Commerical Lease Between West Washington Associates Llc And Sonc Foundry Inc.

LEASE AGREEMENT


BETWEEN

WEST WASHINGTON ASSOCIATES LLC


AND

SONIC FOUNDRY

TABLE OF CONTENTS


BASIC LEASE PROVISIONS 1

DEFINITIONS 2

PREMISES AND TERM 4

CONSTRUCTION AND INSTALLATIONS 5

RENT AND OTHER CHARGES 6

SECURITY DEPOSIT 9

SERVICES BY LANDLORD 10

INSTALLATION, REPAIRS AND MAINTENANCE OF LEASED PREMISES 11

CONDUCT OF BUSINESS 12

INSURANCE AND INDEMNITY 13

DESTRUCTION OF LEASED PREMISES OR BUILDINGS 15

ASSIGNMENT OR SUBLETTING 16

DEFAULTS 17

SURRENDER OF PREMISES 19

QUIET ENJOYMENT 20

SALE OR MORTGAGING OF THE BUILDING 20

EMINENT DOMAIN 20

WAIVER AND ACCORD AND SATISFACTION 21

MISCELLANEOUS 21

ATTACHMENTS 25

LEASE AGREEMENT


THIS LEASE, made and entered into at Madison, Wisconsin as of this day of , 2003, is by and between West Washington Associates LLC, a Wisconsin limited liability company ("Landlord"), and Sonic Foundry, Inc., a Maryland corporation ("Tenant").


ARTICLE 0. BASIC LEASE PROVISIONS:

The following descriptions and amounts are qualified by their usage elsewhere in this Lease, including without limitation those Sections referred to in parentheses following such descriptions.


SECTION 0.01 NAME/ADDRESS OF BUILDING: (Article II, Section 2.1)

Network222 222 West Washington Avenue

Madison, WI 53703

SECTION 0.02 SUITE NUMBER (if applicable): (Article II, Section 2.1)

Suite 775

SECTION 0.03 APPROXIMATE AREA: (Article II, Section 2.1)

Usable Area: 6,625 square feet usable

SECTION 0.04 (a) COMMENCEMENT DATE: (Article II, Section 2.2)

October 1, 2003

SECTION 0.04 (b) TERM OF LEASE: (Article II, Section 2.2) Five (5) Lease Years, subject to two (2), three (3) year options to extend pursuant to Section 18.18.

SECTION 0.05 BASE RENT: (Article IV, Section 4.1)

$ 10,489.58 per month $ 125,875.00 per year

SECTION 0.06 MINIMUM ANNUAL ESCALATION: (Article IV, Section 4.2)

Three (3%) Percent

SECTION 0.07 LANDLORD'S SHARE OF OPERATING COSTS: (Article IV, Section 4.3) Tenant shall pay Tenant's Pro Rata Share of increases in Operating Costs over Landlord's Share in the Base Year, as set forth in Section 4.3 herein.

SECTION 0.08 SECURITY DEPOSIT: (Article V, Section 5.1)

None

SECTION 0.09 BUSINESS USE: (Article VIII, Section 8.1) Offices for conducting commercial business; and for no other purpose without the prior written consent of Landlord, not to be unreasonably withheld, conditioned or delayed.

SECTION 0.10 NOTICE ADDRESSES:

LANDLORD: West Washington Associates LLC

c/o The Fiore Companies, Inc.

150 East Gilman Street

Madison, Wisconsin 53703


TENANT: Sonic Foundry, Inc. 222 West Washington Avenue

Suite 775 Madison, WI 53703


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ARTICLE I. DEFINITIONS


In addition to the definitions and terms set forth elsewhere throughout the Lease, the following terms will have the respective meanings set forth below:


(a) Intentionally Ommitted.


(b) Base Year. The term "Base Year" means calendar year 2004.


(c) Intentionally Omitted.

(d) Building. The term "Building" will collectively refer to the office building described in Section 0.01 and associated Building Facilities, the real property on which it is situated (the legal description of which is attached hereto as Exhibit "A-1"), and any landscaping, parking facilities or structures appurtenant thereto.


(e) Building Facilities. The term "Building Facilities" means and includes all equipment, machinery, facilities and other personal property located in the Building and/or used or utilized wholly or partially in or in connection with the operation and/or maintenance of the Building, or any part thereof, whether or not located in the Building.

(f) Common Areas. The "Common Areas" consist of the entrance foyer and lobbies, corridors, elevator foyers, restrooms, mechanical rooms, telephone closets, janitor closets and other similar facilities provided for the common use and/or benefit of tenants generally and/or the public, and other areas appurtenant to or servicing the Building, including without limitation public entrance doors, stairways, passages, stairs, restrooms, and, if the Premises include less than an entire floor of the Building, the common lobbies, hallways, and toilets, and other common facilities of such floor, elevators, shipping and receiving areas, parking areas, sidewalks, plazas and landscaped areas located within, adjacent to, or near and associated with the Building.


(g) Commencement Date. The term "Commencement Date" means (a) the date specified in Section 0.04(a) provided that Premises are "ready for occupancy" as hereinafter defined; or (b) the date on which Tenant takes possession of the Premises, whichever occurs first, as adjusted under Section 3.2.


(h) Environmental Laws. The term "Environmental Laws" means any federal, state, and local law, statute, ordinance, regulation, rule, guideline, judicial decision, judicial or administrative order or decree, permit, license, approval, authorization, or similar requirement of any federal, state or local governmental agency or other governmental authority, pertaining to the protection of human health, safety, or the environment.


(i) Escalation Date. The term "Escalation Date" means the first day of the second Lease Year and on the first day of each Lease Year thereafter.

(j) Expiration Date. The term "Expiration Date" means the last day of the last consecutive full Lease Year.

(k) Intentionally Omitted.


(l) Fringe Benefits. The term "fringe benefits" includes, without limitation, the employer's contribution of F.I.C.A., unemployment compensation and other employment taxes; pension and/or profit sharing or similar plan contributions; sick, vacation and holiday pay; training costs; paid leave; worker's compensation, group life and accident and health insurance premiums; disability and other similar benefits; all paid or payable by the employer with respect to its employees.

(m) Hazardous Material(s). The term "Hazardous Material(s)" means any chemical, substance, material, object, condition or waste, or combination thereof, which (i) is defined as a hazardous substance, hazardous material, hazardous waste, pollutant, toxic material, or contaminant under any Environmental Law; (ii) is a petroleum hydrocarbon, including crude oil or any fraction thereof; (iii) may be hazardous to human health or safety or the environment due to its harmful or potentially harmful properties or effects, including toxicity, corrosivity, flammability, explosivity, infectiousness, radioactivity, carcinogenicity, or reproductive toxicity; or (iv) is regulated pursuant to any Environmental Law.


(n) Intentionally Omitted.


(o) Lease Year. The term "Lease Year" means a period of 12 consecutive full calendar months. The first Lease Year will begin on the Commencement Date if said date will occur on the first day of a month; if not, the first Lease Year will commence upon the first day of the month next following the Commencement Date of the term hereof. Each succeeding Lease Year will commence upon the anniversary of the first Lease Year.


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(p) Management Company Fees. The term "Management Company Fees" means the reasonable and customary fees for management services provided by an independent management company, or reasonable fees for such services charged by Landlord or affiliated management companies (which fees shall not exceed the fees that would have been charged in an arms-length transaction.


(q) Operating Costs. The term "Operating Costs" means all reasonable and customary costs, expenses and disbursements of every kind and nature paid or incurred by the Landlord, or otherwise on behalf of the Landlord, in connection with the ownership, operation, management, maintenance, replacement and repair of the Building, all of which will be determined by Landlord on an accrual basis and in accordance with generally accepted accounting principles, consistently applied year to year. Operating Costs will include, without limiting the generality of the foregoing, the following:

1. Compensation (including fringe benefits) of all persons who perform duties in connection with the Building (including, without limitation, independent contractors, leased employees and/or temporary employees);

2. All materials, supplies, tools and equipment used in connection with the Building;

3. Electricity, fuel and other sources of power, heating and cooling; water and sewer charges; refuse collection; telephone; and similar utilities services (excluding any such cost billed to specific tenants and excluding such costs incurred by Tenant through direct metering of the Premises);

4. Maintenance and service agreements for the Building and the equipment therein, including, but not limited to, security services or alarm services, if any, window cleaning, janitorial service, HVAC maintenance, and elevator maintenance; and all such other expenses and costs necessary or desirable to be incurred for the operation, cleaning and maintenance of the Building; 5. Personal property taxes; Depreciation of equipment used in operating, cleaning and maintaining the Common Areas and/or rent paid for leasing such equipment;

6. Insurance maintained by Landlord in connection with the Building;

7. Legal, accounting, inspection, consulting and other professional services pertaining to the Building;

8. Amortization of capital costs or expenditures incurred for any repair or replacement to the Building (including any capital expenditure reasonably necessary for the operation and maintenance of the Building, made for the purpose of saving labor or otherwise reducing applicable Operating Costs, or required by law or any governmental authority), together with interest thereon at the rate of ten percent (10%) per annum, based upon the reasonable life of said expenditures determined by Landlord in accordance with generally accepted accounting principles. For purposes of determining the Operating Costs of the Building, no single expenditure of Five Thousand Dollars ($5,000) or less will be considered capital in nature;

9. Management Company Fees;

10. All costs relating to the management office, and all other administrative expenses related to the Building; 11. All costs to Landlord of providing the services described in Sections 6.1 or 7.1;

12. Real Estate Taxes; and

13. Any other expense or charge which in accordance with generally accepted accounting and management principles consistently applied from year to year would be considered an expense of leasing, owning, maintaining or repairing the Building.


Notwithstanding the foregoing, Operating Costs will not include (i) the costs of special services rendered to tenants (including Tenant) for which a special or separate charge is made, (ii) any cost of preparation or alteration of space for other tenants in the Building, (iii) leasing costs such as advertising, promotion and marketing of space availability, legal fees associated with lease negotiations, leasing commissions, or inducements (including tenant improvement allowance, free rent, moving allowance, and lease buy-outs) granted for the purpose of securing new leases or renewals of existing leases, (iv) depreciation (except amortization of capital expenditures which are allocated over the useful life of said expenditures as described in this Section), (v) any cost of capital improvements that enlarge or expand the existing Building (except any such expenditures required by law or by any governmental or quasi-governmental authority having jurisdiction over the Building),


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(vi) repairs paid by proceeds of insurance (except the deductible and that portion not covered by insurance), (vii) ground rental payments, (viii) interest payments, (ix) debt service payments made to a mortgagee, (x) financing or refinancing costs, (xi) management and administrative costs associated exclusively with the ownership structure, (xii) legal fees pertaining to lease disputes, or (xiii) any amounts payable by Landlord by way of indemnification or which constitute a fine, interest or penalty, (xiv) repairs necessitated by the negligence of the Landlord or required to cure violations of laws in effect as of the Commencement Date, (xv) any cost representing an amount paid for services or materials to a person, firm or entity related to Landlord if such amount exceeds the amount that would have been paid at market rates to a third party, (xvi) compensation paid to members, officers or executives of Landlord other than the fairly allocable compensation paid to an officer of an entity related to Landlord with respect to such officer's ordinary and necessary building management services provided to the Property.


(r) Real Estate Taxes. The term "Real Estate Taxes" will include any and all real estate taxes and assessments, ad valorem charges, special benefit assessments or charges, and all other governmental or public charges or impositions of every kind and nature whatsoever, both general and special, extraordinary as well as ordinary, foreseen and unforeseen, which may be levied, assessed or imposed upon the land, building and/or improvements located upon the tax parcel or parcels of which the Building and the Premises are a part, during any year or partial year during the term of this Lease, or on the rents received from the Building in the nature of a capital levy, and all expenses and fees, including attorneys' fees, incurred by Landlord in contesting, appealing and/or negotiating with public authorities as to any of the above.


(s) Rentable Area. The term "Rentable Area" means the rentable square footage area determined by multiplying Usable Area by 1.15 or the rentable square footage area determined in accordance with the American National Standard Method for Measuring Floor Area in Office Buildings, ANSI Z65.1-1996, published by the Building Owners and Managers Association International (hereinafter, "BOMA") whichever is less.

(t) Repair. The term "repair" will include replacement or renewal when necessary, and all such "repairs" will be made by a qualified contractor and will be equal in quality and class to the original work.

(u) Tenant's Pro Rata Share. "Tenant's Pro Rata Share" shall mean four and zero tenths (4.0%) percent, which number represents a fraction (expressed as a percentage), the numerator of which is the Usable Area of the Premises and the denominator of which is the Usable Area of the Building, which numbers are herein stipulated by both parties for all purposes under this Lease. Any change in Tenant's occupancy, whether by amendment or through the exercise of any options to expand shall change the pro rata share percentage and will be deemed in effect on the first day of the succeeding month following such change in occupancy.


(v) Usable Area. The term "Usable Area" means the usable square footage area determined in accordance with BOMA.


ARTICLE II. PREMISES AND TERM


SECTION 2.1 PREMISES. The Landlord does hereby lease to Tenant, and Tenant hereby takes from Landlord, that certain part of the Building, hereinafter designated as the "Premises", which are more particularly described in Sections 0.02 and 0.03, and located substantially as shown in Exhibit A, reserving however to Landlord the exclusive use of the exterior walls. Tenant shall have the right, exercisable within ninety (90) days after Landlord gives Tenant written notice of the final measurements of the Premises, to remeasure the Premises according to BOMA within such ninety (90) day period. In the event that subsequent remeasurement of the Premises by Tenant, within the time period specified above, indicates that the square footage measurement prepared by Landlord produces a square footage number in excess of or lower than the square footage number which resulted from Tenant's remeasurement, any payments due to Landlord from Tenant based upon the amount of square feet contained in the Premises shall be proportionately and prospectively reduced or increased, as appropriate, to reflect the actual number of square feet as properly remeasured.

SECTION 2.2 TERM. The term of this Lease and Tenant's obligation to pay rent hereunder will commence upon the Commencement Date. The term of this Lease will be for the number of Lease Years set forth in Section 0.04(b). The term hereof will expire at 12:00 o'clock midnight, local time on the Expiration Date. Upon Landlord's request, the parties agree to execute an Addendum to certify the Commencement Date and Expiration Date hereof, but this Lease will not be affected in any manner if either party fails or refuses to execute such Addendum.


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SECTION 2.3 COMMON AREAS. Landlord also grants Tenant the right under this Lease to use, in common with Landlord and other tenants, occupants and visitors to the Building, and all others to whom Landlord may grant rights thereto, the Common Areas, provided however that all such use by Tenant will be subject to such reasonable Rules and Regulations as Landlord may from time to time adopt and that Tenant may not use the Common Areas for advertising or promotional purposes. Landlord reserves the right to increase, reduce or change the size, height, layout, or location of the Building and its Common Areas (as long as Tenant's use of and access to the Premises and parking are not materially impaired). No easement, license or other right to light, air, or view is created by this Lease. The Premises do not include, and Tenant is given no right to use, control or occupy, the exterior surfaces of the Building, the roof of the Building or the airspace or plenum between the finished hung ceilings (or finished floors) in the Premises and the unfinished slab of the ceiling above (or the unfinished floor below). All space in or adjacent to the Premises used for shafts, stacks, pipes, conduits, fan rooms, ducts, utility lines, sinks, and other Building facilities, and access thereto through the Premises, is reserved to Landlord, provided such access does not unreasonably interfere with Tenant's use of and access to the Premises and parking.


SECTION 2.4 ACCESSES TO PREMISES. Landlord and its authorized representatives will have the right to enter the Premises at reasonable hours and, except in cases of emergency, upon reasonable advance notice to Tenant (which notice, notwithstanding any other provision of this Lease, may be given orally) to make inspections, to exhibit the Premises to prospective tenants, purchasers, or others, or to make alterations or repairs to the Building or the Premises for which it is responsible or which it is entitled to make hereunder. Notwithstanding anything to the contrary contained herein, unless Landlord obtains prior approval from Tenant, Landlord hereby agrees not to show the Premises to any prospective tenants earlier than one hundred twenty (120) days prior to the Expiration Date, as extended. In the event of emergency or in order to comply with any laws, orders, ordinances or requirements of any governmental unit or authority (regarding which compliance is the responsibility of Landlord), Landlord and its authorized representatives will have the right of entry at any time and may perform any acts related to safety, protection, preservation or improvement of the Building or the Premises or required by such governmental unit or authority. The proper exercise by Landlord of any of its rights under this provision will not be deemed an eviction or disturbance of Tenant's use and possession of the Premises and Tenant will not be entitled to an abatement or reduction in rental by reason of any such action.


ARTICLE III. CONSTRUCTION AND INSTALLATIONS


SECTION 3.1 LANDLORD'S WORK. Landlord shall, at its own cost and expense, perform the work and make the installations to the Premises that are set forth as Landlord's Work in Exhibit B. Tenant acknowledges that neither Landlord nor any agent, employee or representative of Landlord has made any representation or warranty with respect to the suitability of the Building or Premises for the conduct of Tenant's business or any other purpose. Landlord will have the right, at its election, at any time and from time to time, to make such alterations or changes in portions of the Building outside the Premises as it may deem necessary or desirable so long as such alterations or changes do not unreasonably interfere with the use and occupancy by Tenant of the Premises and parking or Tenant's access to the Premises or parking.


SECTION 3.2 READY FOR OCCUPANCY. The Premises will be deemed to be "ready for occupancy" under the terms of this Lease if Landlord's construction or remodeling of the Premises as required by Section 3.1 is complete except for punchlist items that do not interfere with Tenant's use or enjoyment of the Premises ("Substantial Completion" or "Substantially Complete"). In the event a dispute occurs as to whether or not Landlord's construction or remodeling of the Premises is Substantially Complete, the certification of Landlord's architect or engineer that Landlord's construction of the Premises is Substantially Complete in accordance with the requirements herein and in Exhibit B will be deemed final and conclusive. The taking of possession by Tenant of the Premises for the conduct of Tenant's normal business operations will be deemed conclusive that Tenant accepted delivery of the Premises as Substantially Complete, subject to the punchlist items described above (which Landlord shall complete within a reasonable time not to exceed thirty (30) days after the Commencement Date). If Tenant has taken possession of the Premises as Substantially Complete, Landlord agrees that it will diligently carry forward its construction of the Premises to final completion in accordance with its obligations as required by Section 3.1 and 3.2. The term "Tenant Delay" shall mean any actual delay of Landlord in completing Landlord's Work specified in Exhibit B as a result of a) Tenant's failure


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to timely approve the Final Plans (such timeframes set forth in Exhibit B); or b) any Change Order; or c) the performance and/or completion of any Tenant Work by a person, firm or corporation employed by Tenant. In the event a Tenant Delay, the Commencement Date of this Lease and the payment of rent thereunder will be accelerated by the number of days of such Tenant Delay. Notwithstanding anything in the Lease to the contrary, if the Commencement Date has not occurred (other than by reason of Tenant Delay) on or before sixty (60) days after the date of this Lease, then Landlord shall incur the following financial penalties which shall be credited to Tenant's Base Rent as it becomes due and payable: a) $250.00 per day for days 61 through 75; b) $500 per day for days 76 through 90; and $1,000 per day for every day beyond the 90 th day of this Lease. If the Commencment Date has not occurred on or before the 90 th day after the date of this Lease (other than by reason of Tenant Delay), Tenant shall have the right, at its option, to terminate this Lease by sending written notice of such election to Landlord. Every day of Tenant Delay shall extend the above time frames on a day-for-day basis. An election by Tenant to terminate this Lease as provided for in this Section shall not limit Tenant's right to payment by Landlord of the financial penalties set forth above.


SECTION 3.3 ALTERATIONS AND INSTALLATIONS BY TENANT. Tenant shall have the right, at its own cost and expense, to perform the Tenant's Work described on Exhibit B for Tenant's initial occupancy in the Premises. The improvements installed in the Premises (including Landlord's Work and the Tenant's Work) in connection with the initial occupancy of Tenant shall be called the "Tenant Improvements." After construction of Tenant Improvements, Tenant will make no improvements, alterations, or additions of any kind, whether structural or non-structural (the "Alterations") in or to the Premises or the Building without first obtaining Landlord's prior written approval of Tenant's contractor, the plans, and the specifications therefor such approval not to be unreasonably withheld, conditioned, or delayed. Tenant shall acquire all necessary permits to construct the Alterations from appropriate governmental agencies, furnishing a copy thereof to Landlord prior to commencement of such construction. Tenant shall comply with all conditions of any such required permit and with all specifications in the plans in commercially reasonable manner. Tenant will not commence any such work without first delivering to Landlord certificates of insurance, evidencing that Tenant has obtained a policy or policies of commercial general liability and property damage insurance, naming Landlord as an additional insured, in limits and with companies reasonably approved by Landlord pursuant to Section 9.1. Landlord's approval of the plans, specifications and working drawings for Tenant's improvements, alterations, or additions will create no responsibility or liability on the part of Landlord for their completeness, design sufficiency, or compliance with all laws, rules and regulations of governmental agencies or authorities. All Tenant's Work and Alterations shall be done in a good and workmanlike manner, any fixtures installed by Tenant shall be of good quality and installed in a workmanlike manner.


SECTION 3.4 DEVELOPMENT PLAN. It is understood that Exhibit A indicates, in general, the site plan for the Building of which the Premises are a part; and a floor plan of the floor(s) on which the Premises is located; that Landlord, in building and operating the improvements may make such other departures from and changes in said plan as Landlord, in its sole discretion, may from time to time find proper, provided such changes do not unreasonably interfere with Tenant's right to use or occupy the Premises and parking or access to the Premises or parking. Landlord may, in its sole discretion, change the location of other tenants and the nature, layout or size of any occupancy of any space unit other than Premises at any time, construct additional buildings or improvements and make additions or alterations thereto, and change or vary the parking, walkways, driveways and common areas or layout thereof without the same being deemed an eviction or disturbance of Tenant and without any abatement of rent, provided such improvements and changes do not unreasonably interfere with Tenant's right to use or occupy the Premises and parking or access to the Premises or parking.

ARTICLE IV. RENT AND OTHER CHARGES

SECTION 4.1 BASE RENT. Tenant will, during the entire term of this Lease, pay to Landlord the annual Base Rent set forth in Section 0.05 (as such amount may be adjusted from time to time as provided in Section 4.2), in equal monthly installments payable on the Commencement Date and in advance on the first day of each calendar month thereafter during the term of this Lease, without any offset or deduction whatsoever or any prior demand. All payments of rent will be made to Landlord at its office or at such other place as it may designate in writing. If the Commencement Date is not on the first day of a month, the Base Rent for the fractional month containing the Commencement Date will be prorated on a per diem basis with respect to the fractional month, and paid to Landlord on the first day of the next month. Notwithstanding this, Base Rent shall be abated through December 31, 2003.


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SECTION 4.2 ADJUSTMENT TO BASE RENT. Base Rent will be increased effective on the Escalation Date by the addition thereto of an amount which is the product obtained by multiplying the Minimum Annual Escalation percentage set forth in Section 0.06 by the Base Rent in effect immediately prior to the Escalation Date.

SECTION 4.3 ADDITIONAL RENTS. In addition to Base Rent, Tenant will pay as "Additional Rent" the sums or amounts set forth hereinafter or as become due and payable elsewhere in this Lease.


(a) Landlord agrees to expend as its share of Operating Costs during any calendar year an amount equal to the actual Operating Costs of the Building incurred during the Base Year ("Landlord's Share"). Prior to the commencement of ea ...