly or more frequently if necessary. b. Air Conditioning Grills - Monthly: All areas around air conditioning air return grills will be cleaned once each month or more frequently if necessary. c. Venetian Blinds: Venetian blinds will be dusted quarterly and damp wiped annually. d. Light Fixtures: The exterior of all light fixtures will be dusted as needed. Exterior of fixtures will be damp wiped annually. 7. STAIRWAYS & LANDINGS All stairways and landings will be policed daily. They will be dust mopped with a treated yarn dust mop weekly. Spot cleaning of walls and doors will be done weekly. These areas will be damp mopped and scrubbed as necessary. Hand rails, fire points, and other miscellaneous hardware will be cleaned periodically. 8. POLISHING All door Plates, kick plates, brass and metal fixtures within the building will be wiped weekly and polished periodically. 64 EXHIBIT I FORM OF SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT (this "Agreement") made and entered into as of the day of __________ 199_ by and among 11200 RP ASSOCIATES L.P., a Maryland limited partnership having an office _______________________________________________________________ ("Owner"), ________________________________ ("Mortgagee"), and FINANCIAL INSIGHT SYSTEMS, INC., a Maryland corporation having an office at 11200 Rockville Pike, Rockville, Maryland 20852 ("Tenant"). W I T N E S S E T H: WHEREAS, Owner owns the improved real property described in Schedule A annexed hereto (the "Premises"); WHEREAS, Mortgagee is the owner and holder of the deed[s] of trust listed in Schedule B annexed hereto (which deed[s] of trust, together with all amendments, increases, renewals, modifications, consolidations, spreaders, replacements, combinations, supplements, substitutions and extensions thereof, now or hereafter made, are hereinafter collectively referred to as the "Mortgage," and which Mortgage, together with the promissory note or notes and the loan agreement(s), and other documents executed in connection therewith and any amendments, increases, renewals, modifications, consolidations, spreaders, replacements, combinations, supplements, substitutions and extensions thereof, are hereinafter collectively referred to as the "Loan Documents"); WHEREAS, pursuant to a lease dated __________, 19__ ("the "Lease"), Tenant has leased from Owner, as landlord, a portion of the Premises (the "Leased Premises") more particularly described therein; and WHEREAS, Mortgagee has agreed to recognize the status of Tenant in the event Mortgagee shall acquire the title to Premises by foreclosure, by the acceptance of a deed in lieu thereof, or by any other means and Tenant has agreed to attorn to Mortgagee in any such event. NOW THEREFORE, in consideration of the foregoing, the mutual covenants hereinafter mentioned and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Mortgagee hereby consents to the Lease. 2. Tenant hereby agrees that the Lease is and shall be under, subject and subordinate at all times to the lien, right, title and terms of the Loan Documents and all advances and/or payments made, or to be made, under any Loan Document. In confirmation of such subordination, Tenant shall promptly execute, acknowledge and deliver any instrument that Mortgagee may request to evidence such subordination. 3. So long as Tenant (a) is not in default under the Lease beyond the expiration of any applicable grace or cure periods, (b) has not canceled or terminated the Lease (without regard to whether Owner or Tenant is then in default under the Lease), nor surrendered or abandoned the Leased Premises, and (c) except as specifically required pursuant to the terms of the Lease, has not made any advance payment of rent or additional rent, in the event that Mortgagee shall commence an action to foreclose the Mortgage or to otherwise acquire title to, and possession of, the Premises, Tenant shall not be joined as a party defendant in any such action or proceeding and Tenant shall not be disturbed in its possession of the Leased Premises nor shall the Lease be terminated unless, as a condition precedent to commencing or proceeding with any such action to foreclose the Mortgage [or any of them] or to otherwise acquire title to, and possession of, the Premises, Mortgagee is required by statute, judicial decision or the court in which such action or proceeding has been commenced or is pending so to name Tenant as a party defendant. For the purposes of this Agreement, any rent Page I-1 65 abatements or free rent periods expressly provided for in the Lease shall not be deemed to be an advance payment of rent or additional rent. 4. If (a) Mortgagee shall acquire title to, and possession of, the Premises upon foreclosure in an action in which Mortgagee shall have been required to name Tenant as a party defendant, and (b) Tenant is not in default under the Lease beyond any applicable cure or grace periods, has not canceled or terminated the Lease (without regard to whether Owner or Tenant is then in default under the Lease) not surrendered the Leased Premises at the time Mortgagee shall so acquire title to, and possession of, the Premises, then, in such event, Mortgagee shall enter into a new lease with Tenant upon the same terms and conditions as were contained in the Lease, except that (x) the obligations and liabilities of Mortgagee under any such new lease shall be subject to the terms and conditions of this Agreement (including, without limitation, the provisions of Paragraphs 5, 6 and 7 hereof), (y) without limiting the generality of clause (x) above, Mortgagee shall, in no event, have any obligations or liabilities to Tenant under any such new lease beyond those of Owner (or its predecessors-in-interest) as were contained in the Lease (to the extent assumed by Mortgagee under this Agreement), and (z) the expiration date of such new lease shall coincide with the original expiration date of the Lease. Tenant shall execute any such new lease and shall attorn to Mortgagee or its nominee, successors or assigns or any purchaser (as the case may be) as to establish direct privity between Mortgagee and Tenant. 5. If (a) Mortgagee shall acquire title to, and possession of, the Premises upon foreclosure in an action in which Tenant has not been named as a party defendant, or by deed in lieu of foreclosure, or by any other means and (b) Tenant is not in default under the Lease beyond any applicable cure or grace periods and Tenant has not surrendered or abandoned the Leased Premises at the time Mortgagee shall so acquire title to and possession of the Premises: (i) Tenant shall be deemed to have made a full and complete attornment to Mortgagee so as to establish direct privity between Mortgagee and Tenant; (ii) all obligations of Tenant under the Lease shall continue in full force and effect and be enforceable against Tenant by Mortgagee, with the same force and effect as if the Lease had originally been made and entered into directly by and between Mortgagee, as landlord thereunder, and Tenant; and (iii) Mortgagee shall recognize and accept the rights of Tenant under the Lease and, subject to the provisions of Paragraphs 6 and 7 hereof, shall thereafter assume the obligations of Owner under the Lease in respect of Owner's obligations under the Lease thereafter falling due subject, in all events, to (A) the provisions of Paragraph 6 and 7 below and (B) Tenant's waiver, as against Mortgagee, of any defaults of Owner (whether or not curable) which occurred prior to Mortgagee acquiring title to, and possession of, the Premises. 6. (a) Nothing herein contained shall impose any obligation upon Mortgagee to perform any of the obligations of Owner under the Lease, unless and until Mortgagee shall take possession of the Premises, and, in any event, Mortgagee shall have no liability with respect to any acts or omissions of Owner occurring prior to the date on which Mortgagee shall take possession of the Premises. (b) Notwithstanding anything to the contrary contained herein, officers, directors, shareholders, agents, servants and employees of Mortgagee shall have no personal liability to Tenant and the liability of Mortgagee, in any event, shall not exceed and shall be limited to Mortgagee's interest in the Premises. 7. Tenant hereby agrees that notwithstanding anything to the contrary in this Agreement or the Lease: (a) no amendment, modification, termination, assignment or sublease of the Lease shall be effective against Mortgagee, unless consented to in writing by Mortgagee; Page I-2 66 (b) Mortgagee shall not be bound by any advance payment of rent or additional rent to Owner (or its predecessors-in-interest) in excess of one month's prepayment thereof, in the case of rent, or in excess of one periodic payment in advance, in the case of additional rent, except as specifically provided in the Lease or expressly approved in writing by Mortgagee; (c) Mortgagee shall not be liable for any act or omission of Owner (or, its predecessor-in-interest); (d) Mortgagee shall not be subject to any offsets or defenses which Tenant might have against Owner; (e) Mortgagee shall not be bound by any covenant to undertake or complete any construction of the Premises, the Leased Premises or any portion thereof; (f) Mortgagee shall not be bound by any obligation of Owner to make any payment to Tenant, except that (i) Mortgagee shall be liable for the timely return of any security or other deposit actually received by Mortgagee and (ii) Mortgagee shall be liable on account of any prepayments of rent or other charges owing to Tenant if the funds are actually received by Mortgagee; (g) Mortgagee shall not be bound by any obligation to repair, replace, rebuild or restore the Premises, the Leased Premises, or any part thereof, in the event of damage by fire or other casualty, or in the event of partial condemnation, beyond such repair, replacement, rebuilding or restoration as can reasonably be accomplished with the use of the net insurance proceeds or the net condemnation award actually received by or made available to Mortgagee, and (h) Mortgagee shall not be required to remove any person occupying the Leased Premises or any part thereof. 8. Tenant hereby agrees to provide Mortgagee with prompt notice of any asserted default by Owner of its obligations under the Lease. In the event any such asserted default constitutes a legal basis for the cancellation of the Lease by Tenant, Tenant hereby agrees that the Lease shall not be canceled or terminated until Mortgagee shall have a reasonable period of time within which to (a) obtain possession of the Leased Premises, and (b) cure such default. 9. Tenant and Owner hereby agree that, in the event that Mortgagee delivers to Tenant a notice (i) stating that an Event of Default (as defined in the Mortgage [or any of them] has occurred under the Mortgage [or any of them] or any other Loan Document and (ii) requesting that all rent and additional rent due under the Lease be thereafter paid to Mortgagee, Tenant shall pay, and is hereby authorized and directed by Owner to pay, such rent and additional rent directly to Mortgagee. Delivery to Tenant of the aforedescribed notice from Mortgagee shall be conclusive evidence of the right of Mortgagee to receive such rents and payment of the rents by Tenant to Mortgagee pursuant to such notice shall constitute performance in full of Tenant's obligation under the Lease to pay such rents to Owner. If and to the extent that the Lease or any provision of law shall entitle Tenant to notice of any mortgage, Tenant acknowledges and agrees that this Agreement shall constitute such notice to Tenant of the existence of the Motgages. Tenant acknowledges that it has notice that the Lease and the rent and all other sums due thereunder have been assigned to Mortgagee as part of the security for the Loan Documents. 10. Each of Owner and Tenant represents and warrants to Mortgagee that, as of the date hereof, there are no agreements other than the Lease in existence or contemplated between Owner and Tenant, relating to the Premises or the Leased Premises or with respect to any other matter related to Tenant's occupancy of the Leased Premises. 11. Owner, by its execution of this Agreement, agrees to be bound by and to act in accordance with the terms and conditions hereinabove contained. Page I-3 67 12. This Agreement (i) shall be governed by and construed in accordance with the laws of the state in which the Premises are located, (ii) contains the entire agreement among the parties with respect to the subject matter hereof and (iii) may not be modified, nor may any provision hereof be waived, orally or in any manner other than by an agreement in writing signed by the parties hereto or their respective successors, administrators and assigns. 13. All notices to be given hereunder shall be in writing and shall be deemed sufficiently given if (a) hand delivered, (b) delivered by reputable overnight courier or (c) mailed by certified mail, return receipt requested, in each case to the address of each party as set forth above. Each such notice shall be deemed to be effective, in the case of mail deliveries, on the second business day after mailing, and otherwise, upon receipted delivery. Any party may change its address for notice by notifying the other parties hereunder in accordance with the provisions of this Paragraph 13. 14. All rights of Mortgagee hereunder shall accrue to, and all obligations of Mortgagee shall be binding upon, Mortgagee, its successors, assigns and nominees, including, without limitation, the grantee under a deed in lieu of foreclosure and/or the purchaser of the Premises at a foreclosure sale or at any sale of the Premises following the granting of a deed in lieu of foreclosure or following foreclosure; provided, however, that following any sale or other transfer of its interest in the Premises, Mortgagee, any such grantee or purchaser (as the case may be) shall be fully released and discharged of and from any and all obligations and liabilities of any kind hereunder or under the Lease and/or Lender any such new lease. Without limiting the generality of the foregoing, this Agreement shall be binding upon and inure to the benefit of the successors, administrators and permitted assigns of Owner and Tenant hereto. IN WITNESS WHEREOF, this Agreement has been executed as of the day and year first above set forth. Owner: 11200 RP ASSOCIATES L.P. By: __________________, its General Partner By: _________________________ Name: _______________________ Title: ______________________ Mortgagee: ____________________________ By: _________________________ Name: _______________________ Title: ______________________ Tenant: FINANCIAL INSIGHT SYSTEMS, INC. By: _________________________ Name: _______________________ Title: ______________________ Page I-4 68 State of ____________________) ) ss.; County of____________________) On this ____ day of _____________ 199__, before me personally came to me known, who, being duly sworn, did depose and say that he resides at _______________ that he is a _______________ of _____________________ a general partner of 112000 RP ASSOCIATES L.P., a limited partnership, and that he has authority to sign the same, and acknowledged that he executed the same as the act and deed of said partnership. IN WITNESS WHEREOF, I have hereunto set my hand this __ day of __________, 199_. __________________________________ Notary Public My Commission Expires: ___________ State of ____________________) ) ss.; County of____________________) On this ____ day of ______________ 199__, before me personally came to me known, who being duly sworn, did depose and say that he resides at _______________ that he is a _____________ of _____________,a _____________, 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. IN WITNESS WHEREOF, I have hereunto set my hand this ___ day of ___________, 199_. __________________________________ Notary Public My Commission Expires: ___________ State of ____________________) ) ss.; County of____________________) On this day of ______________ 199__, before me personally came to me known, who being duly sworn, did depose and say that he resides at ______________ that he is a _________________ of FINANCIAL INSIGHT SYSTEMS, INC., a Maryland corporation, 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. IN WITNESS WHEREOF, I have hereunto set my hand this ___ day of ___________, 199_. __________________________________ Notary Public My Commission Expires: ___________ Page I-5 69 SCHEDULE A All of that certain lot or parcel of land, lying and being in 4TH ELECTION DISTRICT, MONTGOMERY County, Maryland, and being more particularly described as follows: LOT NUMBERED NINETEEN (19) IN THE SUBDIVISION KNOWN AS "HIGGINS ESTATE" AS PER PLAT THEREOF RECORDED IN PLAT BOOK 130, PLAT 15176, ONE OF THE LAND RECORDS OF MONTGOMERY COUNTY, MARYLAND, CONTAINING 4.38087 ACRES, MORE OR LESS. PARCEL I.D. NO.: 2479378 Page I-6 70 SCHEDULE B MODIFICATION AND RESTATEMENT OF DEEDS OF TRUST FROM NEW EDSON LIMITED PARTNERSHIP, A MARYLAND LIMITED PARTNERSHIP TO JOSEPH F. BENKOWSKI AND JENNIFER C. HOWELL, TRUSTEES, DATED NOVEMBER 16, 1988 AND RECORDED NOVEMBER 16, 1988 IN LIBER 8566 FOLIO 758, AMONG THE LAND RECORDS OF MONTGOMERY COUNTY, MARYLAND FOR THE BENEFIT OF CITICORP REAL ESTATE, INC. AS SUPPLEMENTED BY SECOND MODIFICATION OF DEEDS OF TRUST DATED JUNE 15, 1989 AND RECORDED JUNE 19, 1989 IN LIBER 8869 FOLIO 161, AMONG THE LAND RECORDS OF MONTGOMERY COUNTY, MARYLAND. SAID MODIFICATION AND RESTATEMENT OF DEEDS OF TRUST IS SUPPLEMENTAL TO (i) THAT CERTAIN DEED OF TRUST AND SECURITY AGREEMENT RECORDED ON MARCH 20, 1984 IN THE LAND RECORDS OF MONTGOMERY COUNTY, MARYLAND IN LIBER 6347 FOLIO 546, AND (ii) THAT CERTAIN DEED OF TRUST AND SECURITY AGREEMENT RECORDED MARCH 6,1985 IN THE LAND RECORDS OF MONTGOMERY COUNTY, MARYLAND IN LIBER 6667 FOLIO 153, (iii) EACH AS MODIFIED AND CONSOLIDATED BY THAT CERTAIN CONSOLIDATION AND MODIFICATION OF DEEDS OF TRUST RECORDED ON MARCH 6, 1985 IN THE AFORESAID LAND RECORDS IN LIBER 6667 FOLIO 192, AND THAT CERTAIN DEED OF TRUST AND SECURITY AGREEMENT RECORDED IN THE AFORESAID LAND RECORDS IN LIBER 6667 FOLIO 198. Page I-7 EX-21.1 3 y46941ex21-1.txt EX-21.1 SUBSIDIARIES OF EDGAR ONLINE INC. 1 SUBSIDIARIES OF EDGAR ONLINE, INC. NAME JURISDICTION - ---- ------------ FreeEDGAR.com Inc. Delaware Financial Insight Systems, Inc. Delaware -----END PRIVACY-ENHANCED MESSAGE-----