-----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, RMWBle+9uplhAu0wTpFalYoTz2n3Q7t5ohckIBwMJtFRbCJocgnJ8vl+XJxdjUOx zIsdxON+8RUhDyMujRF7cw== 0001047469-99-037959.txt : 19991018 0001047469-99-037959.hdr.sgml : 19991018 ACCESSION NUMBER: 0001047469-99-037959 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 20 FILED AS OF DATE: 19991006 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REALNAMES CORP CENTRAL INDEX KEY: 0001060812 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 943917934 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-88549 FILM NUMBER: 99724065 BUSINESS ADDRESS: STREET 1: 2 CIRCLE STAR WAY STREET 2: 2ND FLOOR CITY: SAN CARLOS STATE: CA ZIP: 94070 BUSINESS PHONE: 6502988080 MAIL ADDRESS: STREET 1: 2 CIRCLE STAR WAY STREET 2: 2ND FLOOR CITY: SAN CARLOS STATE: CA ZIP: 94070 S-1 1 FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 6, 1999 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------------------- REALNAMES CORPORATION (Exact name of registrant as specified in its charter) -------------------------- DELAWARE 7379 94-3917934 (State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer of Classification Code Number) Identification incorporation or organization) Number)
2 CIRCLE STAR WAY, 2ND FLOOR SAN CARLOS, CA 94070 (650) 298-8080 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) -------------------------- JAMES N. STRAWBRIDGE EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL AND ADMINISTRATIVE OFFICER REALNAMES CORPORATION 2 CIRCLE STAR WAY, 2ND FLOOR SAN CARLOS, CA 94070 (650) 298-8080 (Name, address, including zip code, and telephone number, including area code, of agent for service) -------------------------- COPIES TO: MARK A. BERTELSEN BROOKS STOUGH JOSE F. MACIAS GUNDERSON DETTMER STOUGH WILSON SONSINI GOODRICH & ROSATI VILLENEUVE FRANKLIN & HACHIGIAN, LLP PROFESSIONAL CORPORATION 155 CONSTITUTION DRIVE 650 PAGE MILL ROAD MENLO PARK, CALIFORNIA 94025 PALO ALTO, CALIFORNIA 94304 (650) 321-2400 (650) 493-9300 -------------------------- Approximate date of commencement of proposed sale to the public: AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE. -------------------------- If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the "Securities Act"), check the following box. / / If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / ______ If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / ______ If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / ______ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / -------------------------- CALCULATION OF REGISTRATION FEE
Title of Each Class of Proposed Maximum Aggregate Amount of Securities to be Registered Offering Price(1) Registration Fee Common Stock, par value $0.001 per share........................ $80,500,000 $22,379
(1) Estimated solely for the purpose of computing the registration fee required by Section 6(b) of the Securities Act, and computed pursuant to Rule 457(o) of the Securities Act. -------------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PROSPECTUS (SUBJECT TO COMPLETION) ISSUED , 1999 THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SHARES [LOGO] COMMON STOCK ----------------- REALNAMES CORPORATION IS OFFERING SHARES OF ITS COMMON STOCK. THIS IS OUR INITIAL PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY EXISTS FOR OUR SHARES. WE ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $ AND $ PER SHARE. ------------------- WE HAVE APPLIED TO LIST OUR COMMON STOCK ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL "NAME." ------------------- INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 7. ------------------- PRICE $ A SHARE -------------------
UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS REALNAMES ------------------ ------------------ ------------------ PER SHARE.......................................... $ $ $ TOTAL.............................................. $ $ $
REALNAMES HAS GRANTED THE UNDERWRITERS THE RIGHT TO PURCHASE UP TO AN ADDITIONAL SHARES TO COVER OVER-ALLOTMENTS. THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. MORGAN STANLEY & CO. INCORPORATED EXPECTS TO DELIVER THE SHARES TO PURCHASERS ON , 1999. ------------------- MORGAN STANLEY DEAN WITTER HAMBRECHT & QUIST ROBERTSON STEPHENS PAINEWEBBER INCORPORATED WIT CAPITAL CORPORATION , 1999 Inside Front Cover: [Graphic depicting the various URLs, or web addresses, required to locate a specific website using traditional web navigation juxtaposed with the one Internet Keyword required to get to the same web site.] Gatefold: [Graphic depicting how a web user can use the RealNames Service to navigate to desired content on the Internet. This graphic includes depictions of the web user, the logos of distributors of the RealNames Service, the RealNames routers and a variety of possible Internet Keyword results, including logos of some RealNames customers.] TABLE OF CONTENTS
PAGE ----- Prospectus Summary............................. 4 Risk Factors................................... 7 Use of Proceeds................................ 23 Dividend Policy................................ 23 Preemptive Rights.............................. 23 Capitalization................................. 24 Dilution....................................... 26 Selected Financial Data........................ 28 Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 29 PAGE ----- Business....................................... 41 Management..................................... 61 Related Party Transactions..................... 72 Principal Stockholders......................... 74 Description of Capital Stock................... 77 Shares Eligible for Future Sale................ 80 Underwriters................................... 82 Legal Matters.................................. 84 Experts........................................ 84 Where You Can Find More Information............ 85 Index to Financial Statements.................. F-1
------------------------ You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell shares of common stock and seeking offers to buy shares of common stock, only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the common stock. In this prospectus, the "Company," "we," "us" and "our" refer to RealNames Corporation. ------------------------ Except as set forth in the financial statements or as otherwise specified, all information in this prospectus is based on the following assumptions: - the conversion of all outstanding shares of our preferred stock into common stock upon the closing of this offering; - the filing of our amended and restated certificate of incorporation immediately prior to the effectiveness of this registration statement; - no exercise of warrants or other rights to purchase shares of common stock that are outstanding on, or may be issued after, June 30, 1999; and - no exercise of the underwriters' over-allotment option. RealNames and RealNames Service are among the servicemarks we own. This prospectus includes other marks we own as well as trade names, servicemarks and trademarks of other companies. ------------------------ We have made some statements in this prospectus, including some under "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and elsewhere, which constitute forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any results, levels of activity, performance or achievements expressed or implied by any forward-looking statements. These factors include, among other things, those listed under "Risk Factors" and elsewhere in this prospectus. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "could," "expects," "intends," "plans," "anticipates," believes," "estimates," "predicts," "potential" or "continue" or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in forward-looking statements are reasonable, we cannot provide any assurances about future results, levels of activity, performance, or achievements. ------------------------ UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS THAT BUY, SELL OR TRADE OUR COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. 3 PROSPECTUS SUMMARY YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED INFORMATION REGARDING OUR COMPANY AND THE COMMON STOCK BEING SOLD IN THIS OFFERING AND OUR FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. REALNAMES CORPORATION RealNames has developed a new addressing system based on Internet Keywords that simplifies navigation on the Internet. Internet Keywords are generally intuitive, familiar words and phrases, such as company, product, brand and personal names. They can be used instead of search engines, directories and uniform resource locators, or URLs, to navigate directly from any point on the Internet that recognizes Internet Keywords. The purpose of Internet Keywords is to simplify Internet navigation for users and to allow companies to promote their brands as direct connections to their web pages. Internet Keywords were available to more than 60% of U.S. Internet users, as measured by August 1999 Media Metrix data. This is as a result of being integrated into search engines, directories and portals such as AltaVista, DogPile, GO Network, LookSmart and MSN. Furthermore, Internet Keyword functionality is integrated into Microsoft's Internet Explorer 5.0, which Stat Market estimates, as of September 30, 1999, to have a greater than 30% share of the installed base of web browsers. Some of our current customers using Internet Keywords include Amazon.com, Beyond.com, eBay, Eddie Bauer, Federal Express, Ford, Homestore.com, MGM, priceline.com and Specialized Bicycles. As Internet use continues to increase, the number of web pages is also likely to increase. Network Solutions reported an increase in its cumulative net registrations of domain names from approximately 1.0 million at June 30, 1997 to approximately 5.3 million at June 30, 1999. In addition, International Data Corporation, or IDC, expects the number of web pages worldwide to grow from 925 million in 1998 to 8 billion by 2002. As the number of web pages grows, the URLs associated with those pages are becoming longer and more complex to remain unique. As a result, URLs are becoming less intuitive and more difficult to remember, making them an inefficient means of locating specific Internet resources and reaching online customers, businesses and communities. For example, Internet users that would like to navigate directly to the Honda Accord web page through its URL must input the lengthy web address WWW.HONDA2000.COM/ MODELS/ACCORD_SEDAN/INDEX.HTML. Internet users have instead often turned to search engines and directories. However, while search engines are extremely useful for research on a particular topic, they traditionally have not been efficient as direct navigation tools because they generate many results, only one of which, if any, is the web page to which the user wants to navigate. URLs have also generally been ineffective in promoting online brand identity. The limitations of navigating with URLs have created a challenge for companies seeking to bring their offline brands and identities onto the Internet and have made it difficult for them to promote their online existence to viewers, listeners and readers of their offline marketing activities. Just as domain names replaced long, difficult to remember numerical addresses for email, there is a need for something to replace long, difficult to remember URLs for web pages. We believe that there is a clear market opportunity for a third party that can build and manage an efficient global Internet navigation system that is more intuitive and user-friendly and leverages well-developed offline brands and identities. The RealNames Service, using Internet Keywords, allows users to efficiently navigate to the online location of companies, brands, products and people and enables companies to leverage their well-developed offline brands and identities. Internet Keywords operate on the RealNames platform, a new layer of Internet infrastructure that is designed to provide an intuitive navigation interface that hides complex and lengthy URLs. With the advent of Internet Keywords, users that would like to navigate directly to the Honda Accord web page can do so by simply typing "Honda Accord" in any Internet Keyword-enabled environment. To avoid many of the problems of the current domain name system, we manage the assignment of Internet Keywords with the goal of avoiding misdirection of users and misappropriation of trademarks and trade names. 4 Our objective is to establish Internet Keywords as the de facto standard for Internet navigation and the RealNames platform as the standard for the proliferation and use of Internet Keywords. In order to expand our reach and to achieve ubiquity of access to Internet Keyword navigation, we intend to leverage existing, and aggressively pursue additional, distribution relationships with Internet browser providers, as well as providers of search, directory, e-commerce, portal and content services worldwide. To drive user adoption, we enter into co-marketing arrangements with some of our customers and offer free Personal Keywords through several community web sites. In addition, we have begun a significant marketing campaign to create awareness of Internet Keywords and to incent users to adopt Internet Keywords. We also intend to grow our customer base through a multi-tiered selling effort, to expand internationally, to add functionality to the RealNames Service and to develop and promote policy and technical standards for Internet Keyword navigation. We were incorporated in Delaware in November 1996. Our principal executive office is located at 2 Circle Star Way, 2(nd) Floor, San Carlos, California 94070, and our telephone number is (650) 298-8080. THE OFFERING Common stock offered........................ shares Common stock to be outstanding after this offering.................................. shares Use of proceeds............................. For general corporate purposes, including expansion of operations, working capital, product development and other corporate expenses. Proposed Nasdaq National Market symbol...... NAME
The number of shares of common stock to be outstanding referenced above is based on shares outstanding as of June 30, 1999 and includes 15,677,778 shares of our Series C convertible preferred stock issued in August 1999. This number excludes the following: - - 1,351,833 shares of common stock issuable upon exercise of outstanding options on June 30, 1999 at a weighted average exercise price of $.66 per share; - - 595,453 shares of common stock reserved for future issuances under our stock plans on June 30, 1999; - - 8,500,000 shares of common stock reserved for future issuances under our stock plans that were approved by our board of directors after June 30, 1999; - - 1,271,735 shares of common stock issuable upon exercise of fully vested warrants on June 30, 1999 at an exercise price of $2.09 per share; - - 2,967,444 shares of common stock issuable upon exercise of unvested warrants on June 30, 1999 at exercise prices ranging from $2.64 to $3.77 per share; - - 2,924,991 shares of common stock reserved for issuance under an agreement to issue warrants to purchase common stock on June 30, 1999 at exercise prices ranging from $2.09 to $6.78 per share; and - - shares we are required to offer to a stockholder under a previous contractual commitment, concurrently with the completion of this offering at a price of $ per share, assuming an initial public offering price of $ per share. 5 SUMMARY FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) This summary financial data has been derived from the following: - our audited financial statements and related notes for the period from November 19, 1996, the date of our inception, to December 31, 1997 and the year ended December 31, 1998 included elsewhere in this prospectus; and - our unaudited financial statements for the six months ended June 30, 1998 and June 30, 1999 included elsewhere in this prospectus. You should read the information set forth below in conjunction with our financial statements and the related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus.
SIX MONTHS ENDED JUNE NOVEMBER 19, 1996 30, (DATE OF INCEPTION) TO YEAR ENDED ---------------------- DECEMBER 31, 1997 DECEMBER 31, 1998 1998 1999 ----------------------- ----------------- --------- ----------- (UNAUDITED) STATEMENT OF OPERATIONS DATA: Revenues......................................... $ -- $ 537 $ -- $ 1,059 Cost of revenues................................. -- 556 -- 702 ------- ------- --------- ----------- Gross profit (loss).............................. -- (19) -- 357 Operating expenses: Engineering and operations................... 1,000 1,165 345 1,859 Sales and marketing.......................... 81 2,458 667 3,495 General and administrative................... 103 1,640 314 1,752 Stock-based compensation..................... -- 691 103 4,465 ------- ------- --------- ----------- Total operating expenses................... 1,184 5,954 1,429 11,571 ------- ------- --------- ----------- Loss from operations............................. (1,184) (5,973) (1,429) (11,214) Net loss......................................... (1,176) (5,879) (1,391) (11,044) Net loss per share, basic and diluted............ $ (.31) $ (.40) $ (.09) $ (.75) Weighted average shares, basic and diluted....... 3,768 14,742 14,737 14,820 Pro forma net loss per share, basic and diluted (unaudited).................................... $ (.26) $ (.30) Pro forma weighted average shares, basic and diluted (unaudited)............................ 22,348 36,548
JUNE 30, 1999 ------------------------------------- PRO FORMA AS ACTUAL PRO FORMA ADJUSTED --------- ----------- ------------- (UNAUDITED) BALANCE SHEET DATA: Cash and cash equivalents..................................................... $ 4,058 $ 73,648 Working capital............................................................... 1,868 71,458 Total assets.................................................................. 9,226 78,816 Total stockholders' equity.................................................... 5,312 74,902
The balance sheet data table set forth above summarizes our balance sheet data as of June 30, 1999: - on an actual basis; - on a pro forma basis, giving effect to our sale of 15,667,778 shares of Series C convertible preferred stock in August 1999 and the conversion of all outstanding shares of preferred stock into shares of common stock upon the closing of this offering; and - on a pro forma as adjusted basis, giving effect to the sale of shares of common stock in this offering at an assumed initial public offering price of $ per share after deducting estimated underwriting discounts and commissions and estimated offering expenses. 6 RISK FACTORS THIS OFFERING AND AN INVESTMENT IN OUR COMMON STOCK INVOLVE A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND THE OTHER INFORMATION IN THIS PROSPECTUS BEFORE INVESTING IN OUR COMMON STOCK. OUR BUSINESS AND RESULTS OF OPERATIONS COULD BE SERIOUSLY HARMED IF ANY OF THE FOLLOWING RISKS WERE TO MATERIALIZE. THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE DUE TO ANY OF THESE RISKS, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT. RISKS RELATED TO OUR BUSINESS OUR SUCCESS IS HIGHLY UNCERTAIN BECAUSE OUR BUSINESS MODEL IS NOVEL AND UNPROVEN AND WE HAVE OPERATED OUR BUSINESS FOR ONLY A SHORT PERIOD OF TIME. Because we were incorporated in November 1996 and only began offering the RealNames Service in March 1998, we have an extremely limited operating history on which investors can evaluate our business and prospects. Specifically, we only recently began generating revenues from the following sources: - fixed-priced, annual Internet Keyword subscription fees in July 1998; - price per visit Internet Keyword fees in January 1999; - license fees for routing prefixes in the RealNames platform in June 1999; and - price per transaction Internet Keyword fees in August 1999. Because we have not demonstrated our ability to generate significant revenue, our business model is unproven, especially with respect to platform license fees for routing prefixes from Keyword Providers. Keyword Providers are companies to which we have assigned a unique routing prefix on the RealNames platform allowing them to assign their own Internet Keywords using that prefix. Keyword Providers generally pay us a license fee for access to our platform, and we expect these fees will constitute the majority of our revenues for the foreseeable future. We believe that our business model is not only unproven but novel. We cannot learn from the experience of similar companies, and as a result we have been required to deploy our service, or a particular pricing model, and to learn from our own experience. Given that we have very little history with deployment, we have very limited insight into trends and uncertainties that may emerge and affect our business. Internet Keywords may not achieve or sustain market acceptance, the market for our services may develop more slowly than expected or become saturated with competitors, or we may not be able to sustain or increase our current pricing levels. To achieve success, we must, among other things: - change the behavior of a large base of Internet users from relying on search engines and URLs to find a web page to relying on Internet Keywords to navigate directly to a web page; - maintain and add relationships with distribution partners that effectively implement the RealNames Service; - expand our base of paying customers that adopt Internet Keywords; - ensure that our Internet Keywords meet the expectations of Internet users in navigating to desired web pages; - maintain our relationships with existing Keyword Providers and develop new Keyword Provider relationships; - persuade our customers to include Internet Keywords as part of their offline and online marketing campaigns; 7 - ensure our subscribers renew their Internet Keyword subscriptions; - expand quickly into international markets; - increase the number and effectiveness of resellers of subscriptions for our Internet Keywords; - develop and maintain a reputation as a trusted, neutral third party in our industry and the Internet community; - anticipate changes in, and adapt to, a new and developing market; - respond effectively to competitive pressures; - continue to enhance the functionality and services offered through the RealNames platform; and - attract, retain and motivate qualified personnel. A potential investor in our common stock should carefully consider the risks and difficulties frequently encountered by companies in an early stage of development, as well as the risks we face due to our participation in a new and rapidly evolving market, and our attempt to execute on a new and untested business model. Our business model may not be successful, or we may not successfully overcome the risks associated with this business model. Please see "Management's Discussion and Analysis of Financial Condition and Results of Operations" for more information on our limited operating history. WE HAVE NEVER BEEN PROFITABLE, AND WE EXPECT SIGNIFICANT LOSSES AND INCREASES IN OUR OPERATING EXPENSES FOR THE FORESEEABLE FUTURE. We have never been profitable. We incurred net losses of approximately $1.2 million for the period from inception, November 19, 1996, to December 31, 1997, $5.9 million in 1998 and $11.0 million for the six months ended June 30, 1999. As of June 30, 1999, we had an accumulated deficit of $18.1 million. We expect to have increasing net losses and negative cash flows for the foreseeable future. This is due in part to significant revenue share arrangements with our distribution partners, substantial marketing commitments and commissions paid to our subscription resellers. The size of these net losses will also depend, in part, on the rate of growth in our revenues from licenses fees and Internet Keyword subscriptions, especially in proportion to the rate of growth in our operating expenses. We intend to increase our operating expenses substantially as we: - increase our sales, marketing and other promotional efforts, including implementation of aggressive co-marketing arrangements with our Keyword Providers to promote awareness of Internet Keywords; - continue to develop our technology and the RealNames platform; - increase our general and administrative functions to support our growing operations; and - expand into international markets. With these increased expenses, we will need to generate significant additional revenues to achieve profitability. However, the sources from which we expect to derive our most significant revenue are new and unproven and, accordingly, are subject to unusually high risk. As a result, it is possible that we will never achieve profitability. Even if we do achieve profitability, we may not sustain or increase profitability on a quarterly or annual basis in the future. If we do not achieve or sustain profitability in the future, then we may be unable to continue our operations. Please see "Management's Discussion and Analysis of Financial Condition and Results of Operations" for more information about our current and expected losses and expected increases in operating expenses. 8 WE EXPECT OUR QUARTERLY OPERATING RESULTS TO FLUCTUATE SIGNIFICANTLY. IF WE FAIL TO MEET THE EXPECTATIONS OF PUBLIC MARKET ANALYSTS AND INVESTORS, THE MARKET PRICE OF OUR COMMON STOCK IS LIKELY TO DECLINE. We expect to experience significant fluctuations in our future quarterly operating results due to a variety of factors, many of which are listed in "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Most of these factors are not within our control. As a result, we believe that quarterly comparisons of our operating results are not necessarily meaningful and that investors should not rely on the results of any quarter as an indication of our future performance. In particular, revenue growth in any quarter is not indicative of revenue growth to be expected in future quarters. We base our expenses in large part on our projections of our future revenues. However, it is very difficult to forecast our revenues due to our extremely limited operating history and unproven business model. Our revenues are also difficult to forecast because we derive, and expect to continue to derive, a significant portion of our revenues in any period from license fees from a small number of Keyword Providers. Therefore, if we lose or have to defer license fee revenue from one or more of these agreements in any period, we would likely have a significant shortfall in revenue in that period. Because most of our expenses are fixed in the short term, if our revenues are lower than we project in a period, we likely will not be able to reduce spending proportionally in the same period. As a result, any significant shortfall in revenues in any period would likely have an immediate, negative impact on our operating results and cash flows in that period. We believe it is likely that, in the future, fluctuations in our quarterly operating results will cause our operating results to fall below the expectations of securities analysts and investors, which would likely cause the price of our common stock to drop. WE RELY ON RELATIONSHIPS WITH OUR DISTRIBUTION PARTNERS TO EXTEND THE REACH OF THE REALNAMES SERVICE, AND THE FAILURE TO RETAIN THESE PARTNERS OR ADD NEW DISTRIBUTION PARTNERS WOULD LIKELY HARM OUR BUSINESS. To achieve success, we must maintain our relationships with our current distribution partners and establish new distribution partnerships. Internet Keywords are currently available to a large number of Internet users worldwide as a result of our relationships with companies that distribute our Internet Keywords through their Internet services or software applications. These distribution partners implement our service in their browsers, portals, search engines, directories or other web services, allowing users access to Internet Keywords. Most of our distribution contracts, however, have a term of only two years and may be canceled by the distributor without cause after as little as 30 days' notice. In addition, our contract with Microsoft does not require Microsoft to implement our service in Internet Explorer 5.0 or its other applications and services. Rather, Microsoft can implement the RealNames Service at its sole discretion. As a result, if we are unable to offer value to our partners during the term of these contracts, or if our partners choose a competitor's service over our service, or if they decide to develop their own services similar to ours, they likely will not renew, or may even terminate, their contracts with us. If we do not obtain renewals of a sufficient number of our distribution contracts, or if Microsoft chooses to discontinue the implementation of our service into Internet Explorer 5.0 or its other complementary products and services, the number of Internet users having access to Internet Keywords will decrease, customers will be less likely to find the service valuable and our business will be harmed. Even if our distribution contracts are renewed, they may be renewed on terms, including revenue sharing terms, less favorable than the original contract, or new distribution relationships may be entered into on terms less favorable than current distribution relationships. In either such event, our operating results would likely be adversely impacted as it would be more costly or less profitable to maintain those distribution relationships. In addition, if we do not establish new distribution partnerships, we will not be able to extend the reach of the RealNames Service, and we may not achieve success. In particular, some of the companies we have targeted as potential distribution partners may see us as a threat to their business models, which focus on driving traffic to, and keeping users at, their web sites. As a result, these and other companies may 9 choose not to enter into distribution relationships with us, which could reduce or eliminate any growth of our business. IF OUR DISTRIBUTION PARTNERS DO NOT EFFECTIVELY IMPLEMENT THE REALNAMES SERVICE, IT MAY DISCOURAGE ADOPTION BY INTERNET USERS AND RESULT IN THE LOSS OF CUSTOMERS. It is our objective that the RealNames Service be implemented effectively by each of our distribution partners. Effective implementation has several components, including: - recognition by the distribution partner of all Internet Keywords, including those supplied by Keyword Providers, unpaid Internet Keywords, foreign language Internet Keywords, and Personal Keywords provided to individuals at no cost to identify personal web pages; - prominent display of Internet Keywords among search and directory results; - direct communication with our routers in order to ensure that the distribution partner has accurate and up-to-date Internet Keyword data; and - a stable distribution platform with uninterrupted performance. Many of our customers subscribe to Internet Keywords in the belief that their Internet Keywords will be available through the command line of widely-used Internet browsers or will be prominently displayed among search results. Although we seek to ensure that our service is effectively implemented, we must work with or persuade a number of our distribution partners to improve their implementation of our service. However, some of our distribution partners, including Microsoft, do not recognize all Internet Keywords, and some do not communicate directly with our routers. As a result, these distribution partners do not make available to their users all of the Internet Keywords in our master database or do not make data updates to our master database immediately available to their users. Moreover, some of our distribution partners do not display Internet Keywords prominently among search results, which significantly reduces the likelihood that such Internet Keywords will be used. One of our distribution partners also recently experienced a significant interruption in its service, which prevented the use of Internet Keywords through this partner's service during the period of interruption. Failure to improve implementation with these distribution partners, or poor implementation by future distribution partners, could discourage adoption of our service by Internet users or reduce its attractiveness to our customers, which could reduce our revenues, increase our losses and otherwise harm our business. OUR BUSINESS WILL NOT GROW IF WE ARE UNABLE TO CHANGE THE BEHAVIOR OF A LARGE BASE OF INTERNET USERS AND CONVINCE THEM TO NAVIGATE THE INTERNET USING INTERNET KEYWORDS. We will be successful only if a large number of Internet users adopt our Internet Keywords as the preferred method for Internet navigation. For years, users seeking to navigate the Internet have relied primarily on search engines, directories, bookmarks and hyperlinks without Internet Keyword functionality rather than the command line of an Internet browser application. Those relatively few users that have navigated from the browser command line have done so using URLs. As a result, Internet users are accustomed to these traditional ways of navigating the Internet and may not be aware of, or be willing to try, a new and alternative navigation system. Even those willing to try Internet Keywords may find it difficult to break old habits and adopt Internet Keywords as their primary tool for navigation. It is difficult, therefore, to predict the extent and rate of user adoption of our Internet Keywords. Widespread acceptance of our Internet Keywords may not occur, particularly as traditional means of navigation, such as search engines and directory services, become more precise in their search results. If a large number of Internet users do not accept Internet Keywords as the preferred method for Internet navigation, we may be unable to establish or maintain distribution relationships and customers may be unwilling to pay for Internet Keywords, in which case our revenues are likely to decrease, our losses are likely to increase, and our business is unlikely to grow. 10 IF OUR INTERNET KEYWORDS DO NOT MEET THE EXPECTATIONS OF OUR USERS, WE WILL BE UNABLE TO GROW OUR BUSINESS. In order to be successful, we must ensure positive user experiences with Internet Keywords. Specifically, Internet Keywords must quickly and reliably direct users to the web sites to which they expect to be directed. Although there are hundreds of millions of web pages, there are currently only approximately 500,000 Internet Keywords in our database. As a result, users might expect that certain words or phrases would be Internet Keywords, only to be disappointed if such words or phrases are not Internet Keywords. Moreover, the assignment of Internet Keywords is in some cases highly subjective. Therefore, some Internet Keywords may direct users to a destination that does not meet their own subjective expectation. The risk of not meeting user expectations is particularly pronounced for generic terms and even for non-generic words or terms if there are two or more equally likely expectations. For example, "United" could serve as an Internet Keyword for United Airlines, United Parcel Service, United Way, United Van Lines, United Artists or others. In addition, regional and national differences in brand prominence and familiarity may also make it difficult to satisfy user expectations in all areas. We believe the risk of not meeting user expectations will be even more difficult to manage as we expand our service into foreign language character sets. In any of these cases, users' attempts to use intuitive words to find common products or brands might produce results inconsistent with their expectations, which might cause them to reduce or discontinue their use of Internet Keywords. We believe it is equally important to ensure maximum reliability, speed and constant availability of our service. If the RealNames platform experiences speed, reliability or availability problems, it would likely lead to slow, inaccurate or no results and would frustrate users. The reliability of our service depends in significant part on the efforts of customers, distributors and Keyword Providers, over which we have little or no control. For example, if our customers generally fail to report changes in web page locations and if we are unable to detect these changes, Internet Keyword users will be frustrated by dead links. Our distribution partners have also experienced, and are likely to again experience, reliability problems which adversely impact the availability of Internet Keywords to users. In addition, some of our distribution partners do not directly communicate with our routers, which delays data updates to these partners and may adversely impact a user's experience. Finally, a user's experience will in some cases be dictated by our Keyword Providers, and we are depending on our current and future Keyword Providers to manage and maintain their keyword systems in a manner that meets user expectations. If we fail to satisfy our users' expectations for any or all of the above reasons, we will be unlikely to achieve the user adoption that we need to attract and retain customers and distribution partners and to grow our business. OUR SUCCESS DEPENDS ON OUR RELATIONSHIPS WITH A SMALL NUMBER OF KEYWORD PROVIDERS. Revenues from a small number of Keyword Providers, predominantly from license fees, accounted for a substantial majority of our total revenues in the quarter ended June 30, 1999. We expect that these revenues will continue to comprise a majority of our total revenues for the foreseeable future. Our agreements with Keyword Providers typically have a limited term and may be cancelled prior to the end of the term. Further, we may not be able to maintain our existing pricing levels for licenses with Keyword Providers. If additional businesses do not enter into Keyword Provider license agreements with us, or if current Keyword Providers cancel their existing license agreements or fail to renew them upon expiration, or if pricing levels for licenses decline, our business will not grow as expected and our revenue would likely decline. It may be difficult to get additional Keyword Provider customers since the expense of Internet Keywords is likely not included in their existing marketing budgets. We may not be successful in convincing potential customers that they should divert marketing dollars from other projects to Internet Keywords. In addition, we may find that our current Keyword Provider customers had special circumstances or particularly compelling reasons for adopting our navigation system. We may not attract additional Keyword Provider customers that readily recognize the value of, or see the need for, our navigation system. If we experience any of these problems, it would likely result in lost or reduced revenue. 11 Because we do not control the individual keyword systems of our Keyword Provider customers, we rely on these customers to manage and maintain their keyword systems in a manner that meets the expectations of users. Specifically, we depend on these Keyword Providers to maintain Internet Keywords that deliver users to the web pages they expect and to ensure that their systems are reliable, fast and constantly available. Failure of our Keyword Provider customers to maintain their systems in a manner that meets user expectations could reflect poorly on our service and discourage user adoption of Internet Keywords generally, which could limit or eliminate our ability to grow our business. OUR SUCCESS DEPENDS ON DERIVING REVENUE FROM THE SUBSCRIPTION AND RENEWAL OF INTERNET KEYWORDS. We rely on sales of subscriptions of Internet Keywords for a significant portion of our revenue. Our fixed-priced Internet Keyword subscriptions generally have terms of one year and can be renewed after that time. Similarly, our price per visit, or PPV, and price per transaction, or PPT, subscriptions are typically of a short duration and may generally be canceled without cause before the end of the term. We may not be able to maintain our existing pricing levels for fixed-priced annual subscriptions, PPV or PPT Internet Keyword subscriptions. In particular, for our PPV and PPT Internet Keyword subscriptions, which are negotiated on a case-by-case basis, we may agree to below average pricing if we expect large traffic volume, much as a traditional supplier would give a volume discount to a large customer. In addition, it may be difficult to get additional Internet Keyword subscription customers since the expense of Internet Keywords is likely not included in their existing marketing budgets. We may not be successful in convincing potential customers that they should divert marketing dollars from other projects to Internet Keywords. Further, to ensure a positive user experience we have established hundreds of thousands of Internet Keywords directing users to web pages hosted by many businesses and organizations that have not yet subscribed for such Internet Keywords, in essence allowing a "free ride" from which we derive no revenue. We may never receive revenue from these companies and organizations, even if we make them aware that their Internet Keywords may be removed from the RealNames Service. If businesses and organizations do not subscribe for Internet Keywords or cancel or fail to renew their Internet Keyword subscriptions, or if pricing levels for such subscriptions decline, our results of operations and cash flow would likely be harmed. WE DEPEND ON THE EFFORTS OF OUR RESELLERS TO SELL INTERNET KEYWORD SUBSCRIPTIONS. In addition to sales from our own web site, we depend on the efforts of reseller partners such as Network Solutions to sell annual, fixed-priced Internet Keyword subscriptions and to provide qualified customer referrals. These partners expand the availability of Internet Keywords by providing us access to potential customers and allowing these potential customers to subscribe to Internet Keywords from numerous locations on the web. As a result, we must maintain our existing reseller relationships and continue to develop additional reseller relationships in order to increase subscription sales and customer acquisition. However, as we establish additional relationships with Internet Keyword resellers, we face the risk that competition among our resellers for Internet Keyword subscriptions will impede our ability to sign up additional resellers or discourage our existing resellers from promoting the sale of Internet Keyword subscriptions. Moreover, even if we are successful in establishing widespread reseller relationships, our resellers may not adequately promote our service so as to generate increased subscription sales. If we fail to establish additional or maintain our current reseller relationships, or if our resellers do not effectively promote and sell Internet Keyword subscriptions, our revenue may decline, and our losses may increase. WE WILL BE UNABLE TO GROW OUR BUSINESS IF OUR MARKETING EFFORTS ARE UNSUCCESSFUL IN CREATING AWARENESS AND ENCOURAGING TRIAL AND ADOPTION OF INTERNET KEYWORDS. In order to ensure adoption of Internet Keywords on a significant scale, we must, among other things, attract large numbers of new distribution partners, customers and users. One crucial step in our achievement of these goals is development of a strong identity for, and widespread recognition of, Internet 12 Keywords and the RealNames brand. We need large numbers of people to associate Internet Keywords with using familiar, intuitive words and phrases to link them to their desired Internet destinations and to understand the benefits of our approach to Internet navigation. To achieve this objective, we have begun a major marketing campaign to increase awareness, trial and adoption of Internet Keywords. However, our marketing efforts may not be successful. Among other things, buying meaningful advertising space or time in most forms of popular media is expensive, and this advertising space or time can be difficult to obtain even if we can afford the expense. For example, television advertising time for popular shows and events is often bought well in advance of airing. Even if we are successful in purchasing meaningful advertising space or time in popular media, our advertisements and promotions may not be effective in creating awareness and encouraging trial and adoption of Internet Keywords. If our marketing efforts are unsuccessful in creating awareness and encouraging trial and adoption of Internet Keywords, we will be unable to grow our business. OUR SUCCESS WILL DEPEND IN PART ON THE INCORPORATION OF INTERNET KEYWORDS INTO TRADITIONAL ADVERTISING. We believe that a large part of the value of Internet Keywords is the ability to drive traffic to a company's web pages based on its brand equity previously established through traditional advertising. We believe that as companies include Internet Keywords as part of their traditional advertising, as many companies do now with their domain names, demand for Internet Keywords by other companies will increase. As a result, we believe that our success will depend in part on our customers' incorporation of their Internet Keywords into their traditional offline advertising. We must convince these customers and their advertising agencies to incorporate Internet Keywords as part of their marketing campaigns and to devote a portion of their marketing budgets to the promotion of their Internet Keywords. We have little or no experience with this process, and therefore we may not be successful in achieving these objectives. Furthermore, we may find that some companies and brands prefer the ".com" label provided by domain names as opposed to Internet Keywords to draw attention to their web presence, especially if they are devoting significant resources promoting such a label. If we are unable to convince customers to incorporate Internet Keywords into their marketing campaigns, our ability to grow our business will likely be limited. IF WE CANNOT MAINTAIN THE STABILITY AND UNINTERRUPTED PERFORMANCE OF THE REALNAMES PLATFORM, OUR BUSINESS WILL BE SEVERELY HARMED. We depend heavily on our own internal computer and communication systems and the integrity of the electronic systems supporting the Internet. It is important that the RealNames platform handle Internet Keyword navigation requests within a fraction of a second in order to provide a positive user experience. It is equally important that the RealNames platform scale in size to handle millions of Internet Keywords and that it handle an unlimited number of routers and navigation requests without sacrificing speed or stability. Heavy stress placed on the RealNames platform by increased navigation requests, a greater number of Internet Keywords or additional routers could cause our systems to operate at unacceptably low speeds or to fail. If our systems or any other systems in the navigation process, such as those of our distribution partners, slow down significantly or fail even for a short time, users could suffer delays which may result in unsatisfactory user experiences, and may ultimately lead to the loss of customers or reduced adoption of Internet Keywords by users. We have experienced such system failures and degradation in the past, and we could experience future system failures and degradations. The RealNames platform will not operate appropriately if any of the following events occur: - a subsystem, component or software failure; - a power or telecommunications failure; or - an earthquake, fire or other natural disaster. 13 If any of the above events occur, we may not be able to prevent an extended systems failure since we currently lack a complete disaster recovery system. Any such system downtime or failure could discourage user adoption, result in loss of customers or revenues and damage our distribution relationships, any of which would harm our business. GOVERNMENT REGULATION OF THE ASSIGNMENT AND USE OF INTERNET KEYWORDS COULD SEVERELY HARM OUR BUSINESS. It is possible that the U.S. government or other governments may attempt to regulate the process of assigning and subscribing to Internet Keywords, especially if we are perceived as inadequately managing the process. If governments become involved in this process, we could encounter many difficulties. For example, governments may adopt regulations and policies that could: - eliminate or severely restrict our role in the assignment of Internet Keywords; - create a public perception that we lack authority to continue in our role in assigning Internet Keywords; - create additional steps and procedures in our current and future administration of the process; - create general instability in the administration of Internet Keywords; - adversely affect the pricing for Internet Keywords; or - facilitate additional competition. Regulations having any of these effects could severely harm our business. IF WE FAIL TO ESTABLISH OURSELVES AS A NEUTRAL THIRD PARTY WITH REGARD TO OUR DISTRIBUTION AND RESELLER PARTNERS, AS WELL AS OUR CUSTOMERS AND USERS, IT IS LIKELY THAT WE WILL LOSE DISTRIBUTION AND RESELLER PARTNERS, USERS AND CUSTOMERS. Two important components of our business strategy are to expand our reach on the Internet by establishing additional distribution and reseller relationships and to grow our customer base. In order to effectively execute these elements of our strategy, it is important that our distribution and reseller partners perceive us as a neutral third party in setting the terms of our contracts. In particular, distribution and reseller partners who offer similar reach may want substantially similar terms from us, possibly on a retroactive basis as we sign up additional partners. As a result, we may need to extend such terms in order to establish as many strategic partnerships as possible, which could harm our business or adversely impact our operating results to the extent such terms are not favorable to us. In addition, it is important that our customers, users and distribution partners perceive us as a neutral third party in assigning Internet Keywords and in maintaining the integrity of our Internet Keyword data. This process will be particularly difficult for us if and when we assign so-called "generic" Internet Keywords such as "cars" to a particular party. Even more than common brand names, generic Internet Keywords could be appropriately assigned to multiple parties, leading to potential conflict with customers, partners and potential customers once assigned to only one party. If we are unable to establish ourselves as a neutral third party, it is possible that we would lose users, customers and distribution partners and lose the support of the Internet community more generally. RAPID GROWTH IN OUR OPERATIONS IS PLACING A SIGNIFICANT STRAIN ON OUR RESOURCES, AND FAILURE TO MANAGE THIS GROWTH COULD DISRUPT OUR OPERATIONS. We are currently experiencing a period of rapid expansion in our personnel, infrastructure, facilities, relationships with third parties, assignment of Internet Keywords, and the use of the RealNames Service. For example, the number of our employees grew from 57 at December 31, 1998 to 137 at August 31, 1999. To accommodate this growth, we recently moved a significant portion of our operations to a new building, 14 and we expect that we will need substantial additional space by April 2000. We also intend to replace some manual tasks and procedures with a new accounting system, better database reporting tools and improved planning, workflow and reporting systems for our Internet Keyword assignment group and customer service operation. We expect further significant expansion will be required to address potential growth in the breadth of our service offerings, and we also plan to expand the geographic scope of our customer base and operations. We also expect to have to significantly expand our Internet Keyword assignment group and customer service operation if we are successful in encouraging trial and adoption of Internet Keywords. This expansion has placed, and will continue to place, a significant strain on our managerial, financial and operational resources. To effectively manage this expansion, we must continue to implement and improve our operational, financial and management information systems. If we do not manage our growth effectively, particularly the assignment of a much greater number of Internet Keywords, our operations are likely to be disrupted, which could result in lost revenue or increased operating expenses. IF WE ARE UNABLE TO ENHANCE THE FUNCTIONALITY OF OUR CURRENT SERVICES OR OFFER NEW SERVICES THROUGH THE REALNAMES PLATFORM, OUR BUSINESS MAY BE HARMED. Our business model contemplates that we will make our service sufficiently attractive to generate significant new and repeat business. As a result, we must enhance the RealNames platform to ensure scalability, improve data quality and add functionality. We are likely to incur substantial development or acquisition costs as we attempt to achieve these goals. If we are unable to do so, our customers may revert to traditional methods of reaching their customers on the Internet or switch to other alternatives, including the service offerings of our competitors. As we strive to enhance the scalability, data quality and functionality of the RealNames platform, we may experience the following difficulties: - failing to hire and retain a sufficient number of skilled personnel to allow us to respond to technological changes or evolving industry standards in a timely or cost-effective manner; - failing to improve the breadth of our Internet Keyword data, which would result in words and phrases that users expect to be Internet Keywords not being Internet Keywords; - failing to improve the quality of our Internet Keyword data, which would result in existing Internet Keywords directing users to web pages that do not meet user expectations; - encountering services or technologies developed by others that make our services noncompetitive; and - failing to identify market trends quickly enough to develop and market services that adequately meet the changing preferences of our customers or users. NEW RELEASES OF THE REALNAMES SERVICE MAY CONTAIN ERRORS OR DEFECTS. Our anticipated new releases of the RealNames Service will be complex and, accordingly, may contain undetected errors or failures when new versions are released. This may result in loss of, or delay in, market acceptance of the RealNames Service. We have in the past discovered errors in new releases of the RealNames Service after its introduction. We may in the future discover errors in new releases of the RealNames Service after deploying it, which could result in lost revenues and customer and partner frustration. WE MAY NOT BE ABLE TO EFFECTIVELY COMPETE AGAINST OUR CURRENT AND POTENTIAL COMPETITORS. The market for the RealNames Service is new and rapidly evolving, and we expect competition in and around this market to intensify in the future. While we do not believe any of our competitors currently offer the functionality offered by the RealNames Service, we face competition from several companies that 15 provide services and functionality similar to ours and that could in the future seek to compete more directly with us. We are aware of at least two other companies that offer, or have in the past offered, services that enable the addressing of web pages other than by URLs. In addition, America Online, or AOL, has developed its own set of AOL Keywords for navigation within its own proprietary service. If we are unable to structure an agreement with AOL to enable Internet Keywords within AOL's proprietary service, the number of our potential users, partners and customers could be decreased. In addition, AOL could develop a service or technology to extend AOL Keywords, or otherwise offer a competing navigation service, outside its proprietary service and on the broader Internet. In addition, if Internet Keywords become increasingly prominent, other companies may enter our market with the specific purpose of taking market share from us or limiting our growth. In particular, providers of browsers, client applications, search engines, directories, portals or content sites may implement their own keyword systems or technology, as AOL has done, to serve their own users and customers directly. Also, our existing distribution relationships, including our relationship with Microsoft, do not preclude our distribution partners from developing and implementing their own keyword or similar navigation systems or technology in the future. Most of our potential competitors, including AOL, have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical and marketing resources than we do. These potential competitors would be able to devote greater resources to the development and marketing of their service or technology if they do decide to compete with us. Our competitors may develop services that are equal or superior to ours or that achieve greater market acceptance. Our competitors may engage in more extensive research and development, adopt more aggressive pricing policies and make more attractive offers to existing and potential employees, distribution partners, users and customers. Our competitors may also be able to bundle their keyword services or technology with other services or technology that we do not offer, thus making their package more attractive to customers and users. It is also possible that some competitors would offer such a service or technology at no charge to customers. In addition, competitors may establish cooperative relationships among themselves or with third parties to better address the needs of users and customers. As a result, it is possible that new competitors may emerge and rapidly acquire significant market share. In addition, to the extent Internet users continue to rely on search engines, directories and hyperlinks without Internet Keyword functionality to navigate the Internet, we compete against this navigation alternative. We believe competition in this area is most pronounced with respect to the newer, more direct methods of search such as Google and DirectHit. Competition could result in loss of market share, lower pricing for our service or increased operating expenses. In particular, if two or more keyword systems were to become widely available and heavily promoted, users might become confused and customers may be required to promote only one keyword. If our Internet Keywords do not become the de facto standard, our business growth could be limited. OUR BUSINESS OPERATIONS COULD BE SIGNIFICANTLY DISRUPTED IF WE LOSE MEMBERS OF OUR MANAGEMENT TEAM. Our future performance will be substantially dependent on the continued services of our senior management team and our ability to retain and motivate them. As a result, the loss of the services of any of our officers or senior managers could harm our ability to establish or maintain strategic relationships, prevent us from expanding the RealNames Service and delay the execution of our business plan. In particular, our success depends on the continued services of Keith Teare, our founder, President and Chief Executive Officer. Since our inception, Mr. Teare has been primarily responsible for establishing our business plan and guiding its execution. In addition, Mr. Teare has become a recognized figure in the area of Internet navigation. Because we are in the early stages of executing our business plan, the loss of 16 Mr. Teare's services would significantly hinder our chances of success. Moreover, we do not have long-term employment agreements with any members of our management team. OUR BUSINESS OPERATIONS COULD BE SIGNIFICANTLY DISRUPTED IF WE FAIL TO INTEGRATE THE MEMBERS OF OUR MANAGEMENT TEAM, MANY OF WHOM WE HAVE RECENTLY HIRED. We have recently hired a significant number of our executive officers to manage the potential growth of our business. For example: - our Chief Financial and Administrative Officer joined us full time in August 1999; - our Vice President of Sales joined us in June 1999; and - our Vice President of Engineering and Operations joined us in March 1999. These individuals did not replace existing executive officers; rather, they were added to fill newly-created positions in response to our expanding operations. These individuals and the other members of our executive management have not previously worked together and are in the process of integrating as a management team. If they are unable to work together effectively or to successfully manage any growth we experience, our business could be significantly disrupted. IF WE ARE UNABLE TO HIRE AND RETAIN A SUFFICIENT NUMBER OF QUALIFIED PERSONNEL, WE MAY NOT BE ABLE TO GROW AS WE EXPECT AND OUR BUSINESS COULD BE HARMED. To be successful in the future, we must be able to attract, hire, integrate and retain highly skilled technical, sales and marketing, and other personnel. Skilled personnel are in short supply, and this shortage is likely to continue for the near future. As a result, competition for qualified personnel is intense, particularly in the San Francisco Bay Area, and the industry turnover rate is high. In addition, we believe that prospective employees that we target after this offering may perceive that the stock option component of our compensation package is not as valuable as it was prior to this offering, making us less competitive in the market for new employees. We may also have to spend significant amounts recruiting, hiring and retaining skilled personnel, which could adversely impact our operating results. We have recently experienced difficulty in hiring the personnel necessary to support the growth of our business, and we expect to continue to experience these difficulties. If we do not successfully manage our personnel requirements, we will not be able to sustain or grow our business as expected and our business could be harmed. IF WE DO NOT EXPAND INTO INTERNATIONAL MARKETS QUICKLY, WE MAY FACE SIGNIFICANT COMPETITION ABROAD. International expansion is an important part of our strategy to achieve ubiquity of Internet Keywords on a truly global Internet. We will need to invest rapidly and heavily to expand our worldwide presence by establishing local operations in key international markets and developing distribution and reseller relationships with providers of Internet browser, search, directory, portal and content services in those markets. We will also need to devote substantial time and resources to the development of localized foreign language databases. Any delay in executing our strategy in these markets could allow potential local competitors to copy our strategy and gain a foothold that would splinter the market and potentially confuse users. A local competitor would likely have many advantages over us, such as familiarity with the market and access to resources, that could make it difficult or impossible for us to compete effectively. AS WE ATTEMPT TO EXPAND OUR BUSINESS INTERNATIONALLY, WE WILL BECOME INCREASINGLY SUSCEPTIBLE TO NUMEROUS INTERNATIONAL BUSINESS RISKS AND CHALLENGES THAT COULD AFFECT OUR PROFITABILITY. We believe that the global nature of the Internet requires any Internet navigation system to function across all geographical boundaries. As a result, we will be required to expand our operations, including our sales and marketing efforts, into international markets. The costs of establishing and maintaining local 17 operations and relationships in key international markets will exceed the revenues from those operations for the foreseeable future, and our international operations may never be profitable. International operations are subject to inherent risks and challenges that could affect our profitability, including: - the need to develop new reseller relationships and distribution partnerships; - unexpected changes in international regulatory requirements and tariffs; - difficulties in staffing and managing foreign operations; - longer payment cycles; - the lack of widespread use of credit cards in many countries; - greater difficulty in accounts receivable collection; - potential adverse tax consequences; - price controls or other restrictions on foreign currency; and - difficulties in obtaining export and import licenses. To the extent we generate significant international revenues in the future, any negative effects on our international business could harm our business. In particular, gains and losses on the conversion of foreign payments into U.S. dollars may contribute to fluctuations in our results of operations, and fluctuating exchange rates could cause reduced revenues or gross margins from non-dollar-denominated international revenues. THIRD PARTIES HAVE CLAIMED, AND ARE LIKELY TO CLAIM IN THE FUTURE, THAT OUR INTERNET KEYWORDS INFRINGE THEIR INTELLECTUAL PROPERTY RIGHTS. From time to time in the ordinary course of business we have been, and we expect to continue to be, subject to claims of alleged infringement of the patents, trademarks and other intellectual property rights of third parties, particularly in connection with the assignment of Internet Keywords. These claims, and any resultant litigation, could subject us to significant liability for damages or otherwise harm our business by being costly to defend or settle and diverting resources and management's time and attention from the business. For example, one company has brought a patent infringement claim against us. Although we won a motion for summary judgment in this case, that judgment is being appealed. Please see "Business--Legal Proceedings" for additional information concerning this claim. If we lose the appeal, we could be prevented from offering the RealNames Service. In addition, even if we prevail in this or other cases, litigation could be time-consuming and expensive to defend, and could result in the diversion of our time, attention and resources. Any claims from third parties may also result in limitations on our ability to use the intellectual property subject to these claims unless we are able to enter into agreements with the third parties making these claims. INFRINGEMENT OF OUR INTELLECTUAL PROPERTY RIGHTS COULD HARM OUR BUSINESS. Third parties may infringe or misappropriate our proprietary rights, which could harm our business. We have applied for a patent on "Navigating Network Resources Based on Metadata" with the United States Patent and Trademark Office. We have also applied for registered service mark status for, among others, "RealNames" and "RealNames Service" in the United States. We have registered "Real Name Service" as a servicemark with the European Union for international protection. Despite these efforts, we may not be able to defend our proprietary rights since the validity, enforceability and scope of protection of proprietary rights in Internet-related industries is uncertain and still evolving. Because we are devoting significant resources to building our brands, primarily "RealNames," through media advertising campaigns, if we are unable to register the trade and servicemarks for which we have applied, or if we are unable to defend our intellectual property rights, our business may be harmed. 18 A SIGNIFICANT AMOUNT OF OUR TIME AND ATTENTION MAY BE DIVERTED BY DISPUTES AMONG THIRD PARTIES OVER THE ASSIGNMENT OF INTERNET KEYWORDS. We have at times made decisions regarding the assignment of Internet Keywords that have subsequently been challenged by others. These challenges often involve disputes over trademarks and trade names, or between competitors. We expect that these third-party challenges will increase in frequency if our service becomes more widely adopted. We also believe the likelihood of disputes is higher with respect to the assignment of generic terms such as "cars." These disputes are sometimes difficult to resolve and may require substantial amounts of management time and attention to address. This diversion may lead to reduced efficiency in other aspects of our operations and increased operating expenses, and may be exacerbated if we subsequently determine it is necessary to reassign any Internet Keyword to another business. FAILURE OF THE REALNAMES SERVICE OR THE PRODUCTS OR COMPUTER SYSTEMS OF OUR CUSTOMERS OR PARTNERS TO RECOGNIZE THE YEAR 2000 COULD DISRUPT THE OPERATION OF OUR BUSINESS AND TECHNICAL SYSTEMS Many currently installed computer systems and software products are not capable of distinguishing 21st century dates from 20th century dates. As a result, beginning on January 1, 2000, computer systems and software used by many companies and organizations in a wide variety of industries, including technology, transportation, utilities, finance and telecommunications, will produce erroneous results or fail unless they have been modified or upgraded to process date information correctly. Our customers and distribution partners, as well as users of the RealNames Service, may be among those companies, organizations and persons adversely impacted by erroneous results or failures in their systems. In addition, we face the possibility that our RealNames Service will fail due to processing errors caused by inaccurate calculations with respect to the Year 2000. Year 2000 compliance efforts may involve significant time and expense, and uncorrected problems could harm our business. Moreover, we may face claims based on Year 2000 issues arising from the integration of multiple products within an overall system. We may also experience reduced revenues and slower implementation of our service as potential customers or partners focus on their own Year 2000 compliance efforts. For a further discussion of Year 2000 issues, please see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Year 2000 Readiness Disclosure." WE MAY INCUR NET LOSSES OR INCREASED NET LOSSES IF WE ARE REQUIRED TO RECORD A SIGNIFICANT ACCOUNTING EXPENSE UPON THE ISSUANCE OR VESTING OF WARRANTS. Under the terms of a December 1998 agreement with Network Solutions, we agreed to issue warrants to purchase up to an aggregate of 4,196,726 shares of our common stock if Network Solutions satisfies commercial milestones. As of August 31, 1999, we had issued a warrant to purchase up to 1,271,735 shares of our common stock to Network Solutions for satisfying some of these milestones. This warrant was exercised in September 1999. In connection with the issuance of this warrant, approximately $2.7 million was recorded as a charge to operations during 1999. In the event additional milestones are met, we will be required to record a significant non-cash accounting expense based upon the value of the warrants at the time they are issued. Under the terms of similar agreements entered into in January 1999 with Inktomi and May 1999 with Infoseek, we issued performance-based warrants. We issued Inktomi a warrant to purchase up to 2,119,560 shares of our common stock, and we issued two warrants to Infoseek to purchase up to an aggregate of 847,884 shares of our common stock, of which warrants to purchase 423,942 shares of our common stock have expired. These warrants vest and become exercisable if either Inktomi or Infoseek satisfies their respective commercial milestones. In the event these milestones are met, we will be required to record a significant non-cash accounting expense based upon the value of the warrants in the period in which the warrants vest and become exercisable. As of August 31, 1999, no shares had vested under either the 19 Inktomi warrant or the Infoseek warrant, although we expect that the Infoseek warrant will begin to vest in December 1999. If we are required to record non-cash accounting expenses related to any of the above warrants, we would incur increased net losses for a given period, and this could seriously harm our operating results and stock price. For more information about these warrants, please see "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Description of Capital Stock--Warrants." RISKS RELATED TO THE INTERNET INDUSTRY DEMAND FOR THE REALNAMES SERVICE WILL NOT INCREASE IF THE INTERNET DOES NOT CONTINUE TO GROW AND IMPROVE. Acceptance of the RealNames Service depends substantially upon the widespread adoption of the Internet for commerce, communications and access to content and applications. As is typical in the case of an emerging industry characterized by rapidly changing technology and evolving industry standards, demand for and acceptance of recently introduced Internet services are subject to a high level of uncertainty. In addition, critical issues concerning the commercial use of the Internet remain unresolved and may affect the growth of Internet use. The adoption of the Internet for commerce, communications and access to content and applications, particularly by those companies that have historically relied upon alternative means of commerce, communications and access to content and applications, generally requires understanding and acceptance of a new way of conducting business and exchanging information. Moreover, widespread application of the Internet outside of the United States will require reductions in the cost of Internet access to make it affordable to the average consumer. To the extent that the Internet continues to experience an increase in users, an increase in frequency of use or an increase in the amount of data transmitted by users, we cannot guarantee that the Internet infrastructure will be able to support the demands placed upon it. In addition, the Internet could lose its viability as a commercial medium due to delays in development or adoption of new standards or protocols required to handle increased levels of Internet activity, or due to increased government regulation. Changes in, or insufficient availability of, telecommunications or similar services to support the Internet could also result in slower response times and could adversely impact use of the Internet generally. If use of the Internet does not continue to grow or grows more slowly than expected, or if the Internet infrastructure, standards, protocols or complementary products, services or facilities do not effectively support any growth that may occur, demand for the RealNames Service will not grow as anticipated and may decline significantly. INCREASED GOVERNMENT REGULATION OF THE INTERNET AND LEGAL UNCERTAINTIES COULD HARM OUR BUSINESS. Any new law or regulation pertaining to the Internet, or the application or interpretation of existing laws, could decrease the demand for the RealNames Service, increase our cost of doing business or otherwise harm our business. There is, and will likely continue to be, an increasing number of laws and regulations pertaining to the Internet. These laws or regulations may relate to liability for information retrieved from or transmitted over the Internet, online content regulation, user privacy, taxation and the quality of products and services. In addition, the growth and development of e-commerce may prompt calls for more stringent consumer protection laws that may impose additional burdens on e-commerce companies as well as companies like us that facilitate e-commerce services. We file tax returns in such states as required by law based on principles applicable to traditional businesses. However, one or more states may seek to impose additional income tax obligations or sales tax collection obligations on out-of-state companies, such as ours, which facilitate e-commerce. A number of proposals have been made at the state and local levels that could impose such taxes on the sale of products and services through the Internet or the income derived from such sales. These proposals, if adopted, could substantially impair the growth of e-commerce and reduce or eliminate our opportunity to become profitable. 20 Legislation limiting the ability of the states to impose taxes on Internet-based transactions has been enacted by the United States Congress. However, this legislation, known as the Internet Tax Freedom Act, imposes only a three-year moratorium, which commenced October 1, 1998 and ends on October 21, 2001, on state and local taxes on e-commerce, where such taxes are discriminatory, and Internet access, unless such taxes were generally imposed and actually enforced prior to October 1, 1998. It is possible that the tax moratorium could fail to be renewed prior to October 21, 2001. Failure to renew this legislation would allow various states to impose taxes on Internet-based commerce. The imposition of such taxes could reduce or eliminate our ability to become profitable. In addition, we are not certain how our business may be affected by the application of existing laws governing issues such as property ownership, trademarks, trade names, copyrights, encryption and other intellectual property issues, taxation, libel, personal privacy, obscenity, export or import matters and other issues. The vast majority of such laws were adopted prior to the advent of the Internet. As a result, they do not contemplate or address the unique issues of the Internet and related technologies. Changes in laws intended to address such issues could create uncertainty in the Internet market. Such uncertainty could reduce demand for the RealNames Service or increase the cost of doing business. RISKS RELATED TO THIS OFFERING OUR STOCK PRICE MAY BE VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES FOR INVESTORS PURCHASING SHARES IN THIS OFFERING. Prior to this offering, you could not buy or sell our common stock publicly. An active public market for our common stock may not develop or be sustained after this offering. We will negotiate and determine the initial public offering price with the representatives of the underwriters. The market price of our common stock after this offering will likely vary from the initial public offering price. You may be unable to sell your shares of our common stock at or above the offering price. The market price of the common stock may fluctuate significantly in response to the following factors, some of which are beyond our control: - variations in our quarterly operating results; - changes in securities analysts' estimates of our financial performance or in their buy/sell recommendations; - changes in market valuations of similar companies; - announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments; - loss of a major distribution partner or customer or failure to complete significant agreements with Keyword Providers; - additions or departures of key personnel; and - fluctuations in our stock market price and volume, which are particularly common among highly volatile securities of software and Internet-based companies. WE ARE AT RISK OF SECURITIES CLASS ACTION LITIGATION DUE TO OUR EXPECTED STOCK PRICE VOLATILITY. In the past, securities class action litigation has often been brought against companies following periods of volatility in the market price of their securities. This risk is especially acute for us because technology companies have experienced greater than average stock price volatility in recent years and, as a result, have been subject to, on average, a greater number of securities class action claims than companies in other industries. Due to the potential volatility of our stock price, we may in the future be the target of similar litigation. Securities litigation could result in substantial costs and divert management's attention and resources. 21 SUBSTANTIAL FUTURE SALES OF OUR COMMON STOCK COULD CAUSE OUR STOCK PRICE TO FALL. Our current stockholders hold a substantial number of shares, which they will be able to sell in the public market in the near future. Sales of a substantial number of shares of our common stock after this offering could cause our stock price to fall. In addition, the sale of these shares could impair our ability to raise capital through the sale of additional stock. You should read "Shares Eligible for Future Sale" for a full discussion of shares that may be sold in the public market in the future. OUR CHARTER DOCUMENTS AND DELAWARE LAW WILL MAKE IT MORE DIFFICULT TO ACQUIRE US AND MAY DISCOURAGE TAKE-OVER ATTEMPTS AND THUS DEPRESS THE MARKET PRICE OF OUR STOCK. Provisions of our certificate of incorporation and bylaws could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. For example, we have implemented the following provisions: - a staggered board of directors; - stockholder meetings may be called only by our board of directors, the chairman of the board or the president; - advance notice is required prior to stockholder proposals; and - stockholders may not act by written consent. Further, we have authorized preferred stock that is undesignated, making it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of RealNames. Provisions of Delaware law also could make it more difficult for a third party to acquire us. Specifically, Section 203 of the Delaware General Corporation Law may have an anti-takeover effect with respect to transactions not approved in advance by the board of directors, including discouraging attempts that might result in a premium over the market price for the shares of common stock held by our stockholders. CONTROL BY EXISTING STOCKHOLDERS MAY LIMIT YOUR ABILITY TO INFLUENCE THE OUTCOME OF DIRECTOR ELECTIONS AND OTHER MATTERS REQUIRING STOCKHOLDER APPROVAL. Upon completion of this offering, our executive officers, directors and principal stockholders and their affiliates will own shares or approximately % of the outstanding shares of common stock ( % if the underwriters' over-allotment option is exercised in full), assuming an initial public offering price of $ per share. These stockholders, if acting together, would be able to control all matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other business combination transactions. This concentration of ownership could have the effect of delaying or preventing a change in our control or otherwise discouraging a potential acquirer from attempting to obtain control of us. These results could in turn have a negative effect on the market price of our common stock or prevent our stockholders from realizing a premium over the market prices for their shares of common stock. For information about the ownership of common stock by our executive officers, directors and principal stockholders please see "Principal Stockholders." 22 USE OF PROCEEDS We estimate that our net proceeds from the sale of the shares of common stock we are offering will be approximately $ million at an assumed initial public offering price of $ per share after deducting estimated underwriting discounts and commissions and estimated offering expenses. If the underwriters fully exercise their over-allotment option, we estimate that the net proceeds will be approximately $ million. Our primary purposes of this offering are to obtain additional equity capital, create a public market for our common stock, facilitate our future access to public equity markets, provide liquidity to our existing stockholders and increase our visibility in the marketplace. We expect to use the net proceeds for general corporate purposes, including working capital and capital expenditures. Specifically, we expect to use the proceeds of this offering to satisfy our revenue share, marketing and facilities commitments, to recruit and hire personnel in all operating areas, to expand internationally, to recruit additional distribution partners, to establish additional data centers and to aggressively market the RealNames Service. Please see "Management's Discussion and Analysis of Financial Condition and Results of Operations" for a description of our operating expenses and plans to increase operating expenses as well as a description of our material commitments. The amounts we actually expend for such general corporate purposes may vary significantly and will depend on a number of factors, including the amount of our future revenues and the other factors described under "Risk Factors." Accordingly, we will have broad discretion in the allocation of the net proceeds of this offering. A portion of the net proceeds may also be used to acquire or invest in complementary businesses, technologies, product lines or products. However, we have no current commitments with respect to any such acquisitions or investments. Pending such uses, the net proceeds of this offering will be invested in short term, interest-bearing, investment grade securities. DIVIDEND POLICY We have never declared or paid cash dividends on our capital stock. We currently intend to retain our future earnings to finance the growth of our operations and development of our technology; therefore, we do not anticipate declaring or paying cash dividends on our common stock for the foreseeable future. Any future determination to declare or pay dividends will be at the discretion of our board of directors and will be dependent upon our financial condition, results of operations, capital requirements and such other factors as our board of directors deems relevant. PURCHASE RIGHTS Under pre-existing contractual rights, several holders of our preferred stock have rights to purchase up to an aggregate of shares of the common stock to be sold in this offering at the initial public offering price. However, the number of shares that may be purchased under this right may be limited at the discretion of the underwriters. As a result, the number of shares of common stock available to the general public will be reduced to the extent such stockholders are able to purchase shares under these rights. Please see "Underwriters." In addition, under a pre-existing contractual right, a stockholder has the right to invest $5 million in a private placement of shares of our common stock at a price per share equal to 96.5% of the initial public offering price of this offering. If the stockholder exercises this right, the private placement will occur immediately following, and contingent upon, the closing of this offering. The stockholder will have the right to purchase shares of our common stock at $ per share, assuming an initial public offering price of $ per share. 23 CAPITALIZATION The following table sets forth our capitalization as of June 30, 1999: - on an actual basis; - on a pro forma basis, giving effect to our sale of 15,677,778 shares of Series C convertible preferred stock in August 1999 and the conversion of all outstanding shares of preferred stock into shares of common stock upon the closing of this offering; and - on a pro forma as adjusted basis, giving effect to the sale of shares of common stock in this offering, at an assumed initial public offering price of $ per share after deducting estimated underwriting discounts and commissions and estimated offering expenses. This information should be read in conjunction with our financial statements and the related notes included elsewhere in this prospectus.
JUNE 30, 1999 ------------------------------------ PRO FORMA ACTUAL PRO FORMA AS ADJUSTED ---------- ----------- ----------- (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE DATA) Obligations under capital lease, net of current portion..................... $ 271 $ 271 $ ---------- ----------- ----------- Stockholders' equity: Convertible preferred stock, par value $.001 per share; 21,854,179 shares authorized, 21,854,179 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted................................................................ 22 -- Preferred stock, par value $.001 per share; no shares authorized, issued or outstanding, actual or pro forma; 10,000,000 shares authorized, no shares issued and outstanding, pro forma as adjusted.................... -- -- Common stock, par value $.001 per share; 50,000,000 shares authorized, 19,473,214 shares issued and outstanding, actual; 100,000,000 shares authorized, 57,005,171 shares issued and outstanding, pro forma; 200,000,000 shares authorized, shares issued and outstanding, pro forma as adjusted................................................... 19 57 Additional paid-in capital.................................................. 41,607 112,081 Notes receivable from stockholders.......................................... (1,345) (2,245) Unearned stock-based compensation........................................... (16,892) (16,892) Accumulated deficit......................................................... (18,099) (18,099) ---------- ----------- ----------- Total stockholders' equity.............................................. 5,312 74,902 ---------- ----------- ----------- Total capitalization.................................................. $ 5,583 $ 75,173 $ ---------- ----------- ----------- ---------- ----------- -----------
This table excludes the following shares: - 1,351,833 shares of common stock issuable upon exercise of outstanding options on June 30, 1999 at a weighted average exercise price of $.66 per share; - 595,453 shares of common stock reserved for future issuances under our stock plans on June 30, 1999; - 8,500,000 shares of common stock reserved for future issuance under our stock plans that were approved by our board of directors after June 30, 1999; 24 - 1,271,735 shares of common stock issuable upon exercise of fully vested warrants on June 30, 1999 at an exercise price of $2.09 per share; - 2,967,444 shares of common stock issuable upon exercise of unvested warrants at exercise prices ranging from $2.64 to $3.77 per share; - 2,924,991 shares of common stock reserved for issuance under our agreement to issue warrants to purchase common stock on June 30, 1999 at exercise prices ranging from $2.09 to $6.78 per share; and - shares we are required to offer to a stockholder under a previous contractual commitment, concurrently with the completion of this offering, at a price of $ per share, assuming an initial public offering price of $ per share. 25 DILUTION Our pro forma net tangible book value as of June 30, 1999 was approximately $74.9 million or $1.31 per share. Pro forma net tangible book value per share is equal to the amount of our total tangible assets, after giving effect to the net proceeds of our Series C preferred stock financing in August 1999, less our total liabilities, divided by the number of outstanding shares of our common stock assuming the conversion of all outstanding shares of our preferred stock, including all Series C preferred stock issued in August 1999, into shares of common stock. New investors who purchase shares in this offering will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the pro forma net tangible book value per share of our common stock immediately after completion of this offering. After giving effect to the issuance and sale of shares of common stock in this offering at an assumed initial public offering price of $ per share after deducting the estimated underwriting discounts and commissions and estimated offering expenses, our pro forma net tangible book value at June 30, 1999 would have been $ or $ per share. This represents an immediate increase in pro forma net tangible book value of $ per share to existing stockholders and an immediate dilution in pro forma net tangible book value of $ per share to new investors. The following table illustrates this per share dilution: Assumed initial public offering price per share............................... $ Pro forma net tangible book value per share as of June 30, 1999............. $ 1.31 Increase in pro forma net tangible book value per share attributable to new investors................................................................. --------- Pro forma net tangible book value per share after this offering............... --------- Dilution per share to new investors........................................... $ --------- ---------
The following table sets forth, as of June 30, 1999, the differences between the existing stockholders and new investors who purchase shares of common stock in this offering with respect to the number of shares of our common stock purchased from us, total consideration paid and average price paid per share.
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE ------------------------- ------------------------ PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ------------ ----------- ------------- --------- ----------- Existing stockholders......................... 57,005,171 % $ 90,426,000% $ 1.59 New investors................................. ------------ ----- ------------- --------- ------------- Total..................................... 100.0% 100.0% ------------ ----- ------------- --------- ------------ ----- ------------- ---------
This table excludes the following shares: - 1,351,833 shares of common stock issuable upon exercise of outstanding options on June 30, 1999 at a weighted average exercise price of $.66 per share; - 595,453 shares of common stock reserved for future issuances under our stock plans on June 30, 1999; - 8,500,000 shares of common stock reserved for future issuance under our stock plans that were approved by our board of directors after June 30, 1999; - 1,271,735 shares of common stock issuable upon exercise of fully vested warrants on June 30, 1999 at an exercise price of $2.09 per share; - 2,967,444 shares of common stock issuable upon exercise of unvested warrants at exercise prices ranging from $2.64 to $3.77 per share; 26 - 2,924,991 shares of common stock reserved for issuance under our agreement to issue warrants to purchase common stock on June 30, 1999 at exercise prices ranging from $2.09 to $6.78 per share; and - shares we are required to offer to a stockholder under a previous contractual commitment, concurrently with the completion of this offering, at a price of $ per share, assuming an initial public offering price of $ per share. To the extent outstanding options or warrants are exercised, there will be further dilution to new investors. 27 SELECTED FINANCIAL DATA In reading the selected financial data set forth below, you should refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and related notes included elsewhere in this prospectus. The statement of operations data for the period from our inception, November 19, 1996, to December 31, 1997 and the year ended December 31, 1998, and the balance sheet data at December 31, 1997 and 1998 are derived from our financial statements, which have been audited by PricewaterhouseCoopers LLP, independent accountants, and are included elsewhere in this prospectus. The statement of operations data for the six months ended June 30, 1998 and 1999 and the balance sheet data at June 30, 1999 are derived from unaudited financial statements included elsewhere in this prospectus. We have prepared this unaudited information on the same basis as the audited financial statements and have included all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of our financial position and operating results for such periods. Historical results are not necessarily indicative of future results, and the results for interim periods are not necessarily indicative of results to be expected for the entire year.
NOVEMBER 19, 1996 (DATE OF SIX MONTHS ENDED JUNE INCEPTION) 30, TO YEAR ENDED --------------------- DECEMBER 31, 1997 DECEMBER 31, 1998 1998 1999 ----------------- ----------------- --------- ---------- (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Revenues............................................ $ -- $ 537 $ -- $ 1,059 Cost of revenues.................................... -- 556 -- 702 ------- ------- --------- ---------- Gross profit (loss)................................. -- (19) -- 357 Operating expenses: Engineering and operations........................ 1,000 1,165 345 1,859 Sales and marketing............................... 81 2,458 667 3,495 General and administrative........................ 103 1,640 314 1,752 Stock-based compensation.......................... -- 691 103 4,465 ------- ------- --------- ---------- Total operating expenses........................ 1,184 5,954 1,429 11,571 ------- ------- --------- ---------- Loss from operations................................ (1,184) (5,973) (1,429) (11,214) Interest income, net................................ 8 94 38 170 ------- ------- --------- ---------- Net loss............................................ $ (1,176) $ (5,879) $ (1,391) $ (11,044) ------- ------- --------- ---------- ------- ------- --------- ---------- Net loss per share, basic and diluted............... $ (.31) $ (.40) $ (.09) $ (.75) ------- ------- --------- ---------- ------- ------- --------- ---------- Weighted average shares, basic and diluted.......... 3,768 14,742 14,737 14,820 ------- ------- --------- ---------- ------- ------- --------- ---------- Pro forma net loss per share, basic and diluted (unaudited)....................................... $ (.26) $ (.30) ------- ---------- ------- ---------- Pro forma weighted average shares, basic and diluted (unaudited)....................................... 22,348 36,548 ------- ---------- ------- ----------
See note 2 of notes to financial statements for a calculation of pro forma net loss per share.
DECEMBER 31, -------------------- 1997 1998 JUNE 30, 1999 --------- --------- ----------------- (UNAUDITED) (IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents................................................... $ 182 $ 11,290 $ 4,058 Working capital ............................................................ 66 10,713 1,868 Total assets................................................................ 268 12,883 9,226 Total stockholders' equity.................................................. 149 11,579 5,312
28 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS RELATING TO FUTURE EVENTS OR THE FUTURE FINANCIAL PERFORMANCE OF REALNAMES, WHICH INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH UNDER "RISK FACTORS," "BUSINESS" AND ELSEWHERE IN THIS PROSPECTUS. OVERVIEW RealNames Corporation simplifies navigation on the Internet by connecting people directly to specified web pages through the use of Internet Keywords. From our inception on November 19, 1996 to December 31, 1997, we were in the development stage, and our activities primarily related to raising capital, recruiting personnel, conducting research and development activities, purchasing operating assets, developing the RealNames platform and building our identity. We first made the RealNames Service available through our web site in March 1998 and secured our first distribution partnership, with AltaVista, in May 1998. We began recognizing revenue in July 1998. We currently recognize revenue from Internet Keywords and banner advertising. We have three different pricing models for Internet Keywords: license fees for Keyword prefixes, amounts paid per visit or per completed transaction when the user accesses the customer's web page using Internet Keywords, and fixed-priced annual subscriptions to Internet Keywords. We first recognized revenue from subscriptions in July 1998, from banner advertising in August 1998, from per visit fees in January 1999 and from license fees in June 1999. Although revenue from banner advertising has constituted the largest portion of our revenue to date, we expect banner advertising revenue to be the least significant portion of our revenue in future periods. Our international revenues have been immaterial through June 30, 1999. See note 10 of notes to financial statements for more information on international revenues. INTERNET KEYWORD REVENUE FROM LICENSE FEES One way we generate Internet Keyword revenue is from license fees for routing prefixes in the RealNames platform. Routing prefixes enable our Keyword Provider customers to use the RealNames platform to create and maintain their own separate Internet Keyword systems. We recognize revenue from license fees over the term of the agreement once we begin to provide service to the Keyword Provider and collection of the resulting receivable is deemed to be probable. Some of these licenses may be canceled by the Keyword Provider without cause prior to the end of their term. Revenue from license fees in any period will primarily be a function of the number of companies that desire to have their own Internet Keyword systems and the amount that such customers are willing to pay to license a prefix over a certain period. Revenue from license fees in any period will also be a function of the timing of such licenses, whether such licenses are cancelled or renewed and the effectiveness and growth of our sales force targeting this market. These factors could cause revenue from license fees to fluctuate significantly from quarter to quarter. We only began generating revenue from license fees in June 1999, and our sales force only has a few months of experience offering these licenses. As a result, it is difficult to predict the size of this market, market demand, cancellation rates and renewal rates. We have historically agreed to spend money advertising with our Keyword Provider customers, and we expect that we will continue to commit to spend money advertising with, or on behalf of, our Keyword Provider customers. Our current co-marketing arrangements require us to spend more than 50% of the expected total license fees with our Keyword Provider customers. These expenditures are accounted for as a sales and marketing expense and are recognized ratably as the advertising services are provided to us over the term of the co-marketing agreement. Generally our commitment to spend is higher in the initial 29 quarters of the term of the agreement and lower in the later quarters of the term of the agreement. These agreements may require us to spend money advertising with our current Keyword Provider customers even if they cancel their license agreements with us. Moreover, all of our Keyword Provider customers recognize some revenue from banner advertising, and our commitment to spend money on banner advertising or sponsorships with them will enable them to recognize some revenue. We may experience difficulty obtaining Keyword Provider customers, or generate lower license fees, in situations where we do not commit to spend significant advertising dollars with the Keyword Provider customer. Due to our extremely limited operating history with these Keyword Provider agreements, it is difficult to predict market demand for these licenses. We may find that our current Keyword Provider customers had special circumstances or particularly compelling reasons for adopting our navigation system. We may not attract additional Keyword Provider customers that readily recognize the value of, or see the need for, our navigation system. INTERNET KEYWORD REVENUE FROM PRICE PER VISIT/PRICE PER TRANSACTION FEES We also generate Internet Keyword revenue from price per visit, or PPV, fees from customers who pay us for each visit to one of their web pages through the use of Internet Keywords. In addition, we generate Internet Keyword revenue from price per transaction, or PPT, fees from customers who pay us for each eligible transaction completed by a user delivered to one of their web pages through the use of Internet Keywords. The majority of our PPV and PPT customers subscribe to a large number of Internet Keywords that are hosted on the RealNames platform but do not maintain their own Internet Keyword system. Some Keyword Provider deals include a PPV or PPT component, in which case revenue from this component is in addition to the license fees charged such customers. Revenue from PPV fees is recognized when the visit takes place, and revenue from PPT fees is recognized when the transaction is completed, provided in each case that there are no significant obligations remaining and collection of the resulting receivable is probable. Revenue from PPV and PPT fees is partly a function of the number of users who navigate using Internet Keywords, which itself is partly a function of the number of distribution partners who effectively enable navigation using Internet Keywords. Revenue from PPV and PPT fees is also a function of the number of Internet Keywords we can sell and the price per visit or per transaction we receive for them. Some of our Internet Keywords were purchased by advertising agencies on behalf of their clients. Many of our PPV contracts limit the amount that the customer must pay over the life of the contract regardless of the number of visits. Although these caps have had no significant impact on revenue from PPV or PPT fees to date, they may have an impact in the future. Finally, as with revenue from license fees, revenue from PPV and PPT fees will be partly a function of the size and experience of our sales force, which has only limited experience with these types of sales. Revenue from PPT fees to date has been attributable predominately to our participation in the affiliate programs of e-commerce companies. Affiliate programs are offered by many e-commerce businesses to incent companies or individuals to drive traffic to their site. Revenue from PPT fees has been insignificant to date and may continue to be insignificant. As with our Keyword Provider customers, we may find that our current PPV and PPT customers had special circumstances or particularly compelling reasons for adopting our navigation system. We may not attract additional PPV or PPT customers that readily recognize the value of, or see the need for, our navigation system. INTERNET KEYWORD REVENUE FROM ANNUAL SUBSCRIPTION FEES Internet Keyword revenue from subscriptions is generally attributable to the sale of annual subscriptions for Internet Keywords. Subscriptions are currently priced at $100 per year, per Internet Keyword hosted on our system. In one Keyword Provider relationship, we also share in the revenue from Internet Keyword subscriptions sold by that Keyword Provider in its own Internet Keyword system. We 30 offer some companies the ability to buy a block of Internet Keywords from us at a discount to the $100 price. These companies then offer the Internet Keywords with their other services. Revenue from subscriptions is recognized ratably over the term of the subscription. Although Internet Keyword subscriptions are offered on our own web site, sales of Internet Keyword subscriptions are predominately made through resellers. In the first six months of 1999, 54% of our revenue from subscriptions was attributable to our resellers. Revenue from subscriptions is primarily a function of market demand, the number of resellers, the amount of promotion and resources dedicated to the sale of subscriptions by these resellers, price, the percentage of refunds and renewal rates. Reseller commissions are accounted for as a sales and marketing expense and have historically ranged from 25% to 40% in the first year of a subscription and 15% in subsequent years. However, beginning in the first quarter of 2000, in order to promote the sale of Internet Keyword subscriptions, we plan to offer our resellers a 70% commission in the first year of a subscription, and and we plan to continue to offer 15% in subsequent years. BANNER ADVERTISING REVENUE Banner advertising revenue is attributable to amounts paid to us for the display of banner ads on web pages served by us. We typically serve a web page of related Internet Keywords when a user on our site, or using an Internet Keyword-enabled browser, types in words that do not precisely match an Internet Keyword. We also serve web pages of related Internet Keywords when a user on the sites of some distribution partners clicks on a RealNames hyperlink that does not precisely match an Internet Keyword. Banner advertising revenue is recognized ratably in the period in which the banners are displayed on these web pages, provided that there are no significant obligations remaining and collection of the resulting receivable is probable. Banner advertising revenue is largely a function of the number of such web pages served, the percentage of such pages on which our advertising agency is able to sell banner ads, the price charged per banner ad (generally measured in price per 1,000 ads served, or CPMs) and our revenue sharing arrangements. Most of our web pages are served to users clicking on a RealNames hyperlink served by one of our distribution partners. We share revenue from the banner ads presented on these pages with the distribution partner. 2Can Media, an Internet advertising reseller that sells the banner advertisements served on our website, accounted for 79% of our revenues for the year ended December 31, 1998. AltaVista accounted for 21% of our revenues for the six months ended June 30, 1999. All revenues derived from 2Can Media and AltaVista during these periods were attributable to revenue share arrangements for banner advertising. These revenues represented a relatively large part of our total revenues for these periods as we did not begin recognizing Internet Keyword revenue from price per visit fees and license fees until January 1999 and June 1999, respectively. We do not expect banner advertising revenue to increase. In fact, it is our intention to minimize the number of times users get web pages of related Internet Keywords, since these web pages are served only when there is not an Internet Keyword that precisely matches the user's navigation request. If we are successful, we would in turn minimize the number of pages on which we could display banner advertising. COST OF REVENUES Cost of revenues consists of portions of revenue shared with our distribution partners, depreciation of our system hardware, database management costs, costs of hosting our routers, billing services costs, a portion of the costs associated with the assignment of Internet Keywords and a portion of customer service costs. We expect cost of revenues to increase sequentially each quarter for the foreseeable future as we increase the size and scalability of the RealNames platform, assign and service additional Internet Keywords and expand internationally. Cost of revenues could increase as a percentage of total revenue in any period due to the relatively fixed nature of router hosting, Internet Keyword assignment and customer service costs. Moreover, we expect costs of revenue to fluctuate in future quarters due to fluctuation in the 31 mix of our Internet Keyword revenue streams, each of which has a different revenue sharing component and places different demands on Internet Keyword assignment and customer service and related costs. In the future, we expect a more significant portion of our cost of revenues will consist of amounts shared with distribution partners. We rely heavily on our distribution partners to make Internet Keywords available to a broad base of Internet users. In order to encourage this, we currently share approximately half of our revenue from PPV and PPT fees with our distributors if the distributor originated the visit or transaction giving rise to a PPV or PPT fee. In addition, we currently expect to share a significant portion of our revenue from license fees with our distribution partners. This amount will be shared with our distribution partners ratably based on the proportion of total Internet Keyword traffic they originate. OPERATING EXPENSES Engineering and operations expenses consist of salaries and related costs for engineering (including research, design and development), operations and non-direct customer service employees, depreciation of certain capital equipment and the allocable portion of overhead expenses. Engineering and operations expenses are expected to increase sequentially each quarter for the foreseeable future as we add personnel in all departments to develop additional versions of the RealNames Service, support expansion of operations, provide additional non-direct customer support and expand internationally. Sales and marketing expenses consist of reseller commissions on subscription sales and salaries and related costs for employees in the sales, marketing, business development and product management areas, including sales commissions and bonuses, and the allocable portion of the overhead expenses. Sales and marketing expenses also consist of expenses associated with consultants, RealNames advertising, advertising on behalf of our Internet Keyword Provider customers, promotion, marketing research, marketing programs, web site design, public relations, trade shows and sales collateral. Sales and marketing expenses are expected to increase sequentially each quarter for the foreseeable future, due in large part to amounts we are committed to spend on advertising with our Keyword Provider customers. Sales and marketing expenses are also expected to increase for the foreseeable future due to significant promotion of Internet Keywords by us and to support the promotion of Internet Keywords by our customers, especially the use of Internet Keywords in traditional media. Sales and marketing expenses are also expected to increase as we add additional sales and marketing personnel and expand internationally. General and administrative expenses consist of salaries and related costs for employees in the financial, accounting, administrative, legal, human resources and facilities areas and the allocable portion of overhead expenses, as well as costs associated with professional services, insurance and bad debt. General and administrative expenses are expected to increase sequentially each quarter for the foreseeable future as we incur costs associated with being a public company, support growth in other departments and expand internationally. STOCK-BASED COMPENSATION EXPENSE We have recorded stock-based compensation expense of $691,000 for the year ended December 31, 1998 and $1.8 million for the six months ended June 30, 1999 as a result of stock options granted during those periods to employees and non-employees. In addition, we have recorded additional stock-based compensation for options granted in July and August of 1999. Unearned stock-based compensation expense for employee options is being amortized over the vesting period of the options, generally four years, on a graded vesting method, which results in a larger share of the compensation expense being amortized earlier in the expected vesting period of the option. The total unamortized unearned stock-based compensation recorded for all option grants through September 30, 1999 of $13.2 million will be amortized as follows: $5.0 million for the remainder of the year ending December 31, 1999; $4.9 million for the year ending December 31, 2000; $2.4 million for the year ending December 31, 2001; $896,000 for the year ending December 31, 2002 and thereafter. 32 We have issued performance-based warrants or agreed to issue warrants based on performance to purchase up to 7,164,170 shares of our common stock to some of our distribution and reseller partners, of which warrants to purchase 473,442 shares have expired without being exercised. These warrants vest, and in some cases are issued, upon the achievement of commercial milestones. At June 30, 1999, 1,271,735 shares of common stock underlying these performance-based warrants had vested, resulting in a stock-based compensation expense of $2.7 million for the three months then ended. No other warrants to the partners had vested, nor were we committed to issue additional warrants, at June 30, 1999, as none of the required milestones had been achieved as of that date. However, to the extent that additional milestones are achieved and the related warrants vest or are issued, this will result in additional stock-based compensation based on the fair value of the common stock underlying the warrants at that time. We expect that some of the shares underlying these warrants will commence vesting in December 1999. This stock-based compensation charge is subject to substantial increase or decrease in future quarters based upon future changes in the trading price of our common stock. See notes 5 and 10 of notes to financial statements for a further discussion of the performance-based warrants and their accounting treatment. EXPECTED LOSSES Because we were incorporated in November 1996 and only began offering the RealNames Service in March 1998 and selling Internet Keyword subscriptions in June 1998, we have an extremely limited operating history on which investors can evaluate our business and prospects. We have not demonstrated our revenue and income potential, and our business model is unproven, especially with respect to license fees and PPV and PPT fees, which we expect will constitute the majority of our Internet Keyword revenues in the near future. We have very limited insight into trends and uncertainties which may emerge and affect our business. Internet Keywords may not achieve or sustain market acceptance, or the market for the RealNames Service may develop more slowly than expected or become saturated with competitors, or we may not be able to sustain or increase our pricing levels. We have never been profitable. We incurred net losses of approximately $1.2 million for the period of inception, November 19, 1996, to December 31, 1997, $5.9 million for 1998 and $11.0 million for the six months ended June 30, 1999. As of June 30, 1999, we had an accumulated deficit of $18.1 million. We expect to have increasing net losses and negative cash flows for the foreseeable future. Specifically, we expect operating and net losses in 1999 to be much greater than our operating and net losses in 1998, and we expect operating and net losses in 2000 to be several times larger than operating and net losses in 1999. We expect significant operating and net losses in 2001 as well. The actual size of these operating and net losses will depend, in part, on the rate of growth of our revenues and on the level of our operating expenses. We intend to substantially increase our operating expenses as stated above. With these increased expenses, we will need to generate significant additional revenues to achieve profitability; however, the sources from which we expect to derive our most significant revenue in the future are new and unproven and, accordingly, are subject to an unusually high risk. Consequently, it is possible that we will never achieve profitability, and even if we do achieve profitability, that we may not sustain or increase profitability on a quarterly or annual basis in the future. If we do not achieve or sustain profitability in the future, then we may be unable to continue our operations. 33 RESULTS OF OPERATIONS QUARTERLY RESULTS OF OPERATIONS The following table sets forth unaudited statement of operations data for each of the last six quarters ended June 30, 1999. In the opinion of management, this information has been prepared substantially on the same basis as the audited consolidated financial statements appearing elsewhere in this prospectus, and all necessary adjustments, consisting only of normal recurring adjustments, have been included in the amounts shown below to present fairly the unaudited quarterly results of operations data. The quarterly data should be read in conjunction with our audited financial statements and the related notes appearing elsewhere in this prospectus. The operating results for any quarter should not be considered indicative of results for any future period.
QUARTER ENDED -------------------------------------------------------------------- MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, 1998 1998 1998 1998 1999 1999 ----------- --------- --------- --------- ----------- --------- (UNAUDITED) (IN THOUSANDS) Revenues.......................................... $ -- $ -- $ 261 $ 276 $ 326 $ 733 Cost of revenues.................................. -- -- 284 272 258 444 ----- --------- --------- --------- ----------- --------- Gross profit (loss)............................... -- -- (23) 4 68 289 Operating expenses: Engineering and operations...................... 113 232 238 582 750 1,109 Sales and marketing............................. 165 502 687 1,104 895 2,600 General and administrative...................... 136 178 317 1,009 857 895 Stock-based compensation........................ 3 100 296 292 692 3,773 ----- --------- --------- --------- ----------- --------- Total operating expenses.................... 417 1,012 1,538 2,987 3,194 8,377 ----- --------- --------- --------- ----------- --------- Loss from operations.............................. (417) (1,012) (1,561) (2,983) (3,126) (8,088) Interest income, net.............................. 4 34 26 30 101 69 ----- --------- --------- --------- ----------- --------- Net loss.......................................... $ (413) $ (978) $ (1,535) $ (2,953) $ (3,025) $ (8,019) ----- --------- --------- --------- ----------- --------- ----- --------- --------- --------- ----------- ---------
We began generating revenues in the quarter ended September 30, 1998, and total revenues have increased in each successive quarter. While Internet Keyword revenue has increased each successive quarter, revenue from banner advertising has decreased each successive quarter. Internet Keyword revenues from subscription fees increased each quarter. The increase in Internet Keyword revenue in the quarter ended March 31, 1999 was also attributable to the commencement of Internet Keyword revenue from PPV fees. The increase in Internet Keyword revenue in the quarter ended June 30, 1999 was primarily attributable to the commencement of Internet Keyword revenue from license fees, and, to a lesser extent, an increase in Internet Keyword revenue from PPV fees. Cost of revenues, which we first recorded in September 1998, were relatively constant from the third quarter of 1998 through the quarter ended March 31, 1999. Cost of revenues increased to $444,000 for the quarter ended June 30, 1999 primarily as a result of an increase in customer service personnel hired in the first two quarters of 1999. Total operating expenses have increased significantly over the last six quarters due to our growth in all operating areas. Engineering and operations expense increased for each of the last six quarters as we added additional engineering and operations personnel and incurred increased depreciation and amortization associated with capital equipment purchases. Sales and marketing expense has also increased over each of the last six quarters except for the quarter ended March 31, 1999. The decrease in sales and marketing expenses in this quarter was attributable to reduced expenditures for marketing and tradeshows. Sales and marketing expenses almost tripled for the quarter ended June 30, 1999 due primarily to the 34 addition of sales and marketing employees and co-marketing expenditures with our Keyword Providers. General and administrative expenses have also generally increased over the last six quarters other than from the quarter ended December 31, 1998 to the quarter ended March 31, 1999. General and administrative expenses were particularly high in the quarter ended December 31, 1998 due to legal expenses of approximately $344,000 related to a patent litigation case. Stock-based compensation expense has also generally increased over the last six quarters. SIX MONTHS ENDED JUNE 30, 1998 AND 1999 REVENUES. Revenues were approximately $1.1 million for the six months ended June 30, 1999. There were no revenues for the six months ended June 30, 1998. Revenues for the six months ended June 30, 1999 were primarily attributable to Internet Keyword revenue from license fees and fixed-priced subscriptions and from banner advertising revenue, and to a lesser extent, Internet Keyword revenue from PPV fees. COST OF REVENUES. Cost of revenues was $702,000 for the six months ended June 30, 1999. There was no associated cost of revenues for the six months ended June 30, 1998. Cost of revenues for the six months ended June 30, 1999 was attributable to revenue shared with distribution partners from PPV fees and due to costs associated with the assignment of Internet Keywords and database management, hosting of our routers and billing services. ENGINEERING AND OPERATIONS EXPENSES. Engineering and operations expenses increased from $345,000 for the six months ended June 30, 1998 to approximately $1.9 million for the six months ended June 30, 1999. The increase in engineering and operation expenses was attributable to salaries and related costs for additional engineering, operations and customer service employees, depreciation of certain capital equipment and the allocable portion of overhead expenses for those additional employees. SALES AND MARKETING EXPENSES. Sales and marketing expenses increased from $667,000 for the six months ended June 30, 1998 to $3.5 million for the six months ended June 30, 1999. This increase was primarily attributable to the addition of sales, marketing and business development employees and related overhead costs and to co-marketing expenditures with our Keyword Providers incurred in the quarter ended June 30, 1999. Additionally, sales and marketing expenses increased due to reseller commissions on Internet Keyword subscription sales and greater marketing and public relations costs. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses increased from $314,000 for the six months ended June 30, 1998 to $1.8 million for the six months ended June 30, 1999. This increase was primarily attributable to the addition of employees and the associated overhead expenses. Recruiting expenses and legal fees related to patent litigation and various distribution and customer agreements were also responsible for the increase. STOCK-BASED COMPENSATION EXPENSE. Stock-based compensation expense increased from $103,000 for the six months ended June 30, 1998 to $4.5 million for the six months ended June 30, 1999. The increase was primarily attributable to the granting of additional stock options after June 30, 1998 and the issuance of a fully-vested warrant for 1,271,735 shares of common stock to Network Solutions. This warrant was exercised in September 1999. See notes 5 and 10 of notes to financial statements for a further discussion of the warrant issued to Network Solutions and its accounting treatment. INTEREST INCOME, NET. Interest income, net, increased from $38,000 for the six months ended June 30, 1998 to $170,000 for the six months ended June 30, 1999. The increase was primarily attributable to interest income on higher average investable cash balances due to the net proceeds from our Series B preferred stock financing in December 1998. 35 INCEPTION PERIOD FROM NOVEMBER 19, 1996 TO DECEMBER 31, 1997 AND THE YEAR ENDED DECEMBER 31, 1998 REVENUES. Revenues were $537,000 for the year ended December 31, 1998. There were no revenues in the inception period, from November 19, 1996 to December 31, 1997. Revenues in the year ended December 31, 1998 were primarily attributable to banner advertising revenues, and, to a much lesser extent, Internet Keyword revenue from subscriptions. COST OF REVENUES. Cost of revenues of $556,000 for the year ended December 31, 1998 was primarily attributable to salaries and related costs for Internet Keyword assignment and database management employees, costs of hosting of our routers, billing services costs and banner advertising commissions. There was no cost of revenues in the inception period. ENGINEERING AND OPERATIONS EXPENSES. Engineering and operations expenses increased from $1.0 million for the inception period to $1.2 million for the year ended December 31, 1998. The increase was primarily attributable to the hiring of additional engineering and operations employees, recruiting expenses and relocation incentives. SALES AND MARKETING EXPENSES. Sales and marketing expenses increased from $81,000 for the inception period to $2.5 million for the year ended December 31, 1998. The increase was primarily attributable to the hiring of additional sales, marketing, and business development employees, sales commissions, development of public relations, tradeshow participation and other marketing efforts. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses increased from $103,000 for the inception period to $1.6 million for the year ended December 31, 1998. The increase was primarily attributable to the hiring of additional human resources, finance and facilities personnel and legal fees related to patent litigation and customer and distributor contracts. STOCK-BASED COMPENSATION EXPENSE. Stock-based compensation expense was $691,000 for the year ended December 31, 1998. There was no such charge in the corresponding prior period. INTEREST INCOME, NET. Interest income, net, increased from $8,000 for the inception period to $94,000 for the year ended December 31, 1998. The increase was primarily attributable to interest income on higher investable cash balances due to our Series A preferred stock financing in March 1998. INCOME TAXES. No provision for federal and state income taxes was recorded as we have incurred net operating losses from inception through June 30, 1999. As of December 31, 1998, we had approximately $5.1 million of federal and state net operating loss carryforwards which expire in varying amounts beginning in 2005. Due to the uncertainty regarding the ultimate utilization of the net operating loss carryforwards, we have not recorded any benefit for losses and a valuation allowance has been recorded for the entire amount of the net deferred tax asset. In addition, sales of our stock, including shares sold in this offering, may further restrict our ability to utilize our net operating loss carryforwards. Please see note 7 of notes to financial statements for more information on our income taxes and tax credits. FACTORS AFFECTING OPERATING RESULTS Our revenues, cost of revenues, operating expenses and operating results may vary significantly from quarter to quarter. The fluctuations may be due to a number of factors, many of which are beyond our control. These factors include: - the size of our revenue share arrangements with our distribution partners; - the size of our co-marketing commitments with our customers; - the rate at which we increase our operating expenses as we expand our sales, marketing and promotional efforts, develop our technology and platform, increase our general and administrative functions and expand into international markets; 36 - whether we maintain, increase, lose or are required to defer revenue from license agreements with our Keyword Providers; - whether we maintain, lose or add relationships with distribution partners which make the RealNames Service available to their users; - the effectiveness of our distribution partners implementation of the RealNames Service; and - the effectiveness of our marketing campaigns in driving user adoption of Internet Keywords. Because of the above factors, our quarterly revenue and operating results are difficult to forecast, and we believe that period-to-period comparisons of our operating results will not necessarily be meaningful and should not be relied on as an indication of our future performance. LIQUIDITY AND CAPITAL RESOURCES Since our inception, we have financed our operations primarily through the private sale of equity securities and, to a lesser extent, bank and investor borrowings. As of June 30, 1999, we had raised approximately $17.6 million in cash from the issuance of common and preferred stock. As of June 30, 1999, we had approximately $4.1 million of cash and cash equivalents. In addition, we have a $1.2 million capital lease line with a leasing company, of which approximately $800,000 was available as of June 30, 1999. Net cash used in operating activities was $1.2 million and $4.7 million for the six months ended June 30, 1998 and 1999, respectively, and was $341,000 and $4.3 million for the inception period and in the year ended December 31, 1998, respectively. In each period, cash used by operating activities was primarily a result of a net loss. Net cash used in investing activities was $437,000 and $2.8 million for the six months ended June 30, 1998 and 1999, respectively, and was $97,000 and $957,000 for the inception period and in the year ended December 31, 1998, respectively. Cash used in investing activities in each period was primarily related to purchases of property and equipment and, in all periods but the inception period, the purchase of letters of credit as security for our credit card payment facility and our facilities operating lease. Net cash provided by financing activities of $3.7 million for the six months ended June 30, 1998 was primarily attributable to the net proceeds from the issuance of Series A preferred stock in March 1998. Net cash provided by financing activities of $295,000 for the six months ended June 30, 1999 was primarily attributable to proceeds from the exercise of a warrant for preferred stock. Net cash provided by financing activities of $620,000 for the inception period resulted from the issuance of common stock. Net cash provided by financing activities of $16.3 million for the year ended December 31, 1998 consisted primarily of net proceeds from the issuance of Series A preferred stock in March 1998 and Series B preferred stock in December 1998. In August 1999, we raised $70.5 million in net proceeds from the sale of our Series C preferred stock, including notes receivable of $890,000. Our deferred revenue balance consists of the unamortized portion of our Internet Keyword revenue from subscriptions. Subscription fees are collected at the time the subscription is initiated, and revenue is recognized over the 12-month period of the subscription. Material commitments consist of our obligations with our Keyword Provider customers to spend a defined amount of advertising dollars with them, our equipment loan facility and our facilities leases. See note 4 of notes to financial statements for a further explanation of our facilities leases commitments and note 10 for a description of our equipment loan facility. As of June 30, 1999, our total commitment to spend advertising dollars with our Keyword Provider customers was approximately $14.6 million, of which $543,000 was due and payable at that date. In addition, we expect to commit to spend several million dollars for advertising Internet Keywords in television, radio, print and other traditional media. We anticipate that we will experience an increase in our advertising commitments as well as in our capital expenditures and lease commitments consistent with our anticipated growth in operations, infrastructure 37 and personnel. We expect the capital expenditures for the balance of 1999 will be at least $4.2 million and that capital expenditures for 2000 will be at least $17.6 million. In particular, we anticipate incurring capital expenditures in connection with the addition of data centers, establishment of redundant parts of our infrastructure for backup and disaster recovery and expansion internationally, including international data centers and offices. We currently anticipate that we will continue to experience significant growth in our operating expenses for the foreseeable future related to entering new markets for the RealNames Service, increasing engineering and operations personnel and infrastructure, increasing our sales and marketing operations, developing new distribution partners, leasing additional space, improving our operational and financial systems and broadening our customer support capabilities. Such operating expenses will be a material use of our cash resources, including a large portion of the net proceeds of this offering. Although we believe that the net proceeds of this offering, together with our existing cash and cash equivalents and available credit facilities, will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next twelve months, it is possible that such resources will not be adequate and that additional funds will be needed either during or after such 12-month period. YEAR 2000 READINESS DISCLOSURE Many currently installed computer systems and software products are unable to distinguish 21st century dates from 20th century dates. As a result, computer systems and software used by many companies and governmental agencies may need to be upgraded to comply with such Year 2000 requirements or risk system failure or miscalculations causing disruptions of normal business activities. OUR STATE OF READINESS We are engaged in an ongoing assessment of the Year 2000 readiness of all our relevant operating, financial and administrative systems, including the hardware and software that support the RealNames Service and our information technology, or IT, and non-IT systems. Our assessment plan consists of: - quality assurance testing of our internally developed proprietary software; - contacting third-party vendors and licensors of material hardware, software and services that are both directly and indirectly related to the delivery of the RealNames Service to our users; - contacting vendors of third-party systems; - assessing repair and replacement requirements and implementing appropriate procedures; and - creating contingency plans in the event of Year 2000 failures. We are currently reviewing our Year 2000 readiness and developing a plan for verifying the proper operation of our internally developed software. All essential vendors have indicated that they are Year 2000 compliant. In the few cases where a vendor has indicated that it is not Year 2000 compliant, we have determined that any possible resulting problems are small and the costs of remediation, if any, are small. All of our third-party hardware and software vendors for critical systems have provided written statements to us, or have posted them to their public web sites, indicating that they are Year 2000 compliant. We read the assurances and the documentation backing up those assurances that third parties have provided regarding their Year 2000 compliance. We then evaluated the assurances and documentation against our experience and knowledge to determine the credibility of the third party's assurances that it is Year 2000 compliant. If we were to determine that the third-party assurances were not adequate, which to date has not occurred, then we would make additional requests for assurances and documentation and do our own testing of the third party's product. Our review of the internal systems of third parties with whom we have material relationships is ongoing. 38 COSTS TO ADDRESS YEAR 2000 ISSUES We do not separately account for Year 2000 related expenses but estimate that our expenses incurred to date to address Year 2000 issues have not been material. Although we have not completed our assessment of our Year 2000 readiness, we do not expect to incur expenses in excess of $100,000 in connection with any required future remediation efforts. If these costs are higher than we anticipate, it could adversely impact our operating results. RISKS ASSOCIATED WITH YEAR 2000 ISSUES We are not currently aware of any Year 2000 compliance problems relating to the RealNames Service or our IT or non-IT systems that would have a material adverse effect on our business, results of operations and financial condition, despite our efforts to detect and correct such problems. However: - we may discover Year 2000 compliance problems in our network or other software that will require substantial revisions or replacements; - third-party hardware or software incorporated into the RealNames platform or our material IT and material non-IT systems may need to be revised or replaced, which could be time consuming and expensive; and - the failure to adequately address Year 2000 compliance issues in the RealNames Service or in our IT or non-IT systems could result in claims of mismanagement, misrepresentation or breach of contract and bring about litigation, which could be costly to defend. Any of the above scenarios, if not quickly remedied, could result in significant lost revenues, increased expenses and business interruptions. In addition, we cannot guarantee that Internet access companies, governmental agencies, utility companies, third-party service providers and others not within our control will be Year 2000 compliant. The failure of such entities to be Year 2000 compliant could result in a failure beyond our control, such as a prolonged Internet, telecommunications or electrical failure, which could prevent us from operating the RealNames Service. CONTINGENCY PLAN Because our needs for hardware and software continually change, we are engaged in an ongoing Year 2000 compliance assessment. We have not identified any significant non-compliance issues with the RealNames Service that have not already been corrected. The information set forth above and elsewhere in this prospectus relating to Year 2000 issues constitute "Year 2000 Readiness Disclosures," as such term is defined by the Year 2000 Information and Readiness Disclosure Act of 1998, enacted October 19, 1998 (Public Law 105-271, 112 Stat. 2386). RECENT ACCOUNTING PRONOUNCEMENTS In March 1998, the Accounting Standards Executive Committee issued Statement of Position 98-1, or SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," which provides guidance on accounting for the cost of computer software developed or obtained for internal use. SOP 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998. The adoption of SOP 98-1 does not have a material impact on our financial statements. In April 1998, the Accounting Standards Executive Committee issued Statement of Position 98-5, or SOP 98-5, "Reporting on the Costs of Start-Up Activities." This standard requires companies to expense the costs of start-up activities and organization costs as incurred. In general, SOP 98-5 is effective for fiscal 39 years beginning after December 15, 1998. The adoption of SOP 98-5 does not have a material impact on our financial statements. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, or SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 establishes new standards of accounting and reporting for derivative instruments and hedging activities. SFAS 133 requires that all derivatives be recognized at fair value in the statement of financial position, and that the corresponding gains or losses be reported either in the statement of operations or as a component of comprehensive income, depending on the type of hedging relationship that exists. SFAS 133 will be effective for fiscal years beginning after June 15, 2000. We are currently evaluating the implementation of SFAS 133. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK At the present time, we provide the RealNames Service to clients primarily in the United States. As a result, it is unlikely that our financial results will be directly affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. However, we currently anticipate significant expansion of our international operations, at which time our financial results could be directly affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. All of our sales are currently denominated in U.S. dollars. Our exposure to market risk for changes in interest rates relates primarily to the increase or decrease in the amount of interest income we can earn on our investment portfolio and on the increase or decrease in the amount of interest expense we must pay with respect to our outstanding debt instruments. The risk associated with fluctuating interest expense is limited, however, to the exposure related to those debt instruments and credit facilities which are tied to market rates. We currently do not plan to use derivative financial instruments in our investment portfolio. We plan to ensure the safety and preservation of our invested principal funds by limiting default risk, market risk and reinvestment risk. We plan to mitigate default risk by investing in high-credit quality securities. 40 BUSINESS OVERVIEW RealNames has developed a new addressing system, the RealNames Service, based on Internet Keywords that simplifies navigation on the Internet. Internet Keywords are generally intuitive, familiar words and phrases, such as company, product, brand and personal names. They can be used instead of traditional search engines, directories and Uniform Resource Locators, or URLs, to navigate from any point on the Internet that recognizes Internet Keywords. Internet Keywords are designed to allow companies to leverage and promote their brands as direct connections to their web pages. Internet Keywords operate on the RealNames platform. Internet Keywords were available to more than 60% of U.S. Internet users, as measured by August 1999 Media Metrix data. This is as a result of being integrated into search engines, directories and portals such as AltaVista, DogPile, GO Network, LookSmart, and MSN. In addition, Internet Keyword functionality is integrated into Microsoft's Internet Explorer 5.0, which Stat Market estimates to have a greater than 30% share of the current installed base of web browsers as of September 30, 1999. Some of our current customers using Internet Keywords include Amazon.com, Beyond.com, eBay, Eddie Bauer, Federal Express, Ford, Homestore.com, MGM, priceline.com and Specialized Bicycles. INDUSTRY BACKGROUND THE GROWTH OF THE INTERNET The Internet has rapidly become a widely-accepted, global medium for communicating, sharing data and conducting business. The number of Internet users worldwide has increased dramatically in recent years. According to International Data Corporation, or IDC, the number of Internet users worldwide grew from approximately 14 million in 1995 to approximately 142 million in 1998, and it is expected to grow to 399 million by 2002. IDC estimates that the non-U.S. Internet user share will grow from 56% at December 31, 1998 to 65% by 2003. Internet growth is being driven by faster and less expensive Internet access, more widespread use of computers in the home and office, improvements in Internet infrastructure and increased public awareness of the benefits of the Internet. Internet users are also spending an increasing portion of their day online. For example, according to Media Metrix, from August 1998 to August 1999, average online usage days per month increased from 10 to 12. As Internet use continues to increase, the number of web sites and web pages within those sites is also likely to increase. Network Solutions reported an increase in its cumulative net registrations of domain names from approximately 1.0 million at June 30, 1997 to approximately 5.3 million at June 30, 1999. IDC expects the number of web pages worldwide to grow from 925 million in 1998 to 8 billion by 2002. THE EVOLUTION OF INTERNET NAVIGATION The dramatic growth in the number of Internet users and web pages has increased the need for efficient navigation of the Internet. Internet navigation involves a user who is seeking a specific Internet destination. Internet navigation has advanced significantly over the past 25 years. Beginning in 1974, the Internet infrastructure consisted solely of Internet Protocol, or IP, addresses. These addresses are composed of a series of numbers separated by periods, for example, 216.86.225.84. This system permitted extremely precise addressing, but was not intuitive to use. In 1984, the Domain Name System, or DNS, addressing system was established with the primary purpose of allowing for user-friendly email addresses, such as EMPLOYEE@REALNAMES.COM, to run on top of IP addresses. As a result, users no longer had to remember a numeric address, but could identify an email address by a word or company name. DNS proved to be very effective as a platform for email, which used the Simple Mail Transfer Protocol, or SMTP, but was difficult to use for locating other Internet resources. 41 By the early 1990s, Hypertext Transfer Protocol, or HTTP, was developed, leading to the creation and proliferation of web pages. In order to enable Internet users to locate these web pages and other Internet resources, an addressing system based on URLs was developed. URLs extend domain names with prefixes and suffixes to create unique physical addresses. For example, a company with the domain name REALNAMES.COM could now assign an address to a particular web page by extending its domain name to create a URL such as HTTP://CUSTOMER.REALNAMES.COM/ENG_CORPORATE_REALNAMESHOMEPAGE.ASP. The following diagram shows the evolution of Internet navigation from IP addresses to URLs. [Graphic depicting the evolution of Internet navigation from Internet Protocol, or IP, addressing, to Domain Name System, or DNS, addressing, to Uniform Resource Locator, or URL, addressing. Graphic includes applicable examples of each type of addressing system and arrows directing such evolution.] LIMITATIONS OF EXISTING MEANS OF INTERNET NAVIGATION While the domain name is a simple way of creating an email address, the domain name and its extension, the URL, is a relatively complex way of creating an address for web pages. As companies add web pages to the Internet, they must layer more and more prefixes and suffixes to their domain names to create URLs identifying those web pages. As a result, URLs have become less intuitive and more difficult to remember, making them an inefficient means of locating specific Internet resources, such as web pages, and reaching online customers, businesses and communities. In addition to being complicated and difficult to remember, URLs impose several other limitations on Internet navigation: - URLS ARE PHYSICAL ADDRESSES ONLY. If a web page with a specified URL is moved to another physical location and users are not redirected to the new URL, bookmarks and hyperlinks to the old URL will cause users to encounter error messages, effectively losing the location of the desired web site. - URLS CANNOT USE ANY CHARACTERS NOT FOUND ON A STANDARD U.S. KEYBOARD. This represents a significant limitation since users utilizing different international character sets, such as the Japanese character set Kanji, represent a rapidly growing segment on the Internet. This limitation affects not only foreign consumers but foreign businesses which face a major obstacle in trying to link foreign brands with English-based URLs in their print, radio and television advertising. - DOMAIN NAME REGISTRATION IS NOT WELL REGULATED. As a result, domain names and URLs are not necessarily representative of their owners. For example, an unrelated third party had rights to the domain name ALTAVISTA.COM until it was purchased by AltaVista. Because of these limitations, users rarely rely on URLs to navigate the Internet. More often, users rely on search engines, embedded hyperlinks and directories to navigate. While search engines and directories are extremely useful for research on a particular topic, they traditionally have not been efficient as direct 42 navigation tools because they generate many results, only one of which, if any, is the site to which the user wants to navigate. Even when the desired site is included in the search results, it may be difficult to find among a large set of results. BUSINESSES ARE CHALLENGED TO INTEGRATE OFFLINE AND ONLINE MARKETING STRATEGIES The Internet is improving the way companies deliver goods and services because it is generally an efficient way to reach, interact with and learn about current and potential customers. As a result, many companies are stimulating the purchase of goods and services over the Internet through online and offline marketing programs. Although online marketing programs are expected to grow significantly, we anticipate that offline marketing programs will continue to be much larger than online marketing programs for the foreseeable future. For example, although we believe, based on industry sources, that online advertising will grow from $1.5 billion in 1998 to $8.9 billion in 2002, offline advertising was approximately $300 billion in 1998. In addition, many companies are now recognizing offline advertising as a highly effective way to reach users and drive traffic to the Internet. Many companies have found it challenging to integrate their offline advertising spending with their online fulfillment of goods and services. Most companies have focused their marketing programs on the branding of a single domain name which generally represents the physical location of their home page. As they focus their efforts on promoting a single domain name, much of the branding and identity they have built up in the offline world are difficult to transfer to the Internet. In many cases, a company is unable to obtain a domain name that matches its well-known company brand name. For example, United Airlines has the domain name UAL.COM. Even when a company's domain name matches its brand name, the current addressing system makes it difficult to directly market the web pages of specific products or subsidiaries of a company. For example, Internet users that would like to navigate directly to the Honda Accord web page must either input the lengthy URL WWW.HONDA2000.COM/MODELS/CARS/ACCORD_SEDAN/INDEX.HTML, sort through lengthy search results after searching for "Honda," or navigate through a series of links from the Honda homepage. As a result, companies and brands have had difficulty finding ways to bring a viewer, reader or listener of offline media to a specific web page, making it difficult to couple offline branding with online fulfillment. MARKET OPPORTUNITY URLs have generally proven to be an ineffective way for users to navigate the Internet. In addition, the limitations of navigating with URLs have created a problem for companies seeking to bring their offline brands and identities onto the Internet and a significant challenge in promoting their online existence to viewers, listeners and readers of their offline marketing activities. Just as domain names replaced long, difficult to remember numerical IP addresses for email, there is a need for something to replace long, difficult to remember URLs for web pages and other Internet resources. We believe that there is a clear market opportunity for a third party that can build and manage an efficient, global Internet navigation system that is more intuitive to users and leverages companies' well-developed offline brands and identities. THE REALNAMES SOLUTION The RealNames Service simplifies navigation on the Internet by allowing users to connect directly to specified web pages through the use of Internet Keywords. Internet Keywords are generally intuitive, familiar words and phrases. They allow a web user to navigate to a web page from any navigation point on the web that recognizes Internet Keywords, including the browser command line, the search box, the directory listing and the hyperlink. Internet Keywords also allow companies to leverage and promote their brands as direct connections to their web pages. We believe this will enable Internet Keywords to be an integral part of a global Internet infrastructure. 43 Internet Keywords operate on the RealNames platform, which is a new layer of Internet infrastructure that is designed to facilitate navigation in multiple languages from any location on the Internet. As of August 1999, this platform was available to more than 60% of U.S. Internet users, as measured by Media Metrix, as a result of being integrated into search engines, directories and portals such as AltaVista, DogPile, GO Network, LookSmart, and MSN. Furthermore, Internet Keyword functionality is integrated into Microsoft's Internet Explorer 5.0, which Stat Market estimates, as of September 30, 1999, to have a greater than 30% share of the current installed base of web browsers. We believe that the use of Internet Keywords offers a number of benefits, including the following: INTERNET KEYWORDS MAKE DIRECT NAVIGATION EASIER FOR THE USER. Internet Keywords are designed to allow users to navigate the Internet using simple, intuitive words and phrases. A consumer generally requires no additional knowledge other than a company's name, brand or product name to get to a desired web page. Similarly, an Internet user can navigate directly to an individual's personal web page by knowing his or her Personal Keyword. In addition, international users can navigate the web using their own character set. Internet Keywords also complement a search experience by providing direct navigation and search results in one integrated environment. Internet Keywords generally appear prominently within the search results of Internet Keyword-enabled search engines. Furthermore, the RealNames platform provides a simple means of preventing dead links. If the location of a web page is changed, a customer only needs to report this change to us once to update all pre-existing Internet Keyword links. INTERNET KEYWORDS LEVERAGE ESTABLISHED BRANDS AND OFFLINE MARKETING TO DRIVE ONLINE FULFILLMENT. Many companies seeking to provide goods and services over the Internet have substantial investments in their brand and product names. An Internet Keyword leverages these investments by allowing companies to use their brands, many of which may be household names, as the means by which customers interact with the company and its products on the web. We believe Internet Keyword users are more likely to be pre-qualified customers because they are purposefully navigating towards a specific destination on the web using a brand or product name as the Internet Keyword to get there. Internet Keywords also enable native web brands, such as Amazon.com, to more efficiently use their growing investments in traditional offline media by allowing for the promotion of specific products or web pages through the use of simple and intuitive Internet Keywords. In addition, international businesses, whose brands are often expressed in character sets not found on a standard keyboard, may bring these brands to the web using Internet Keywords. This might otherwise be impossible through traditional URL addressing. THE REALNAMES PLATFORM ENHANCES NAVIGATION BY PROVIDING A NEW LAYER OF INTERNET INFRASTRUCTURE. The RealNames platform is a new layer of infrastructure between the user interface and the Internet Protocol layer of the Internet. The RealNames platform consists of software routers, tracking and reporting services and subscription services. Just as the Domain Name System enabled the creation of user-friendly email addresses that hide complicated IP addresses, the RealNames platform is designed to provide an intuitive navigation interface that hides complex and lengthy URLs, as shown by the following diagram. 44 [Graphic depicting the evolution of Internet Navigation from IP addressing, to DNS addressing, to URL addressing, to Internet Keywords. Graphic includes applicable examples of each type of addressing or navigation system and arrows directing such evolution.] The RealNames platform is based on a distributed network of high-speed servers. This distributed computing architecture enables scalability and high performance as the network grows and is designed to be extensible to platforms other than Transmission Control Protocol/Internet Protocol and devices other than personal computers. The RealNames platform supports independent Internet Keyword systems such as those maintained by eBay, Homestore.com and Tickets.com by routing users to these systems by use of a prefix that is recognized by the RealNames platform. These independent Keyword Providers combine the prefix, such as "eBay," with a suffix, such as "Beanie Babies" or "Star Wars," to create their own unique Internet Keywords. INTERNET KEYWORDS ARE ASSIGNED TO PROVIDE A POSITIVE USER EXPERIENCE. Rather than assigning Internet Keywords on a simple first-come, first-served basis, we require that the assignment of each Internet Keyword undergo an approval process intended to ensure a positive navigation experience for Internet users. In order to ensure a successful user experience, an Internet Keyword for which users have clear expectations, such as "Coca Cola" or "Ford Explorer," will be assigned only to the owner of the expected Internet destination. In addition, in order to maintain this same quality control after the initial assignment, we do not allow customers to transfer or reassign Internet Keywords. Our approval process also involves the use of individuals with specific knowledge of certain markets and languages, such as using native Germans for the assignment of German Internet Keywords. In addition, we have formed a policy advisory board consisting of industry experts with whom we consult on specific disputes and the future direction of our policy initiatives. STRATEGY Our objective is to establish Internet Keywords as the de facto standard for Internet navigation and the RealNames platform as the standard for the proliferation and use of Internet Keywords. The key elements of our growth strategy include the following: EXPAND INTERNET KEYWORD AVAILABILITY. To achieve ubiquity of access to Internet Keyword navigation, we intend to leverage existing, and aggressively pursue additional, distribution relationships with providers of search, directory, e-commerce, portal and content services worldwide, as well as with vendors of client-based software applications such as browsers and plug-ins. Through our existing distribution relationships, we estimate that Internet Keywords are available to over 60% of Internet users in the United States. Internet Keyword navigation is currently integrated into: - the browser command lines of Microsoft's Internet Explorer 5.0 and NeoPlanet; 45 - portals, such as AltaVista, GO Network and MSN; - directory services, such as LookSmart; and - search services, such as Cyber Networks and DogPile. Our goal is to establish distribution partnerships to integrate Internet Keyword navigation into all browser and other complementary third-party client applications. We are also developing a means to embed Internet Keywords into content sites, including articles and other text, by integrating our technology into web publishing tools. This would enable content sites to provide hyperlinks to the companies and products represented by those Internet Keywords. We believe that the use of hyperlinks constitutes a significant portion of web user navigation. DRIVE USER ADOPTION. Widespread user adoption is critical to establishing Internet Keywords as a de facto standard for Internet navigation. We are conducting a significant marketing campaign, both online and offline, to drive user awareness, trial and adoption of Internet Keywords. To further promote the use of Internet Keywords, we enter into co-marketing agreements with some of our customers, through which we commit to purchase advertising on those customers' web sites. Through these co-marketing agreements, we also commit funds to key customers for online and offline co-marketing initiatives in promotions and traditional media, such as television, print and radio advertising. We also offer free Personal Keywords to members of qualifying community web sites in order to facilitate widespread awareness, trial and adoption of Internet Keywords. Personal Keywords are Internet Keywords available to individuals for personal home pages and tend to be personal names or nicknames. GROW OUR CUSTOMER BASE. We intend to aggressively grow our customer base through a multi-tiered selling effort. We plan to significantly expand our direct sales force to sign up additional major customers. In addition, we intend to leverage the sales forces of our partners to promote the RealNames Service and to provide referrals to our direct sales force. We are committed to building a subscription reseller channel to grow our subscription sales. Current resellers include the following: - domain name registrars, such as Network Solutions; - Internet Service Providers, or ISPs, such as MindSpring; and - third-party providers to local merchant and member groups, such as Ticketmaster Online-CitySearch. We also maintain an affiliate program whereby other web sites can resell Internet Keyword subscriptions. EXPAND INTERNATIONALLY. In response to the rapid international growth of the Internet, we intend to invest to significantly expand our worldwide presence. The RealNames platform was developed from inception to accommodate multi-language functionality, and today we maintain Internet Keywords in more than 40 languages. We have expertise in the assignment of Internet Keywords for a number of these languages and have developed localized Internet Keyword databases for four of these languages. As demand grows for Internet Keywords outside the United States, we intend to provide "on-the-ground" assignment expertise. To expand our reach in markets outside the United States, we intend to establish distribution and reseller relationships with local providers of Internet browser, search, directory, portal and content services in key international markets. Today, we have distribution relationships with AltaVista and Fireball in Germany and British Telecom in the United Kingdom. Further, we intend to deploy a global network infrastructure, including routers and data centers, to increase speed and service quality around the world. 46 IMPROVE THE USER EXPERIENCE. Our mission is to make the Internet easily navigable through the use of Internet Keywords. To do so, we strive for maximum reliability, speed and uptime of our system. We seek to ensure high data quality, including daily implementation of a process for correcting bad links or other errors. We also intend to improve the user experience by developing a technology that will enable the RealNames platform to improve its ability to generate relevant Internet Keyword results based on an analysis of prior unsuccessful navigation events. CONTINUE TO DEVELOP AND PROMOTE POLICY STANDARDS FOR INTERNET KEYWORD NAVIGATION. To promote self-regulation in approving and assigning Internet Keywords, we have established a policy advisory board to provide external guidance on the Internet Keyword assignment process. The main responsibilities of this organization are to advise us on policies regarding the assignment of Internet Keywords, advise us on specific disputes regarding Internet Keyword assignment, and to consult with us on the future direction of our policy initiatives. CONTINUE TO DEVELOP AND PROMOTE TECHNICAL STANDARDS FOR INTERNET KEYWORD NAVIGATION. We intend to maintain an active role in the Internet Engineering Task Force and World Wide Web Consortium to promote the adoption of open standards for provision of Internet Keywords to the global user community. To this end, we have publicly released the public interface for addressing our routers. The publication of this public interface is intended to foster development of Internet Keyword-enabled software application by third party developers. THE REALNAMES SERVICE Our service simplifies navigation on the Internet by connecting people directly to specific web pages through the use of Internet Keywords. HOW USERS NAVIGATE WITH INTERNET KEYWORDS Users seeking to navigate the Internet often type words, names, aliases or phrases into the browser command line or search box. We refer to these as navigation requests. A user seeking a specific web destination can initiate a navigation request using Internet Keywords through any navigation point on the web that recognizes Internet Keywords, including the browser command line, the search box, the directory listing, the hyperlink and other web applications. When a user's navigation request precisely matches a recognized Internet Keyword, the user can navigate directly to the specific web destination: - when the navigation request is made through an Internet Keyword-enabled browser such as Microsoft's Internet Explorer 5.0 or NeoPlanet, the user is automatically taken to the specific web destination; and - when the navigation request is made through an Internet Keyword-enabled search or directory environment, such as AltaVista, MSN, GO Network or LookSmart, the user is served an Internet Keyword hyperlink which, when clicked upon, takes the user directly to the specific web destination. In most cases, the Internet Keyword hyperlink is prominently displayed with the other search results and is clearly identified as an Internet Keyword from RealNames. An example is AltaVista, as depicted on the following page. 47 [Graphic depicting the implementation of the RealNames Service within one of our distribution partner's web sites. Graphic includes the web page of our distribution partner with results of a search query. The RealNames result is listed first within search results as is standard with this distribution partner's implementation and an arrow pointing to such result.] When a user's navigation request does not precisely match a recognized Internet Keyword, the RealNames Service generates a list of all related Internet Keywords and a brief description of the corresponding web pages. The user's navigation experience varies depending upon the specific navigation environment. - In some environments, the user's navigation request is prominently displayed as a hyperlink. When this hyperlink is clicked upon, the user is taken to a separate page that lists related Internet Keyword hyperlinks and brief descriptions of the corresponding web pages; 48 - In other environments, the related Internet Keyword hyperlinks are included among the other results generated by the search or directory provider, and may or may not include a description of the web pages; and - In still other environments, the related Internet Keyword results are not displayed by the search or directory provider. If the user clicks upon a related Internet Keyword hyperlink, the user is taken directly to the specific web destination assigned to that Internet Keyword. HOW BUSINESSES USE INTERNET KEYWORDS Most businesses can benefit from the use of Internet Keywords. Leading e-commerce companies, such as our current customers eBay and Tickets.com, that want to host their own Internet Keyword systems using the RealNames platform can become Keyword Providers. Large brand marketers that have multiple brands, products or services, such as our current customers MGM and the Ford Motor Company, may want to become Corporate Account customers and have a large number of Internet Keywords, priced on a per visit or per transaction basis. Small and medium-sized businesses that simply want to be found more easily on the Internet may subscribe to individual fixed-priced Internet Keywords. We also participate in the affiliate programs of a number of e-commerce companies. In these cases, we route potential customers to these companies' web sites via Internet Keywords and collect a percentage of qualified purchases made by these customers. KEYWORD PROVIDERS Keyword Providers are customers that are assigned a unique routing prefix on the RealNames platform. This unique routing prefix allows a Keyword Provider to use the RealNames platform to create and maintain its own separate Internet Keyword system and to assign Internet Keywords to particular URLs within this environment. Users can navigate to the Internet Keyword systems of these Keyword Providers in any navigation environment that supports the routing prefixes, which currently include AltaVista, Infoseek and LookSmart. Keyword Providers pay us as follows: - a license fee for a routing prefix in the RealNames platform; - for each visit to their Internet Keyword system routed by the RealNames platform; - for each eligible transaction; or - some combination of the above. If a Keyword Provider sells subscriptions into its own Internet Keyword system, we may also share in this subscription revenue. CORPORATE ACCOUNT CUSTOMERS Corporate Account customers generally request a significant number of appropriate Internet Keywords which are hosted on the RealNames platform. Corporate Account customers pay us for each visit to, or each eligible transaction conducted on, their site through the use of Internet Keywords. We provide tracking and reporting services to all of our Corporate Account customers. INTERNET KEYWORD SUBSCRIPTION CUSTOMERS An Internet Keyword also enables small and medium-sized businesses to be found easily and directly. As with larger companies, Internet Keywords allow these businesses to leverage the familiarity of their name or brand as a tool for direct navigation. These companies subscribe to Internet Keywords for an annual fee per Internet Keyword through one of our resellers or directly from our web site. Customers are provided with online support to track the effectiveness of their Internet Keyword and can obtain detailed tracking information about the visitors delivered to their site. 49 AFFILIATE PROGRAMS We participate in the affiliate programs of over 750 e-commerce companies. Through the use of Internet Keywords, users can intuitively navigate directly to web pages of these companies. Pursuant to the terms of their affiliate programs, these e-commerce companies pay us a flat fee for, or a percentage of, any eligible transaction conducted by a visitor delivered to their site through an Internet Keyword. TECHNOLOGY AND INFRASTRUCTURE The RealNames platform is comprised of three key components, each of which is supported through services: - our Internet Keywords Database, which stores all of our Internet Keyword information. Customers and resellers can input and modify Internet Keyword information through our Subscription Services; - our routers, with which customers, users and distributors interact through our Routing Services; and - our Statistics Database, with which customers, resellers and distributors interact through our Tracking and Reporting Services. The following diagram illustrates how the customers, users and distributors interface with the RealNames platform. [Graphic depicting how customers, users and distributors interface with the RealNames platform. Graphic includes arrows showing the direction of interaction through the Internet Keywords Database, routers and the Statistics Database and the various services offered, including Subscription Services, Routing Services and Tracking and Reporting Services.] 50 THE INTERNET KEYWORDS DATABASE AND SUBSCRIPTION SERVICES At the center of the RealNames platform is a large relational database called the Internet Keywords Database. This database is the master repository of all Internet Keywords and associated information about companies, products and services. The database is designed for speed and maximum data throughput. The Internet Keywords Database stores information using UNICODE strings, a technology that enables Internet Keywords to be expressed in any language. Today, Internet Keywords exist in over 40 languages, including English, French, German, Arabic, Mandarin, Cantonese, Korean and Japanese. The Internet Keywords Database has been designed with a Hypertext Mark-up Language, or HTML, front-end presentation layer which is responsible for the generation of web interfaces to the Subscription and Tracking and Reporting Services. The HTML front-end implements a three-tier architecture with a strict separation between the back-end components and the presentation layer. This separation is critical as it gives RealNames the flexibility to support a variety of web interfaces in any character set and language, enabling our partners to offer our services customized for their unique environments. Our Subscription Services provide the core functionality for Internet Keyword customers to input their information into the Internet Keywords Database and to update this information as it changes over time. Customers are presented with an easy and intuitive web interface through which they enter their contact and billing information, the desired Internet Keywords and detailed information about the web page associated with the Internet Keywords. Our subscription protocol is based on HTTP and Extensible Mark-up Language, or XML. It has been designed to allow resellers and Keyword Providers to build and deploy their own web interface to the subscription services. The subscription protocol provides a flexible Application Programming Interface, or API, to the Internet Keywords Database that partners can build upon. In addition, we provide services that allow customers to manage their Internet Keywords. Through these services, a customer can determine the URLs to which their Internet Keywords are assigned, change this assignment if the web page is moved or change the description of their Internet Keywords. Furthermore, these services allow Keyword Provider customers to enforce the policies for Internet Keyword assignment within their own Internet Keyword system. ROUTERS AND ROUTING SERVICES RealNames routers enable users to navigate the Internet using Internet Keywords. RealNames routers consist of high performance servers and routing tables. Routing tables are separate databases of Internet Keywords which are continuously updated and synchronized with the master Internet Keywords Database. The Routing Services allow developers to incorporate Internet Keyword navigation into their applications. The following are key attributes of the routers and the Routing Services: - PROVIDES HIGH PERFORMANCE AND SCALABILITY. The RealNames platform was designed with high performance and scalability in mind. Accordingly, we made an early design decision to physically separate our routers from our master Internet Keywords Database. This physical separation has several benefits: - Unlike a system where all the servers access a centralized database for routing instructions, our routers do not directly access the master Internet Keywords Database, but instead access their own separate routing tables. This prevents the master Internet Keywords Database from becoming a traffic bottleneck. We synchronize the data in the routing tables with the master Internet Keyword Database through a live update service. The live update service is a sophisticated messaging and queuing system that propagates the changes from the master Internet Keywords Database to the routing tables in real-time. 51 - Since the routers and the master Internet Keywords Database are independent, they do not have to reside in the same physical location. Instead, our routers can be deployed in strategic locations in order to reduce the distance between our routers and Internet Keyword users, which minimizes response time. Today, we have routers deployed on the West and East Coasts of the United States, as well as in Germany, which access our master Internet Keywords Database in California. - In each location, our routers are organized in groups, or clusters, of parallel servers. Router clustering allows us to distribute and balance navigation requests across all machines within a single cluster. Router clustering also enables us to handle increased traffic by simply adding additional servers to the cluster and provides fault-tolerance or fail-over. When a server fails for any reason, navigation requests are automatically redirected to other functioning servers in the cluster. The defective machine may then be removed and serviced with no interruption of routing capabilities. - ENSURES FAST INTERNET KEYWORD RETRIEVAL. Our search and directory service distribution partners impose rigorous performance requirements on our routers in order to guarantee that their servers will not be slowed down. We have developed proprietary indexing technology that enables our routers to host millions of Internet Keywords while at the same time providing for fast lookup of Internet Keywords. Currently, using this proprietary indexing technology, our routers can handle millions of daily navigation requests with an average server response time of 5 milliseconds, which is approximately 50 times faster than a typical search engine. - ENABLES SIMPLE INTEGRATION. Our client libraries are a set of highly portable object-oriented APIs that simplify the integration of the Routing Services into client applications such as web browsers or search and directory services. The client libraries allow third-party developers to integrate Internet Keyword-based navigation services within their new applications and devices. Our client libraries run on several operating systems such as Windows NT, Linux, Solaris and Digital Unix. In addition, we have publicly released the public interface to address our routers. We believe that by making this public interface available to application developers, it will foster independent development of client-based applications that interact with our Routing Services. THE STATISTICS DATABASE AND TRACKING AND REPORTING SERVICES The Tracking and Reporting Services measure all uses of Internet Keywords as they occur. When a router receives a navigation request, it immediately notifies our Tracking Services. The information sent by the routers to the Tracking Service includes the following: - the Internet Keyword used; - the URL to which the user is directed; - the time of the navigation request; - the origin of the navigation request; and - the domain of the origin. The Tracking Service then aggregates and stores this information into our Statistics Database. Our customers may use our Reporting Service to access the Statistics Database and generate detailed reports regarding the use of their Internet Keywords. These reports are accessible through a web interface. The Tracking and Reporting Services also implement the billing functionality from Internet Keywords for which we receive a price per visit fee. The billing service uses both the usage information from the Statistics Database and the pricing model stored in the Internet Keywords Database to automatically compute the monthly usage charges and generate an appropriate invoice. 52 SALES AND MARKETING We offer the RealNames Service to our customers through a direct sales organization, as well as through channel partners. Our sales efforts are focused by the type of customer, as follows: - KEYWORD PROVIDERS. Our strategic accounts sales force focuses on selling licenses to routing prefixes on the RealNames platform to customers with dynamic web sites that want to provide their own Internet Keywords and manage their own Internet Keyword system. Strategic accounts salespeople generally initiate discussions with high level business development or marketing executives, and sales cycles can range from one to six months. - CORPORATE ACCOUNT CUSTOMERS--PRICE PER VISIT OR PRICE PER TRANSACTION INTERNET KEYWORDS. Our Corporate Account direct sales force focuses on soliciting price per visit, or PPV, or price per transaction, or PPT, Internet Keyword subscriptions from Corporate Account customers. The target companies for Corporate Accounts are large brand marketers and leading Internet content and e-commerce companies. The sales cycle for Corporate Account customers can range from one week to three months. During this time, our Corporate Account sales force works with the potential customer to select the appropriate Internet Keywords that will maximize traffic to the desired web pages. Because many of our target Corporate Accounts employ advertising agencies to advise them on Internet media buys, we maintain relationships with, and will continue to focus significant sales and marketing efforts on, advertising agencies. - ANNUAL SUBSCRIPTION CUSTOMERS. We offer fixed-priced annual subscriptions of Internet Keywords to those small and medium-sized businesses whose web site traffic is not sufficient to require a PPV-or PPT-based subscription. Because of the large volume of annual subscriptions, we offer these Internet Keywords either directly through the registration page on our web site or through our channel sales and affiliate programs. Our Internet Keyword subscription resellers include leading Internet service providers, web-hosting companies and domain name registrars, both in the United States and internationally. Internet Keyword subscriptions complement their domain name sales and Internet services. These resellers are involved in joint marketing programs and are offered comprehensive training and support. We have also established an affiliate program that provides an opportunity for small companies and individuals to establish a hyperlink to our subscription interface and receive a referral fee for each paid Internet Keyword subscription that originates from their web site. Our primary marketing objective is to build awareness and drive adoption of Internet Keywords. We intend to generate increased familiarity and usage of Internet Keywords by end users and companies, which may generate momentum for the category and product. To accomplish these goals, we have adopted a parallel advertising strategy. We have launched an aggressive advertising and marketing communications program that focuses on generating end user education, awareness and trial. At the same time, we are supplementing these efforts with cooperative marketing initiatives designed to encourage our customers to include Internet Keywords in both their online and offline marketing campaigns. We also purchase online advertising on our Keyword Providers' web sites in order to educate Internet users as to the availability and benefits of using Internet Keywords. In addition, we offer free Personal Keywords for personal web sites through qualified Internet community sites. 53 CUSTOMERS KEYWORD PROVIDERS As of September 30, 1999, we had entered into agreements with the following Keyword Providers: About.com First Source Jobs.com British Furniture.com MP3.com Telecom Homestead Millenium Internet (MovieWeb) DVD Express Homestore.com (Realtor.com) Tickets.com eBay iAtlas Tunes.com EMusic.com
None of our Keyword Provider customers accounted for more than 10% of our total revenue for the year ended December 31, 1998 or the six months ended June 30, 1999. INTERNET KEYWORD CUSTOMERS Below is a list of some of our Internet Keyword customers that we charge on a price per visit basis:
TELECOMMUNICATIONS CONSUMER/ AUTO FINANCIAL/REAL ESTATE AND TECHNOLOGY PACKAGED GOODS ENTERTAINMENT PORTAL/CONTENT - ----- --------------------------- ------------------- ------------------ ------------- -------------------- Ford AllState Insurance Fluke Federal Express eMusic American Banker Mazda Countrywide Home Loans Hitachi GE Fastv Buena Vista (Disney) Volvo Homestore.com (Realtor.com) Kiplinger's Taxcut Pharmacia & Upjohn Housenet.com Deja.com Insweb.com Nintendo Smartscrubs MTV Intelligent Life MarketWatch.com Nokia IPRG Sprint Business Virgin.net MGM Net.Bank Quantum Wyeth Ayerst SportsLine USA Strong Capital Management Segasoft StarMedia Network VeriSign TheStreet.com Won.net Variety women.com
None of our Internet Keyword customers that we charge on a price per visit basis accounted for more than 10% of our total revenue for the year ended December 31, 1998 or the six months ended June 30, 1999. STRATEGIC RELATIONSHIPS We believe that development of strategic relationships with leading Internet companies is critical to the ubiquity and acceptance of Internet Keywords and ultimately the success of our business model. We are developing worldwide marketing and distribution relationships in each of the following areas: INTERNET KEYWORD DISTRIBUTION PARTNERS We have established strategic relationships with a number of companies in order to make Internet Keywords available to as many users as possible. Our Internet Keyword distribution partners include leading Internet search, directory and portal services, and vendors of client-based software applications such as browsers and plug-ins and vendors of Internet-connected hardware devices such as Internet terminals. 54 The following is a list of our Internet Keyword distribution partners with whom we have agreements as of September 30, 1999:
SEARCH, DIRECTORY AND PORTAL PARTNERS BROWSER AND OTHER APPLICATIONS AND PRODUCTS - ---------------------------------------------- ---------------------------------------------- About.com Brodia Shopping Console AltaVista Guru.net British Telecom Microsoft Internet Explorer 5.0 Cyber411 (C4.com) NeoPlanet Browser DogPile NetPliance Epicentric NetZero ZeroPort Fireball.de iAtlas Inktomi LookSmart MSN GO Network
INTERNET KEYWORD SUBSCRIPTION RESELLERS We have established relationships with a number of companies to solicit applications for Internet Keyword subscriptions on our behalf. These companies include domain name registrars, web hosting companies and ISPs that have entered into reseller agreements with us. Many of our search partners also solicit referrals for Internet Keyword subscriptions from their web sites. In addition, through our agreement with Network Solutions, we have also established Internet Keyword reseller relationships with a number of Network Solutions' ISP and web hosting partners. These relationships allow us to leverage the sales channels and customer bases of our many partners in order to drive subscription growth and the rapid adoption of Internet Keywords, both domestically and internationally. We generally pay Internet Keyword subscription resellers a commission for each Internet Keyword subscription that originates from their web site. We also intend to integrate the service offerings of several of our partners directly with our back-end subscription database to facilitate the process of obtaining an Internet Keyword. For example, a customer who applies for merchant web hosting services would be able to simultaneously register a domain name and subscribe to an Internet Keyword through a single registration interface. 55 The following is a list of companies with which we have entered into Internet Keyword reseller agreements as of September 30, 1999: AltaVista Internet Domain Registrars AltaVista Germany LookSmart British Telecom MSN LinkExchange Constructors NetBenefit UK Cyber411 (C4.com) NetNames UK Domain Direct Network Solutions Enames Ticketmaster Online-CitySearch Fireball.de Homestore.com
In addition, through our agreement with Network Solutions, we have established reseller relationships with the following companies as of September 30, 1999: Dynaweb Superb Internet Innerhost Teleport MindSpring Virtual Exchange Network Net//Works Web Hosting Virtual Servers SurfChina
COMMUNITY WEB SITE PARTNERS As part of our strategy to increase user adoption of Internet Keywords, we offer free Personal Keywords to members of qualifying Internet community sites that provide free email, web hosting, site-building tools and other Internet services to individuals. We have established relationships with several of these community web sites to make our free Personal Keywords available to their users either by providing hyperlinks to our web site or by integrating our back-end subscription processing system with their registration services in a "one-click" program. Through these relationships, we expect to increase user awareness and adoption of Internet Keywords. Our community web site partners currently include Homestead, Fortune City and GO Network. KEYWORD APPROVAL POLICY Our mission is to provide better and simpler Internet navigation for all users. It is our intention to manage a neutral, third-party Internet Keyword subscription service which eliminates many of the problems of the current Domain Name System. Keyword analysts in our customer service and support organization review all requested Internet Keywords in accordance with our approval policy. The underlying philosophy of our approval policy is to eliminate, or significantly mitigate, the potential for a negative user experience. To that end, all Internet Keyword requests are evaluated against two general criteria: - no intentional misdirection of users by providing web site content which is inconsistent with the generally accepted meaning of the requested Internet Keyword; and - no cybersquatting--the subscription of Internet Keywords with the intention of transferring them for a profit. Customers whose Internet Keyword requests are not initially approved are provided with suggestions for alternative Internet Keywords or are permitted to submit alternative requests for review. All Internet Keyword decisions are reviewed by supervisors prior to the communication of a decision to the customer. 56 In recognition of the fact that the Internet Keyword review process involves human judgment and the potential for error, we have formed a policy advisory board comprised of a group of Internet industry experts that provides advice on specific Internet Keyword decisions. The policy advisory board also advises us in the event disputes arise between third-parties over the assignment of Internet Keywords, and provides guidance in the future direction of our policy initiatives. CUSTOMER SERVICE AND SUPPORT Our customer service and support organization is responsible for the resolution of general, billing and technical questions from Internet Keyword customers, Keyword Providers and users of the RealNames Service. Domestic and international customers from both our reseller channels and our direct sales channels are serviced through this organization. Customers have 24-hour online access to their accounts through the RealNames web site, where they can manage the specific names and routing of their Internet Keywords, as well as check their current traffic statistics. In addition, Internet Keyword customers, Keyword Providers and users can reach customer service personnel through both email and a toll-free number. Our goal is to respond to all customer service inquiries within an average of 24 hours. Our staff is currently available five days a week for 12 hours per day and services customers in seven different languages. In order to meet the needs of our growing international customer base, as well as our Personal Keyword customers, we intend to implement a 24-hour, seven-day-a-week operation in the year 2000. As we expand our international service, we intend to decentralize our service and support functions and establish a local presence in selected international markets. PRODUCT DEVELOPMENT We believe that strong product development capabilities are essential to our strategy of enhancing our core technology, developing additional applications incorporating that technology and maintaining the competitiveness of our service offerings. The RealNames platform is in a constant state of development. The goal of our product development effort is to increase the size of the Internet Keyword database while maintaining the performance of the RealNames platform and extending its functionality. Our President and Chief Executive Officer, Chief Technology Officer and senior engineering personnel participate in our product development effort. Current product development efforts are focused on the following: - making the public interface to our routers available to the public in order to foster development of Internet-Keyword enabled software applications by third party developers; - developing intelligent data acquisition technology that will enable the RealNames platform to improve its ability to generate relevant results based on an analysis of prior unsuccessful navigation events, which will increase the quality of our Internet Keyword data; and - integrating our technology into web publishing tools, enabling content sites to embed Internet Keywords into articles and other text. We have made substantial investments in product development and related activities. As of August 31, 1999, there were 10 employees dedicated to product development, and we continue to actively recruit highly qualified computer scientists, engineers and software developers with expertise and degrees in the areas of software engineering. Through this mix of personnel, we strive to create and maintain an environment of rapid innovation and product release. Our product development expenses were $1.0 million, including a non-cash charge of $705,000 for the transfer of technology from the founders, in our inception period from November 19, 1996 until December 31, 1997, $1.2 million during the year ended December 31, 1998 and $1.9 million during the six months ended June 30, 1999. To date we have not 57 capitalized any software development costs. We expect to continue to devote substantial resources to our product development activities. COMPETITION The market for the RealNames service is new and rapidly evolving, and we expect competition in and around this market to intensify in the future. While we do not believe any of our competitors currently offer the functionality offered by the RealNames platform, we face competition from several companies that provide services and functionality similar to ours and that could in the future seek to compete more directly with us. We are aware of at least two other companies that offer, or have in the past offered, services that enable the addressing of web pages other than URLs. In addition, AOL has developed its own set of AOL Keywords for navigation within its own proprietary service. If we are unable to structure an agreement with AOL to enable Internet Keywords within AOL's proprietary service, the number of our potential users, partners and customers could be decreased. In addition, AOL could develop a service or technology to extend AOL Keywords, or otherwise offer a competing navigation service, outside its proprietary service and on the broader Internet. In addition, if Internet Keywords become increasingly prominent, other Internet companies may enter our market with the specific purpose of taking market share from us or limiting our growth. In particular, providers of browsers, client applications, search engines, directories, portals or content sites may implement their own keyword systems or technology, as AOL has done, to serve their own users and customers directly. Also, our existing distribution relationships, including our relationship with Microsoft, do not preclude our distribution partners from developing and implementing their own keyword or similar navigation systems or technology in the future. Most of our potential competitors, including AOL, have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical and marketing resources than we do. These potential competitors would be able to devote greater resources to the development and marketing of their service or technology if they decide to compete with us. Our competitors may develop services that are equal or superior to ours or that achieve greater market acceptance. Our competitors may also engage in more extensive research and development, adopt more aggressive pricing policies and make more attractive offers to existing and potential employees, distribution partners, users and customers. Our competitors may also be able to bundle their keyword services or technology with other services or technology that we do not offer, thus making their package more attractive to customers and users. It is also possible that some competitors would offer such a service or technology at no charge to our customers. Our competitors may develop services that are equal to or superior to ours or that achieve greater market acceptance. In addition, competitors may establish cooperative relationships among themselves or with third parties to better address the needs of users and customers. As a result, it is possible that new competitors may emerge and rapidly acquire significant market share. In addition, to the extent Internet users continue to rely on search engines, directories and hyperlinks without Internet Keyword functionality to navigate the Internet, we compete against this navigation alternative. We believe competition in this area is most pronounced with respect to the newer, more direct methods of search such as Google and Direct Hit. Competition could result in loss of market share, lower pricing for our service or increased operating expenses. In particular, if two or more keyword systems were to become widely available and heavily promoted, users might become confused and customers may be required to promote only one keyword. If our Internet Keywords do not become the de facto standard, our business growth could be limited. We believe that our success in competing with our competitors will depend on various factors, many of which are outside of our control. These factors include: - the ease of use, speed, reliability and accuracy of the RealNames Service; 58 - the timing and market acceptance of new and enhanced features to the RealNames Service; and - our ability to establish Internet Keywords as a de facto standard for Internet navigation. INTELLECTUAL PROPERTY Our ability to compete and continue to provide technological innovation is substantially dependent upon internally developed technology and our ability to protect such technology and other proprietary rights. We rely on a combination of copyright, trade secret and trademark law to protect our technology, our data and our business, although we believe that other factors such as the technological and creative skills of our personnel, new product developments, frequent product and feature enhancements and reliable product support and maintenance are more essential to maintaining a technology leadership position. We have also applied for registered servicemark status for, among others, "RealNames" and "RealNames Service" and our logo and service marks in the United States. We have registered "Real Name Service" as a trademark with the European Union for international protection. In addition, we generally enter into confidentiality and nondisclosure agreements with our employees, consultants, customers and corporate partners. We also control access to and distribution of our technology, documentation and other proprietary information. Despite these efforts, we may not be able to defend our proprietary rights since the validity, enforceability and scope of protection of proprietary rights in Internet-related industries is uncertain and still evolving. Because we are devoting significant resources to building our brands, primarily "RealNames," through media advertising campaigns, if we are unable to register the trade and service marks for which we have applied, or if we are unable to defend our intellectual property rights, our business may be harmed. We attempt to avoid infringing known proprietary rights of third parties in our product development efforts. However, we do not regularly conduct comprehensive patent searches to determine whether the technology used in our products infringes patents held by third parties. There are many issued patents as well as patent applications in the Internet-related industries. Because patent applications in the U.S. are not publicly disclosed until the patent is issued, patent applications may have been filed which relate to our services. In addition, our competitors and other companies as well as research and academic institutions have conducted research for many years in the Internet-related industries, and this research should lead to the filing of further patent applications. If we were to discover that our products violated or potentially violated third party proprietary rights, we might not be able to obtain licenses to continue offering those products without substantial reengineering. Any reengineering effort may not be successful, nor can we be certain that any licenses would be available on commercially reasonable terms. Substantial litigation regarding intellectual property rights exists in the Internet-related industries, and we expect we may be increasingly subject to third-party infringement claims as the number of competitors in our industry segments grows and the functionality of services and products in different Internet-related industries overlaps. Any third-party infringement claims could be time-consuming to defend, result in costly litigation, divert management's attention, time and resources, cause service delays or require us to enter into royalty or licensing agreements. Any royalty or licensing arrangements, if required, may not be available on terms acceptable to us, if at all. A successful claim of infringement against us and our failure or inability to license the infringed or similar technology could have a material adverse effect on our business, financial condition and results of operations. EMPLOYEES As of August 31, 1999, we had a total of 137 employees, including 31 in research and development, 35 in sales and marketing, 29 in customer support and Internet Keyword assignment, 13 in business development and 20 in administration and finance. As of August 31, 1999, we also employed 36 temporary employees. All these employees were located in the United States. None of our employees is represented 59 by a collective bargaining agreement, nor have we experienced any work stoppage. We consider our relations with our employees to be good. Our future operating results depend in significant part on the continued service of our key technical, sales and senior management personnel, none of whom is bound by an employment agreement. Our future success also depends on our continuing ability to attract and retain highly qualified technical, sales and senior management personnel. We have experienced difficulty in recruiting qualified technical, sales and senior management personnel, and we expect to experience these difficulties in the future. If we are unable to hire and retain qualified personnel in the future, this inability could seriously harm our business. FACILITIES Our engineering, operations, customer support, Internet Keyword assignment and administrative personnel occupy an office of approximately 25,000 square feet in San Carlos, California, under a lease that expires in February 2006. Our sales, marketing and business development personnel occupy an office of approximately 26,000 square feet in Redwood City, California, under a lease that expires in May 2000. We will need to lease additional space by April 2000 and are currently searching for suitable facilities. In addition, we lease sales and support offices in the metropolitan area of New York and lease facilities to host routers and data centers in New Jersey and Germany. LEGAL PROCEEDINGS From time to time, we are involved in legal proceedings and litigation arising in the ordinary course of business. As of the date of this prospectus, except as described below, we are not a party to any litigation or other legal proceeding that, in our opinion, could severely harm our business. On July 17, 1998, a third party brought an action against us in the United States District Court for the Eastern District of Virginia, alleging that our service infringed its U.S. Patent No. 5,764,906. On January 8, 1999, the District Court granted our motion for summary judgment on the issues of claim construction and non-infringement. On January 12, 1999, the Court entered judgment in our favor. The plaintiff has appealed the case to the United States Court of Appeals for the Federal Circuit. The appeal is currently pending. If the District Court's summary judgment ruling were overturned on appeal, we could be prevented from offering the RealNames service, which is currently our only source of revenue. 60 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The executive officers, directors and key employees of RealNames, and their ages as of August 31, 1999, are as follows:
NAME AGE POSITION - ----------------------------------------------------- --- ----------------------------------------------------- Keith W. Teare....................................... 44 Chairman of the Board of Directors, President and Chief Executive Officer James N. Strawbridge................................. 38 Executive Vice President, Chief Financial and Administrative Officer Edward F. West....................................... 46 Executive Vice President, Strategic Business Development Barbara Gore......................................... 39 Senior Vice President, Marketing Susan M. Rotella..................................... 41 Senior Vice President, Customer Operations Robert S. Bowman..................................... 25 Vice President, Engineering and Operations Jeffrey Stevenson.................................... 35 Vice President, Sales Nicolas Popp......................................... 36 Chief Technology Officer Anthony J. Gould..................................... 37 Director of Finance and Corporate Controller William Elkus........................................ 48 Director John Fisher.......................................... 40 Director Jean Marie Hullot.................................... 45 Director Robert Korzeniewski.................................. 42 Director Robert J. Loarie..................................... 56 Director
- ------------------------ KEITH W. TEARE co-founded RealNames in November 1996 and has served as Chairman of the Board, President and Chief Executive Officer since that time. From August 1994 to November 1996, Mr. Teare also co-founded and served as Chief Technical Officer at The Easynet Group, an Internet Service Provider. In August 1994, Mr. Teare founded Cybercafe, an Internet company, and has served on its board of directors since that time. Mr. Teare holds a B.A. in Sociology and Political Science from the University of Kent at Canterbury, England. JAMES N. STRAWBRIDGE has served as Executive Vice President, Chief Financial and Administrative Officer since July 1999. Prior to joining RealNames, Mr. Strawbridge was a partner with the law firm of Wilson Sonsini Goodrich & Rosati from February 1995 to July 1999 and was an associate with the firm from October 1987 to January 1995. Mr. Strawbridge served as a director of RealNames from December 1997 to March 1998. Mr. Strawbridge holds a B.S. in Industrial Engineering and Operations Research from Virginia Tech and a J.D. from the University of Virginia. EDWARD F. WEST has served as Executive Vice President, Strategic Business Development since March 1999. He joined RealNames in May 1998 as Executive Vice President, Sales and Marketing. Prior to joining RealNames, from June 1996 to March 1998, Mr. West co-founded and served as Chief Operating Officer and Executive Vice President of Development at Softbank Interactive Marketing, an Internet marketing services company. From June 1995 to June 1996, Mr. West co-founded and served as President of Network 1.0, an Internet and marketing services company. Mr. West also founded and served as President and Publisher of Consumer Direct Access, Inc., a directory publishing company, from January 1991 to May 1995. Mr. West holds an A.B. in Architecture and Urban Planning from Princeton University and an M.B.A. from Harvard Business School. BARBARA GORE has served as Senior Vice President, Marketing since May 1999. Ms. Gore joined RealNames as Vice President, Business and Product Development in October 1998. Prior to joining RealNames, from July 1998 to September 1998, Ms. Gore served as President of The BizDev Group, an 61 Internet consulting company. From July 1995 to January 1998, Ms. Gore served as a Publisher for Netscape Communications Corporation, an Internet company. Ms. Gore also served as Vice President of Sales at Lycos, an Internet company, from May 1995 to July 1995. Ms. Gore holds a B.S. in Advertising from the University of Florida. SUSAN M. ROTELLA has served as Senior Vice President, Customer Operations since June 1999. Ms. Rotella joined RealNames as Vice President, Subscription Sales and Marketing in July 1998. Prior to joining RealNames, from May 1997 to January 1998, Ms. Rotella served on a contract basis as Director, Product Management at SBC Directory Operations, the yellow pages advertising division of Southwestern Bell. From February 1993 to June 1996, Ms. Rotella held various positions at AirTouch Communications, a wireless communications company, including most recently as Director, Investor Relations. Ms. Rotella holds a B.B.A. in Public Accounting from the Hofstra University School of Business and an M.B.A. from the University of Michigan. ROBERT S. BOWMAN has served as Vice President, Engineering and Operations since March 1999. Prior to joining RealNames, from February 1999 to March 1999, Mr. Bowman served as a consultant for a number of Internet companies. From October 1995 to February 1999, Mr. Bowman held various positions at Exodus Communications, an Internet and computer networking company, including most recently as Director of Network Technology. From September 1994 to October 1995, Mr. Bowman served as a consultant for a number of Internet companies. JEFFREY STEVENSON has served as Vice President, Sales since June 1999. Prior to joining RealNames, from November 1998 to June 1999, Mr. Stevenson served as Senior Director of Business Development for International Network Services, a computer networking company. From July 1997 to November 1998 Mr. Stevenson served as Director of Business Development at VitalSigns Software, a software company. From July 1995 to July 1997, Mr. Stevenson served in OEM Strategic Business Development at Netscape Communications. From May 1993 to July 1995, Mr. Stevenson held various positions at NetManage, a software company, including most recently as Director of Major Accounts. Mr. Stevenson holds a B.S. in Electrical/Electronic Engineering from California State University, Chico. NICOLAS POPP has served as Chief Technical Officer since March 1999. Mr. Popp joined RealNames as Vice President, Engineering in May 1997. Prior to joining RealNames, from March 1997 to April 1997, Mr. Popp served as Web Objects Software Manager at Apple Computer, a computer company. Mr. Popp served as a Web Objects Software Manager from August 1995 to March 1997, and as Manager of Applications Tools Software from January 1994 to April 1995, at NeXT Software, a computer software company. Mr. Popp holds a B.S. in Robotics and an M.S. in Aeronautics from Stanford University and a B.S. in Aeronautics from Ecole Nationale Superieure De L'aeronautique et Espace, France. ANTHONY J. GOULD has served as Director of Finance and Corporate Controller since July 1999. Prior to joining RealNames, from November 1988 to July 1999, Mr. Gould held various positions at Bay Area Banc Shares, a bank holding company, including most recently as Chief Operating and Financial Officer. Mr. Gould holds a B.B.A. in Finance from the University of Wisconsin, Eau Claire and an M.B.A. from California State University, Hayward. WILLIAM ELKUS has served as a director of RealNames since March 1998. Mr. Elkus is a Managing Member of idealab Capital Partners, a venture capital investment company, which he joined in March 1998. Prior to joining idealab Capital Partners, from January 1994 to December 1997, Mr. Elkus was a Managing Director of Klein Investment Group, LP, an investment banking company. Mr. Elkus also serves as a director of GoTo.com, an Internet advertising company, and serves as a director of several private companies. Mr. Elkus holds a S.B. and S.M. from Massachusetts Institute of Technology and a J.D. from Harvard Law School. JOHN FISHER has served as a director of RealNames since March 1998. Mr. Fisher is a Managing Director of Draper Fisher Jurvetson, a venture capital investment company, which he joined in 1991. 62 Mr. Fisher also serves as a director of Wit Capital Corporation, an investment banking company, and serves as a director of several private companies. Mr. Fisher holds a B.A. from Harvard College and an M.B.A. from Harvard Business School. JEAN MARIE HULLOT co-founded RealNames in November 1996 and has served as a director of RealNames since that time. Prior to joining RealNames, Mr. Hullot served as Chief Technology Officer at NeXT Software from 1994 to June 1996. Mr. Hullot holds an M.A. and a Ph.D. in Computer Science from the University of Paris. ROBERT KORZENIEWSKI has served as a director of RealNames since December 1998. Mr. Korzeniewski is Chief Financial Officer and acting Chief Operating Officer of Network Solutions, an Internet company which he joined in March 1996. Prior to joining Network Solutions, from 1987 to October 1997, Mr. Korzeniewski held a variety of senior financial positions with SAIC, a systems engineering company. Mr. Korzeniewski is a Certified Public Accountant and holds a B.S. in Business Administration from Salem State College. ROBERT J. LOARIE has served as a director of RealNames since August 1999. Since August 1992, Mr. Loarie has been a Principal of, and since December 1997, a Managing Director of Morgan Stanley Dean Witter, an investment banking company. Since August 1992, Mr. Loarie has also served as a managing member of several venture capital investment partnerships affiliated with Morgan Stanley Dean Witter. Mr. Loarie also serves as a director of Adaptec, a computer peripherals company, and Evolving Systems, a telecommunications software company. Mr. Loarie holds a B.S. from the Illinois Institute of Technology and an M.B.A. from Harvard Business School. The board of directors elects executive officers on an annual basis. Executive officers serve until their successors have been duly elected and qualified. There are no family relationships among any of our directors or executive officers. Under a voting agreement that we have with a number of our stockholders, the following stockholders or their affiliated entities have appointed a member to our board of directors: - idealab Capital Partners, whose representative on our board is Mr. Elkus; - Draper Fisher Jurvetson, whose representative on our board is Mr. Fisher; - Network Solutions, whose representative on our board is Mr. Korzeniewski; and - Morgan Stanley Dean Witter Venture Partners, whose representative on our board is Mr. Loarie. This voting agreement will terminate upon completion of this offering. BOARD COMPOSITION Our board of directors is comprised of six individuals. Each director is currently elected for a period of one year at our annual meeting of stockholders and serves until the next annual meeting or until his or her successor is duly elected and qualified. However, upon the completion of this offering, our board will be reorganized into a classified board, whereby our directors will be divided into three classes with overlapping three-year terms as follows: - Class I directors will include and , and their terms will expire at the first annual meeting of stockholders following this offering; - Class II directors will include and , and their terms will expire at the second annual meeting of stockholders following this offering; and - Class III directors will include and , and their terms will expire at the third annual meeting of stockholders following this offering. 63 Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of an equal number of directors. BOARD COMMITTEES Our board of directors currently has two standing committees, an audit committee and a compensation committee. AUDIT COMMITTEE. The board established an audit committee in April 1999, which currently consists of Messrs. Loarie and Korzeniewski. The audit committee has the following responsibilities: - make such examinations as are necessary to monitor our corporate financial reporting and the internal and external audits; - provide to the board the results of its examinations and recommendations derived from such examinations; - outline to the board improvements made, or to be made, in internal accounting controls; - nominate independent auditors; and - provide such additional information and materials as it may deem necessary to make the board aware of significant financial matters that require board attention. COMPENSATION COMMITTEE. The board established a compensation committee in April 1999, which currently consists of Messrs. Elkus and Fisher. The compensation committee has the following responsibilities: - review our executive compensation policy; - administer our stock purchase and stock option plans; and - make recommendations to the board regarding such matters. DIRECTOR COMPENSATION Our directors currently do not receive any cash compensation for their services as members of the board of directors or any committees, but directors are reimbursed for reasonable expenses incurred in connection with attendance of board or committee meetings. In addition, our non-employee directors are eligible to participate in our 1999 Director Option Plan. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Prior to April 1999, all compensation decisions were made by the board of directors. In April 1999, the board established a compensation committee consisting of Messrs. Elkus and Fisher. No interlocking relationship exists between our board of directors or compensation committee and the board of directors or compensation committee of any other company, nor has any such interlocking relationship existed in the past. For a discussion of transactions that the compensation committee members or their affiliates have entered into with RealNames, please see "Related Party Transactions." 64 EXECUTIVE COMPENSATION The following table sets forth information concerning total compensation received by our chief executive officer and each of our most highly compensated executive officers in 1998 whose salary and bonus was more than $100,000. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION AWARDS ANNUAL COMPENSATION --------------------- -------------------- SECURITIES ALL OTHER NAME AND PRINCIPAL POSITION SALARY BONUS UNDERLYING OPTIONS COMPENSATION - ---------------------------------------- --------- -------- --------------------- ---------------- Keith W. Teare ......................... $ 123,461 -- -- -- President, Chief Executive Officer and Chairman of the Board Edward F. West ......................... $ 87,115 $ 50,000 750,000 -- Executive Vice President, Strategic Business Development Nicolas Popp ........................... $ 132,688 -- 100,000 $ 43,200 Chief Technology Officer
Other compensation for Mr. Popp represents a loan, along with imputed interest, made to Mr. Popp in September 1997, which was forgiven in September 1998. For more information on this loan, please see "Related Party Transactions." OPTIONS GRANTED IN 1998 The following table sets forth information concerning stock options granted in 1998 to the executive officers included in the summary compensation table.
INDIVIDUAL GRANTS POTENTIAL REALIZABLE -------------------------------------------------------------- VALUE AT ASSUMED NUMBER OF ANNUAL RATES OF STOCK SECURITIES PERCENT OF TOTAL PRICE APPRECIATION FOR UNDERLYING OPTIONS GRANTED OPTIONS TERM OPTIONS TO EMPLOYEES EXERCISE PRICE EXPIRATION ---------------------- NAME GRANTED IN FISCAL YEAR PER SHARE DATE 5% 10% - --------------------------------- ----------- ----------------- ----------------- ----------- ---------- ---------- Keith W. Teare................... 0 -- -- -- -- -- Edward F. West................... 750,000 22.5% $ .10 05/19/08 Nicolas Popp..................... 100,000 3.0% $ .20 10/14/08
The options in this table are incentive stock options granted under our 1997 Stock Plan and have exercise prices equal to the fair market value of our common stock on the date of grant. These options have ten-year terms and currently vest monthly over a period of four years as determined by our board of directors. The figures representing percentages of total options granted to employees in the last fiscal year are based on a total of 3,330,500 options granted to our employees under our 1997 Stock Plan in 1998. These options were, for the most part, exercised through our early exercise program which allows our stockholders to purchase shares of common stock underlying unvested options, subject to our repurchase right. Stockholders may purchase these early exercise shares with cash, check, promissory note or other shares of our common stock. Under the rules of the SEC, the amounts in the last two columns represent the hypothetical gain or option spread that would exist for the options in this table if the assumed initial public offering price of our common stock appreciates at assumed annual rates of 5% or 10% over the ten-year terms of such options. 65 Annual compounding results in total appreciation of 63% (at 5% per year) and 159% (at 10% per year). If the price of our common stock were to increase at such rates from the assumed initial public offering price of $ per share over the next 10 years, the resulting stock price at 5% would be $ per share and at 10% would be $ per share. The 5% and 10% assumed annual rates of appreciation are specified in SEC rules and do not represent our estimate or projection of future stock price growth. We do not necessarily agree that this method can properly determine the value of an option. In September 1999, we granted Mr. Teare an option to purchase 724,414 shares of our common stock at an exercise price equal to $6.05 per share. This price represents 110% of the fair market value of our common stock at the time of grant. This option vests monthly over four years. In 1999, we granted Mr. West options to purchase an aggregate of 100,000 shares of our common stock at exercise prices ranging from $.25 to $3.50 per share, the fair market value at the time of grant. 1998 YEAR-END OPTION VALUES The following table sets forth information, as to the executive officers included in the summary compensation table, concerning the number of shares subject to both exercisable and unexercisable stock options as of December 31, 1998. Also reported are values for in-the-money options that represent the positive spread between the respective exercise prices of these options and the assumed initial public offering price of $ per share. No options were exercised by the executive officers included in the summary compensation table in 1998.
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT DECEMBER 31, 1998 DECEMBER 31, 1998 --------------------------- --------------------------- NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---------------------------------------- ----------- ------------- ----------- ------------- Keith W. Teare.......................... -- -- Edward F. West.......................... 750,000 -- Nicolas Popp............................ 100,000 --
STOCK PLANS 1997 STOCK PLAN As of August 31, 1999, options to purchase 7,108,088 shares of common stock granted under the 1997 Stock Plan had been exercised, options to purchase 1,281,334 shares of common stock at a weighted average exercise price of $.30 per share were outstanding, and 410,578 shares of common stock were reserved for future grant. The 1997 Stock Plan will terminate immediately prior to this offering. As a result, no options will be granted under the plan after this offering. However, the termination of this plan will not affect any outstanding options granted under the plan, all of which will remain outstanding until exercised or until they terminate or expire. Options granted under the 1997 Stock Plan are subject to terms substantially similar to those described below with respect to options to be granted under our new 1999 Stock Plan. 1999 STOCK PLAN The board of directors adopted the 1999 Stock Plan in October 1999 and the stockholders approved the 1999 Stock Plan in 1999. The 1999 Stock Plan provides for the grant of incentive stock options within the meaning of Section 422 of the Internal Revenue Code, as amended, or the Code, to employees and for the grant of nonstatutory stock options and stock purchase rights to employees, directors and consultants. 66 NUMBER OF SHARES OF COMMON STOCK AVAILABLE UNDER THE 1999 PLAN. As of October 5, 1999, a total of 3,500,000 shares of common stock were reserved for issuance under the 1999 Stock Plan. Also reserved under this plan will be any additional shares reserved under the 1997 Stock Plan that were not issued and that are not subject to outstanding grants on , 1999, the effective date of the 1999 Stock Plan and any shares issued under the 1997 Stock Plan that are forfeited or repurchased by RealNames or that are issuable upon exercise of options that expire or become unexercisable for any reason without having been exercised in full. In addition, shares that: - are subject to issuance upon exercise of an option granted under the 1999 Stock Plan that cease to be subject to that option for any reason other than exercise of the option; - have been issued in connection with the exercise of an option granted under the 1999 Stock Plan that are subsequently forfeited or repurchased by RealNames at the original purchase price; or - are subject to an award granted under a restricted stock purchase agreement under the 1999 Stock Plan that are subsequently forfeited or repurchased by RealNames at the original issue price; will again be available for grant and issuance under the 1999 Stock Plan. Moreover, the 1999 Stock Plan provides for annual increases in the number of shares available for issuance under the plan, on the first day of each new fiscal year of RealNames, effective beginning with RealNames' fiscal year 2001, equal to the LOWEST of (1) 4% of the outstanding shares of common stock on the first day of the fiscal year, (2) 6,000,000 shares of common stock OR (3) a lesser amount as the board of directors may determine. ADMINISTRATION OF THE 1999 PLAN. The board of directors or a committee of the board, as applicable, the plan administrator, administers the 1999 Plan. In the case of options intended to qualify as "performance-based compensation" within the meaning of Section 162(m) of the Code, the committee will consist of two or more "outside directors" within the meaning of Section 162(m) of the Code. The plan administrator has the power to determine the terms of the options or stock purchase rights granted, including the exercise price, the number of shares subject to each option or stock purchase right, the exercisability of the options and the form of consideration payable upon exercise. OPTIONS. The plan administrator determines the exercise price of nonstatutory stock options granted under the 1999 Stock Plan, but with respect to nonstatutory stock options intended to qualify as "performance-based compensation" within the meaning of Section 162(m) of the Code, the exercise price must at least be equal to the fair market value of the common stock on the date of grant. The exercise price of all incentive stock options granted under the 1999 Stock Plan must be at least equal to the fair market value of the common stock on the date of grant and the term of such option may not exceed ten years. With respect to any participant who owns stock possessing more than 10% of the voting power of all classes of RealNames' outstanding capital stock, the exercise price of any incentive stock option granted must equal at least 110% of the fair market value on the grant date and the term of such incentive stock option must not exceed five years. The plan administrator determines the term of all other options. No optionee may be granted an option to purchase more than 1,500,000 shares in any fiscal year. In connection with his or her initial service, an optionee may be granted an option to purchase up to an additional 1,500,000 shares, which will not count against the yearly limit set forth in the previous sentence. An optionee generally must exercise an option granted under the 1999 Stock Plan at the time set forth in the optionee's option agreement after termination of the optionee's status as an employee, director or consultant of RealNames. Generally, in the case of the optionee's termination by death or disability, the option will remain exercisable for 12 months. In all other cases, the option will generally remain exercisable for a period of three months. However, an option may never be exercised later than the expiration of the option's term. 67 STOCK PURCHASE RIGHTS. The plan administrator determines the exercise price of stock purchase rights granted under the 1999 Stock Plan. In the case of stock purchase rights, unless the plan administrator determines otherwise, the restricted stock purchase agreement entered into in connection with the exercise of the stock purchase right will grant RealNames a repurchase option that RealNames may exercise upon the voluntary or involuntary termination of the purchaser's service with RealNames for any reason, including death or disability. The purchase price for shares RealNames repurchases pursuant to restricted stock purchase agreements will generally be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to RealNames. The repurchase option will lapse at a rate that the plan administrator determines. TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. An optionee generally may not transfer options and stock purchase rights granted under the 1999 Stock Plan and only the optionee may exercise an option and stock purchase right during his or her lifetime. ADJUSTMENTS UPON MERGER OR ASSET SALE. The 1999 Stock Plan provides that if RealNames merges with or into another corporation or sells all or substantially all of its assets, the successor corporation will assume or substitute each option or stock purchase right. If the outstanding options or stock purchase rights are not assumed or substituted, the plan administrator will provide notice to the optionee that he or she has the right to exercise the option or stock purchase right as to all of the shares subject to the option or stock purchase right, including shares which would not otherwise be exercisable, for a period of 15 days from the date of the notice. The option or stock purchase right will terminate upon the expiration of the 15-day period. AMENDMENT AND TERMINATION OF THE 1999 STOCK PLAN. Unless terminated sooner, the 1999 Stock Plan will terminate automatically in 2009. In addition, the board of directors has the authority to amend, suspend or terminate the 1999 Stock Plan, provided that no such action may affect any share of common stock previously issued and sold or any option previously granted under the 1999 Stock Plan. 1999 EMPLOYEE STOCK PURCHASE PLAN The board of directors adopted the employee stock purchase plan, or the Purchase Plan, in October 1999 and the stockholders approved the Purchase Plan in 1999. The Purchase Plan provides for the sale of RealNames' common stock to eligible employees. NUMBER OF SHARES OF COMMON STOCK AVAILABLE UNDER THE PURCHASE PLAN. A total of 1,000,000 shares of common stock will be made available for sale. In addition, the Purchase Plan provides for annual increases in the number of shares available for issuance under the Purchase Plan on the first day of each fiscal year, beginning with the RealNames' fiscal year 2001, equal to the LOWEST of (1) 2% of the outstanding shares of common stock on the first day of the fiscal year, (2) 3,000,000 shares of common stock OR (3) a lesser amount as the board of directors may determine. ADMINISTRATION OF THE PURCHASE PLAN. The board of directors or a committee appointed by the board of directors administers the Purchase Plan. The board of directors or its committee has full and exclusive authority to interpret the terms of the Purchase Plan and determine eligibility. ELIGIBILITY TO PARTICIPATE. Employees are eligible to participate if they are customarily employed by RealNames or any participating subsidiary for at least 20 hours per week and more than five months in any calendar year. However, an employee may not be granted an option to purchase stock under the Purchase Plan if such employee, immediately after grant, owns stock possessing 5% or more of the total combined voting power or value of all classes of the capital stock of RealNames. The Purchase Plan permits eligible employees to purchase common stock through payroll deductions up to a maximum of $25,000 for all purchases ending within the same calendar year. 68 OFFERING PERIODS AND CONTRIBUTIONS. The Purchase Plan, which is intended to qualify under Section 423 of the Code, contains consecutive, overlapping 24-month offering periods. Each offering period includes four 6-month purchase periods. The offering periods generally start on the first trading day on or after February 1 and August 1 of each year, except for the first such offering period which will commence on the first trading day on or after the effective date of this offering and will end on the last trading day on or before July 31, 2001. The Purchase Plan permits participants to purchase common stock through payroll deductions of up to 15% of the participant's "compensation." Compensation is defined as the participant's base straight time gross earnings, commissions and bonuses. The maximum number of shares a participant may purchase during a single offering period is 5,000 shares. PURCHASE OF SHARES. Amounts deducted and accumulated by the participant are used to purchase shares of common stock at the end of each six-month purchase period. The price of stock purchased under the Purchase Plan is 85% of the lower of the fair market value of the common stock at the beginning of an offering period or after a purchase period ends. If the fair market value at the end of a purchase period is less than the fair market value at the beginning of the offering period, participants will be withdrawn from the current offering period following their purchase of shares on the purchase date and will be automatically re-enrolled in a new offering period. Participants may end their participation at any time during an offering period, and they will be paid their payroll deductions to date. Participation ends automatically upon termination of employment with RealNames. TRANSFERABILITY OF RIGHTS. A participant may not transfer rights granted under the Purchase Plan other than by will, the laws of descent and distribution or as otherwise provided under the Purchase Plan. ADJUSTMENTS UPON MERGER OR ASSET SALE. The Purchase Plan provides that, if RealNames merges with or into another corporation or sells all or substantially all of its assets, a successor corporation may assume or substitute for each outstanding option. If the successor corporation refuses to assume or substitute for the outstanding options, the offering period then in progress will be shortened, and a new exercise date will be set. AMENDMENT AND TERMINATION OF THE PURCHASE PLAN. The Purchase Plan will terminate in 2009. However, the board of directors has the authority to amend or terminate the Purchase Plan, except that, subject to certain exceptions described in the Purchase Plan, no such action may adversely affect any outstanding rights to purchase stock under the Purchase Plan. 1999 DIRECTOR OPTION PLAN The board of directors adopted the 1999 Director Option Plan, or the Director Plan, in October 1999 and the stockholders initially approved the 1999 Stock Plan in 1999. The Director Plan provides for the periodic grant of nonstatutory stock options to non-employee directors. NUMBER OF SHARES AVAILABLE UNDER THE DIRECTOR PLAN. As of October 5, 1999, a total of 500,000 shares were reserved for issuance under the Director Plan. No options have been granted as of yet under the Director Plan. OPTIONS. All grants of options to non-employee directors under the Director Plan are automatic. When a non-employee director first becomes a non-employee director, except for those directors who became non-employee directors by ceasing to be employee directors, he or she receives an option to purchase 40,000 shares. This same grant is available to those directors that are non-employee directors on the effective date of this Director Plan. All non-employee directors who have been directors for at least six months receive an option to purchase 20,000 shares on each date of the annual stockholders meeting held after 1999. 69 All options granted under the Director Plan have a term of ten years, have an exercise price equal to fair market value on the date of grant, are only exercisable while the non-employee director remains a director of RealNames and become exercisable as to 25% of the shares subject to the option on each anniversary of the date of grant provided the non-employee director remains a director on such dates. An optionee must exercise an option granted under the Director Plan at the time set forth in the optionee's option agreement after termination of the optionee's status as a non-employee director of RealNames. In the case of the optionee's termination by death or disability, the option will remain exercisable for 12 months. In all other cases, the option will remain exercisable for a period of three months. However, an option may never be exercised later than the expiration of the option's term. TRANSFERABILITY OF OPTIONS. A non-employee director may not transfer options granted under the Director Plan other than by will or the laws of descent and distribution. Only a non-employee director may exercise the option during his or her lifetime. ADJUSTMENTS UPON MERGER OR AN ASSET SALE. The Director Plan provides that if RealNames merges with or into another corporation or sells all or substantially all of its assets, the successor corporation shall assume or substitute each option. If such assumption or substitution occurs, the options shall continue to be exercisable according to the same terms as before the merger or sale of substantially all of RealNames' assets. Following such assumption or substitution, if a non-employee director is terminated other than by voluntary resignation, the option shall become fully exercisable and remain exercisable for a period of three months, unless termination is due to the director's death or disability, in which case the option will remain exercisable for 12 months. If the outstanding options are not assumed or substituted for, the board of directors shall notify each non-employee director that he or she has the right to exercise the option as to all shares subject to the option for a period of 30 days following the date of the notice. The option will terminate upon the expiration of the 30-day period. AMENDMENT AND TERMINATION OF THE DIRECTOR PLAN. Unless terminated sooner, the Director Plan will terminate automatically in 2009. The board of directors has the authority to amend, alter, suspend, or discontinue the Director Plan, but no such action may affect any share of common stock previously issued or sold or the rights of any non-employee director under any grant made under the Director Plan. LIMITATIONS OF LIABILITY AND INDEMNIFICATION MATTERS As permitted by Delaware law, our certificate of incorporation eliminates the personal liability of our directors for monetary damages for breach of their fiduciary duty as a director, except for liability for any of the following: - any breach of the director's duty of loyalty to RealNames or to its stockholders; - acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; - unlawful payments of dividends or unlawful stock repurchases or redemptions; or - any transaction from which a director derives an improper personal benefit. Our certificate of incorporation also provides that if Delaware law is amended to authorize corporate action further eliminating or limiting the personal liability of directors after our stockholders approve the certificate of incorporation, then the liability of our directors shall be eliminated or limited to the fullest extent permitted by the amended Delaware law. In addition, as permitted by Delaware law, our bylaws provide for the following: - we must indemnify our directors and executive officers to the fullest extent permitted by Delaware law; 70 - we may indemnify our other officers, employees and agents to the fullest extent permitted by the Delaware law; and - we must advance all expenses, as incurred, to our directors and executive officers in connection with a legal proceeding to the fullest extent permitted by Delaware law, subject to limited exceptions. We believe that indemnification under our bylaws covers at least negligence and gross negligence on the part of an indemnified party. We have also entered into separate indemnification agreements with each of our directors and executive officers. These agreements provide for, among other things, the following: - we must indemnify the director or officer against expenses, including attorney's fees, judgments, fines and settlements paid by the individual in connection with any action, suit or proceeding arising out of the individual's status or service as a director or officer of RealNames, other than liabilities arising from willful misconduct or conduct that is knowingly fraudulent or deliberately dishonest; and - we must advance expenses incurred by the individual in connection with any proceeding against the individual with respect to which he or she may be entitled to indemnification by us. We believe that our certificate of incorporation and bylaw provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers. Following completion of this offering, we also will maintain directors' and officers' liability insurance. The limitation of liability and indemnification provisions in our certificate of incorporation and bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duty. They may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. Furthermore, a stockholder's investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. We are not aware of any pending litigation or proceeding involving any of our directors, officers, employees or agents where indemnification will be sought, required or permitted. Furthermore, we are not aware of any threatened litigation or proceeding that might result in a claim for indemnification. 71 RELATED PARTY TRANSACTIONS SALE OF COMMON STOCK TO THE FOUNDERS In November 1996, we sold 620 shares of our common stock at a price per share of $1,000 to the co-founders of RealNames, including 510 shares of common stock to Keith Teare and 110 shares of common stock to Keith Young. Messrs. Teare and Young paid for these shares with promissory notes, secured by the purchased shares. These notes were paid in full in April and September 1997. Effective September 17, 1997, our certificate of incorporation was amended to effect, among other things, a stock split whereby each issued and outstanding share of our common stock was reconstituted as and converted into 10,000 shares of common stock. In September 1997, we issued and sold 7,050,000 shares of our common stock at a price of $.10 per share to our founders and consultants in exchange for certain technologies held by these individuals, including 4,900,000 shares to Keith Teare, 1,200,000 shares to Jean Marie Hullot, 475,000 shares to Brian Russell, a co-founder of RealNames, and 475,000 shares to Brian Teare, brother of Keith Teare. In September 1997, we issued and sold an aggregate of 1,487,000 shares of our common stock at a price of $.10 per share to individuals, including 537,000 shares to Jean Marie Hullot, 400,000 shares to Nicolas Popp, and 400,000 shares to Gene McPherson, spouse of Keith Teare. The purchasers paid for these shares with promissory notes secured by the purchased shares. The notes were due and payable in full on December 31, 1998, although we had the option to forgive the balance on such notes if the stockholder remained an employee, director or consultant of the company as of September 19, 1998. We forgave these promissory notes in September 1998. In May 1998, Keith Teare granted Edward West an option to purchase 750,000 shares of common stock held by him, at an exercise price of $.45 per share, in connection with Mr. West's employment as our Executive Vice President, Sales and Marketing. Mr. West exercised this option in full in August 1999. He paid a portion of the aggregate exercise price to Keith Teare in cash and executed a promissory note for the remainder. PREFERRED STOCK FINANCINGS In March 1998, we issued and sold an aggregate of 8,869,179 shares of our Series A preferred stock at a price of $.451 per share. From December 1998 to June 30, 1999, we issued and sold an aggregate of 12,985,000 shares of our Series B preferred stock at a price of $1.00 per share. In August 1999, we issued and sold an aggregate of 15,677,778 shares of our Series C preferred stock at a price of $4.50 per share. The following table summarizes the shares of capital stock purchased by executive officers, directors and five-percent stockholders and their affiliates in these transactions:
SERIES A SERIES B SERIES C PREFERRED PREFERRED PREFERRED INVESTOR STOCK STOCK STOCK - --------------------------------------------------------------------------- ---------- ---------- ---------- Entities and individuals affiliated with Draper Fisher Jurvetson........... 4,323,725 2,565,000 1,835,556 Entities affiliated with idealab Capital Partners.......................... 4,434,590 2,630,000 1,422,570 Network Solutions.......................................................... -- 4,240,000 1,555,556 Entities affiliated with Morgan Stanley Dean Witter Venture Partners....... -- -- 1,869,999 Morgan Stanley Dean Witter Equity Funding.................................. -- -- 907,778 Jeffrey Stevenson.......................................................... -- -- 200,000 Robert S. Bowman........................................................... -- -- 88,889 Barbara Gore............................................................... -- -- 9,811 Susan West, mother of Edward F. West....................................... -- -- 5,657 Nicolas Popp............................................................... -- -- 5,657 Susan M. Rotella........................................................... -- -- 5,657
72 In January 1998, we borrowed $300,000 from Keith Teare under a convertible promissory note. We repaid this note plus interest in March 1998. In November 1998, we borrowed $125,000 from entities affiliated with Draper Fisher Jurvetson and $125,000 from entities affiliated with idealab Capital Partners under convertible promissory notes. These notes were converted into shares of our Series B preferred stock at a price of $1.00 per share at the time of our Series B preferred stock financing. AGREEMENT WITH NETWORK SOLUTIONS On December 8, 1998, we entered into a sales representative and distribution agreement with Network Solutions, Inc., or NSI, as amended by agreements dated February 18, 1999 and May 25, 1999. Robert Korzeniewski, one of our directors, is an executive officer of NSI. In consideration of NSI's obligations under the sales representative and distribution agreement, we agreed to issue warrants to NSI to purchase up to 4,196,726 shares of our common stock upon the achievement of commercial milestones based on the number of Internet Keywords sold by NSI or its affiliates and for each distribution agreement we enter into with specified companies. On June 2, 1999, in connection with the closing of the strategic agreement with Microsoft, we issued to NSI a fully exercisable warrant to purchase 1,271,735 shares of our common stock at a price of $2.09 per share. This warrant was exercised in September 1999. LOANS TO EXECUTIVE OFFICERS In May 1998, Keith Teare borrowed $270,000 from us pursuant to a promissory note bearing 8% annual interest, due and payable in full on December 31, 1998. In October 1999, we extended the maturity date of this note until December 31, 2001. In July 1999, Mr. Strawbridge exercised options to purchase 550,000 shares of our common stock for an aggregate exercise price of $687,500. Mr. Strawbridge paid the aggregate exercise price with promissory notes. In March, July and September 1999, Mr. West exercised options to purchase 850,000 shares of our common stock for an aggregate exercise price of $206,250. Mr. West paid the aggregate exercise price with promissory notes. In March and July 1999, Ms. Gore exercised options to purchase 400,000 shares of our common stock for an aggregate exercise price of $106,250. Ms. Gore paid the aggregate exercise price with promissory notes. In March 1999, Ms. Rotella exercised option to purchase 100,000 shares of our common stock for an aggregate exercise price of $22,500. Ms. Rotella paid the aggregate exercise price with promissory notes. In March 1999, Mr. Bowman exercised options to purchase 411,288 shares of our common stock for an aggregate exercise price of $102,822. Mr. Bowman paid the aggregate exercise price with promissory notes. In July 1999, Mr. Stevenson exercised options to purchase 234,792 shares of our common stock for an aggregate exercise price of $293,490 and in August 1999, Mr. Stevenson purchased 200,000 shares of our Series C preferred stock for an aggregate purchase price of $900,000. Mr. Stevenson paid the aggregate exercise price for his options and $899,800 of the aggregate purchase price for our Series C preferred stock with promissory notes. In March 1999, Mr. Popp exercised options to purchase 100,000 shares of our common stock for an aggregate exercise price of $20,000. Mr. Popp paid the aggregate exercise price with promissory notes. 73 PRINCIPAL STOCKHOLDERS The following table sets forth information concerning the beneficial ownership of our common stock as of August 31, 1999, and as adjusted to reflect the sale of the shares of common stock to be sold in this offering, by the following persons and entities: - each person or entity who owns beneficially 5% or more of our outstanding common stock; - each of the members of our board of directors; - each of our executive officers included in the summary compensation table; and - all members of our board of directors and executive officers as a group. Under rules promulgated by the SEC, the number and percentage of shares beneficially owned is determined in accordance with Rule 13d-3 of the Securities and Exchange Act of 1934, as amended, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under this rule, beneficial ownership includes (1) any shares as to which the individual or entity has voting power or investment power and (2) any shares which the individual or entity has the right to acquire within 60 days of August 31, 1999 through the exercise of any stock option, warrant, or other right. Unless otherwise indicated in the footnotes, each person or entity has sole voting and investment power (or shares such powers with his or her spouse) with respect to the shares shown as beneficially owned. Except as otherwise noted, the address of each person listed on the table is c/o RealNames Corporation, Two Circle Star Way, Second Floor, San Carlos, California 94070-1350. The percentage of common stock outstanding as of August 31, 1999 is based on 59,387,045 shares of common stock outstanding on that date, assuming that all outstanding preferred stock has been converted into common stock.
PERCENT BENEFICIALLY OWNED SHARES ------------------------ BENEFICIALLY BEFORE AFTER NAME OF BENEFICIAL OWNER OWNED OFFERING OFFERING - ------------------------------------------------------------------------------ ------------ ----------- ----------- Keith W. Teare(1)............................................................. 9,650,000 16.25 John Fisher and entities and individuals affiliated with Draper Fisher Jurvetson(2)......... 8,724,281 14.69 William Elkus and entities affiliated with idealab Capital Partners(3)........................ 8,487,160 14.29 Robert Korzeniewski and Network Solutions, Inc.(4).................................................. 7,067,291 11.65 Robert J. Loarie(5)........................................................... 1,869,999 3.15 Jean Marie Hullot(6).......................................................... 1,737,000 2.92 Edward F. West(7)............................................................. 1,600,000 2.69 Nicolas Popp(8)............................................................... 505,657 * All executive officers and directors as a group (13 persons) (9).............. 42,813,353 70.23
- ------------------------ * Less than 1% beneficially owned. (1) This number includes 9,250,000 shares held by Mr. Teare and 400,000 shares held by Gene McPherson, spouse of Mr. Teare and Vice President, Marketing of RealNames, of which 183,334 shares are subject to repurchase at cost by RealNames within 60 days of August 31, 1999 in the event of Ms. McPherson's termination of employment with the Company. (2) This number includes: - 6,819,847 shares held by Draper Fisher Associates Fund IV, L.P.; - 1,094,583 shares held by Draper Fisher Jurvetson Fund V, L.P.; 74 - 513,322 shares held by Draper Fisher Partners IV, L.L.C.; - 88,750 shares held by Draper Fisher Jurvetson Partners V, L.L.C.; - 66,667 shares held by Tim Draper. Mr. Draper is either a managing member of the entities listed above or a managing member of the general partner of the entities listed above; - 66,667 shares held by John Fisher, a director of the Company. Mr. Fisher is either a managing member of the entities listed above or a managing member of the general partner of each of the Draper Fisher Jurvetson entities listed above; - 66,667 shares held by Steven Jurvetson. Mr. Jurvetson is either a managing member of the entities listed above or a managing member of the general partner of the entities listed above; - 6,667 shares held by The Fonstad Living Trust Dated March 26, 1999. Ms. Fonstad is either a member of the entities listed above or a member of the general partner of the entities listed above and has shared voting and investment power with respect to the shares held by the trust; and - 1,111 shares held by Warren Packard. Mr. Packard is either a member of the entities listed above or a member of the general partner of the entities listed above. Mr. Fisher disclaims beneficial ownership of the shares held by the Draper Fisher Jurvetson entities and each of their general partners, except to the extent of his pecuniary interest arising from his membership interest in the general partner of these entities. The address of these individuals and entities is 400 Seaport Court, Suite 250, Redwood City, California, 94063. (3) This number includes: - 5,150,279 shares held by idealab Capital Partners I-A, L.P.; and - 3,336,881 shares held by idealab Capital Partners I-B, L.P. Mr. Elkus, a managing member of idealab! Capital Management I, LLC, the general partner of each of the idealab Capital Partners entities, disclaims beneficial ownership of the shares held by the idealab Capital Partners entities except to the extent of his pecuniary interest arising from his membership interest in the general partner of these entities. The address of these entities and of Mr. Elkus is 130 West Union Street, Pasadena, California, 91103. (4) This number includes 5,795,556 shares, and a warrant to purchase 1,271,735 shares, held by Network Solutions, of which Mr. Korzeniewski is the Chief Financial Officer. Mr. Korzeniewski disclaims beneficial ownership of shares held by Network Solutions, Inc., except to the extent of his pecuniary interest therein. The address of Mr. Korzeniewski and of Network Solutions, Inc. is 505 Huntman Park Drive, Herndon, Virginia, 20170. (5) This number includes: - 1,640,559 shares held by Morgan Stanley Venture Partners III, L.P.; - 157,523 shares held by Morgan Stanley Venture Investors III, L.P.; and - 71,917 shares held by The Morgan Stanley Venture Partners Entrepreneur Fund, L.P. The institutional managing member of the general partner of Morgan Stanley Dean Witter Venture Partners is a wholly-owned subsidiary of Morgan Stanley Dean Witter & Co., the parent of Morgan Stanley & Co. Incorporated. Mr. Loarie is a managing member of the general partner of Morgan Stanley Dean Witter Venture Partners. Mr. Loarie disclaims beneficial ownership of the shares held by Morgan Stanley Dean Witter Venture Partners, except to the extent of his proportionate interest therein. The address for Mr. Loarie and the Morgan Stanley Dean Witter Venture partners entities is c/o Morgan Stanley Dean Witter Venture Partners, 1221 Avenue of the Americas, New York, New York 10020. In addition, Morgan Stanley Dean Witter Equity Funding, Inc., an affiliate of Morgan Stanely Dean Witter Venture Partners and Morgan Stanley & Co. Incorporated, owns 907,778 shares. 75 (6) This number includes 279,688 shares subject to repurchase at cost by RealNames within 60 days of August 31, 1999 in the event of Mr. Hullot's resignation from the board of directors or termination of consulting relationship with the Company. (7) This number includes 850,000 shares issued upon exercise of options under our 1997 Stock Plan, of which 513,543 shares can be repurchased by RealNames at cost within 60 days of August 31, 1999 in the event of termination of Mr. West's employment with RealNames. (8) This number includes 100,000 shares issued upon exercise of option granted pursuant to our 1997 Stock Plan and 400,000 shares of common stock purchased from RealNames, of which 87,500 shares are subject to repurchase at cost by RealNames within 60 days of August 31, 1999 in the event of termination of Mr. Popp's employment or consulting relationship with RealNames. (9) This number includes the shares beneficially owned by the persons and entities described in the footnotes above as well as (a) 2,014,187 shares held by officers not listed on this table, of which 1,491,394 shares are subject to repurchase at cost by RealNames in the event of termination of employment with RealNames, and (b) options to purchase 250,000 shares held by officers not listed on this table, of which options to purchase 193,750 are unvested, but exercisable subject to RealNames' repurchase option. 76 DESCRIPTION OF CAPITAL STOCK Following the completion of this offering, our authorized capital stock will consist of 200,000,000 shares of common stock, par value $.001 per share, and 10,000,000 shares of preferred stock, par value $.001 per share. COMMON STOCK As of August 31, 1999, there were 59,387,045 shares of common stock outstanding that were held of record by approximately 189 stockholders after giving effect to the conversion of our preferred stock into common stock at a one-to-one ratio and assuming no exercise or conversion of outstanding convertible securities after August 31, 1999. There will be shares of common stock outstanding, assuming no exercise of the underwriters' over-allotment option and no exercise or conversion of outstanding convertible securities after August 31, 1999, after giving effect to the sale of the shares of common stock offered hereby. The holders of common stock are entitled to one vote per share on all matters to be voted upon by the stockholders. Subject to preferences that may be applicable to any outstanding preferred stock, the holders of common stock are entitled to receive ratably any dividends that may be declared from time to time by the board of directors out of funds legally available for that purpose. In the event of a liquidation, dissolution or winding up of RealNames, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior rights of preferred stock, if any, then outstanding. The common stock has no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions available to the common stock. All outstanding shares of common stock are fully paid and non-assessable. PREFERRED STOCK Upon the closing of this offering, each outstanding share of preferred stock will be converted into shares of common stock. See note 5 of notes to financial statements for a description of this preferred stock. Effective upon the completion of this offering, we will be authorized to issue 10,000,000 shares of undesignated preferred stock. The board of directors will have the authority to issue the undesignated preferred stock in one or more series and to determine the powers, preferences and rights and the qualifications, limitations or restrictions granted to or imposed upon any wholly unissued series of undesignated preferred stock, and to fix the number of shares constituting any series and the designation of a series, without any further vote or action by the stockholders. The issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control of RealNames without further action by the stockholders and may adversely affect the voting and other rights of the holders of common stock. At present, we have no plans to issue any shares of preferred stock. WARRANTS As of August 31, 1999, warrants were outstanding to purchase an aggregate of 4,239,179 shares of common stock at exercise prices ranging from $2.09 to $3.77 per share. See note 5 of notes to financial statements. REGISTRATION RIGHTS OF STOCKHOLDERS The holders of 37,531,957 shares of common stock or their transferees are entitled to rights to register these shares, called "registrable securities," under the Securities Act. These rights are provided under the terms of an agreement between RealNames and the holders of registrable securities. Subject to limitations in this agreement, the holders of the registrable securities may require, on two occasions at any time after 77 six months from the effective date of this offering, or three occasions in the case of the holders of common stock issued on conversion of Series B preferred stock, that we use commercially reasonable efforts to register the registrable securities for public resale, provided that the proposed aggregate offering price is in excess of $5,000,000. In addition, the holders of the registrable securities may require, on one occasion in any 12-month period, that we register their shares for public resale on Form S-3, provided we are eligible to use Form S-3 and provided further that the aggregate value of the securities to be registered is at least $3,000,000. If we register any of our common stock, either for our own account or for the account of other security holders, the holders of registrable securities are entitled to include their shares of common stock in the registration. A holder's right to include shares in an underwritten registration is subject to the ability of the underwriters to limit the number of shares included in this offering. All fees, costs and expenses of these registrations must be borne by RealNames and all selling expenses (including underwriting discounts, selling commissions and stock transfer taxes) relating to registrable securities must be borne by the holders of the securities being registered. ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW AND CHARTER PROVISIONS The provisions of Delaware law, our certificate of incorporation and our bylaws described below may have the effect of delaying, deferring or discouraging another person from acquiring control of our company. DELAWARE LAW We will be subject to the provisions of Section 203 of the Delaware General Corporation Law regulating corporate takeovers. This section prevents certain Delaware corporations from engaging, under limited circumstances, in a "business combination," which includes a merger or sale of more than 10% of the corporation's assets, with any "interested stockholder," or a stockholder who owns 15% or more of the corporation's outstanding voting stock, as well as affiliates and associates of stockholders, for three years following the date that the stockholder became an "interested stockholder" unless: - the transaction is approved by the board prior to the date the "interested stockholder" attained that status: - upon the closing of the transaction that resulted in the stockholder's becoming an "interested stockholder," the "interested stockholder" owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced; or - on or subsequent to the date the "business combination" is approved by the board and authorized at an annual or special meeting of stockholders by at least two-thirds of the outstanding voting stock that is not owned by the "interested stockholder." A Delaware corporation may opt out of this provision with an express provision in its original certificate of incorporation or an express provision in its certificate of incorporation or bylaws resulting from a stockholder's amendment approved by at least a majority of the outstanding voting shares. However, we have not opted out of this provision. Section 203 could prohibit or delay mergers or other takeover or change-in-control attempts and, accordingly, may discourage attempts to acquire us. CHARTER AND BYLAW PROVISIONS Our amended and restated certificate of incorporation provides that, concurrently with the effectiveness of this registration statement, our board of directors will be reorganized into a classified board, whereby our directors will be divided into three classes. The directors in each class will serve for a three-year term, with our stockholders electing one class each year. For more information on the classification of our board, please see "Management--Board Composition." This system of electing and removing directors may tend to discourage a third-party from making a tender offer or otherwise 78 attempting to obtain control of us, because it generally makes it more difficult for stockholders to replace a majority of the directors. Our bylaws provide that any action required or permitted to be taken by our stockholders at an annual meeting or a special meeting of the stockholders may only be taken if it is properly brought before the meeting, including having provided required notice. Our stockholders may not take any action by written consent instead of by a meeting. Our certificate of incorporation provides that our board of directors may issue preferred stock with voting or other rights without stockholder action. Our bylaws provide that special meetings of the stockholders may only be called by our board, the chairman of our board, our chief executive officer or our president. Our bylaws provide that we will indemnify officers and directors against losses that they may incur in investigations and legal proceedings resulting from their services to us, which may include services in connection with takeover defense measures. These provisions may have the effect of preventing changes in our management. NASDAQ NATIONAL MARKET LISTING We have applied to list our common stock on The Nasdaq Stock Market's National Market under the trading symbol "NAME." TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for our common stock is Harris Trust and Savings Bank. 79 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no market for our common stock. Therefore, future sales of substantial amounts of our common stock could negatively affect the market price of our common stock. Furthermore, since only a limited number of shares will be available for sale after this offering because of contractual and legal restrictions on the resale of our outstanding shares as described below, sales of substantial amounts of our common stock after these restrictions lapse could have a negative effect on the market price. After this offering, we will have outstanding shares of common stock, assuming no exercise of options and warrants after August 31, 1999. Of these shares, all of the shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, unless these shares are purchased by our affiliates. The remaining shares of common stock held by existing shareholders are restricted securities. Restricted securities may be sold in the public market only if they are registered or they qualify for an exemption from registration under Rules 144 or 701 under the Securities Act, which rules are summarized below. As a result of the contractual and legal restrictions described below, the shares of common stock that constitute restricted securities will be available for sale in the public market as follows: - shares on , 1999, the date of this prospectus; - shares on , 1999, 90 days after date of this prospectus; - shares on , 1999, 120 days after date of this prospectus; - shares on , 1999, 180 days after date of this prospectus; and - shares upon . LOCK-UP AGREEMENTS All of our executive officers and directors and some of our stockholders and option holders have agreed not to (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock or (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of common stock, for a period of 180 days after the date of this prospectus, subject to some exceptions. However, Morgan Stanley & Co. Incorporated may in its sole discretion, at any time without notice, release all or any portion of the shares subject to these restrictions. RULE 144 SHARES HELD FOR LESS THAN TWO YEARS. In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a person who has beneficially owned shares of our common stock for at least one year would be entitled to sell within any three-month period a number of shares that is not more than the greater of: - 1% of the number of shares of common stock then outstanding, which will equal approximately shares immediately after this offering; or - the average weekly trading volume of the common stock on the Nasdaq National Market during the four calendar weeks before a notice of the sale on Form 144 is filed. In order for stockholders to sell their shares under Rule 144, they must also comply with manner of sale provisions and notice requirements and there must be current public information available about us. 80 SHARES HELD FOR MORE THAN TWO YEARS. Under Rule 144(k), a person may sell their shares without complying with the provisions of Rule 144 if they meet the following two requirements: - they have beneficially owned the shares for at least two years; and - they have not been an affiliate of RealNames at any time during the 90 days before a sale. RULE 701 In general, under Rule 701 of the Securities Act as currently in effect, any of our employees, directors, consultants or advisors who purchase shares from us under a stock option plan or other written agreement, prior to the date when we become subject to the reporting requirements of the Exchange Act, can resell those shares 90 days after the effective date of this offering in reliance on Rule 144, but without complying with some of the restrictions, including the holding period, contained in Rule 144. REGISTRATION RIGHTS Upon completion of this offering, the holders of 37,531,957 shares of our common stock will be entitled to rights with respect to the registration of their shares under the Securities Act. Please see "Description of Capital Stock--Registration Rights" for a more detailed description of these registration rights. Immediately upon the effectiveness of such a registration, these shares become freely tradable without restriction under the Securities Act. STOCK OPTIONS Immediately after this offering we intend to file registration statements under the Securities Act covering shares of common stock issued and outstanding, subject to outstanding options or reserved for issuance under our stock plans. See "Management--Stock Plans" for a more detailed description of our stock plans. Each year as the number of shares reserved for issuance under our 1999 Stock Plan increases, we will file amendments to the registration statements in order to register the additional shares. When the lock-up agreements described above expire, these vested options will become freely tradable. This registration statement is expected to be filed and become effective as soon as practicable after the effective date of this offering. Accordingly, shares registered under that registration statement will, subject to vesting provisions and Rule 144 volume limitations applicable to our affiliates, be available for sale in the open market immediately after the 180-day lock-up agreements expire. 81 UNDERWRITERS Under the terms and subject to the conditions contained in an underwriting agreement dated the date hereof, the underwriters named below, for whom Morgan Stanley & Co. Incorporated, BancBoston Robertson Stephens Inc., Hambrecht & Quist LLC, PaineWebber Incorporated and Wit Capital Corporation are acting as representatives, have severally agreed to purchase, and RealNames has agreed to sell to the underwriters, severally, the respective number of shares of our common stock indicated opposite the names of the underwriters below:
NUMBER OF NAME SHARES - ---------------------------------------------------------------------------------- ----------- Morgan Stanley & Co. Incorporated................................................. BancBoston Robertson Stephens Inc................................................. Hambrecht & Quist LLC............................................................. PaineWebber Incorporated.......................................................... Wit Capital Corporation........................................................... ----------- Total......................................................................... ----------- -----------
The underwriters are offering the shares of common stock subject to their acceptance of the shares from RealNames and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the shares of common stock offered by this prospectus are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the shares of common stock offered by us in this offering, other than those covered by the over-allotment option described below, if any such shares are taken. Discover Brokerage Direct, Inc., an affiliate of Morgan Stanley & Co. Incorporated, is acting as a selected dealer in connection with the offering, and together with Wit Capital, will be distributors of shares of common stock over the Internet to their respective eligible account holders. The underwriters initially propose to offer part of the shares of common stock directly to the public at the public offering price listed on the cover page of this prospectus and part to certain dealers at a price that represents a concession not in excess of $ a share under the public offering price. Any underwriter may allow, and such dealers may reallow, a concession not in excess of $ a share to other underwriters or to certain dealers. After the initial offering of the shares of common stock, the offering price and other selling terms may from time to time be varied by the representatives. RealNames has granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to an aggregate of additional shares of common stock at the public offering price listed on the cover page of this prospectus, less underwriting discounts and commissions. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the shares of common stock offered hereby. To the extent the option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase about the same percentage of the additional shares of common stock as the number listed next to the underwriter's name in the preceding table bears to the total number of shares of common stock listed next to the names of all underwriters in the preceding table. If the underwriters' option is exercised in full, the total price to the public would be $ , the total underwriters' discounts and commissions would be $ and total proceeds to RealNames would be $ . The underwriters have informed RealNames that they do not intend sales to discretionary accounts to exceed five percent of the total number of shares of common stock offered by them. 82 RealNames has applied to list the common stock on the Nasdaq National Market under the symbol "NAME." At the request of RealNames, the underwriters have reserved for sale, at the initial offering price, up to shares offered by us in this offering for our directors, officers, employees, business associates and related persons. In addition, the underwriters have agreed to reserve shares of common stock for certain holders of our preferred stock pursuant to preemptive rights held by those holders. The number of shares of common stock available for sale to the general public will be reduced to the extent such persons purchase such reserved shares. Any reserved shares which are not so purchased will be offered by the underwriters to the general public on the same basis as the other shares offered hereby. RealNames, our directors and executive officers and certain of our stockholders and option holders have agreed that, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters, he, she or it will not, during the period ending 180 days after the date of this prospectus: - offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock; or - enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock; whether any transaction described above is to be settled by delivery of common stock or such other securities, in cash or otherwise. The restrictions described in the previous paragraph do not apply to: - the sale of shares to the underwriters; - the issuance by RealNames of shares of common stock upon the exercise of an option or a warrant or the conversion of a security outstanding on the date of this prospectus of which the underwriters have been advised in writing; or - transactions by any person other than RealNames relating to shares of common stock or other securities acquired in open market transactions after the completion of the offering of the shares. In order to facilitate the offering of the common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the common stock. Specifically, the underwriters may over-allot in connection with the offering, creating a short position in the common stock for their own account. In addition, to cover over-allotments or to stabilize the price of the common stock, the underwriters may bid for, and purchase, shares of common stock in the open market. Finally, the underwriting syndicate may reclaim selling concessions allowed to an underwriter or a dealer for distributing the common stock in the offering, if the syndicate repurchases previously distributed common stock in transactions to cover syndicate short positions, in stabilization transactions or otherwise. Any of these activities may stabilize or maintain the market price of the common stock above independent market levels. The underwriters are not required to engage in these activities, and may end any of these activities at any time. RealNames and the underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act. In August 1999, RealNames sold 15,677,778 shares of Series C preferred stock in a private placement. Affiliates of Morgan Stanley & Co. Incorporated, BancBoston Robertson Stephens Inc., Hambrecht & Quist LLC and PaineWebber Incorporated, each of which is acting as one of the underwriters in this offering, purchased 2,777,777 shares, 111,111 shares, 333,333 shares and 11,111 shares, respectively, of Series C preferred stock, which are convertible into 2,777,777 shares, 111,111 shares, 333,333 shares and 83 11,111 shares, respectively, of common stock, on the same terms as the other purchasers of Series C preferred stock. Robert J. Loarie, a director of RealNames, is a managing director of Morgan Stanley & Co. Incorporated. The National Association of Securities Dealers, Inc. approved the membership of Wit Capital on September 4, 1997. Since that time, Wit Capital has acted as a managing underwriter on one offering, a co-manager on 44 offerings, and a dealer on 84 offerings. John Fisher, a director of RealNames, is a director of Wit Capital, and entities affiliated with Draper Fisher Jurveston, stockholders of RealNames, are stockholders of Wit Capital. Other than this relationship and its participation in this offering, Wit Capital has no relationship with RealNames or any of its founders or significant stockholders. PRICING OF THE OFFERING Prior to this offering, there has been no public market for the common stock. The initial public offering price will be determined by negotiations between RealNames and the representatives. Among the factors to be considered in determining the initial public offering price will be: - the future prospects of RealNames and its industry in general; - sales, earnings and certain other financial and operating information of RealNames in recent periods; and - the price-earnings ratios, price-sales ratios, market prices of securities and certain financial and operating information of companies engaged in activities similar to those of RealNames. The estimated initial public offering price range set forth on the cover page of this preliminary prospectus is subject to change as a result of market conditions and other factors. LEGAL MATTERS The validity of the issuance of the shares of common stock offered in this offering will be passed upon by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California. Legal matters in connection with this offering will be passed upon for the underwriters by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP. As of the date of this prospectus, an investment partnership associated with Wilson Sonsini Goodrich & Rosati, as well as individual attorneys of this firm, beneficially owned an aggregate of 155,364 shares of our common stock. EXPERTS The financial statements as of December 31, 1997 and 1998 and for the period from November 19, 1996 (date of inception), to December 31, 1997 and the year ended December 31, 1998 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. 84 WHERE YOU CAN FIND MORE INFORMATION We have filed with the SEC a registration statement on Form S-1 under the Securities Act of 1933 with respect to the shares of common stock to be sold in this offering. Although this prospectus is part of the registration statement, it does not contain all of the information set forth in the registration statement and the related exhibits and schedules thereto. For further information with respect to us and the common stock to be sold in this offering, we refer you to the registration statement and the exhibits and schedules filed with the registration statement. Statements contained in this prospectus as to the contents of any contract or any other document referred to are not necessarily complete, and, in each instance, we refer you to the copy of such contract or other document filed as an exhibit to the registration statement. A copy of the registration statement, and the related exhibits and schedules, may be inspected without charge at the public reference facilities maintained by the SEC in the following locations: - Room 1024, 450 Fifth Street, N. W., Washington, D.C. 20549; - Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and - Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of all or any part of the registration statement may be obtained from such offices upon the payment of the fees prescribed by the SEC. The public may obtain information on the operations of the public reference facilities in Washington, D.C. by calling the SEC at 1-800-SEC-0330. The SEC maintains a web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The web site is located at WWW.SEC.GOV. 85 REALNAMES CORPORATION (FORMERLY CENTRAAL CORPORATION) INDEX TO FINANCIAL STATEMENTS PAGE --------- Report of Independent Accountants.......................................................................... F-2 Balance Sheets............................................................................................. F-3 Statements of Operations................................................................................... F-4 Statements of Stockholders' Equity......................................................................... F-5 Statements of Cash Flows................................................................................... F-6 Notes to Financial Statements.............................................................................. F-7
F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of RealNames Corporation (formerly Centraal Corporation): In our opinion, the accompanying balance sheets and the related statements of operations, of stockholders' equity and of cash flows present fairly, in all material respects, the financial position of RealNames Corporation (formerly Centraal Corporation) at December 31, 1997 and 1998, and the results of its operations and its cash flows for the period from November 19, 1996 (date of inception) to December 31, 1997 and for the year ended December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. San Jose, California March 12, 1999, except for Note 10, as to which the date is October 5, 1999. F-2 REALNAMES CORPORATION (FORMERLY CENTRAAL CORPORATION) BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, PRO FORMA ---------------- JUNE 30, STOCKHOLDERS' 1997 1998 1999 EQUITY ------- ------- ----------- JUNE 30, (UNAUDITED) 1999 ------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents........................................... $ 182 $11,290 $ 4,058 Accounts receivable, net of allowance for doubtful accounts of $0 in 1997, $6 in 1998 and $28 in 1999.................................. -- 213 800 Notes receivable from related party................................. -- 270 270 Prepaid expenses and other current assets........................... 3 244 383 ------- ------- ----------- Total current assets.............................................. 185 12,017 5,511 Property and equipment, net......................................... 83 741 2,940 Restricted cash..................................................... -- 125 775 ------- ------- ----------- Total assets.................................................... $ 268 $12,883 $ 9,226 ------- ------- ----------- ------- ------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.................................................... $ 44 $ 467 $ 1,528 Accrued liabilities................................................. 75 540 1,228 Deferred revenue.................................................... -- 297 794 Current portion of obligations under capital lease.................. -- -- 93 ------- ------- ----------- Total current liabilities......................................... 119 1,304 3,643 Obligations under capital lease, net of current portion............. -- -- 271 ------- ------- ----------- Total liabilities............................................... 119 1,304 3,914 ------- ------- ----------- Commitments and contingencies (Note 4) Stockholders' equity: Convertible preferred stock, $0.001 par value: Authorized shares: zero in 1997, 21,854,179 in 1998 and 1999 and none pro forma Issued and outstanding shares: none in 1997, 21,604,179 in 1998, 21,854,179 in 1999 and none pro forma............................. -- 22 22 $ -- (Liquidation value $33,470 at December 31, 1998) Preferred stock, $0.001 par value: Authorized shares: 10,000,000 pro forma Issued and outstanding shares: none in 1997, 1998, 1999 and pro forma............................................................. -- -- -- -- Common stock $0.001 par value: Authorized shares: 50,000,000 in 1997, 1998 and 1999 and 200,000,000 pro forma Issued and outstanding shares: 14,737,000 in 1997, 14,837,000 in 1998, 19,473,214 in 1999 and 57,005,171 pro forma................. 15 15 19 57 Additional paid-in capital............................................ 1,459 20,842 41,607 112,081 Notes receivable from stockholders.................................... (149) -- (1,345) (2,245) Unearned stock-based compensation..................................... -- (2,245) (16,892) (16,892) Accumulated deficit................................................... (1,176) (7,055) (18,099) (18,099) ------- ------- ----------- ------------- Total stockholders' equity........................................ 149 11,579 5,312 74,902 ------- ------- ----------- ------------- Total liabilities and stockholders' equity...................... $ 268 $12,883 $ 9,226 $74,902 ------- ------- ----------- ------------- ------- ------- ----------- -------------
The accompanying notes are an integral part of these financial statements. F-3 REALNAMES CORPORATION (FORMERLY CENTRAAL CORPORATION) STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
PERIOD FROM NOVEMBER 19, 1996 (DATE OF INCEPTION) SIX MONTHS ENDED TO YEAR ENDED JUNE 30, DECEMBER 31, DECEMBER 31, ---------------------------- 1997 1998 1998 1999 ------------ ------------- ------------- ------------- (UNAUDITED) Revenues............................................. $ -- $ 537 $ -- $ 1,059 Cost of revenues..................................... -- 556 -- 702 ------------ ------------- ------------- ------------- Gross profit (loss).................................. -- (19) -- 357 Operating expenses: Engineering and operations......................... 1,000 1,165 345 1,859 Sales and marketing................................ 81 2,458 667 3,495 General and administrative......................... 103 1,640 314 1,752 Stock-based compensation........................... -- 691 103 4,465 ------------ ------------- ------------- ------------- Total operating expenses......................... 1,184 5,954 1,429 11,571 ------------ ------------- ------------- ------------- Loss from operations................................. (1,184) (5,973) (1,429) (11,214) Interest income, net................................. 8 94 38 170 ------------ ------------- ------------- ------------- Net loss............................................. $ (1,176) $ (5,879) $ (1,391) $ (11,044) ------------ ------------- ------------- ------------- ------------ ------------- ------------- ------------- Net loss per share, basic and diluted................ $ (0.31) $ (0.40) $ (0.09) $ (0.75) ------------ ------------- ------------- ------------- ------------ ------------- ------------- ------------- Weighted average shares, basic and diluted........... 3,768,042 14,742,000 14,737,000 14,819,637 ------------ ------------- ------------- ------------- ------------ ------------- ------------- ------------- Pro forma net loss per share, basic and diluted (unaudited)........................................ $ (0.26) $ (0.30) ------------- ------------- ------------- ------------- Pro forma weighted average shares, basic and diluted (unaudited)........................................ 22,348,233 36,548,133 ------------- ------------- ------------- -------------
The accompanying notes are an integral part of these financial statements. F-4 REALNAMES CORPORATION (FORMERLY CENTRAAL CORPORATION) STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
CONVERTIBLE NOTES PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE ------------------ ------------------ PAID-IN FROM SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS ---------- ------ ---------- ------ ---------- ------------ Issuance of common stock at $0.10 per share for notes receivable -- $-- 6,200,000 $ 6 $ 614 $ (620) Payment of notes receivable from stockholders.......................... -- -- -- -- -- 620 Issuance of common stock at $0.10 per share for notes receivable............ -- -- 1,487,000 2 147 (149) Issuance of common stock at $0.10 per share in exchange for technology...... -- -- 7,050,000 7 698 -- Net loss................................ -- -- -- -- -- -- ---------- ------ ---------- ------ ---------- ------------ Balances, December 31, 1997............. -- -- 14,737,000 15 1,459 (149) Issuance of common stock through exercise of stock options for cash.... -- -- 100,000 10 -- Issuance of Series A convertible preferred stock for cash, net of issuance cost of $53.................. 8,869,179 9 -- -- 3,938 -- Issuance of Series B convertible preferred stock for cash, net of issuance cost of $74.................. 12,609,550 13 -- -- 12,523 -- Conversion of notes payable into Series B convertible preferred stock......... 125,450 -- -- -- 125 -- Forgiveness of notes receivable for common stock.......................... -- -- -- -- -- 149 Unearned compensation related to grants of stock options...................... -- -- -- -- 1,764 -- Warrants granted to sales representatives....................... -- -- -- -- 1,023 -- Amortization of unearned stock-based compensation-options.................. -- -- -- -- -- -- Net loss................................ -- -- -- -- -- -- ---------- ------ ---------- ------ ---------- ------------ Balances, December 31, 1998............. 21,604,179 22 14,837,000 15 20,842 -- Issuance of common stock through exercise of stock options for cash and notes receivable...................... -- -- 4,752,714 4 1,429 (1,369) Repurchase of common stock.............. -- -- (116,500) -- (26) 24 Exercise of warrant..................... 250,000 -- -- -- 250 -- Unearned compensation related to grants of stock options...................... -- -- -- -- 5,322 -- Warrants granted to sales representatives....................... -- -- -- -- 13,790 -- Amortization of unearned stock-based compensation-options.................. -- -- -- -- -- -- Amortization of unearned stock-based compensation-warrants................. -- -- -- -- -- -- Net loss................................ -- -- -- -- -- -- ---------- ------ ---------- ------ ---------- ------------ Balances, June 30, 1999 (unaudited)..... 21,854,179 $22 19,473,214 $19 $41,607 $(1,345) ---------- ------ ---------- ------ ---------- ------------ ---------- ------ ---------- ------ ---------- ------------ UNEARNED TOTAL STOCK-BASED ACCUMULATED STOCKHOLDERS' COMPENSATION DEFICIT EQUITY ------------ ----------- ------------- Issuance of common stock at $0.10 per share for notes receivable $ -- $ -- $ -- Payment of notes receivable from stockholders.......................... -- -- 620 Issuance of common stock at $0.10 per share for notes receivable............ -- -- -- Issuance of common stock at $0.10 per share in exchange for technology...... -- -- 705 Net loss................................ -- (1,176) (1,176) ------------ ----------- ------------- Balances, December 31, 1997............. -- (1,176) 149 Issuance of common stock through exercise of stock options for cash.... -- -- 10 Issuance of Series A convertible preferred stock for cash, net of issuance cost of $53.................. -- -- 3,947 Issuance of Series B convertible preferred stock for cash, net of issuance cost of $74.................. -- -- 12,536 Conversion of notes payable into Series B convertible preferred stock......... -- -- 125 Forgiveness of notes receivable for common stock.......................... -- -- 149 Unearned compensation related to grants of stock options...................... (1,764) -- -- Warrants granted to sales representatives....................... (1,023) -- -- Amortization of unearned stock-based compensation-options.................. 542 -- 542 Net loss................................ -- (5,879) (5,879) ------------ ----------- ------------- Balances, December 31, 1998............. (2,245) (7,055) 11,579 Issuance of common stock through exercise of stock options for cash and notes receivable...................... -- -- 64 Repurchase of common stock.............. -- -- (2) Exercise of warrant..................... -- -- 250 Unearned compensation related to grants of stock options...................... (5,322) -- -- Warrants granted to sales representatives....................... (13,790) -- -- Amortization of unearned stock-based compensation-options.................. 2,196 -- 2,196 Amortization of unearned stock-based compensation-warrants................. 2,669 -- 2,669 Net loss................................ -- (11,044) (11,044) ------------ ----------- ------------- Balances, June 30, 1999 (unaudited)..... $(16,892) $(18,099) $ 5,312 ------------ ----------- ------------- ------------ ----------- -------------
The accompanying notes are an integral part of these financial statements. F-5 REALNAMES CORPORATION (FORMERLY CENTRAAL CORPORATION) STATEMENTS OF CASH FLOWS (IN THOUSANDS)
PERIOD FROM NOVEMBER 19, 1996 (DATE OF SIX MONTHS ENDED INCEPTION) TO YEAR ENDED JUNE 30, DECEMBER 31, DECEMBER 31, -------------------- 1997 1998 1998 1999 ------------- ------------- --------- --------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss................................................................. $ (1,176) $ (5,879) $ (1,391) $ (11,044) Adjustments to reconcile net loss to net cash used in operating activities: Provision for doubtful accounts........................................ -- 6 -- 22 Depreciation and amortization.......................................... 14 173 44 329 Amortization of unearned stock-based compensation...................... -- 542 103 4,465 Write-off of technology................................................ 705 -- -- -- Forgiveness of notes receivable from stockholders...................... -- 149 -- -- Changes in operating assets and liabilities: Accounts receivable.................................................. -- (219) -- (609) Prepaid expenses and other current assets............................ (3) (241) (216) (139) Accounts payable..................................................... 44 423 176 1,061 Accrued liabilities.................................................. 75 465 13 688 Deferred revenue..................................................... -- 297 97 497 ------------- ------------- --------- --------- Net cash used in operating activities.............................. (341) (4,284) (1,174) (4,730) ------------- ------------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property and equipment.................................... (97) (831) (412) (2,145) Restricted cash.......................................................... -- (125) (25) (650) ------------- ------------- --------- --------- Net cash used in investing activities.............................. (97) (956) (437) (2,795) ------------- ------------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock, net of repurchases............... -- 10 -- 62 Repayment of notes receivable from stockholders.......................... 620 -- -- -- Capital lease payments................................................... -- -- -- (19) Proceeds from exercise of warrant........................................ -- -- -- 250 Issuance of note receivable to related party............................. -- (570) (270) -- Proceeds from repayment of note receivable to related party.............. -- 300 -- -- Proceeds from notes payable.............................................. -- 250 -- -- Repayments of notes payable.............................................. -- (125) -- -- Proceeds from issuance of convertible preferred stock, net of issuance costs.................................................................. -- 16,483 3,947 -- ------------- ------------- --------- --------- Net cash provided by financing activities.......................... 620 16,348 3,677 293 ------------- ------------- --------- --------- Net increase (decrease) in cash and cash equivalents....................... 182 11,108 2,066 (7,232) Cash and cash equivalents, beginning of period............................. -- 182 182 11,290 ------------- ------------- --------- --------- Cash and cash equivalents, end of period................................... $ 182 $ 11,290 $ 2,248 $ 4,058 ------------- ------------- --------- --------- ------------- ------------- --------- --------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Taxes paid............................................................... $ 1 $ 1 $ -- $ -- ------------- ------------- --------- --------- ------------- ------------- --------- --------- SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES: Issuance of common stock in exchange for technology...................... $ 705 $ -- $ -- $ -- ------------- ------------- --------- --------- ------------- ------------- --------- --------- Issuance of common stock in exchange for notes receivable................ $ 769 $ -- $ -- $ 1,345 ------------- ------------- --------- --------- ------------- ------------- --------- --------- Issuance of convertible preferred stock for conversion of promissory notes.................................................................. $ -- $ 125 $ -- $ -- ------------- ------------- --------- --------- ------------- ------------- --------- --------- Unearned stock-based compensation........................................ $ -- $ 2,787 $ 552 $ 19,112 ------------- ------------- --------- --------- ------------- ------------- --------- --------- Assets acquired under capital leases..................................... $ -- $ -- $ -- $ 383 ------------- ------------- --------- --------- ------------- ------------- --------- ---------
The accompanying notes are an integral part of these financial statements. F-6 REALNAMES CORPORATION (FORMERLY CENTRAAL CORPORATION) NOTES TO FINANCIAL STATEMENTS NOTE 1--FORMATION AND BUSINESS OF THE COMPANY: RealNames Corporation (formerly Centraal Corporation), or "the Company", was incorporated in the state of Delaware on November 19, 1996 originally under the name Go, Inc. The Company has developed an addressing system based on Internet Keywords that simplifies navigation on the Internet. NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: USE OF ESTIMATES Preparation of the financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. UNAUDITED INTERIM RESULTS The accompanying interim financial statements as of June 30, 1999 and for the six months ended June 30, 1998 and 1999 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly in all material respects the Company's financial position as of June 30, 1999 and results of operations and its cash flows for the six months ended June 30, 1998 and 1999. The financial data and other information disclosed in these notes to financial statements related to these periods are unaudited. The results for the six months ended June 30, 1999 are not necessarily indicative of the results to be expected for the year ending December 31, 1999. REVENUE RECOGNITION The Company recognizes revenue from Internet Keywords and banner advertising. The Company has three different pricing models for Internet Keywords: license fees for keyword prefixes, amounts paid per visit or per completed transaction when users access the customer's web site through the RealNames Service and fixed price annual subscriptions to Internet Keywords. The Company generates Internet Keyword revenue from, among other things, license fees from their Keyword Provider customers, who use the RealNames platform through their routing prefixes, to create and maintain their own separate Internet Keyword systems. These license agreements generally grant the customer a non-exclusive license to the RealNames software and Internet Keyword database as well as post-contract customer support, including technical support and in some cases software updates from the Company. The Company does not have separate vendor specific objective evidence of pricing for the license or post-contract customer support elements of the contract and, in accordance with Statement of Position 97-2 (SOP 97-2), "Software Revenue Recognition," as modified, the Company recognizes the Internet Keyword revenue from license fees ratably over the contract period once the Company delivers the software to the customer and collection of the resulting receivable is deemed to be probable. The Company and the Keyword Provider customers generally enter into a co-marketing agreement at the time of entering into the license agreement, whereby the Company commits to spend significant sums of money with the customer for advertising services. The co-marketing commitment, which is more than F-7 REALNAMES CORPORATION (FORMERLY CENTRAAL CORPORATION) NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) 50% of the expected license fees from the license agreement, is classified as a sales and marketing expense and recognized ratably as the services are provided over the term of the agreement. Internet Keyword revenues from price per visit, or PPV, fees are attributable to customers who pay for each visit to one of their web pages through the use of Internet Keywords. Internet Keyword revenues from price per transaction, or PPT, fees are attributable to customers who pay for each eligible transaction completed by a user delivered to one of their web pages through the use of Internet Keywords. Internet Keyword revenues from PPV fees are recognized when the visit takes place, and Internet Keyword revenue from PPT fees are recognized when the transaction is completed, provided in each case that there are no significant obligations remaining and collection of the resulting receivable is probable. Internet Keyword revenues from subscription fees are attributable to the sale of annual subscriptions for Internet Keywords and are recognized ratably over the term of the subscription. Banner advertising revenue is recognized ratably in the period in which the banners are displayed on certain web pages, provided that there are no significant obligations remaining and collection of the resulting receivable is probable. RESEARCH AND DEVELOPMENT Costs incurred in the research, design and development of products are expensed as incurred until technological feasibility has been established. To date, the establishment of technological feasibility of the Company's products and general release substantially coincide. As a result, the Company has not capitalized any software development costs since such costs have not been significant. ADVERTISING EXPENSE The Company accounts for advertising costs as expense in the period in which they are incurred. Advertising expense for the period from November 19, 1996 (date of inception) to December 31, 1997, for the year ended December 31, 1998, and for the six months ended June 30, 1998 and 1999, was $0, $507,000, $160,000 and $776,000 respectively. INCOME TAXES Income taxes are accounted for using an asset and liability approach, which requires the recognition of taxes payable or refundable for the current year and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in the Company's financial statements or tax returns. The measurement of current and deferred tax assets and liabilities are based on provisions of the enacted tax law; the effects of future changes in tax laws or rates are not anticipated. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts for cash and cash equivalents, accounts receivables, notes receivable and accounts payable approximate fair value based upon their short maturities. F-8 REALNAMES CORPORATION (FORMERLY CENTRAAL CORPORATION) NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents and accounts receivable. The Company's cash and cash equivalents are deposited with two major financial institutions in the United States. At times, such deposits may be in excess of the amount of insurance provided on such deposits. The Company has not experienced any losses on its deposits of cash and cash equivalents. At December 31, 1998, 2Can Media, an Internet advertising reseller, accounted for 98% of the total accounts receivable. At June 30, 1999, AltaVista accounted for 27% of the total accounts receivable. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with original or remaining maturities of three months or less at the date of purchase to be cash equivalents. The Company maintained $125,000 of restricted cash in a deposit account at December 31, 1998 and $775,000 of restricted cash in deposit accounts at June 30, 1999, supporting letters of credit required for the Company's credit card facility and facilities operating lease. PROPERTY AND EQUIPMENT Property and equipment are stated at cost and depreciated on a straight-line method over the estimated useful lives of the related assets, generally three years. Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or the estimated useful life of the asset. Maintenance and repairs are charged to expense as incurred. When assets are sold or retired, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in operations. STOCK-BASED COMPENSATION The Company has adopted the disclosure provisions of Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-based Compensation." The Company has elected to continue accounting for stock-based compensation issued to employees using Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and, accordingly, pro forma disclosures required under SFAS No. 123 have been presented. The Company accounts for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services." NET LOSS PER SHARE AND PRO FORMA NET LOSS PER SHARE Basic and diluted net loss per share are computed using the weighted average number of common shares outstanding. Common share equivalents consisting of options, warrants and convertible preferred stock were not included in the computation of diluted net loss per share because their effect would be F-9 REALNAMES CORPORATION (FORMERLY CENTRAAL CORPORATION) NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) antidilutive. Common share equivalents totaled 425,000, 25,058,245, 10,120,179, and 28,088,351, at December 31, 1997, 1998 and June 30, 1998 and 1999, respectively. Unaudited pro forma net loss per share has been computed as described in the preceding paragraph and also gives effect, even if antidilutive, to common equivalent shares from convertible preferred stock that will automatically convert upon the closing of the Company's initial public offering (using the as-if-converted method) as if the shares had been outstanding from their original date of issue. At December 31, 1998 and June 30, 1999, 75,000 and 4,629,964 shares of common stock were subject to repurchase, respectively, by the Company at cost. A reconciliation of the numerator and denominator used in the calculation of historical and pro forma net loss per share, basic and diluted, is as follows:
PERIOD FROM NOVEMBER 19, 1996 (DATE OF INCEPTION) YEAR ENDED SIX MONTHS ENDED TO DECEMBER 31, ---------------------------- DECEMBER 31, 1997 1998 JUNE 30, 1998 JUNE 30, 1999 ----------------- ----------------- ------------- ------------- (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Historical: Numerator: Net loss................................... $ (1,176) $ (5,879) $ (1,391) $ (11,044) ----------------- ----------------- ------------- ------------- Denominator: Weighted average common shares outstanding.............................. 3,768,042 14,757,000 14,737,000 17,323,860 Weighted average unvested common shares subject to repurchase.................... -- (15,000) -- (2,504,223) ----------------- ----------------- ------------- ------------- Denominator for basic and diluted calculation.............................. 3,768,042 14,742,000 14,737,000 14,819,637 ----------------- ----------------- ------------- ------------- ----------------- ----------------- ------------- ------------- Net loss per share, basic and diluted...... $ (0.31) $ (0.40) $ (0.09) $ (0.75) ----------------- ----------------- ------------- ------------- ----------------- ----------------- ------------- ------------- Pro forma: Shares used above:........................... 14,742,000 14,819,637 Pro forma adjustment to reflect the effect of the assumed conversion of preferred stock: Series A convertible preferred stock....... 6,803,754 8,869,179 Series B convertible preferred stock....... 802,479 12,859,317 ----------------- ------------- Weighted average shares used in computing pro forma basic and diluted net loss per share (unaudited)................................ 22,348,233 36,548,133 ----------------- ------------- ----------------- ------------- Pro forma net loss per share, basic and diluted (unaudited)...................... $ (0.26) $ (0.30) ----------------- ------------- ----------------- -------------
F-10 REALNAMES CORPORATION (FORMERLY CENTRAAL CORPORATION) NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) UNAUDITED PRO FORMA STOCKHOLDERS' EQUITY Upon the closing of the Company's initial public offering, all outstanding Series A, Series B and Series C convertible preferred stock (See Note 10) will be converted automatically into common stock. The pro forma effect of this conversion has been presented as a separate column in the Company's balance sheet, assuming that the Series C convertible preferred stock had been issued and this conversion had occurred as of June 30, 1999. COMPREHENSIVE INCOME The Company has adopted SFAS No. 130, "Reporting Comprehensive Income," which establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. There was no difference between the Company's net loss and its total comprehensive loss for the period from November 19, 1996 (date of inception) to December 31, 1997, for the year ended December 31, 1998, or for the six months ended June 30, 1998 or 1999. RECENT ACCOUNTING PRONOUNCEMENTS In March 1998, the Accounting Standards Executive Committee issued Statement of Position 98-1, or SOP 98-1, "Accounting for Costs of Computer Software Developed or Obtained for Internal Use," which provides guidance on accounting for the cost of computer software developed or obtained for internal use. SOP 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998. The Company believes that the adoption of SOP 98-1 does not have a material impact on its financial statements. In April 1998, the Accounting Standards Executive Committee issued Statement of Position 98-5, or SOP 98-5, "Reporting on the Costs of Start-Up Activities." This standard requires companies to expense the costs of start-up activities and organization costs as incurred. In general, SOP 98-5 is effective for fiscal years beginning after December 15, 1998. The Company believes the adoption of SOP 98-5 does not have a material impact on its financial statements. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, or SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 establishes new standards of accounting and reporting for derivative instruments and hedging activities. SFAS 133 requires that all derivatives be recognized at fair value in the statement of financial position, and that the corresponding gains or losses be reported either in the statement of operations or as a component of comprehensive income, depending on the type of hedging relationship that exists. SFAS 133 will be effective for fiscal years beginning after June 15, 2000. The Company is currently evaluating the implementation of SFAS 133. F-11 REALNAMES CORPORATION (FORMERLY CENTRAAL CORPORATION) NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 3--BALANCE SHEET COMPONENTS: PROPERTY AND EQUIPMENT
DECEMBER 31, -------------------- JUNE 30, 1997 1998 1999 --------- --------- ----------- (UNAUDITED) (IN THOUSANDS) Computer equipment............................................. $ 97 $ 771 $ 1,913 Furniture and fixtures......................................... -- 126 773 Leasehold improvements......................................... -- 31 770 --------- --------- ----------- 97 928 3,456 Less accumulated depreciation and amortization................. (14) (187) (516) --------- --------- ----------- $ 83 $ 741 $ 2,940 --------- --------- ----------- --------- --------- -----------
Property and equipment includes costs of $383,000 and accumulated depreciation of $45,000 for assets under capital leases at June 30, 1999. ACCRUED LIABILITIES
DECEMBER 31, -------------------- JUNE 30, 1997 1998 1999 --------- --------- ----------- (UNAUDITED) (IN THOUSANDS) Compensation................................................... $ 9 $ 262 $ 319 Accrued legal fees............................................. 62 201 26 Marketing and advertising...................................... -- -- 543 Other.......................................................... 4 77 340 --------- --------- ----------- $ 75 $ 540 $ 1,228 --------- --------- ----------- --------- --------- -----------
NOTE 4--COMMITMENTS AND CONTINGENCIES: The Company leases its office space under operating lease agreements. In December 1998, the Company entered into a lease for its corporate office. The corporate office facility lease expires in February 2006. The Company also has a sales office facility with a lease term of less than one year. Future annual minimum lease payments under operating leases at December 31, 1998 are as follows (in thousands): 1999................................................................ $ 692 2000................................................................ 770 2001................................................................ 770 2002................................................................ 770 2003................................................................ 770 More than 5 years................................................... 1,669 --------- Total minimum lease payments........................................ $ 5,441 --------- ---------
F-12 REALNAMES CORPORATION (FORMERLY CENTRAAL CORPORATION) NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 4--COMMITMENTS AND CONTINGENCIES: (CONTINUED) Rent expense was $24,000 and $204,000 for the period from November 19, 1996 (date of inception) to December 31, 1997 and year ended December 31, 1998, respectively. Rent expense was $100,000 and $321,000 for the six months ended June 30, 1998 and 1999, respectively. LITIGATION On July 17, 1998, a third party brought an action against the Company in the United States District Court for the Eastern District of Virginia, alleging that the RealNames System infringed its U.S. Patent No. 5,764,906. On January 8, 1999, the U.S. District Court Judge granted the Company's motion for summary judgment of non-infringement. On January 12, 1999, the Court entered judgment in the Company's favor. On February 11, 1999, the plaintiff filed a Notice of Appeal to the United States Court of Appeals for the Federal Circuit from the entry of judgment in favor of the Company. The appeal is currently pending. Management believes, based on the advice of counsel and the decision of the U.S. District Court, that the Company has meritorious defenses to the allegations contained in the plaintiff's complaint. As a result, the Company believes that this matter is unlikely to have a material adverse effect on its results of operations or financial condition. However, due to the nature of litigation generally and because the lawsuit brought by the plaintiff is now in appeal, management cannot ascertain the availability of injunctive relief or other equitable remedies or estimate the total expenses, possible damages or settlement value, if any, that may ultimately be incurred in connection with the plaintiff's suit. NOTE 5--STOCKHOLDERS' EQUITY: COMMON STOCK Each share of common stock is entitled to one vote. The holders of common stock are entitled to receive dividends whenever funds are legally available and declared by the board of directors, subject to the prior rights of holders of all classes of stock. No dividends have been declared or paid as of December 31, 1998. STOCK SPLIT In conjunction with the restatement of the Certificate of Incorporation on September 15, 1997, the Company's stockholders authorized a 10,000 for 1 stock split of common stock. All share data, including stock option plan information, is stated to reflect the split. F-13 REALNAMES CORPORATION (FORMERLY CENTRAAL CORPORATION) NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 5--STOCKHOLDERS' EQUITY: (CONTINUED) CONVERTIBLE PREFERRED STOCK Under the Company's Amended and Restated Certificate of Incorporation, the Company's preferred stock is issuable in series and the board of directors is authorized to determine the rights, preferences and terms of each series. At December 31, 1998, the amounts, terms and liquidation values of Series A and Series B convertible preferred stock are as follows:
SHARES COMMON STOCK SHARES ISSUED AND RESERVED FOR AUTHORIZED OUTSTANDING CONVERSION ---------- ----------- ------------ LIQUIDATION VALUE ----------- (IN THOUSANDS) Series A............................................................ 8,869,179 8,869,179 8,869,179 $ 8,000 Series B............................................................ 12,985,000 12,735,000 12,985,000 25,470 ---------- ----------- ------------ ----------- 21,854,179 21,604,179 21,854,179 $ 33,470 ---------- ----------- ------------ ----------- ---------- ----------- ------------ -----------
REDEMPTION Neither the Series A nor Series B convertible preferred stock is redeemable. CONVERSION Each share of Series A and Series B convertible preferred stock is convertible into such number of shares of common stock as is determined by dividing $0.451 and $1.00, respectively, by the conversion price at the time in effect for each such share of preferred stock. The conversion price was $0.451 and $1.00 per share for Series A and Series B convertible preferred stock, respectively, at December 31, 1998. Conversion is either at the option of the holder or is automatic upon the closing date of a public offering of the Company's common stock for which the price per share is not less than $5.00 per share and the aggregate offering price is not less than $20.0 million. LIQUIDATION In the event of any liquidation, dissolution, or winding up of the Company, either voluntary or involuntary, the holders of the then outstanding Series A and Series B convertible preferred stock are entitled to receive, prior and in preference to any distribution of any of the assets of the Company to the holders of the common stock, the amount of $0.902 and $2.00 per share, respectively, plus all declared but unpaid dividends for such shares. If, upon occurrence of such event, the assets and funds distributed among the holders of the preferred stock are insufficient to permit the payment to such holders of the full preferential amount, then the entire assets and funds of the Company legally available for distribution are to be distributed ratably among the holders of the preferred stock in proportion to the preferential amount each such holder is otherwise entitled to receive. After payments to holders of preferred stock of amounts to which they are entitled, all assets of the Company that remain legally available for distribution shall be distributed ratably among the holders of common stock. F-14 REALNAMES CORPORATION (FORMERLY CENTRAAL CORPORATION) NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 5--STOCKHOLDERS' EQUITY: (CONTINUED) VOTING Each share of preferred stock entitles the holder to voting rights equal to the number of shares of common stock into which it is convertible. DIVIDENDS The holders of Series A and B convertible preferred stock are entitled to receive dividends, out of any assets legally available, prior and in preference to any declaration or payment of any dividend on the common stock of the Company, at the rate of $0.0361 and $0.08, respectively, per share per annum. Such dividends are payable when, as and if declared by the board of directors, and are not cumulative. At December 31, 1998, no dividends have been declared or paid. WARRANTS NETWORK SOLUTIONS, INC.--AGREEMENT TO ISSUE WARRANTS In December 1998, the Company entered into a sales representative agreement with Network Solutions, Inc., allowing Network Solutions, Inc. to act as the Company's sales representative and solicit subscriptions for the Company's Internet Keyword service. As part of the sales representative agreement, the Company granted Network Solutions, Inc. the right to obtain warrants to purchase up to 4,196,726 shares of the Company's common stock upon attainment of four milestones. The agreement allows for acceleration of the issuance of the warrants upon the Company filing a Registration Statement for a public offering of the Company's common stock provided certain milestones have been met. The warrants expire on December 31, 2001. The following table summarizes the shares underlying each milestone and the related range of exercise prices:
RANGE OF SHARES RANGE OF UNDERLYING WARRANTS EXERCISE PRICE ----------------------- ---------------- Milestone 1........................................ 423,912 $1.65 to $2.64 Milestone 2........................................ 847,824 $1.65 to $4.23 Milestone 3........................................ 1,271,735 $1.65 to $6.78 Milestone 4........................................ 1,271,735 - 4,196,726 $1.65 to $6.78
Milestones 1, 2 and 3 are based on the number of subscriptions that are sold by Network Solutions, Inc. Milestone 4 is earned for each agreement signed by the Company with a major internet portal (of which there are five defined in the agreement), subject to issuing warrants to purchase a maximum of 4,196,726 shares under this agreement. Using the Black-Scholes option pricing model and a term of three years and expected volatility of 60%, the initial fair value of the warrants underlying the agreement on the effective date of the agreement approximated $1.0 million, which is being amortized to stock-based compensation expense immediately as the warrants are issued and vest. The shares underlying the milestones will be remeasured at each subsequent balance sheet date until the milestones are achieved and the warrants vest and such remeasurement could result in increases or decreases from the initial fair value, which may be substantial. As of December 31, 1998, none of the warrants had been issued as none of the milestones had been reached. F-15 REALNAMES CORPORATION (FORMERLY CENTRAAL CORPORATION) NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 5--STOCKHOLDERS' EQUITY: (CONTINUED) STOCK ISSUED IN EXCHANGE FOR TECHNOLOGY In September 1997, the Company issued 7,050,000 shares of common stock to founders and consultants in exchange for certain technologies held by these individuals. Accordingly, the Company recorded an expense of $705,000 for the period ended December 31, 1997 as part of engineering and operations expense, which reflected the stock's deemed fair value. NOTES RECEIVABLE In November 1996, the Company entered into promissory notes receivable for the issuance of common stock to the founders. The promissory notes receivable for $620,000 were in exchange for the issuance of 6,200,000 shares of common stock and bore interest at 10% per annum. The notes were paid in full in April and September 1997. In September 1997, the Company entered into promissory notes receivable for the issuance of common stock with four stockholders. The promissory notes receivable for $149,000 were in exchange for the issuance of 1,487,000 shares of common stock and bore interest at 8% per annum. The Company forgave the promissory notes in September 1998. Accordingly, the Company recorded $149,000 of stock-based compensation expense. NOTES PAYABLE In November 1998, the Company entered into promissory notes payable with four stockholders totaling $250,000. These notes bore interest at 8% per annum and had conversion rights upon the Company's next equity financing. In connection with the Company's issuance of Series B convertible preferred stock in December 1998, the Company issued 125,450 shares of Series B convertible preferred stock and repaid the balance of $125,000 to satisfy the promissory notes payable balance. All outstanding shares of the Company's common stock issued in connection with the promissory notes receivable have been issued under restricted stock purchase agreements, under which the Company has the option to repurchase issued shares of common stock. The Company's repurchase rights generally lapse at a rate of 1/4 one year subsequent to the date of purchase and 1/48 per month thereafter. At December 31, 1998, outstanding common shares subject to repurchase totaled 1,022,312. The Company also has the right of first refusal for any common shares purchased under these agreements that are no longer subject to the Company's repurchase right should a holder desire to sell or transfer such common shares. This right expires upon the Company's initial public offering of stock. STOCK OPTION PLAN In 1997, the Company adopted the 1997 Stock Plan, or the Plan, under which 3,000,000 shares of the Company's common stock were reserved for issuance to employees, directors and consultants. As of December 31, 1998, the Company had reserved 5,800,000 shares of common stock for issuance under the Plan. Options granted under the Plan may be incentive stock options or non-statutory stock options. Incentive stock options may only be granted to employees. F-16 REALNAMES CORPORATION (FORMERLY CENTRAAL CORPORATION) NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 5--STOCKHOLDERS' EQUITY: (CONTINUED) The Plan is administered by the board of directors or by a committee appointed by the board of directors which identifies optionees and determines the terms of options granted, including the exercise price, number of shares subject to the option grant and the exercisability thereof. Options granted under the Plan generally begin vesting one year after the vesting commencement date, with 1/4 of the shares subject to the option becoming vested at that time and an additional 1/48 of the shares becoming vested each month thereafter. The exercise price of incentive stock options and non-statutory stock options shall be no less than 100% and 85%, respectively, of the fair market value per share of the Company's common stock on the grant date as determined by the board of directors. If an individual owns stock representing more than 10% of the outstanding shares, the exercise price of each share shall be at least 110% of fair market value, as determined by the board of directors. The term of the options is generally ten years. Activity under the Plan is as follows:
OUTSTANDING OPTIONS ----------------------------------------------------------- WEIGHTED SHARES AGGREGATE AVERAGE AVAILABLE NUMBER EXERCISE PRICE EXERCISE EXERCISE PRICE FOR GRANT OF SHARES PER SHARE PRICE PER SHARE --------------- ----------- -------------- ------------- --------------- (IN THOUSANDS) Shares reserved at Plan inception........................ 3,000,000 Options granted.................... (425,000) 425,000 $0.10 $ 43 $ 0.10 --------------- ----------- ------------- Balances, December 31, 1997........ 2,575,000 425,000 $0.10 43 $ 0.10 Shares reserved.................... 2,800,000 Options granted.................... (3,454,066) 3,454,066 $0.10 - $0.25 611 $ 0.18 Options exercised.................. -- (100,000) $0.10 (10) $ 0.10 Options canceled................... 108,000 (108,000) $0.10 - $0.25 (21) $ 0.20 --------------- ----------- ------------- Balances, December 31, 1998........ 2,028,934 3,671,066 $0.10 - $0.25 623 $ 0.17 Shares reserved.................... 1,000,000 Options granted.................... (2,844,877) 2,844,877 $0.25 - $1.25 1,803 $ 0.63 Options exercised.................. -- (4,752,714) $0.10 - $1.25 (1,434) $ 0.30 Options canceled................... 411,396 (411,396) $0.10 - $0.75 (98) $ 0.24 --------------- ----------- ------------- Balances, June 30, 1999 (unaudited)...................... 595,453 1,351,833 $0.10 - $1.25 $ 894 $ 0.66 --------------- ----------- ------------- --------------- ----------- -------------
F-17 REALNAMES CORPORATION (FORMERLY CENTRAAL CORPORATION) NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 5--STOCKHOLDERS' EQUITY: (CONTINUED) The following table summarizes information with respect to stock options outstanding and currently exercisable by exercise price at December 31, 1998:
OUTSTANDING OPTIONS OPTIONS CURRENTLY EXERCISABLE - ------------------------------------------------------------------------------- ------------------------------------- WEIGHTED AVERAGE WEIGHTED AVERAGE NUMBER OF WEIGHTED AVERAGE EXERCISE PRICE NUMBER REMAINING CONTRACTUAL EXERCISE PRICE OPTIONS EXERCISE PRICE PER SHARE OUTSTANDING LIFE (YEARS) PER SHARE EXERCISABLE PER SHARE - -------------------- ----------- ------------------------- ----------------- ------------------ ----------------- $0.10 1,407,900 9.24 $ 0.10 123,000 $ 0.10 $0.20 1,687,666 9.69 $ 0.20 57,667 $ 0.20 $0.25 575,500 9.96 $ 0.25 8,750 $ 0.25 ----------- ------- $0.10 - $0.25 3,671,066 189,417 ----------- ------- ----------- -------
The following table summarizes information with respect to stock options outstanding and currently exercisable at June 30, 1999 (unaudited):
OUTSTANDING OPTIONS OPTIONS CURRENTLY EXERCISABLE - ------------------------------------------------------------------------------- ------------------------------------- WEIGHTED AVERAGE WEIGHTED AVERAGE NUMBER OF WEIGHTED AVERAGE EXERCISE PRICE NUMBER REMAINING CONTRACTUAL EXERCISE PRICE OPTIONS EXERCISE PRICE PER SHARE OUTSTANDING LIFE (YEARS) PER SHARE EXERCISABLE PER SHARE - -------------------- ----------- ------------------------- ----------------- ------------------ ----------------- $0.10 78,000 8.73 $ 0.10 29,625 $ 0.10 $0.20 140,666 9.18 $ 0.20 20,384 $ 0.20 $0.25 312,333 9.56 $ 0.25 45,416 $ 0.25 $0.75 494,834 9.81 $ 0.75 18,435 $ 0.75 $1.25 326,000 9.88 $ 1.25 1,041 $ 1.25 ----------- ------- 1,351,833 114,901 ----------- ------- ----------- -------
The weighted average fair value at the date of grant for options granted during November 19, 1996 (date of inception) to December 31, 1997, the year ended December 31, 1998, and the six months ended June 30, 1999 was $0.03, $0.04 and $0.15 per share respectively. The fair value of each option grant is estimated on the date of grant using the minimum value method with the following assumptions used for grants:
SIX MONTHS NOVEMBER 19, 1996 ENDED JUNE (DATE OF INCEPTION) YEAR ENDED 30, 1999 TO DECEMBER 31, DECEMBER 31 ------------- 1997 1998 ------------------- ------------- (UNAUDITED) Risk-free interest rate................. 5.74% - 6.21% 4.60% - 5.69% 4.90% - 5.73% Expected life of option................. 6 years 6 years 6 years Expected dividends...................... -- -- --
For financial reporting purposes, the Company has determined that the deemed fair value on the date of grant of certain stock options granted in 1998 and 1999 was in excess of the exercise price of the options. The difference of $1.8 million and $5.3 million for the year ended December 31, 1999 and six months F-18 REALNAMES CORPORATION (FORMERLY CENTRAAL CORPORATION) NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 5--STOCKHOLDERS' EQUITY: (CONTINUED) ended June 30, 1999, respectively is considered unearned stock based compensation and amortized over the vesting period of the options on a graded vesting method. Had compensation cost for the Plan been determined based on the fair value of the options granted in the six months ended June 30, 1999 consistent with the provisions of SFAS No. 123, the pro forma net loss would have been reported as follows (in thousands, except per share data):
NOVEMBER 19, 1996 SIX MONTHS (DATE OF ENDED JUNE INCEPTION) YEAR ENDED 30, 1999 TO DECEMBER 31, DECEMBER 31, ------------- 1997 1998 ----------------- ------------ (UNAUDITED) Net loss--as reported........................ $ (1,176) $ (5,879) $ (11,044) Net loss--pro forma.......................... $ (1,178) $ (5,917) $ (11,107) Net loss per share--as reported.............. $ (0.31) $ (0.40) $ (0.75) Net loss per share--pro forma................ $ (0.31) $ (0.40) $ (0.75)
Such pro forma disclosures may not be representative of future compensation cost because options generally vest over several years and additional grants are made each year. NOTE 6--RELATED PARTY TRANSACTIONS In May 1998, the Company entered into a promissory note receivable with an officer. The unsecured promissory note receivable of $270,000 bears interest at 7.25% per annum and was payable in full on December 31, 1998. Also in May 1998, a founder and officer of the Company granted an officer of the Company an option to purchase 750,000 shares of common stock held by the founder, at an exercise price of $0.45 per share. The grant was in connection with the officer's employment agreement. At December 31, 1998 this option had not been exercised. NOTE 7--INCOME TAXES: At December 31, 1998, the Company had approximately $5.1 million in both federal and state net operating loss carryforwards available to offset future taxable income, if any. In addition, the Company had federal and state tax credits of approximately $63,000 and $31,000, respectively, to offset future tax liabilities, if any. These operating loss carryforwards and credits will expire between 2002 and 2018, if not utilized beforehand. For federal and state tax purposes, a portion of the Company's net operating loss carryforwards may be subject to certain limitations on utilization in case of a change in ownership, as defined by federal and F-19 REALNAMES CORPORATION (FORMERLY CENTRAAL CORPORATION) NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 7--INCOME TAXES: (CONTINUED) state tax law. Temporary differences which give rise to significant portions of the deferred tax assets at December 31, 1997 and 1998 are as follows (in thousands):
1997 1998 --------- --------- Net operating loss carryforwards........................................... $ 103 $ 2,040 Research and development credits........................................... 18 94 Other...................................................................... 74 173 --------- --------- Net deferred tax asset..................................................... 195 2,307 Less: valuation allowance.................................................. (195) (2,307) --------- --------- $ -- $ -- --------- --------- --------- ---------
The Company has recorded a 100% valuation allowance as it is more likely than not that the deferred tax asset will not be realized. The valuation allowance increased by $195,000 and $2.1 million in the period from November 19, 1996 (date of inception) to December 31, 1997 and 1998, respectively. NOTE 8--SIGNIFICANT CUSTOMER AND GEOGRAPHIC INFORMATION: The Company has adopted SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information," effective for fiscal years beginning after December 31, 1997. The Company has one reportable segment. Management uses one measurement of profitability for its business. The Company had no revenue for the period from November 19, 1996 (date of inception) to December 31, 1997. 2Can Media, an Internet advertising reseller, accounted for 79% of revenues for the year ended December 31, 1998. AltaVista accounted for 21% of the Company's revenues for the six months ended June 30, 1999. The Company markets its product primarily from its operations in the United States. International revenues are to customers in Asia Pacific and Europe. For the year ended December 31, 1998, the Company had $419,000 and $118,000 from sales in the United States and foreign locations, respectively. For the six months ended June 30, 1999, the Company had $892,000 and $167,000 from sales in the United States and foreign locations, respectively. Revenue to any one foreign country did not exceed 10% of total revenue in 1998 and for the six months ended June 30, 1999. NOTE 9--EMPLOYEE BENEFIT PLAN: The Company has a 401(k) retirement plan, "retirement plan", which covers substantially all employees. Eligible employees may make salary deferral (before tax) contributions up to a specified maximum. The Company, at its discretion, may make additional matching contributions on behalf of the participants of the retirement plan. As of December 31, 1998, the Company has not made any contributions to the retirement plan. F-20 REALNAMES CORPORATION (FORMERLY CENTRAAL CORPORATION) NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 10--SUBSEQUENT EVENTS: INKTOMI CORPORATION--WARRANT AGREEMENT In January 1999, the Company entered into a licensing and sales representative agreement with Inktomi Corporation, allowing Inktomi Corporation to act as the Company's sales representative and solicit subscriptions for the Company's Internet Keyword service. As part of the sales representative agreement, the Company granted Inktomi Corporation a warrant to purchase up to 2,119,560 shares of the Company's common stock which vests and becomes exercisable upon the attainment of various milestones. The milestones are based on the implementation of the Company's services with certain pre-defined partners of Inktomi Corporation. The warrant provides for the acceleration of vesting of shares of common stock upon the Company filing a Registration Statement for a public offering of the Company's common stock if certain milestones have been met. No warrants shall vest after January 31, 2001 or, if sooner, upon the filing of a Registration Statement for a public offering of the Company's common stock. The warrant expires on April 30, 2001. At June 30, 1999, none of the shares underlying the warrant had vested. Using the Black-Scholes option pricing model and assuming a term of two years and expected volatility of 60%, the initial fair value of the warrants on the effective date of the agreement approximated $718,000. INFOSEEK CORPORATION--WARRANT AGREEMENT In May 1999, the Company entered into a sales representative agreement with Infoseek Corporation, allowing Infoseek Corporation to act as the Company's sales representative and solicit subscriptions for the Company's Internet Keyword service. Also as part of the sales representative agreement, the Company granted Infoseek Corporation warrants to purchase up to 847,884 shares of the Company's common stock at an exercise price of $3.00 per share upon the attainment of certain performance milestones. The warrant expires on May 5, 2004. At June 30, 1999, none of the shares underlying the warrant had vested. Using the Black-Scholes option pricing model and assuming a term of five years and expected volatility of 60%, the initial fair value of the warrants on the effective date of the agreement approximated $1.5 million. In September 1999, 423,942 of the shares underlying these warrants had expired unexercised. NETWORK SOLUTIONS, INC.--WARRANT AGREEMENT At June 30, 1999, milestone 4 specified in the Network Solutions, Inc. warrant agreement had been achieved, and accordingly the Company issued a warrant for 1,271,735 shares of common stock, resulting in a stock-based compensation expense of $2.7 million. REMEASUREMENT OF WARRANTS At June 30, 1999, the shares underlying the remaining warrants were remeasured using the deemed fair market value of the Company's common stock of $3.60 per share. This remeasurement resulted in an increase to the fair value of the warrant for Network Solutions, Inc. of $7.8 million in the six months ended June 30, 1999, bringing the total fair value of the warrant to $8.8 million as of June 30, 1999. Additionally, this remeasurement also resulted in increases in the fair value of the Inktomi and Infoseek warrants at June 30, 1999 to $4.2 million and $1.8 million, respectively. The remaining unearned stock-based compensation of $12.1 million underlying all warrants at June 30, 1999 will be expensed as the shares underlying the warrants begin to vest. The shares underlying the warrant will be remeasured at each subsequent balance sheet date until the milestones are achieved and the warrants vest and such remeasurement could result in increases or decreases from the initial fair value, which could be substantial. F-21 REALNAMES CORPORATION (FORMERLY CENTRAAL CORPORATION) NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 10--SUBSEQUENT EVENTS: (CONTINUED) EQUIPMENT LOAN FACILITY In February 1999, the Company obtained a $1.2 million equipment loan facility with a financial institution. Borrowings under this agreement are collateralized by the assets purchased under this equipment loan facility. The line of credit bears interest at an effective rate of 17.5% and expires in 36 months from the base term commencement date. 1997 STOCK PLAN On May 17, 1999, the board of directors authorized an increase of 1,000,000 in the number of shares reserved under the 1997 Stock Plan to 6,800,000 shares of common stock. NAME CHANGE In August 1999, Centraal Corporation changed its name to RealNames Corporation. SERIES C CONVERTIBLE PREFERRED STOCK In August 1999, the Company issued 15,677,778 shares of Series C convertible preferred stock at $4.50 per share for consideration of approximately $70.5 million. The Series C convertible preferred stock has similar rights and privileges as the Series A and B convertible preferred stock. The holders of Series C convertible preferred stock are entitled to receive dividends of $0.36 per share per annum when declared by the board of directors and $9.00 per share upon liquidation, dissolution or winding up. Each share of Series C convertible preferred stock converts automatically into one share of common stock upon the closing of a firm commitment underwritten public offering of the Company's common stock for which the price per share is not less than $6.75 per share and the aggregate offering price is not less than $35.0 million. In connection with this equity financing, certain holders of the Series C convertible preferred stock have the right to purchase up to $5.0 million of the Company's common stock in a private placement immediately following and contingent upon the closing of an initial public offering ("IPO"), at a price per share equal to 96.5% of the per share price at which shares are offered to the public in the IPO. OPTION GRANTS AND EXERCISES In August 1999, an officer of the Company exercised his option to purchase 750,000 shares of common stock held by a founder. In September 1999, the board of directors granted a founder and officer an option to purchase 724,414 shares of common stock at an exercise price equal to 110% of the fair market value of the Company's common stock at the date of grant. The option vests monthly over four years. STOCK-BASED COMPENSATION The Company has recorded additional stock-based compensation for options granted in July, August and September of 1999. Unearned stock-based compensation expense for employee options is being amortized over the life of the options, generally four years, on a graded vesting method, which results in a larger share of the compensation expense being amortized earlier in the expected life of the option. F-22 REALNAMES CORPORATION (FORMERLY CENTRAAL CORPORATION) NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 10--SUBSEQUENT EVENTS: (CONTINUED) The total unamortized unearned stock-based compensation recorded for all option grants through September 30, 1999 of $13.2 million will be amortized as follows: $5.0 million for the remainder of the year ending December 31, 1999; $4.9 million for the year ending December 31, 2000; $2.4 million for the year ending December 31, 2001; and $890,000 for the year ending December 31, 2002 and thereafter. OPERATING LEASE AGREEMENT In September 1999, the Company entered into a sublease operating lease for office space. The term of the sublease agreement is eight months with rental payments of $91,913 per month. OCTOBER 5, 1999 BOARD RESOLUTIONS On October 5, 1999, in a meeting of the board of directors the following resolutions were adopted subject to shareholder approval: 1999 STOCK PLAN Approval of the 1999 Stock Plan under which 3,500,000 shares of the Company's common stock are reserved for issuance to employees, directors and consultants, plus an annual increase during the term of the plan beginning January 1, 2001 equal to the lesser of 6,000,000 shares, 4% of the outstanding shares on such date, or an amount determined by the board of directors. The terms and conditions of options granted under the 1999 Stock Plan are similar to those granted under the 1997 Stock Plan. AMENDMENT TO AMENDED AND RESTATED CERTIFICATE OF INCORPORATION The filing of an Amended and Restated Certificate of Incorporation which authorizes the Company to increase the number of authorized common shares to 200,000,000 and create 10,000,000 shares of undesignated preferred stock. 1999 DIRECTOR OPTION PLAN The creation of a 1999 Director Option Plan under which 500,000 shares of common stock have been reserved for issuance to non-employee directors of the Company. Options granted under this plan have a term of ten years and vest over a four year period from the date of grant. The exercise price of these options shall be the fair market value as determined by the board of directors or closing sales price as quoted on any established stock exchange or market system. EMPLOYEE STOCK PURCHASE PLAN The creation of an Employee Stock Purchase Plan under which 1,000,000 shares have been reserved for issuance plus an annual increase during the term of this plan beginning January 1, 2001 equal to the lesser of 3,000,000 shares, 2% of the outstanding shares on such date, or an amount determined by the board of directors. The 1999 Employee Stock Purchase Plan contains successive 24-month offering periods and the price of stock purchased under the plan is 85% of the lower of the fair value of the common stock either at the beginning of the six-month exercise period or at the end. F-23 REALNAMES CORPORATION (FORMERLY CENTRAAL CORPORATION) NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 10--SUBSEQUENT EVENTS: (CONTINUED) INITIAL PUBLIC OFFERING The authorization of the filing of a registration statement for an underwritten public offering of the Company's common stock. CO-MARKETING COMMITMENTS The Company has entered into co-marketing agreements with Keyword Provider customers to spend advertising dollars with them. As of June 30, 1999 the Company's total commitment to spend advertising dollars approximated $13.7 million of which $543,000 was due and payable at that date. F-24 [LOGO] PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following is an itemized statement of the costs and expenses, other than underwriting discounts and commissions, incurred and to be incurred by the Registrant in connection with the issuance and distribution of the securities registered in this offering. All amounts are estimates except the Securities and Exchange Commission ("SEC") registration fee and the National Association of Securities Dealers, Inc. ("NASD") filing fee. SEC registration fee............................................... $ 19,460 NASD filing fee.................................................... 7,500 Nasdaq National Market listing fee................................. 1,000 Printing fees and expenses......................................... * Legal fees and expenses............................................ * Accounting fees and expenses....................................... * Director and officer liability insurance........................... * Blue sky fees and expenses......................................... * Transfer agent and registrar fees.................................. * Miscellaneous...................................................... * --------- Total.......................................................... $ * --------- ---------
- ------------------------ * To be disclosed by amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the General Corporation Law of Delaware (the "DGCL") provides that a Delaware corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation) by reason of the fact that any such person is or was a director, officer, employee or agent of such corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. The indemnity may include expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided that such officer or director acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. A Delaware corporation may indemnify officers and directors against expenses (including attorneys' fees) in connection with the defense or settlement of an action by or in the right of the corporation under the same conditions, except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him or her against the expenses (including attorney's fees) which such officer or director actually and reasonably incurred. The foregoing description is qualified in its entirety by reference to the more detailed provisions of Section 145 of the DGCL. Section 102 of the DGCL allows a Delaware corporation to eliminate or limit the personal liability of a director to the corporation or to any of its stockholders for monetary damage for a breach of fiduciary duty as a director, except in the case where the director (i) breaches such person's duty of loyalty to the corporation or its stockholders, (ii) fails to act in good faith, engages in intentional misconduct or II-1 knowingly violates a law, (iii) authorizes the payment of a dividend or approves a stock purchase or redemption in violation of Section 174 of the DGCL or (iv) obtains an improper personal benefit. In accordance with the DGCL, the Registrant's Certificate of Incorporation contains a provision to limit the personal liability of its directors for monetary damages for breach of their fiduciary duty to the fullest extent permitted by the DGCL now, or as it may hereafter be amended. In addition, as permitted by the DGCL, the Registrant's Bylaws provide that (i) the Registrant is required to indemnify its directors and officers and persons serving in such capacities in other business enterprises at the Registrant's request, to the fullest extent permitted by Delaware law; (ii) the Registrant may indemnify its employees and agents to the maximum extent permitted by Delaware law; (iii) the Registrant is required to advance expenses incurred by its directors and officers in connection with defending a proceeding (except that a director or officer must undertake to repay any advances if it should ultimately be determined that the director or officer is not entitled to indemnification); (iv) the rights conferred in the Bylaws are not exclusive; and (v) the Registrant may not retroactively amend the Bylaw provisions in a way that adversely affects any director or officer. The Registrant maintains insurance covering its directors and officers against certain liabilities incurred by them in their capacities as such, including among other things, certain liabilities under the Securities Act of 1933, as amended (the "Securities Act"). The Registrant also intends to enter into indemnification agreements with its directors and officers prior to the closing of this offering that provide the maximum indemnity allowed to directors and officers by the DGCL and the Registrant's Bylaws. The Underwriting Agreement provides for indemnification by the Underwriters of the Registrant and its directors and officers who sign this Registration Statement against certain liabilities, including liabilities under the Securities Act. Reference is made to the following documents filed as exhibits to this Registration Statement regarding relevant indemnification provisions described above and elsewhere herein:
EXHIBIT DOCUMENT NUMBER - ------------------------------------------------------------------------------------ ----------- Form of Underwriting Agreement...................................................... 1.1 Certificate of Incorporation of Registrant.......................................... 3.1 Bylaws of Registrant................................................................ 3.2 Form of Indemnification Agreement to be entered into by the Registrant with each of its directors and officers........................................................ 10.5
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES Since our inception in November 1996 we issued and sold the following unregistered securities. 1. In November 1996, we issued and sold 620 shares of common stock to our founders for an aggregate purchase price of $620,000. In September 1997, we effected a 10,000 for 1 stock split. 2. In September 1997, we issued and sold 8,537,000 shares of common stock to our founders for an aggregate consideration price of $853,700, of which $705,000 was settled by the transfer of technology to us and $148,700 was settled with promissory notes. 3. In March 1998, we issued and sold 8,869,179 shares of our Series A convertible preferred stock to our investors for an aggregate purchase price of $4,000,000. 4. In November 1998 we issued convertible promissory notes to our investors for an aggregate purchase price of $250,000. In December 1998, we repaid $124,550 of the principal of these notes and the remaining principal amount was converted into 125,450 shares of our Series B convertible preferred stock. II-2 5. In December 1998, we issued for cash 12,609,550 shares of our Series B convertible preferred stock to our investors for an aggregate purchase price of $12,610,000. 6. In December 1998, we issued a warrant to an investor to purchase up to 250,000 shares of Series B convertible preferred stock at an exercise price of $1.00 per share. This warrant was exercised in full in March 1999. 7. In August 1999, we issued and sold 15,677,778 shares of our Series C convertible preferred stock to certain investors for an aggregate purchase price of $70,550,001 which includes a promissory note of $899,800. 8. In June 1999, we issued a warrant to one of our corporate partners to purchase up to 1,271,735 shares of our common stock at an exercise price of $2.09 per share. This warrant was exercised in full in September 1999. 9. In January 1999, we issued a warrant to one of our corporate partners to purchase up to 2,119,560 shares of our common stock. The warrant shares vest if milestones are reached and the exercise price of the warrant shares depends on the date on which the milestones are reached. 10. In May 1999, we issued two warrants to one of our corporate partners to purchase up to 847,884 shares of our common stock at an exercise price of $3.00 per share. The warrant shares vest if milestones are reached. 11. From November 1996 through August 1999 we issued an aggregate of 9,023,317 shares of common stock to our employees and consultants pursuant to options granted under our 1997 Stock Plan at exercise prices ranging from $.10 to $3.50 per share. The sales of the above securities were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act, or Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by an issuer not involving a public offering or transactions pursuant to compensatory benefit plans and contracts relating to compensation as provided under such Rule 701. The recipients of securities in each such transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates and warrants issued in such transactions. All recipients had adequate access, through their relationships with us, to information about the Registrant. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT NO. DESCRIPTION - ----------- ----------------------------------------------------------------------------------------------------- 1.1 Form of Underwriting Agreement. 3.1 Form of Amended and Restated Certificate of Incorporation to be filed and become effective upon the closing of this offering. 3.2 Form of Amended Bylaws to become effective upon the closing of this offering. 4.1 Reference is made to Exhibits 3.1 and 3.2. 4.2(*) Specimen Stock Certificate. 5.1(*) Opinion of Wilson Sonsini Goodrich & Rosati, with respect to the securities being issued. 10.1 1997 Stock Plan and form of agreement. 10.2 1999 Stock Plan and form of agreement. 10.3 1999 Employee Stock Purchase Plan and form of agreement. 10.4 1999 Director Option Plan.
II-3
EXHIBIT NO. DESCRIPTION - ----------- ----------------------------------------------------------------------------------------------------- 10.5 Form of Indemnification Agreement entered into between RealNames and each of its directors and officers. 10.6 Office Lease dated December 16, 1998 between RealNames and Circle Star Center Associates, L.P. 10.7 Office Sublease dated September 1, 1999 between RealNames and Broadvision, Inc. 10.8+ License and Marketing Agreement dated June 2, 1999 between Microsoft Corporation and RealNames. 10.9+ RealNames Sales Representative Agreement dated December 8, 1999 between Network Solutions, Inc. and RealNames and Amendment No. 1 dated February 18, 1999 and Amendment No. 2 dated May 25, 1999. 10.10+ RealNames Service Agreement dated April 1, 1999 between RealNames and AltaVista. 10.11 Second Amended and Restated Investor Rights Agreement dated August 6, 1999 among RealNames and the Investors. 10.12 Promissory Note dated May 29, 1998 between the Company and Keith Teare, as amended on October 4, 1999. 10.13 Offer letter dated April 17, 1997 from RealNames to Nicolas Popp. 10.14 Offer letter dated May 10, 1999 from RealNames to Edward West. 10.15(*) Form of Restricted Stock Purchase Agreement between RealNames and certain executive officers. 23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants. 23.2(*) Consent of Wilson Sonsini Goodrich & Rosati (included in Exhibit 5.1). 24.1 Power of Attorney (filed herewith on the signature page of this Registration Statement). 27.1 Financial Data Schedule.
- ------------------------ + Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission. (*) To be filed by amendment. (**) Previously filed. ITEM 17. UNDERTAKINGS The undersigned Registrant hereby undertakes to provide to the Underwriters at the closing, as specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, and controlling persons of the Registrant pursuant to the provisions described under Item 14 above, or otherwise, the Registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered hereunder, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-4 The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of the prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Carlos, State of California, on the 6th day of October 1999. REALNAMES CORPORATION By: /s/ JAMES N. STRAWBRIDGE -------------------------------------- Name: James N. Strawbridge Title: Executive Vice President, Chief Financial and Administrative Officer POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints each of Keith W. Teare, James N. Strawbridge and Richard Steele or any of them, each acting alone, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for such person and in his name, place and stead, in any and all capacities, in connection with this Registration Statement, including to sign and file in the name and on behalf of the undersigned as director or officer of the Registrant (i) any and all amendments or supplements (including any and all stickers and post-effective amendments) to this Registration Statement, with all exhibits thereto, and other documents in connection therewith, and (ii) any and all additional registration statements, and any and all amendments thereto, relating to the same offering of securities as those that are covered by this Registration Statement that are filed pursuant to Rule 462(b) under the Securities Act of 1933, with the Securities and Exchange Commission and any applicable securities exchange or securities self-regulatory body, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON OCTOBER 6, 1999 IN THE CAPACITIES INDICATED:
SIGNATURE TITLE - ------------------------------ -------------------------- /s/ KEITH W. TEARE Chairman of the Board of - ------------------------------ Directors, President and Keith W. Teare Chief Executive Officer (PRINCIPAL EXECUTIVE OFFICER) /s/ JAMES N. STRAWBRIDGE Executive Vice President, - ------------------------------ Chief Financial and James N. Strawbridge Administrative Officer (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) /s/ WILLIAM ELKUS Director - ------------------------------ William Elkus
II-6 /s/ JOHN FISHER Director - ------------------------------ John Fisher /s/ JEAN MARIE HULLOT Director - ------------------------------ Jean Marie Hullot /s/ ROBERT KORZENIEWSKI Director - ------------------------------ Robert Korzeniewski /s/ ROBERT J. LOARIE Director - ------------------------------ Robert J. Loarie
II-7 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - ------------ ---------------------------------------------------------------------------------------------------- 1.1 Form of Underwriting Agreement. 3.1 Form of Amended and Restated Certificate of Incorporation to be filed and become effective upon the closing of this offering. 3.2 Form of Amended Bylaws to become effective upon the closing of this offering. 4.1 Reference is made to Exhibits 3.1 and 3.2. 4.2(*) Specimen Stock Certificate. 5.1(*) Opinion of Wilson Sonsini Goodrich & Rosati, with respect to the securities being issued. 10.1 1997 Stock Plan and form of agreement. 10.2 1999 Stock Plan and form of agreement. 10.3 1999 Employee Stock Purchase Plan and form of agreement. 10.4 1999 Director Option Plan. 10.5 Form of Indemnification Agreement entered into between RealNames and each of its directors and officers. 10.6 Office Lease dated December 16, 1998 between RealNames and Circle Star Center Associates, L.P. 10.7 Office Sublease dated September 1, 1999 between RealNames and Broadvision, Inc. 10.8+ License and Marketing Agreement dated June 2, 1999 between Microsoft Corporation and RealNames. 10.9+ RealNames Sales Representative Agreement dated December 8, 1999 between Network Solutions, Inc. and RealNames and Amendment No. 1 dated February 18, 1999 and Amendment No. 2 dated May 25, 1999. 10.10+ RealNames Service Agreement dated April 1, 1999 between RealNames and AltaVista. 10.11 Second Amended and Restated Investor Rights Agreement dated August 6, 1999 among RealNames and the Investors. 10.12 Promissory Note dated May 29, 1998 between the Company and Keith Teare, as amended on October 4, 1999. 10.13 Offer letter dated April 17, 1997 from RealNames to Nicolas Popp. 10.14 Offer letter dated May 10, 1999 from RealNames to Edward West. 10.15(*) Form of Restricted Stock Purchase Agreement between RealNames and certain executive officers. 23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants. 23.2(*) Consent of Wilson Sonsini Goodrich & Rosati (included in Exhibit 5.1). 24.1 Power of Attorney (filed herewith on the signature page of this Registration Statement). 27.1 Financial Data Schedule.
- ------------------------ + Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission. (*) To be filed by amendment. (**) Previously filed. EX-1.1 2 EXHIBIT 1.1 EXHIBIT 1.1 _______________ SHARES REALNAMES CORPORATION COMMON STOCK, PAR VALUE $0.001 UNDERWRITING AGREEMENT __________, 1999 _____________, 1999 Morgan Stanley & Co. Incorporated BancBoston Robertson Stephens Inc. Hambrecht & Quist LLC PaineWebber Incorporated Wit Capital Corporation c/o Morgan Stanley & Co. Incorporated 1585 Broadway New York, New York 10036 Dear Sirs and Mesdames: RealNames Corporation, a Delaware corporation (the "COMPANY"), proposes to issue and sell to the several Underwriters named in Schedule I hereto (the "UNDERWRITERS") ______________ shares of its Common Stock, par value $0.001 (the "FIRM SHARES"). The Company also proposes to issue and sell to the several Underwriters not more than an additional ______________ shares of its Common Stock, par value $0.001 (the "ADDITIONAL SHARES") if and to the extent that you, as Managers of the offering, shall have determined to exercise, on behalf of the Underwriters, the right to purchase such shares of common stock granted to the Underwriters in Section 2 hereof. The Firm Shares and the Additional Shares are hereinafter collectively referred to as the "SHARES." The shares of Common Stock, par value $0.001 of the Company to be outstanding after giving effect to the sales contemplated hereby are hereinafter referred to as the "COMMON STOCK." The Company has filed with the Securities and Exchange Commission (the "COMMISSION") a registration statement, including a prospectus, relating to the Shares. The registration statement as amended at the time it becomes effective, including the information (if any) deemed to be part of the registration statement at the time of effectiveness pursuant to Rule 430A under the Securities Act of 1933, as amended (the "SECURITIES ACT"), is hereinafter referred to as the "REGISTRATION STATEMENT"; the prospectus in the form first used to confirm sales of Shares is hereinafter referred to as the "PROSPECTUS." If the Company has filed an abbreviated registration statement to register additional shares of Common Stock pursuant to Rule 462(b) under the Securities Act (the "RULE 462 REGISTRATION STATEMENT"), then any reference herein to the term "REGISTRATION STATEMENT" shall be deemed to include such Rule 462 Registration Statement. Morgan Stanley & Co. Incorporated ("Morgan Stanley") has agreed to reserve a portion of the Shares to be purchased by it under this Agreement for sale to the Company's directors, officers, employees and business associates and other parties related to the Company (collectively, "Participants"), as set forth in the Prospectus under the heading "Underwriters" (the "Directed Share Program"). The Shares to be sold by Morgan Stanley and its affiliates pursuant to the Directed Share Program are referred to hereinafter as the "Directed Shares." Any Directed Shares not orally confirmed for purchase by any Participants by the end of the business 2 day on which this Agreement is executed will be offered to the public by the Underwriters as set forth in the Prospectus. 1. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to and agrees with each of the Underwriters that: (a) The Registration Statement has become effective; no stop order suspending the effectiveness of the Registration Statement is in effect, and no proceedings for such purpose are pending before or threatened by the Commission. (b) (i) The Registration Statement, when it became effective, did not contain and, as amended or supplemented, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) the Registration Statement and the Prospectus comply and, as amended or supplemented, if applicable, will comply in all material respects with the Securities Act and the applicable rules and regulations of the Commission thereunder and (iii) the Prospectus does not contain and, as amended or supplemented, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this paragraph do not apply to statements or omissions in the Registration Statement or the Prospectus based upon information relating to any Underwriter furnished to the Company in writing by such Underwriter through you expressly for use therein. (c) The Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its property and to conduct its business as described in the Prospectus and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its subsidiaries, taken as a whole. (d) Each subsidiary of the Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its property and to conduct its business as described in the Prospectus and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its subsidiaries, taken as a whole; all of the issued shares of capital stock of each subsidiary of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and are owned directly by the Company, free and clear of all liens, encumbrances, equities or claims. (e) This Agreement has been duly authorized, executed and delivered by the Company. 3 (f) The authorized capital stock of the Company conforms as to legal matters to the description thereof contained in the Prospectus. (g) The shares of Common Stock outstanding prior to the issuance of the Shares have been duly authorized and are validly issued, fully paid and non-assessable. (h) The Shares have been duly authorized and, when issued and delivered in accordance with the terms of this Agreement, will be validly issued, fully paid and non-assessable, and the issuance of such Shares will not be subject to any preemptive or similar rights. (i) The execution and delivery by the Company of, and the performance by the Company of its obligations under, this Agreement will not contravene any provision of applicable law or the certificate of incorporation or by-laws of the Company or any agreement or other instrument binding upon the Company or any of its subsidiaries that is material to the Company and its subsidiaries, taken as a whole, or any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company or any subsidiary, and no consent, approval, authorization or order of, or qualification with, any governmental body or agency is required for the performance by the Company of its obligations under this Agreement, except such as may be required by the securities or Blue Sky laws of the various states in connection with the offer and sale of the Shares. (j) There has not occurred any material adverse change, or any development involving a prospective material adverse change, in the condition, financial or otherwise, or in the earnings, business or operations of the Company and its subsidiaries, taken as a whole, from that set forth in the Prospectus (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement). (k) There are no legal or governmental proceedings pending or threatened to which the Company or any of its subsidiaries is a party or to which any of the properties of the Company or any of its subsidiaries is subject that are required to be described in the Registration Statement or the Prospectus and are not so described or any statutes, regulations, contracts or other documents that are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement that are not described or filed as required. (l) Each preliminary prospectus filed as part of the registration statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 under the Securities Act, complied when so filed in all material respects with the Securities Act and the applicable rules and regulations of the Commission thereunder. (m) The Company is not and, after giving effect to the offering and sale of the Shares and the application of the proceeds thereof as described in the Prospectus, will not be required to register as an "investment company" as such term is defined in the Investment Company Act of 1940, as amended. (n) The Company and its subsidiaries (i) are in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection 4 of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval, except where such noncompliance with Environmental Laws, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals would not, singly or in the aggregate, have a material adverse effect on the Company and its subsidiaries, taken as a whole. (o) There are no costs or liabilities associated with Environmental Laws (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws or any permit, license or approval, any related constraints on operating activities and any potential liabilities to third parties) which would, singly or in the aggregate, have a material adverse effect on the Company and its subsidiaries, taken as a whole. (p) There are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Securities Act with respect to any securities of the Company or to require the Company to include such securities with the Shares registered pursuant to the Registration Statement. (q) The Company has complied with all provisions of Section 517.075, Florida Statutes relating to doing business with the Government of Cuba or with any person or affiliate located in Cuba. (r) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, (1) the Company and its subsidiaries have not incurred any material liability or obligation, direct or contingent, nor entered into any material transaction not in the ordinary course of business; (2) the Company has not purchased any of its outstanding capital stock, nor declared, paid or otherwise made any dividend or distribution of any kind on its capital stock other than ordinary and customary dividends; and (3) there has not been any material change in the capital stock, short-term debt or long-term debt of the Company and its subsidiaries, except in each case as described in the Prospectus. (s) The Company and its subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as are described in the Prospectus or such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and its subsidiaries; and any real property and buildings held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries, in each case except as described in the Prospectus. 5 (t) The Company and its subsidiaries own or possess, or can acquire on reasonable terms, all material patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks and trade names currently employed by them in connection with the business now operated by them, and neither the Company nor any of its subsidiaries has received any notice of infringement of or conflict with asserted rights of others with respect to any of the foregoing which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a material adverse affect on the Company and its subsidiaries, taken as a whole. (u) No material labor dispute with the employees of the Company or any of its subsidiaries exists, except as described in the Prospectus, or, to the knowledge of the Company, is imminent; and the Company is not aware of any existing, threatened or imminent labor disturbance by the employees of any of its principal suppliers, manufacturers or contractors that could have a material adverse effect on the Company and its subsidiaries, taken as a whole. (v) The Company and its subsidiaries are insured by the insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which they are engaged; neither the Company nor any of its subsidiaries has been refused any insurance coverage sought or applied for; and neither the Company nor any of its subsidiaries has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a material adverse effect on the Company and its subsidiaries, taken as a whole, except as described in the Prospectus. (w) The Company and its subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses, and neither the Company nor any of its subsidiaries has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a material adverse effect on the Company and its subsidiaries, taken as a whole, except as described the Prospectus. (x) The Company and each of its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (1) transactions are executed in accordance with management's general or specific authorizations; (2) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability; (3) access to assets is permitted only in accordance with management's general or specific authorization; and (4) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (y) The Company has reviewed its operations and that of its subsidiaries to evaluate the extent to which the business or operations of the Company or any of its subsidiaries will be affected by the Year 2000 Problem (that is, any significant risk that computer hardware or software applications used by the Company and its subsidiaries will not, 6 in the case of dates or time periods occurring after December 31, 1999, function at least as effectively as in the case of dates or time periods occurring prior to January 1, 2000); as a result of such review, (i) the Company has no reason to believe, and does not believe, that (A) there are any issues related to the Company's preparedness to address the Year 2000 Problem that are of a character required to be described or referred to in the Registration Statement or Prospectus which have not been accurately described in the Registration Statement or Prospectus and (B) the Year 2000 Problem will have a material adverse effect on the condition, financial or otherwise, or on the earnings, business or operations of the Company and its subsidiaries, taken as a whole, or result in any material loss or interference with the business or operations of the Company and its subsidiaries, taken as a whole; and (ii) the Company reasonably believes, after due inquiry, that the suppliers, vendors, customers or other material third parties used or served by the Company and such subsidiaries are addressing or will address the Year 2000 Problem in a timely manner, except to the extent that a failure to address the Year 2000 Problem by any supplier, vendor, customer or material third party would not have a material adverse effect on the condition, financial or otherwise, or on the earnings, business or operations of the Company and its subsidiaries, taken as a whole. (z) The Registration Statement, the Prospectus and any preliminary prospectus comply, and any amendments or supplements thereto will comply, with any applicable laws or regulations of foreign jurisdictions in which the Prospectus or any preliminary prospectus, as amended or supplemented, if applicable, are distributed in connection with the Directed Share Program. (aa) No consent, approval, authorization or order of, or qualification with, any governmental body or agency, other than those obtained, is required in connection with the offering of the Directed Shares in any jurisdiction where the Directed Shares are being offered. (bb) The Company has not offered, or caused Morgan Stanley or its affiliates to offer, Shares to any person pursuant to the Directed Share Program with the specific intent to unlawfully influence (i) a customer or supplier of the Company to alter the customer's or supplier's level or type of business with the Company, or (ii) a trade journalist or publication to write or publish favorable information about the Company or its products. 2. AGREEMENTS TO SELL AND PURCHASE. The Company hereby agrees to sell to the several Underwriters, and each Underwriter, upon the basis of the representations and warranties herein contained, but subject to the conditions hereinafter stated, agrees, severally and not jointly, to purchase from the Company the respective numbers of Firm Shares set forth in Schedule I hereto opposite its name at $______ a share (the "PURCHASE PRICE"). On the basis of the representations and warranties contained in this Agreement, and subject to its terms and conditions, the Company agrees to sell to the Underwriters the Additional Shares, and the Underwriters shall have a one-time right to purchase, severally and not jointly, up to _______________ Additional Shares at the Purchase Price. If you, on behalf of the Underwriters, elect to exercise such option, you shall so notify the Company in writing not later than 30 days after the date of this Agreement, which notice shall specify the number of Additional Shares to be purchased by the Underwriters and the date on which such shares are to 7 be purchased. Such date may be the same as the Closing Date (as defined below) but not earlier than the Closing Date nor later than ten business days after the date of such notice. Additional Shares may be purchased as provided in Section 4 hereof solely for the purpose of covering over-allotments made in connection with the offering of the Firm Shares. If any Additional Shares are to be purchased, each Underwriter agrees, severally and not jointly, to purchase the number of Additional Shares (subject to such adjustments to eliminate fractional shares as you may determine) that bears the same proportion to the total number of Additional Shares to be purchased as the number of Firm Shares set forth in Schedule I hereto opposite the name of such Underwriter bears to the total number of Firm Shares. The Company hereby agrees that, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not, during the period ending 180 days after the date of the Prospectus, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. The foregoing sentence shall not apply to (A) the Shares to be sold hereunder or (B) the issuance by the Company of shares of Common Stock upon the exercise of an option or warrant or the conversion of a security outstanding on the date hereof of which the Underwriters have been advised in writing. 3. TERMS OF PUBLIC OFFERING. The Company is advised by you that the Underwriters propose to make a public offering of their respective portions of the Shares as soon after the Registration Statement and this Agreement have become effective as in your judgment is advisable. The Company is further advised by you that the Shares are to be offered to the public initially at $_____________ a share (the "PUBLIC OFFERING PRICE") and to certain dealers selected by you at a price that represents a concession not in excess of $______ a share under the Public Offering Price, and that any Underwriter may allow, and such dealers may reallow, a concession, not in excess of $_____ a share, to any Underwriter or to certain other dealers. 4. PAYMENT AND DELIVERY. Payment for the Firm Shares shall be made to the Company in Federal or other funds immediately available in New York City against delivery of such Firm Shares for the respective accounts of the several Underwriters at 10:00 a.m., New York City time, on ____________, 1999, or at such other time on the same or such other date, not later than _________, 19__, as shall be designated in writing by you. The time and date of such payment are hereinafter referred to as the "CLOSING DATE". Payment for any Additional Shares shall be made to the Company in Federal or other funds immediately available in New York City against delivery of such Additional Shares for the respective accounts of the several Underwriters at 10:00 a.m., New York City time, on the date specified in the notice described in Section 2 or at such other time on the same or on such other date, in any event not later than _______, 1999, as shall be designated in writing by you. The time and date of such payment are hereinafter referred to as the "OPTION CLOSING DATE". 8 Certificates for the Firm Shares and Additional Shares shall be in definitive form and registered in such names and in such denominations as you shall request in writing not later than one full business day prior to the Closing Date or the Option Closing Date, as the case may be. The certificates evidencing the Firm Shares and Additional Shares shall be delivered to you on the Closing Date or the Option Closing Date, as the case may be, for the respective accounts of the several Underwriters, with any transfer taxes payable in connection with the transfer of the Shares to the Underwriters duly paid, against payment of the Purchase Price therefor. 5. CONDITIONS TO THE UNDERWRITERS' OBLIGATIONS. The obligations of the Company to sell the Shares to the Underwriters and the several obligations of the Underwriters to purchase and pay for the Shares on the Closing Date are subject to the condition that the Registration Statement shall have become effective not later than [_____] (New York City time) on the date hereof. The several obligations of the Underwriters are subject to the following further conditions: (a) Subsequent to the execution and delivery of this Agreement and prior to the Closing Date: (i) there shall not have occurred any downgrading, nor shall any notice have been given of any intended or potential downgrading or of any review for a possible change that does not indicate the direction of the possible change, in the rating accorded any of the Company's securities by any "nationally recognized statistical rating organization," as such term is defined for purposes of Rule 436(g)(2) under the Securities Act; and (ii) there shall not have occurred any change, or any development involving a prospective change, in the condition, financial or otherwise, or in the earnings, business or operations of the Company and its subsidiaries, taken as a whole, from that set forth in the Prospectus (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement) that, in your judgment, is material and adverse and that makes it, in your judgment, impracticable to market the Shares on the terms and in the manner contemplated in the Prospectus. (b) The Underwriters shall have received on the Closing Date a certificate, dated the Closing Date and signed by an executive officer of the Company, to the effect set forth in Section 5(a)(i) above and to the effect that the representations and warranties of the Company contained in this Agreement are true and correct as of the Closing Date and that the Company has complied with all of the agreements and satisfied all of the conditions on its part to be performed or satisfied hereunder on or before the Closing Date. The officer signing and delivering such certificate may rely upon the best of his or her knowledge as to proceedings threatened. (c) The Underwriters shall have received on the Closing Date an opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation ("Wilson Sonini"), outside counsel for the Company, dated the Closing Date, to the effect that: 9 (i) the Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its property and to conduct its business as described in the Prospectus and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its subsidiaries, taken as a whole; (ii) each subsidiary of the Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its property and to conduct its business as described in the Prospectus and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its subsidiaries, taken as a whole; (iii) the authorized capital stock of the Company conforms as to legal matters to the description thereof contained in the Prospectus; (iv) the shares of Common Stock outstanding prior to the issuance of the Shares have been duly authorized and are validly issued, fully paid and non-assessable; (v) all of the issued shares of capital stock of each subsidiary of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and are owned directly by the Company, free and clear of all liens, encumbrances, equities or claims; (vi) the Shares have been duly authorized and, when issued and delivered in accordance with the terms of this Agreement, will be validly issued, fully paid and non-assessable, and the issuance of such Shares will not be subject to any preemptive or similar rights; (vii) this Agreement has been duly authorized, executed and delivered by the Company; (viii) the execution and delivery by the Company of, and the performance by the Company of its obligations under, this Agreement will not contravene any provision of applicable law or the certificate of incorporation or by-laws of the Company or, to the best of such counsel's knowledge, any agreement or other instrument binding upon the Company or any of its subsidiaries that is material to the Company and its subsidiaries, taken as a whole, or, to the best of such counsel's knowledge, any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company or any subsidiary, and no consent, approval, authorization or order of, or qualification with, any governmental body or agency is required for the performance by the Company of its obligations under this Agreement, 10 except such as may be required by the securities or Blue Sky laws of the various states in connection with the offer and sale of the Shares; (ix) the statements (A) in the Prospectus under the captions "Management - Employee Benefit Plans," "Certain Relationships and Related Transactions," "Description of Capital Stock" and "Underwriters" and (B) in the Registration Statement in Items 14 and 15, in each case insofar as such statements constitute summaries of the legal matters, documents or proceedings referred to therein, fairly present the information called for with respect to such legal matters, documents and proceedings and fairly summarize the matters referred to therein; (x) after due inquiry, such counsel does not know of any legal or governmental proceedings pending or threatened to which the Company or any of its subsidiaries is a party or to which any of the properties of the Company or any of its subsidiaries is subject that are required to be described in the Registration Statement or the Prospectus and are not so described or of any statutes, regulations, contracts or other documents that are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement that are not described or filed as required; (xi) the Company is not and, after giving effect to the offering and sale of the Shares and the application of the proceeds thereof as described in the Prospectus, will not be required to register as an "investment company" as such term is defined in the Investment Company Act of 1940, as amended; (xii) the Company and its subsidiaries (A) are in compliance with any and all applicable Environmental Laws, (B) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (C) are in compliance with all terms and conditions of any such permit, license or approval, except where such noncompliance with Environmental Laws, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals would not, singly or in the aggregate, have a material adverse effect on the Company and its subsidiaries, taken as a whole; and (xiii) such counsel (A) is of the opinion that the Registration Statement and Prospectus (except for financial statements and schedules and other financial and statistical data included therein as to which such counsel need not express any opinion) comply as to form in all material respects with the Securities Act and the applicable rules and regulations of the Commission thereunder, (B) has no reason to believe that (except for financial statements and schedules and other financial and statistical data as to which such counsel need not express any belief) the Registration Statement and the prospectus included therein at the time the Registration Statement became effective contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (C) has no reason to believe that (except for financial statements and schedules and other financial and statistical data as to which such counsel need not express any belief) the Prospectus contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 11 (d) The Underwriters shall have received on the Closing Date an opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP ("Gunderson Dettmer"), counsel for the Underwriters, dated the Closing Date, covering the matters referred to in Sections 5(c)(vi), 5(c)(vii), 5(c)(ix) (but only as to the statements in the Prospectus under "Description of Capital Stock" and "Underwriters") and 5(c)(xiii) above. With respect to Section 5(c)(xiii) above, Wilson Sonsini and Gunderson Dettmer may state that their opinion and belief are based upon their participation in the preparation of the Registration Statement and Prospectus and any amendments or supplements thereto and review and discussion of the contents thereof, but are without independent check or verification, except as specified. The opinion of Wilson Sonsini described in Section 5(c) above shall be rendered to the Underwriters at the request of the Company and shall so state therein. (e) The Underwriters shall have received, on each of the date hereof and the Closing Date, a letter dated the date hereof or the Closing Date, as the case may be, in form and substance satisfactory to the Underwriters, from Pricewaterhouse Coopers LLP, independent accountants, containing statements and information of the type ordinarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement and the Prospectus; PROVIDED that the letter delivered on the Closing Date shall use a "cut-off date" not earlier than the date hereof. (f) The "lock-up" agreements, each substantially in the form of Exhibit A hereto, between you and certain shareholders, officers and directors of the Company relating to sales and certain other dispositions of shares of Common Stock or certain other securities, delivered to you on or before the date hereof, shall be in full force and effect on the Closing Date. The several obligations of the Underwriters to purchase Additional Shares hereunder are subject to the delivery to you on the Option Closing Date of such documents as you may reasonably request with respect to the good standing of the Company, the due authorization and issuance of the Additional Shares and other matters related to the issuance of the Additional Shares. 6. COVENANTS OF THE COMPANY. In further consideration of the agreements of the Underwriters herein contained, the Company covenants with each Underwriter as follows: (a) To furnish to you, without charge, six (6) signed copies of the Registration Statement (including exhibits thereto) and for delivery to each other Underwriter a conformed copy of the Registration Statement (without exhibits thereto) and to furnish to you in New York City, without charge, prior to 10:00 a.m. New York City time on the business day next succeeding the date of this Agreement and during the period mentioned in Section 6(c) below, as many copies of the Prospectus and any supplements and amendments thereto or to the Registration Statement as you may reasonably request. 12 (b) Before amending or supplementing the Registration Statement or the Prospectus, to furnish to you a copy of each such proposed amendment or supplement and not to file any such proposed amendment or supplement to which you reasonably object, and to file with the Commission within the applicable period specified in Rule 424(b) under the Securities Act any prospectus required to be filed pursuant to such Rule. (c) If, during such period after the first date of the public offering of the Shares as in the opinion of counsel for the Underwriters the Prospectus is required by law to be delivered in connection with sales by an Underwriter or dealer, any event shall occur or condition exist as a result of which it is necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances when the Prospectus is delivered to a purchaser, not misleading, or if, in the opinion of counsel for the Underwriters, it is necessary to amend or supplement the Prospectus to comply with applicable law, forthwith to prepare, file with the Commission and furnish, at its own expense, to the Underwriters and to the dealers (whose names and addresses you will furnish to the Company) to which Shares may have been sold by you on behalf of the Underwriters and to any other dealers upon request, either amendments or supplements to the Prospectus so that the statements in the Prospectus as so amended or supplemented will not, in the light of the circumstances when the Prospectus is delivered to a purchaser, be misleading or so that the Prospectus, as amended or supplemented, will comply with law. (d) To endeavor to qualify the Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions as you shall reasonably request. (e) To make generally available to the Company's security holders and to you as soon as practicable an earning statement covering the twelve-month period ending December 31, 2000 that satisfies the provisions of Section 11(a) of the Securities Act and the rules and regulations of the Commission thereunder. (f) Whether or not the transactions contemplated in this Agreement are consummated or this Agreement is terminated, to pay or cause to be paid all expenses incident to the performance of its obligations under this Agreement, including: (i) the fees, disbursements and expenses of the Company's counsel and the Company's accountants in connection with the registration and delivery of the Shares under the Securities Act and all other fees or expenses in connection with the preparation and filing of the Registration Statement, any preliminary prospectus, the Prospectus and amendments and supplements to any of the foregoing, including all printing costs associated therewith, and the mailing and delivering of copies thereof to the Underwriters and dealers, in the quantities hereinabove specified, (ii) all costs and expenses related to the transfer and delivery of the Shares to the Underwriters, including any transfer or other taxes payable thereon, (iii) the cost of printing or producing any Blue Sky or Legal Investment memorandum in connection with the offer and sale of the Shares under state securities laws and all expenses in connection with the qualification of the Shares for offer and sale under state securities laws as provided in Section 6(d) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Underwriters in connection with such qualification and in connection with the Blue Sky or Legal Investment memorandum, (iv) all filing fees and the reasonable fees and disbursements of counsel to the Underwriters incurred in connection with the review and qualification of the offering of the Shares by the 13 National Association of Securities Dealers, Inc., (v) all fees and expenses in connection with the preparation and filing of the registration statement on Form 8-A relating to the Common Stock and all costs and expenses incident to listing the Shares on the Nasdaq National Market, (vi) the cost of printing certificates representing the Shares, (vii) the costs and charges of any transfer agent, registrar or depositary, (viii) the costs and expenses of the Company relating to investor presentations on any "road show" undertaken in connection with the marketing of the offering of the Shares, including, without limitation, expenses associated with the production of road show slides and graphics, fees and expenses of any consultants engaged in connection with the road show presentations with the prior approval of the Company, travel and lodging expenses of the representatives and officers of the Company and any such consultants, and the cost of any aircraft chartered in connection with the road show, (ix) all fees and disbursements of counsel incurred by the Underwriters in connection with the Directed Share Program and stamp duties, similar taxes or duties or other taxes, if any, incurred by the Underwriters in connection with the Directed Share Program, and (x) all other costs and expenses incident to the performance of the obligations of the Company hereunder for which provision is not otherwise made in this Section. It is understood, however, that except as provided in this Section, Section 7 entitled "Indemnity and Contribution", and the last paragraph of Section 10 below, the Underwriters will pay all of their costs and expenses, including fees and disbursements of their counsel, stock transfer taxes payable on resale of any of the Shares by them and any advertising expenses connected with any offers they may make. (g) To place stop transfer orders on any Directed Shares that have been sold to Participants subject to the three month restriction on sale, transfer, assignment, pledge or hypothecation imposed by NASD Regulation, Inc. under its Interpretative Material 2110-1 on free-riding and withholding to the extent necessary to ensure compliance with the three month restrictions. (h) To comply with all applicable securities and other applicable laws, rules and regulations in each jurisdiction in which the Directed Shares are offered in connection with the Directed Share Program. 14 7. INDEMNITY AND CONTRIBUTION. (a) The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any amendment thereof, any preliminary prospectus or the Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto), or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to any Underwriter furnished to the Company in writing by such Underwriter through you expressly for use therein. (b) Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers who sign the Registration Statement and each person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to such Underwriter, but only with reference to information relating to such Underwriter furnished to the Company in writing by such Underwriter through you expressly for use in the Registration Statement, any preliminary prospectus, the Prospectus or any amendments or supplements thereto. (c) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to Section 7(a) or 7(b), such person (the "INDEMNIFIED PARTY") shall promptly notify the person against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing and the indemnifying party, upon request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the indemnifying party shall not, in respect of the legal expenses of any indemnified party in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all such indemnified parties and that all such fees and expenses shall be reimbursed as they are incurred. Such firm shall be designated in writing by Morgan Stanley & Co. Incorporated, in the case of parties indemnified pursuant to Section 7(a), and by the Company, in the case of parties indemnified pursuant to Section 7(b). The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party 15 from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by the second and third sentences of this paragraph, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. (d) To the extent the indemnification provided for in Section 7(a) or 7(b) is unavailable to an indemnified party or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each indemnifying party under such paragraph, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other hand from the offering of the Shares or (ii) if the allocation provided by clause 7(d)(i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 7(d)(i) above but also the relative fault of the Company on the one hand and of the Underwriters on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other hand in connection with the offering of the Shares shall be deemed to be in the same respective proportions as the net proceeds from the offering of the Shares (before deducting expenses) received by the Company and the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover of the Prospectus, bear to the aggregate Public Offering Price of the Shares. The relative fault of the Company on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Underwriters' respective obligations to contribute pursuant to this Section 7 are several in proportion to the respective number of Shares they have purchased hereunder, and not joint. (e) The Company and the Underwriters agree that it would not be just or equitable if contribution pursuant to this Section 7 were determined by PRO RATA allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in Section 7(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such 16 indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The remedies provided for in this Section 7 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity. (f) The indemnity and contribution provisions contained in this Section 7 and the representations, warranties and other statements of the Company contained in this Agreement shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Underwriter or any person controlling any Underwriter or by or on behalf of the Company, its officers or directors or any person controlling the Company and (iii) acceptance of and payment for any of the Shares. 8. DIRECTED SHARE PROGRAM INDEMNIFICATION. (a) The Company agrees to indemnify and hold harmless Morgan Stanley and its affiliates and each person, if any, who controls Morgan Stanley or its affiliates within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act ("Morgan Stanley Entities"), from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) (i) caused by any untrue statement or alleged untrue statement of a material fact contained in any material prepared by or with the consent of the Company for distribution to Participants in connection with the Directed Share Program, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) caused by the failure of any Participant to pay for and accept delivery of Directed Shares that the Participant has agreed to purchase; or (iii) related to, arising out of, or in connection with the Directed Share Program other than losses, claims, damages or liabilities (or expenses relating thereto) that are finally judicially determined to have resulted from the bad faith or gross negligence of Morgan Stanley Entities. In case any proceeding (including any governmental investigation) shall be instituted involving any Morgan Stanley Entity in respect of which indemnity may be sought pursuant to Section 8(a), the Morgan Stanley Entity seeking indemnity shall promptly notify the Company in writing and the Company, upon request of the Morgan Stanley Entity, shall retain counsel reasonably satisfactory to the Morgan Stanley Entity to represent the Morgan Stanley Entity and any other the Company may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any Morgan Stanley Entity shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Morgan Stanley Entity unless (I) the Company shall have agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the Company and the Morgan Stanley Entity and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The Company shall not, in respect of the legal expenses of the Morgan Stanley Entities in connection with any 17 proceeding or related proceedings the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Morgan Stanley Entities. Any such firm for the Morgan Stanley Entities shall be designated in writing by Morgan Stanley. The Company shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the Company agrees to indemnify the Morgan Stanley Entities from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time a Morgan Stanley Entity shall have requested the Company to reimburse it for fees and expenses of counsel as contemplated by the second and third sentences of this paragraph, the Company agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by the Company of the aforesaid request and (ii) the Company shall not have reimbursed the Morgan Stanley Entity in accordance with such request prior to the date of such settlement. The Company shall not, without the prior written consent of Morgan Stanley, effect any settlement of any pending or threatened proceeding in respect of which any Morgan Stanley Entity is or could have been a party and indemnity could have been sought hereunder by such Morgan Stanley Entity, unless such settlement includes an unconditional release of the Morgan Stanley Entities from all liability on claims that are the subject matter of such proceeding. (c) To the extent the indemnification provided for in Section 8(a) is unavailable to a Morgan Stanley Entity or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then the Company, in lieu of indemnifying the Morgan Stanley Entity thereunder, shall contribute to the amount paid or payable by the Morgan Stanley Entity as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Morgan Stanley Entities on the other hand from the offering of the Directed Shares or (ii) if the allocation provided by clause 8(c)(i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 8(c)(i) above but also the relative fault of the Company on the one hand and of the Morgan Stanley Entities on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and of the Morgan Stanley Entities on the other hand in connection with the offering of the Directed Shares shall be deemed to be in the same respective proportions as the net proceeds from the offering of the Directed Shares (before deducting expenses) and the total underwriting discounts and commissions received by the Morgan Stanley Entities for the Directed Shares, bear to the aggregate Public Offering Price of the Shares. If the loss, claim, damage or liability is caused by an untrue or alleged untrue statement of a material fact, the relative fault of the Company on the one hand and the Morgan Stanley Entities on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement or the omission or alleged omission relates to information supplied by the Company or by the Morgan Stanley Entities and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. (d) The Company and the Morgan Stanley Entities agree that it would not be just or equitable if contribution pursuant to this Section 8 were determined by PRO RATA allocation (even if the Morgan Stanley Entities were treated as one entity for such purpose) or by 18 any other method of allocation that does not take account of the equitable considerations referred to in Section 8(c). The amount paid or payable by the Morgan Stanley Entities as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by the Morgan Stanley Entities in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 8, no Morgan Stanley Entity shall be required to contribute any amount in excess of the amount by which the total price at which the Directed Shares distributed to the public were offered to the public exceeds the amount of any damages that such Morgan Stanley Entity has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. The remedies provided for in this Section 8 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any Morgan Stanley Entity at law or in equity. (e) The indemnity and contribution provisions contained in this Section 8 shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Morgan Stanley Entity or the Company, its officers or directors or any person controlling the Company and (iii) acceptance of and payment for any of the Directed Shares. 9. TERMINATION. This Agreement shall be subject to termination by notice given by you to the Company, if (a) after the execution and delivery of this Agreement and prior to the Closing Date (i) trading generally shall have been suspended or materially limited on or by, as the case may be, any of the New York Stock Exchange, the American Stock Exchange, the National Association of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any securities of the Company shall have been suspended on any exchange or in any over-the-counter market, (iii) a general moratorium on commercial banking activities in New York shall have been declared by either Federal or New York State authorities or (iv) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis that, in your judgment, is material and adverse and (b) in the case of any of the events specified in clauses 9(a)(i) through 9(a)(iv), such event, singly or together with any other such event, makes it, in your judgment, impracticable to market the Shares on the terms and in the manner contemplated in the Prospectus. 10. EFFECTIVENESS; DEFAULTING UNDERWRITERS. This Agreement shall become effective upon the execution and delivery hereof by the parties hereto. If, on the Closing Date or the Option Closing Date, as the case may be, any one or more of the Underwriters shall fail or refuse to purchase Shares that it has or they have agreed to purchase hereunder on such date, and the aggregate number of Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase is not more than one-tenth of the aggregate number of the Shares to be purchased on such date, the other Underwriters shall be obligated severally in the proportions that the number of Firm Shares set forth opposite their respective names in Schedule I bears to the aggregate number of Firm Shares set forth opposite the names of all such non-defaulting Underwriters, or in such other proportions as you may specify, to purchase the Shares which such defaulting Underwriter or Underwriters agreed but 19 failed or refused to purchase on such date; PROVIDED that in no event shall the number of Shares that any Underwriter has agreed to purchase pursuant to this Agreement be increased pursuant to this Section 10 by an amount in excess of one-ninth of such number of Shares without the written consent of such Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase Firm Shares and the aggregate number of Firm Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Firm Shares to be purchased, and arrangements satisfactory to you and the Company for the purchase of such Firm Shares are not made within 36 hours after such default, this Agreement shall terminate without liability on the part of any non-defaulting Underwriter or the Company. In any such case either you or the Company shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement and in the Prospectus or in any other documents or arrangements may be effected. If, on the Option Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase Additional Shares and the aggregate number of Additional Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Additional Shares to be purchased, the non-defaulting Underwriters shall have the option to (i) terminate their obligation hereunder to purchase Additional Shares or (ii) purchase not less than the number of Additional Shares that such non-defaulting Underwriters would have been obligated to purchase in the absence of such default. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement. If this Agreement shall be terminated by the Underwriters, or any of them, because of any failure or refusal on the part of the Company to comply with the terms or to fulfill any of the conditions of this Agreement, or if for any reason the Company shall be unable to perform its obligations under this Agreement, the Company will reimburse the Underwriters or such Underwriters as have so terminated this Agreement with respect to themselves, severally, for all out-of-pocket expenses (including the fees and disbursements of their counsel) reasonably incurred by such Underwriters in connection with this Agreement or the offering contemplated hereunder. 20 11. COUNTERPARTS. This Agreement may be signed in two or more counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 12. APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York. 13. HEADINGS. The headings of the sections of this Agreement have been inserted for convenience of reference only and shall not be deemed a part of this Agreement. Very truly yours, REALNAMES CORPORATION By: --------------------------- Name: Title: Accepted as of the date hereof Morgan Stanley & Co. Incorporated BancBoston Robertson Stephens Inc. Hambrecht & Quist LLC PaineWebber Incorporated Wit Capital Corporation Acting severally on behalf of themselves and the several Underwriters named in Schedule I hereto. By: Morgan Stanley & Co. Incorporated By: ----------------------------- Name: Title: SCHEDULE I NUMBER OF FIRM SHARES UNDERWRITER TO BE PURCHASED Morgan Stanley & Co. Incorporated BancBoston Robertson Stephens Inc. Hambrecht & Quist LLC PaineWebber Incorporated Wit Capital Corporation [NAMES OF OTHER UNDERWRITERS] ----------------- Total ........ ----------------- ----------------- S-1 Exhibit A [FORM OF LOCK-UP LETTER] E-1 EX-3.1 3 EXHIBIT 3.1 Exhibit 3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF REALNAMES CORPORATION (Incorporated November 19, 1996) RealNames Corporation (the "corporation"), a corporation organized and existing under the General Corporation Law of the State of Delaware (the "General Corporation Law"), hereby certifies as follows: 1. That the corporation was originally incorporated on November 19, 1996 under the name Go Inc., pursuant to the General Corporation Law. 2. Pursuant to Sections 242 and 245 of the General Corporation Law, this Amended and Restated Certificate of Incorporation restates and integrates and further amends the provisions of the Certificate of Incorporation of the corporation. 3. The text of the Certificate of Incorporation is hereby amended and restated in its entirety as follows: "ONE. The name of the corporation is RealNames Corporation (the "corporation"). TWO. The address of the corporation's registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company. THREE. The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law. FOUR. The corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares of Common Stock that the corporation is authorized to issue is 200,000,000, with a par value of $0.001 per share. The total number of shares of Preferred Stock that the corporation is authorized to issue is 42,531,957, with a par value of $0.001 per share, 8,869,179 of which are designated "Series A Preferred Stock," 12,985,000 of which are designated "Series B Preferred Stock" and 15,677,778 of which are designated "Series C Preferred Stock" and 10,000,000 of which are undesignated. The undesignated 10,000,000 shares of Preferred Stock may be issued from time to time in one or more series. The Board of Directors is authorized to determine the number of shares of any such series. The Board of Directors is also authorized to determine or alter the powers, designations, preferences, rights and restrictions to be imposed upon any wholly unissued series of Preferred Stock and, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, to increase (but not above the total number of authorized shares of the class) or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series subsequent to the issue of shares of that series. The corporation shall from time to time in accordance with the laws of the State of Delaware increase the authorized amount of its Common Stock if at any time the number of shares of Common Stock remaining unissued and available for issuance upon conversion of the Preferred Stock shall not be sufficient to permit conversion of the Preferred Stock. The relative rights, preferences, privileges and restrictions granted to or imposed upon the respective classes and series of the shares of capital stock or the holders thereof are as set forth below. SECTION 1. DIVIDENDS. The holders of the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock shall be entitled to receive, out of any funds legally available therefor, noncumulative dividends in an amount equal to $0.0361, $0.08 and $0.36 per share per annum, respectively, when and if declared by the corporation's board of directors. No dividend shall be paid on the Common Stock in any year, other than dividends payable solely in capital stock, until all dividends for such year have been declared and paid on the Preferred Stock, and no dividends on the Common Stock shall be paid unless, in addition to the preferential dividend above, the amount of such dividend on the Common Stock is also paid on the Preferred Stock on an as-converted to Common Stock basis. SECTION 2. LIQUIDATION PREFERENCE. (a) In the event of any liquidation, dissolution or winding up of the corporation, prior and in preference to any distribution of any of the assets or funds of the corporation to the holders of the Common Stock by reason of their ownership of such stock, (i) the holders of Series A Preferred Stock shall be entitled to receive for each outstanding share of Series A Preferred Stock then held by them an amount equal to $0.902 plus declared but unpaid dividends on such share (as adjusted for any recapitalizations, stock combinations, stock dividends, stock splits and the like), (ii) the holders of Series B Preferred Stock shall be entitled to receive for each outstanding share of Series B Preferred Stock then held by them an amount equal to $2.00 plus declared but unpaid dividends on such share (as adjusted for any recapitalizations, stock combinations, stock dividends, stock splits and the like) and (iii) the holders of Series C Preferred Stock shall be entitled to receive for each outstanding share of Series C Preferred Stock then held by them an amount equal to $9.00 plus declared but unpaid dividends on such share (as adjusted for any recapitalizations, stock combinations, stock dividends, stock splits and the like). The Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock shall rank on parity as to the receipt of the respective preferential amounts for each such series upon the occurrence of such event. If, upon the occurrence of a liquidation, dissolution or winding up, the assets and funds of the corporation legally available for distribution to stockholders by reason of their ownership of stock of the corporation shall be insufficient to permit the payment to such holders of Preferred Stock of the full aforementioned preferential amounts, then the entire assets and funds of the corporation legally available for distribution to stockholders by reason of their ownership of stock of the corporation shall be distributed ratably among the holders of Preferred Stock in proportion to the preferential amount each such holder is otherwise entitled to receive. (b) Upon a liquidation, dissolution or winding up of the corporation, and after payment to the holders of Preferred Stock of the amounts to which they are entitled pursuant to Section 2(a), all assets and funds of the corporation that remain legally available for distribution to stockholders by reason of their ownership of stock of the corporation shall be distributed ratably among the holders of Common Stock in proportion to the number of shares of Common Stock held by each such holder. (c) A merger, consolidation or reorganization of this corporation with or into any other entity or entities, or a sale of all or substantially all of the assets of this corporation, or a series of related similar such transactions in which the holders of this corporation's capital stock prior to the consummation of such event hold less than 50% of the voting power of the surviving entity, shall be deemed to be a liquidation, dissolution or winding up within the meaning of this Article Four, Section 2. (d) If any of the assets of this corporation are to be distributed under this Section 2, or for any other purpose, in a form other than cash, then the board of directors shall be empowered to, and shall promptly determine the value of the assets to be distributed to the holders of Preferred Stock or Common Stock. This corporation shall, upon receipt of such determination, give prompt written notice of the determination to each holder of shares of Preferred Stock or Common Stock. SECTION 3. CONVERSION. The holders of Preferred Stock shall have conversion rights as follows: (a) RIGHT TO CONVERT. Each share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the corporation or any transfer agent for such Preferred Stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the applicable Original Issue Price of such share of Preferred Stock by the Conversion Price (the "Conversion Price") at the time in effect for a share of such series of Preferred Stock. The Original Issue Price per share of Series A Preferred Stock is $0.451. The Conversion Price per share of Series A Preferred Stock initially shall be $0.451, subject to adjustment from time to time as provided below. The Original Issue Price per share of Series B Preferred Stock is $1.00. The Conversion Price per share of Series B Preferred Stock initially shall be $1.00, subject to adjustment from time to time as provided below. The Original Issue Price per share of Series C Preferred Stock is $4.50. The Conversion Price Per Share of Series C Preferred Stock initially shall be $4.50, subject to adjustment from time to time as provided below. (b) AUTOMATIC CONVERSION. Each share of Preferred Stock shall automatically be converted into shares of Common Stock at the then effective Conversion Price upon the closing of a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock to the public involving gross proceeds to the Company of not less than $35,000,000 at a per share offering price of at least $6.75 (as adjusted for any recapitalizations, stock combinations, stock dividends, stock splits and the like). Each share of a particular series of Preferred Stock shall be automatically converted into shares of Common Stock at the then effective Conversion Price upon the date specified in a written consent signed by the holders of not less than two-thirds of the outstanding shares of that series of Preferred Stock, voting separately as a series. (c) MECHANICS OF CONVERSION. No fractional shares of Common Stock shall be issued upon conversion of Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the corporation shall pay cash equal to such fraction multiplied by the then effective conversion ratio (a quotient determined by dividing the applicable Original Issue Price of such series of Preferred Stock by the applicable Conversion Price of such series of Preferred Stock). Before any holder of Preferred Stock shall be entitled to convert the same into shares of Common Stock pursuant to Section 3(a), such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the corporation or of any transfer agent for such Preferred Stock, and shall give written notice by mail, postage prepaid, to the corporation at its principal corporate office, of the election to convert the same, and such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Preferred Stock to be converted. In the event of an automatic conversion pursuant to Section 3(b), the outstanding shares of Preferred Stock shall be converted automatically without any further action by the holder of such shares and whether or not the certificates representing such shares are surrendered to the corporation or the transfer agent for such Preferred Stock; and the corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such automatic conversion unless the certificates evidencing such shares of Preferred Stock are either delivered to the corporation or the transfer agent for such Preferred Stock as provided above, or the holder notifies the corporation or the transfer agent for such Preferred Stock that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the corporation to indemnify the corporation from any loss incurred by it in connection with such certificates. The corporation shall, as soon as practicable thereafter, issue and deliver to such address as the holder may direct, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled. If the conversion is in connection with a public offering of securities described in Section 3(b)(i), the conversion shall be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering, and the conversion shall not be deemed to have occurred until immediately prior to the closing of such sale of securities. (d) STATUS OF CONVERTED STOCK. In the event any shares of Preferred Stock shall be converted pursuant to this Section 3, the shares so converted shall be canceled and shall not be reissued by the corporation. (e) ADJUSTMENT OF CONVERSION PRICE OF PREFERRED STOCK. The Conversion Price of each series of Preferred Stock shall be subject to adjustment from time to time as follows: (i) ADJUSTMENTS FOR SUBDIVISIONS OR COMBINATIONS OF COMMON STOCK. In the event the outstanding shares of Common Stock shall be subdivided by stock split, stock dividend or otherwise, into a greater number of shares of Common Stock, the Conversion Price of each series of Preferred Stock then in effect shall, concurrently with the effectiveness of such subdivision, be proportionately decreased. In the event the outstanding shares of Common Stock shall be combined or consolidated into a lesser number of shares of Common Stock, the Conversion Price of each series of Preferred Stock then in effect shall, concurrently with the effectiveness of such combination or consolidation, be proportionately increased. (ii) ADJUSTMENTS FOR STOCK DIVIDENDS AND OTHER DISTRIBUTIONS. In the event the corporation makes, or fixes a record date for the determination of holders of Common Stock entitled to receive, any distribution (excluding repurchases of securities by the corporation not made on a pro rata basis) payable in property or in securities of the corporation other than shares of Common Stock, and other than as otherwise adjusted for in this Section 3 or as provided for in Section 1 in connection with a dividend, then and in each such event the holders of Preferred Stock shall receive, at the time of such distribution, the amount of property or the number of securities of the corporation that they would have received had their Preferred Stock been converted into Common Stock on the date of such event. (iii) ADJUSTMENTS FOR REORGANIZATIONS, RECLASSIFICATIONS OR SIMILAR EVENTS. If the Common Stock shall be changed into the same or a different number of shares of any other class or classes of stock or other securities or property, whether by capital reorganization, reclassification or otherwise, then each share of Preferred Stock shall thereafter be convertible into the number of shares of stock or other securities or property to which a holder of the number of shares of Common Stock of the corporation deliverable upon conversion of such shares of Preferred Stock shall have been entitled upon such reorganization, reclassification or other event. (iv) ADJUSTMENTS FOR DILUTING ISSUES. In addition to the adjustment of the Conversion Prices as provided above, the respective Conversion Prices of the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock shall be subject to further adjustment from time to time as follows: (A) SPECIAL DEFINITIONS. (1) "Options" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities. (2) "Original Issue Date" shall mean the date on which the first share of Series C Preferred Stock was first issued. (3) "Convertible Securities" shall mean securities convertible into or exchangeable for Common Stock, either directly or indirectly. (4) "Additional Shares of Common Stock" shall mean all shares of Common Stock issued (or, pursuant to Section 3(e)(iv)(C) deemed to be issued) by the corporation after the Original Issue Date other than shares of Common Stock issued (or, pursuant to Section 3(e)(iv)(C) deemed to be issued): i) upon conversion of shares of Preferred Stock; ii) to employees, consultants, or directors, but not exceeding 2,358,493 shares of Common Stock (net of repurchases thereof by the Company and the expiration of unexercised options) including without limitation upon the exercise of Options outstanding as of the Original Issue Date; iii) to equipment lessors, banks, financial institutions or similar entities in a transaction approved by the vote of two-thirds of the members of the board of directors, the principal purpose of which is other than the raising of capital through the sale of equity securities of the corporation; iv) as a dividend or other distribution in connection with which an adjustment to the Conversion Price is made pursuant to Section 3(e)(i), (ii) or (iii); v) in the corporation's initial public offering of Common Stock pursuant to effective registration statement under the Securities Act of 1933, as amended; vi) in a merger or acquisition that is approved by the board of directors; vii) pursuant to any transaction approved by the vote of two-thirds of the members of the board of directors primarily for the purpose of (A) a joint venture, technology licensing or research and development activity, (B) distribution or manufacture of the corporation's products or services, or (C) any other transaction involving a corporate partner that is primarily for a purpose other than raising capital; or viii) any shares issued, issuable or, pursuant to Section 3(e)(iv)(C), deemed to be issued, if the holders of a majority of the then outstanding shares of each series of Preferred Stock consent in writing that such shares shall not constitute Additional Shares of Common Stock. (B) NO ADJUSTMENT OF CONVERSION PRICE. No adjustment to a Conversion Price shall be made pursuant to Section 3(e)(iv)(D) unless the consideration per share for an Additional Share of Common Stock issued (or, pursuant to Section 3(e)(iv)(C), deemed to be issued) by the corporation is less than such Conversion Price in effect on the date of, and immediately prior to, such issue, and provided that any such adjustment shall not have the effect of increasing such Conversion Price to an amount which exceeds the applicable Conversion Price existing immediately prior to such adjustment. (C) DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON STOCK. Except as otherwise provided in Section 3(e)(iv)(A) or 3(e)(iv)(B), in the event the corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of any holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number) of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that in any such case in which additional shares of Common Stock are deemed to be issued: (1) no further adjustment in any Conversion Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities; (2) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase or decrease in the consideration payable to the corporation, or increase or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, any Conversion Price computed upon the original issue thereof or upon the occurrence of a record date with respect thereto, and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease; (3) upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, any Conversion Price computed upon the original issue thereof or upon the occurrence of a record date with respect thereto, and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed as if: i) in the case of Convertible Securities or Options for Common Stock, the only Additional Shares of Common Stock issued were shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities, and the consideration received therefor was the consideration actually received by the corporation for the issue of all such Options, whether or not exercised, plus the consideration actually received by the corporation upon such exercise, or for the issue of all such Convertible Securities, whether or not converted or exchanged, plus the additional consideration, if any, actually received by the corporation upon such conversion or exchange; and ii) in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options and the consideration received by the corporation for the Additional Shares of Common Stock deemed to have been then issued was the consideration actually received by the corporation for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the corporation upon the issue of the Convertible Securities with respect to which such Options were actually exercised; (4) no readjustment pursuant to Section 3(e)(iv)(C)(2) or (3) above shall have the effect of increasing a Conversion Price to an amount which exceeds such Conversion Price as it existed immediately prior to the original adjustment with respect to the issuance of such Options or Convertible Securities, as adjusted for any Additional Shares of Common Stock issued (or, pursuant to Section 3(e)(iv)(C), deemed to be issued) between such original adjustment date and such readjustment date; (5) in the case of any Options which expire by their terms not more than 30 days after the date of issue thereof, no adjustment of a Conversion Price shall be made until the expiration or exercise of all such Options; and (6) in the case of any Option or Convertible Security with respect to which the maximum number of shares of Common Stock issuable upon exercise or conversion or exchange thereof is not determinable, no adjustment to a Conversion Price shall be made until such number becomes determinable. (D) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. Subject to the limitation set forth in Section 3(e)(iv)(B) above, if Additional Shares of Common Stock are issued (or, pursuant to Section 3(e)(iv)(C), deemed to be issued) without consideration or for a consideration per share (computed on an as-converted to Common Stock basis) less than a Conversion Price in effect on the date of, and immediately prior to, such issue (a "Dilutive Issue"), then and in such event, such Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying such Conversion Price by a fraction, (x) the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of shares of Common Stock which the aggregate consideration received by the corporation for the total number of Additional Shares of Common Stock so issued would purchase at such Conversion Price, and (y) the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of such Additional Shares of Common Stock so issued. For the purposes of this Section 3(e)(iv)(D), all shares of Common Stock issuable upon exercise of outstanding Options, upon conversion of outstanding Convertible Securities and upon conversion of Convertible Securities following exercise of outstanding Options therefor, shall be deemed to be outstanding, and immediately after any Additional Shares of Common Stock are deemed issued pursuant to Section 3(e)(iv)(C), such Additional Shares of Common Stock shall be deemed to be outstanding. (E) DETERMINATION OF CONSIDERATION. For purposes of this Section 3(e)(iv), the consideration received by the corporation for any Additional Shares of Common Stock issued (or, pursuant to Section 3(e)(iv)(C), deemed to be issued) shall be computed as follows: (1) CASH AND PROPERTY. Such consideration shall: i) insofar as it consists of cash, be computed at the aggregate amount of cash received by the corporation after deducting any commissions paid by the corporation with respect to such issuance; ii) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issuance, as determined in good faith by the board of directors of the corporation; and iii) if Additional Shares of Common Stock are issued (or, pursuant to Section 3(e)(iv)(C), deemed to be issued) together with other shares or securities or other assets of the corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (i) and (ii) above, as determined in good faith by the board of directors of the corporation. (2) OPTIONS AND CONVERTIBLE SECURITIES. The consideration received by the corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Section 3(e)(iv)(C), relating to Options and Convertible Securities, shall be the sum of (x) the total amount, if any, received or receivable by the corporation as consideration for the issue of such Options or Convertible Securities, plus (y) the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities. (F) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each adjustment or readjustment of a Conversion Price pursuant to this Section 3, the corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Preferred Stock to which such adjustment pertains a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The corporation shall, upon the written request at any time of any holder of Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Prices at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of such holder's Preferred Stock. SECTION 4. VOTING. (a) GENERAL. Except as otherwise required by law, each holder of Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which the shares of Preferred Stock so held could be converted at the record date for determination of the stockholders entitled to vote, or, if no such record date is established, at the date such vote is taken or any written consent of stockholders is solicited. Except as required by law or as otherwise set forth herein (including without limitation Section 4(b)), all shares of all series of Preferred Stock and all shares of Common Stock shall vote together as a single class. Fractional votes by the holders of Preferred Stock shall not, however, be permitted, and any fractional voting rights shall (after aggregating all shares into which shares of Preferred Stock held by each holder could be converted) be rounded down to the nearest whole number. (b) ELECTION OF DIRECTORS. The authorized number of directors of the corporation shall be set forth in the Bylaws of the corporation and may be increased or decreased by an amendment to such Bylaws in accordance with their provisions. For so long as at least 4,434,590 shares of Series A Preferred Stock remain outstanding (as adjusted for recapitalizations, stock combinations, stock dividends, stock splits and the like), the holders of shares of Series A Preferred Stock, voting separately as a class, shall be entitled to elect two (2) directors of the corporation at each election of directors (and to fill any vacancies with respect thereto). For so long as at least 6,492,500 shares of Series B Preferred Stock remain outstanding (as adjusted for recapitalizations, stock combinations, stock dividends, stock splits and the like), the holders of shares of Series B Preferred Stock, voting separately as a class, shall be entitled to elect one (1) director of the corporation at each election of directors (and to fill any vacancies with respect thereto). For so long as at least 7,777,778 shares of Series C Preferred Stock remain outstanding (as adjusted for recapitalizations, stock combinations, stock dividends, stock splits and the like), the holders of Series C Preferred Stock, voting separately as a class, shall be entitled to elect one (1) director of the corporation at each election of directors (and to fill any vacancies with respect thereto). The holders of shares of Common Stock shall be entitled to elect two (2) directors at each election of directors (and to fill any vacancies with respect thereto). All remaining directors, if any, shall be elected by a vote of the holders of shares of Preferred Stock and Common Stock voting together on as-converted to Common Stock basis. (c) APPROVAL BY HOLDERS OF SERIES A PREFERRED STOCK. The corporation shall not, without first obtaining the approval of the holders of not less than a majority of the then outstanding shares of Series A Preferred Stock: (i) authorize, create or issue any shares of any class or series of stock having any preference or priority superior to or on parity with any such preference or priority of the Series A Preferred Stock; (ii) take any action resulting in the repurchase or redemption of shares of Common Stock or Preferred Stock of the corporation, except as set forth in Section 5 hereof or in the Second Amended and Restated Investor Rights Agreement dated on or about August 6, 1999 among the corporation and the purchasers of its Preferred Stock or in the Second Amended and Restated Right of First Refusal and Co-Sale Agreement dated on or about August 6, 1999 among the corporation, purchasers of its Preferred Stock and certain holders of the corporation's Common Stock; (iii) amend or repeal any provision of, or add any provision to, the corporation's Certificate of Incorporation if such action would adversely alter or change in any material respect the rights, preferences, privileges, or restrictions of the Series A Preferred Stock; (iv) effect (x) a consolidation, reorganization or merger of the corporation with or into any other corporation, which would result in the stockholders of the corporation immediately prior to such consolidation, reorganization or merger owning less than 50% of the voting power of the surviving corporation after such consolidation, reorganization or merger or (y) a sale or other disposition of more than 50% of the assets of the corporation in one or a series of related transactions; provided, however, that the provisions of this Section 4(c)(iv) shall not apply if such consolidation, merger, reorganization or sale or other disposition of assets would provide for aggregate per share consideration to each holder of shares of Series A Preferred Stock on an as converted to Common Stock basis, assuming conversion of all outstanding shares of Preferred Stock, of at least $1.804 (as adjusted for any recapitalizations, stock combinations, stock dividends, stock splits and the like); (v) increase the number of authorized shares of Preferred Stock; or (vi) pay any dividends on its Common Stock. (d) APPROVAL BY HOLDERS OF SERIES B PREFERRED STOCK. The corporation shall not, without first obtaining the approval of the holders of not less than a majority of the then outstanding shares of Series B Preferred Stock: (i) authorize, create or issue any shares of any class or series of stock having any preference or priority superior to or on parity with any such preference or priority of the Series B Preferred Stock; (ii) take any action resulting in the repurchase or redemption of shares of Common Stock or Preferred Stock of the corporation, except as set forth in Section 5 hereof or in the Second Amended and Restated Investor Rights Agreement dated on or about August 6, 1999 among the corporation and the purchasers of its Preferred Stock or in the Second Amended and Restated Right of First Refusal and Co-Sale Agreement dated on or about August 6, 1999 among the corporation, purchasers of its Preferred Stock and certain holders of the corporation's Common Stock; (iii) amend or repeal any provision of, or add any provision to, the corporation's Certificate of Incorporation if such action would adversely alter or change in any material respect the rights, preferences, privileges, or restrictions of the Series B Preferred Stock; (iv) effect (x) a consolidation, reorganization or merger of the corporation with or into any other corporation, which would result in the stockholders of the corporation immediately prior to such consolidation, reorganization or merger owning less than 50% of the voting power of the surviving corporation after such consolidation, reorganization or merger or (y) a sale or other disposition of more than 50% of the assets of the corporation in one or a series of related transactions; provided, however, that the provisions of this Section 4(d)(iv) shall not apply if such consolidation, merger, reorganization or sale or other disposition of assets would provide for aggregate per share consideration to each holder of Series B Preferred Stock on an as converted to Common Stock basis, assuming conversion of all outstanding shares of Preferred Stock, of at least $2.50 (as adjusted for any recapitalizations, stock combinations, stock dividends, stock splits and the like); (v) increase the number of authorized shares of Preferred Stock; or (vi) pay any dividends on its Common Stock. (e) APPROVAL BY HOLDERS OF SERIES C PREFERRED STOCK. The corporation shall not, without first obtaining the approval of the holders of not less than a majority of the then outstanding shares of Series C Preferred Stock: (i) authorize, create or issue any shares of any class or series of stock having any preference or priority superior to or on parity with any such preference or priority of the Series C Preferred Stock; (ii) take any action resulting in the repurchase or redemption of shares of Common Stock or Preferred Stock of the corporation, except as set forth in Section 5 hereof or in the Second Amended and Restated Investor Rights Agreement dated on or about August 6, 1999 among the corporation and the purchasers of its Preferred Stock or in the Second Amended and Restated Right of First Refusal and Co-Sale Agreement dated on or about August 6, 1999 among the corporation, purchasers of its Preferred Stock and certain holders of the corporation's Common Stock; (iii) amend or repeal any provision of, or add any provision to, the corporation's Certificate of Incorporation if such action would adversely alter or change in any material respect the rights, preferences, privileges, or restrictions of the Series C Preferred Stock; (iv) effect (x) a consolidation, reorganization or merger of the corporation with or into any other corporation, which would result in the stockholders of the corporation immediately prior to such consolidation, reorganization or merger owning less than 50% of the voting power of the surviving corporation after such consolidation, reorganization or merger or (y) a sale or other disposition of more than 50% of the assets of the corporation in one or a series of related transactions; provided, however, that the provisions of this Section 4(e)(iv) shall not apply if such consolidation, merger, reorganization or sale or other disposition of assets provides for aggregate per share consideration to each holder of Series C Preferred Stock of at least $9.00 (as adjusted for any recapitalizations, stock combinations, stock dividends, stock splits and the like); (v) increase the number of authorized shares of Preferred Stock; or (vi) pay any dividends on its Common Stock. SECTION 5. CONSENT TO DISTRIBUTIONS. Each holder of Preferred Stock shall be deemed to have consented, for purposes of Sections 502, 503 and 506 of the California Corporations Code and Sections 1 and 2 of this Article Four, to distributions made by the corporation in connection with the repurchase of shares of Common Stock from employees, officers, directors or consultants of the corporation in connection with the termination of their employment or services pursuant to agreements or arrangements approved by the board of directors of the corporation. SECTION 6. REACQUIRED SHARES. Any shares of Preferred Stock purchased or otherwise acquired by the corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the board of directors, subject to the conditions and restrictions on issuance set forth herein. SECTION 7. WAIVER OF RIGHTS, PREFERENCES OR PRIVILEGES. (a) Any right, preference or privilege of the Series A Preferred Stock may be waived by a majority of the outstanding shares of Series A Preferred Stock voting on an as converted to Common Stock basis, and such waiver shall be binding on all holders of Series A Preferred Stock. (b) Any right, preference or privilege of the Series B Preferred Stock may be waived by a majority of the outstanding shares of Series B Preferred Stock voting on an as converted to Common Stock basis, and such waiver shall be binding on all holders of Series B Preferred Stock. (c) Any right, preference or privilege of the Series C Preferred Stock may be waived by a majority of the outstanding shares of Series C Preferred Stock voting on an as converted to Common Stock basis, and such waiver shall be binding on all holders of Series C Preferred Stock. FIVE. The corporation is to have perpetual existence. SIX. Effective upon the effective date of the registration of any class of securities of the corporation pursuant to the requirements of the Securities Exchange Act of 1934, as amended (the "Effective Date"): (a) the directors of the corporation shall be divided into three classes as nearly equal in size as is practicable, hereby designated Class I, Class II and Class III. The term of office of the initial Class I directors shall expire at the first regularly-scheduled annual meeting of the stockholders following the Effective Date; the term of office of the initial Class II directors shall expire at the second annual meeting of the stockholders following the Effective Date; and the term of office of the initial Class III directors shall expire at the third annual meeting of the stockholders following the Effective Date. At each annual meeting of stockholders, commencing with the first regularly-scheduled annual meeting of stockholders following the Effective Date, each successor elected as a director of a Class whose term shall have expired at such annual meeting shall be elected to hold office until the third annual meeting next succeeding his or her election and until his or her respective successor shall have been duly elected and qualified. (b) no action that is required or permitted to be taken by the stockholders of the corporation at any annual or special meeting of stockholders may be effected by written consent of stockholders in lieu of a meeting of stockholders. SEVEN. In furtherance and not in limitation of the powers conferred by statute, the board of directors of the corporation is expressly authorized to make, alter, amend or repeal the Bylaws of the corporation. EIGHT. Elections of directors need not be by written ballot unless the Bylaws of the corporation shall so provide. NINE. The number of directors which constitute the whole Board of Directors of the corporation shall be designated in the Bylaws of the corporation and may be fixed from time to time by the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board of Directors for adoption). At each annual meeting of stockholders, directors of the corporation shall be elected to hold office until the expiration of the term for which they are elected and until their successors have been duly elected and qualified; except that if any such election shall not be so held, such election shall take place at a stockholders' meeting called and held in accordance with the General Corporation Law. TEN. Vacancies occurring on the Board of Directors for any reason and newly created directorships resulting from an increase in the authorized number of directors may be filled only by vote of a majority of the remaining members of the Board of Directors, although less than a quorum, at any meeting of the Board of Directors or by unanimous written consent of the Board of Directors. A person so elected by the Board of Directors to fill a vacancy or newly created directorship shall hold office until the next election of the Class for which such director shall have been chosen and until his or her successor shall have been duly elected and qualified. ELEVEN. Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws of the corporation may provide. The books of the corporation may be kept outside of the State of Delaware at such place or places as may be designated from time to time by the board of directors of the corporation or in the Bylaws of the corporation. TWELVE. (a) To the fullest extent permitted by the Delaware General Corporation Law as the same exists or as may hereafter be amended, a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach fiduciary duty as a director. (b) The corporation shall indemnify to the fullest extent permitted by law any person made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he, his testator or intestate is or was a director, officer or employee of the corporation or any predecessor of the corporation or serves or served at any other enterprise as a director, officer or employee at the request of the corporation or any predecessor to the corporation. (c) Neither any amendment nor repeal of this Article TWELVE, nor the adoption of any provision of this corporation's Certificate of Incorporation inconsistent with this Article TWELVE, shall eliminate or reduce the effect of this Article TWELVE, in respect of any matter occurring, or any action or proceeding accruing or arising or that, but for this Article TWELVE, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision. THIRTEEN. Advance notice of new business and stockholder nominations for the election of directors shall be given in the manner and to the extent provided in the Bylaws of the corporation. FOURTEEN The corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. 4. The foregoing amendment and restatement of the Certificate of Incorporation has been duly approved by the board of directors of the corporation in accordance with the provisions of Sections 242 and 245 of the General Corporation Law. 5. The foregoing amendment and restatement of the Certificate of Incorporation has been duly approved by the written consent of the stockholders in accordance with Sections 228 and 245 of the General Corporation Law. The total number of outstanding shares of Common Stock of the corporation is [21,855,088]. The total number of outstanding shares of Series A Preferred Stock of the corporation is 8,869,179. The total number of shares of Series B Preferred Stock of the corporation is 12,985,000. The total number of shares of Series C Preferred Stock of the corporation is 15,677,778. The number of shares held by stockholders who consented to this amendment in writing equaled or exceeded the required percentage. The percentages required were (i) more than 50% of the outstanding shares of Series A Preferred Stock, (ii) more than 50% of the outstanding shares of Series B Preferred Stock, (iii) more than 50% of the outstanding shares of Series B Preferred Stock, and (iv) more than 50% of the outstanding shares of capital stock of the corporation voting as one class on an as-converted to Common Stock basis. Pursuant to Section 228 of the General Corporation Law, prompt written notice of this amendment and restatement has been given to all stockholders who did not consent to this amendment. IN WITNESS WHEREOF, the corporation has caused this Amended and Restated Certificate of Incorporation to be signed by Keith W. Teare, its Chief Executive Officer, and attested to by Richard Steele, its Secretary, this ___ day of ____________ ___, 1999. REALNAMES CORPORATION -------------------------------------- Keith Teare President and Chief Executive Officer ATTEST: - -------------------------------- Richard Steele Secretary EX-3.2 4 EXHIBIT 3.2 Exhibit 3.2 AMENDED BYLAWS OF REALNAMES CORPORATION Adopted on ____________,1999 TABLE OF CONTENTS
PAGE ---- ARTICLE I CORPORATE OFFICES . . . . . . . . . . . . . . . . . . . . . . 1 1.1 EFFECTIVE DATE . . . . . . . . . . . . . . . . . . . . . . 1 1.2 REGISTERED OFFICE. . . . . . . . . . . . . . . . . . . . . 1 1.3 OTHER OFFICES. . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II MEETINGS OF STOCKHOLDERS . . . . . . . . . . . . . . . . . . 1 2.1 PLACE OF MEETINGS. . . . . . . . . . . . . . . . . . . . . 1 2.2 ANNUAL MEETING . . . . . . . . . . . . . . . . . . . . . . 1 2.3 SPECIAL MEETING. . . . . . . . . . . . . . . . . . . . . . 2 2.4 NOTICE OF STOCKHOLDERS' MEETINGS . . . . . . . . . . . . . 2 2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE . . . . . . . 4 2.7 QUORUM . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.8 ADJOURNED MEETING; NOTICE. . . . . . . . . . . . . . . . . 4 2.9 VOTING . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.10 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT. . . . . 5 2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.12 PROXIES. . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.13 ORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . 6 2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE. . . . . . . . . . . 7 2.15 INSPECTORS OF ELECTION . . . . . . . . . . . . . . . . . . 7 ARTICLE III DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.1 POWERS . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.2 NUMBER OF DIRECTORS. . . . . . . . . . . . . . . . . . . . 8 3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS . . . . . . . . . 8 3.4 RESIGNATION AND VACANCIES. . . . . . . . . . . . . . . . . 9 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE . . . . . . . . .10 3.6 FIRST MEETINGS . . . . . . . . . . . . . . . . . . . . . .10 3.7 REGULAR MEETINGS . . . . . . . . . . . . . . . . . . . . .10 3.8 SPECIAL MEETINGS; NOTICE . . . . . . . . . . . . . . . . .11 3.9 QUORUM . . . . . . . . . . . . . . . . . . . . . . . . . .11 3.10 WAIVER OF NOTICE . . . . . . . . . . . . . . . . . . . . .11 3.11 ADJOURNED MEETING; NOTICE. . . . . . . . . . . . . . . . .12 3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING. . . . .12 3.13 FEES AND COMPENSATION OF DIRECTORS . . . . . . . . . . . .12 3.14 APPROVAL OF LOANS TO OFFICERS. . . . . . . . . . . . . . .12 3.15 REMOVAL OF DIRECTORS . . . . . . . . . . . . . . . . . . .12 -i- TABLE OF CONTENTS (CONTINUED) PAGE ---- ARTICLE IV COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . .13 4.1 COMMITTEES OF DIRECTORS. . . . . . . . . . . . . . . . . .13 4.2 COMMITTEE MINUTES. . . . . . . . . . . . . . . . . . . . .13 4.3 MEETINGS AND ACTION OF COMMITTEES. . . . . . . . . . . . .13 ARTICLE V OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . .14 5.1 OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . .14 5.2 ELECTION OF OFFICERS . . . . . . . . . . . . . . . . . . .14 5.3 SUBORDINATE OFFICERS . . . . . . . . . . . . . . . . . . .14 5.4 REMOVAL AND RESIGNATION OF OFFICERS. . . . . . . . . . . .14 5.5 VACANCIES IN OFFICES . . . . . . . . . . . . . . . . . . .15 5.6 CHAIRMAN OF THE BOARD. . . . . . . . . . . . . . . . . . .15 5.7 PRESIDENT. . . . . . . . . . . . . . . . . . . . . . . . .15 5.8 VICE PRESIDENT . . . . . . . . . . . . . . . . . . . . . .15 5.9 SECRETARY. . . . . . . . . . . . . . . . . . . . . . . . .15 5.10 CHIEF FINANCIAL OFFICER. . . . . . . . . . . . . . . . . .16 5.11 ASSISTANT SECRETARY. . . . . . . . . . . . . . . . . . . .16 5.12 AUTHORITY AND DUTIES OF OFFICERS . . . . . . . . . . . . .16 ARTICLE VI INDEMNITY. . . . . . . . . . . . . . . . . . . . . . . . . .16 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS. . . . . . . . .17 6.2 INDEMNIFICATION OF OTHERS. . . . . . . . . . . . . . . . .17 6.3 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . .18 6.4 SAVINGS CLAUSE . . . . . . . . . . . . . . . . . . . . . .18 6.5 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES. . . . . . . . . . . . . . . . . . . . . . . .18 ARTICLE VII RECORDS AND REPORTS . . . . . . . . . . . . . . . . . . . .18 7.1 MAINTENANCE AND INSPECTION OF RECORDS. . . . . . . . . . .18 7.2 INSPECTION BY DIRECTORS. . . . . . . . . . . . . . . . . .19 7.3 ANNUAL STATEMENT TO STOCKHOLDERS . . . . . . . . . . . . .19 7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS . . . . . .19 ARTICLE VIII GENERAL MATTERS. . . . . . . . . . . . . . . . . . . . . .19 8.1 CHECKS . . . . . . . . . . . . . . . . . . . . . . . . . .19 8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS . . . . .20 8.3 STOCK CERTIFICATES; PARTLY PAID SHARES . . . . . . . . . .20 8.4 SPECIAL DESIGNATION ON CERTIFICATES. . . . . . . . . . . .20 8.5 LOST CERTIFICATES. . . . . . . . . . . . . . . . . . . . .21 8.6 TRANSFER AGENTS AND REGISTRARS . . . . . . . . . . . . . .21 -ii- TABLE OF CONTENTS (CONTINUED) PAGE ---- 8.7 CONSTRUCTION; DEFINITIONS. . . . . . . . . . . . . . . . .21 8.8 DIVIDENDS. . . . . . . . . . . . . . . . . . . . . . . . .21 8.9 FISCAL YEAR. . . . . . . . . . . . . . . . . . . . . . . .22 8.10 SEAL . . . . . . . . . . . . . . . . . . . . . . . . . . .22 8.11 TRANSFER OF STOCK. . . . . . . . . . . . . . . . . . . . .22 8.12 STOCK TRANSFER AGREEMENTS. . . . . . . . . . . . . . . . .22 8.13 REGISTERED STOCKHOLDERS. . . . . . . . . . . . . . . . . .22 ARTICLE IX AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . .22 ARTICLE X DISSOLUTION . . . . . . . . . . . . . . . . . . . . . . . . .23 ARTICLE XI CUSTODIAN. . . . . . . . . . . . . . . . . . . . . . . . . .23 11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES. . . . . . . .23 11.2 DUTIES OF CUSTODIAN. . . . . . . . . . . . . . . . . . . .24
-iii- AMENDED BYLAWS OF REALNAMES CORPORATION ARTICLE I CORPORATE OFFICES 1.1 EFFECTIVE DATE These bylaws shall become effective upon the effective date of the registration of any class of securities of the corporation pursuant to the requirements of the Securities Exchange Act of 1934, as amended (the "Effective Date"). 1.2 REGISTERED OFFICE The registered office of the corporation shall be at 1209 Orange Street, in the City of Wilmington, County of New Castle, State of Delaware. The name of the registered agent of the corporation at such location is The Corporation Trust Company. 1.3 OTHER OFFICES The board of directors may at any time establish other offices at any place or places where the corporation is qualified to do business. ARTICLE II MEETINGS OF STOCKHOLDERS 2.1 PLACE OF MEETINGS Meetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the board of directors. In the absence of any such designation, stockholders' meetings shall be held at the principal executive office of the corporation. 2.2 ANNUAL MEETING The annual meeting of stockholders shall be held each year on a date and at a time designated by the board of directors. In the absence of such designation, the annual meeting of stockholders shall be held on the 10th of June in each year at 10:00 a.m. Pacific Time. However, if such day falls on a legal holiday, then the meeting shall be held at the same time and place on the next succeeding full business day. At the meeting, directors shall be elected and any other proper business may be transacted if brought before the meeting in accordance with Section 2.5 hereof. 2.3 SPECIAL MEETING A special meeting of the stockholders may be called at any time by the board of directors, or by the chairman of the board, or by the president. 2.4 NOTICE OF STOCKHOLDERS' MEETINGS Except as otherwise provided by the General Corporation Law of Delaware or the certificate of incorporation notices of all meetings with stockholders shall be sent or otherwise given in accordance with Section 2.6 of these bylaws not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting. The notice shall specify the place, date and hour of the meeting and (i) in the case of a special meeting, the purpose or purposes for which the meeting is called, and no business other than that specified in the notice may be transacted or (ii) in the case of the annual meeting, those matters which the board of directors, at the time of giving the notice, intends to present for action by the stockholders. The notice of any meeting at which directors are to be elected shall include the name of any nominee or nominees who, at the time of the notice, the board intends to present for election. 2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS (a) To be properly brought before an annual meeting, nominations for the election of directors or other business must be (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors, (ii) otherwise properly brought before the meeting by or at the direction of the board of directors or (iii) otherwise properly brought before the meeting by a stockholder in accordance with Section 2.5(b). To be properly brought before a special meeting, nominations for the election of directors or other business must be specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors. (b) For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the secretary of the corporation. To be timely, a stockholder's notice shall be delivered to the secretary at the principal executive offices of the Corporation not later than the close of business on the one hundred twentieth (120th) day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the meeting is advanced more than thirty (30) days prior to or delayed by more than thirty (30) days after the anniversary of the preceding year's annual meeting, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the one hundred twentieth (120th) day prior to such annual meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such annual meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made. A stockholder's notice to the secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before -2- the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the corporation's books, of the stockholder proposing such business, (iii) the class and number of shares of the corporation which are beneficially owned by the stockholder, (iv) any material interest of the stockholder in such business and (v) any other information that is required to be provided by the stockholder pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), in his capacity as a proponent to a stockholder proposal. Notwithstanding the foregoing, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholder's meeting, stockholders must provide notice as required by the regulations promulgated under the Exchange Act. Notwithstanding anything in these bylaws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this Section 2.5. The chairman of the annual meeting shall, if the facts warrant, determine and declare at the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Section 2.5, and, if he or she should so determine, he or she shall so declare at the meeting that any such business not properly brought before the meeting shall not be transacted. (c) Only persons who are nominated in accordance with the procedures set forth in this paragraph (c) shall be eligible for election as directors. Nominations of persons for election to the board of directors of the corporation may be made at a meeting of stockholders by or at the direction of the board of directors or by any stockholder of the corporation entitled to vote in the election of directors at the meeting who complies with the notice procedures set forth in this paragraph (c). Such nominations, other than those made by or at the direction of the board of directors, shall be made pursuant to timely notice in writing to the secretary of the corporation in accordance with the provisions of paragraph (b) of this Section 2.5. Such stockholder's notice shall set forth (i) as to such stockholder giving notice, the information required to be provided pursuant to paragraph (b) of this Section 2.5; and (ii) as to each person, if any, whom the stockholder proposes to nominate for election or re-election as a director: (A) the name, age, business address and residence address of such person, (B) the principal occupation or employment of such person, (C) the class and number of shares of the corporation which are beneficially owned by such person, (D) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nominations are to be made by the stockholder and (E) any other information relating to such person that is required to be disclosed in solicitations of proxies for elections of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including without limitation such person's written consent to being named in the proxy statement, if any, as a nominee and to serving as a director if elected). At the request of the board of directors, any person nominated by a stockholder for election as a director shall furnish to the secretary of the corporation that information required to be set forth in the stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this paragraph (c). The chairman of the meeting shall, if the facts warrant, determine and declare at the meeting that a nomination was not made in accordance with the procedures prescribed by these bylaws, and if he should so determine, he shall so declare at the meeting, and the defective nomination shall be disregarded. -3- 2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE Written notice of any meeting of stockholders shall be given either personally or by first-class mail or by telegraphic, telefacsimile or other written communication. Notices not personally delivered shall be sent charges prepaid and shall be addressed to the stockholder at the address of that stockholder appearing on the books of the corporation or given by the stockholder to the corporation for the purpose of notice. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram, telefacsimile or other means of written communication. If any notice addressed to a stockholder at the address of that stockholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the stockholder at that address, then all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available to the stockholder on written demand of the stockholder at the principal executive office of the corporation for a period of one (1) year from the date of the giving of the notice. An affidavit of the mailing or other means of giving any notice of any stockholders' meeting, executed by the secretary, assistant secretary or any transfer agent of the corporation giving the notice, shall be prima facie evidence of the giving of such notice. 2.7 QUORUM The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. Where a separate vote by a class or classes is required, a majority, present in person or by proxy, of the shares of such class or classes entitled to take action with respect to that vote on that matter shall constitute a quorum. If, however, such quorum is not present or represented at any meeting of the stockholders, then either (i) the chairman of the meeting or (ii) the holders of a majority of the shares represented at the meeting and entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting in accordance with Section 2.8 hereof. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which, by express provision of the laws of the State of Delaware or of the certificate of incorporation or these bylaws, a different vote is required, in which case such express provision shall govern and control the decision of the question. If a quorum be initially present, the stockholders may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum, if any action taken is approved by a majority of the stockholders initially constituting the quorum. 2.8 ADJOURNED MEETING; NOTICE Any stockholders' meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by (i) the chairman of the meeting or (ii) the vote of the holders of a -4- majority of the shares represented at that meeting and entitled to vote thereat, either in person or by proxy. In the absence of a quorum, no other business may be transacted at that meeting except as provided in Section 2.7 of these bylaws. When a meeting is adjourned to another time or place, unless these bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 2.9 VOTING The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.11 of these bylaws, subject to the provisions of Sections 217 and 218 of the General Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners of stock and to voting trusts and other voting agreements). Except as may be otherwise provided in the certificate of incorporation or these bylaws, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder. Any stockholder entitled to vote on any matter may vote part of the shares in favor of the proposal, refrain from voting the remaining shares, or may vote them against the proposal; but, if the stockholder fails to specify the number of shares which the stockholder is voting affirmatively, it will be conclusively presumed that the stockholder's approving vote is with respect to all shares which the stockholder is entitled to vote. 2.10 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT The transactions of any meeting of stockholders, either annual or special, however called and noticed, and wherever held, shall be as valid as though they had been taken at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each person entitled to vote, who was not present in person or by proxy, signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. The waiver of notice or consent or approval need not specify either the business to be transacted or the purpose of any annual or special meeting of stockholders. All such waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. 2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect -5- of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action, and in such event only stockholders of record on the date so fixed are entitled to notice and to vote, notwithstanding any transfer of any shares on the books of the corporation after the record date. If the board of directors does not so fix a record date: (i) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. (ii) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. 2.12 PROXIES Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for him by a written proxy, signed by the stockholder and filed with the secretary of the corporation, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A proxy shall be deemed signed if the stockholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission, telefacsimile or otherwise) by the stockholder or the stockholder's attorney-in-fact. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(e) of the General Corporation Law of Delaware. 2.13 ORGANIZATION The president, or in the absence of the president, the chairman of the board, and in the absence of the chairman of the board, the vice presidents, in order of their rank as fixed by the board of directors, shall call the meeting of the stockholders to order, and shall act as chairman of the meeting. In the absence of the president, the chairman of the board, and all of the vice presidents, the stockholders shall appoint a chairman for such meeting. The chairman of any meeting of stockholders shall determine the order of business and the procedures at the meeting, including such matters as the regulation of the manner of voting and the conduct of business. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting. The secretary of the corporation shall act as secretary of all meetings of the stockholders, but in the absence of the secretary at any meeting of the stockholders, the chairman of the meeting may appoint any person to act as secretary of the meeting. -6- 2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list of stockholders or the books of the corporation, or to vote in person or by proxy at any meeting of stockholders and of the number of shares held by each such stockholder. 2.15 INSPECTORS OF ELECTION The corporation may, and to the extent required by law, shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting may, and to the extent required by law, shall, appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability. Every vote taken by ballots shall be counted by an inspector or inspectors appointed by the chairman of the meeting. Such inspectors shall: (a) determine the number of shares outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies; (b) receive votes, ballots or consents; (c) hear and determine all challenges and questions in any way arising in connection with the right to vote; (d) count and tabulate all votes or consents; (e) determine when the polls shall close; -7- (f) determine and certify the result; and (g) do any other acts that may be proper to conduct the election or vote with fairness to all stockholders. ARTICLE III DIRECTORS 3.1 POWERS Subject to the provisions of the General Corporation Law of Delaware and to any limitations in the certificate of incorporation or these bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors. 3.2 NUMBER OF DIRECTORS The board of directors shall consist of six (6) members. The number of directors may be changed by an amendment to this bylaw, duly adopted by the board of directors or by the stockholders, or by a duly adopted amendment to the certificate of incorporation. No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires. If for any cause, the directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient at a special meeting of the stockholders called for that purpose in the manner provided in these bylaws. 3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS Except as provided in Section 3.4 of these bylaws, directors shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified; except that if any such election shall not be so held, such election shall take place at a stockholder's meeting called and held in accordance with the General Corporation Law of Delaware. The directors of the corporation shall be divided into three classes as nearly equal in size as is practicable, hereby designated Class I, Class II and Class III. The term of office of the initial Class I directors shall expire at the first regularly-scheduled annual meeting of the stockholders following the Effective Date, the term of office of the initial Class II directors shall expire at the second annual meeting of the stockholders following the Effective Date and the term of office of the initial Class III directors shall expire at the third annual meeting of the stockholders following the Effective Date. At each annual meeting of stockholders, commencing with the first regularly-scheduled annual meeting of stockholders following the Effective Date, each of the successors elected to replace the directors of a Class whose term shall have expired at such annual meeting shall be elected to hold office until the third annual meeting next succeeding his or her election and until his or her respective successor shall have been duly elected and qualified. If the number of directors is -8- hereafter changed, any newly created directorships or decrease in directorships shall be so apportioned among the classes as to make all classes as nearly equal in number as is practicable, provided that no decrease in the number of directors constituting the board of directors shall shorten the term of any incumbent director. Directors need not be stockholders unless so required by the certificate of incorporation or these bylaws, wherein other qualifications for directors may be prescribed. Elections of directors need not be by written ballot. 3.4 RESIGNATION AND VACANCIES Any director may resign effective on giving written notice to the chairman of the board, the president, the secretary or the board of directors, unless the notice specifies a later time for that resignation to become effective. If the resignation of a director is effective at a future time, only a majority of the board of directors then in office, including those who have so resigned (until the effective date of such resignation), shall have the power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective. Vacancies in the board of directors may be filled by a majority of the remaining directors, even if less than a quorum, or by a sole remaining director; however, a vacancy created by the removal of a director by the vote of the stockholders or by court order may be filled only by the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute a majority of the required quorum). Each director so elected shall hold office until the next annual meeting of the stockholders and until a successor has been elected and qualified. Unless otherwise provided in the certificate of incorporation or these bylaws: (i) Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled only by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. (ii) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the certificate of incorporation, vacancies and newly created directorships of such class or classes or series may be filled only by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. In the event that no directors elected by such class or classes of stock or series remain, the majority of the other directors then in office, although less than a quorum, or a sole remaining director may fill such vacancy or vacancies. If at any time, by reason of death or resignation or other cause, the corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate -9- of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the certificate of incorporation or these bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the General Corporation Law of Delaware. If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole board (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten (10) percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the General Corporation Law of Delaware as far as applicable. 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE The board of directors of the corporation may hold meetings, both regular and special, either within or outside the State of Delaware. Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the board of directors, or any committee designated by the board of directors, may participate in a meeting of the board of directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. 3.6 FIRST MEETINGS The first meeting of each newly elected board of directors shall be held at such time and place as shall be fixed by the vote of the stockholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. In the event of the failure of the stockholders to fix the time or place of such first meeting of the newly elected board of directors, or in the event such meeting is not held at the time and place so fixed by the stockholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the board of directors, or as shall be specified in a written waiver signed by all of the directors. 3.7 REGULAR MEETINGS Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board. -10- 3.8 SPECIAL MEETINGS; NOTICE Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board, the president, any vice president, the secretary or any two (2) directors. Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of the corporation. If the notice is mailed, it shall be deposited in the United States mail at least two (2) days before the time of the holding of the meeting. If the notice is delivered personally or by telephone or by telegram, it shall be delivered personally or by telephone or to the telegraph company at least four (4) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. If the meeting is to be held at the principal executive office of the corporation the notice need not specify the place of the meeting. Moreover, a notice of special meeting need not state the purpose of such meeting, and, unless indicated in the notice thereof, any and all business may be transacted at a special meeting. 3.9 QUORUM At all meetings of the board of directors, a majority of the authorized number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute, by the certificate of incorporation or by these bylaws. If a quorum is not present at any meeting of the board of directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. 3.10 WAIVER OF NOTICE Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice unless so required by the certificate of incorporation or these bylaws. -11- 3.11 ADJOURNED MEETING; NOTICE If a quorum is not present at any meeting of the board of directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. 3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the board of directors, or of any committee thereof, may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the board or committee Such action by written consent shall have the same force and effect as a unanimous vote of the board of directors. 3.13 FEES AND COMPENSATION OF DIRECTORS Directors and members of committees may receive such compensation, if any, for their services and such reimbursement of expenses as may be fixed or determined by resolution of the board of directors. This Section 3.13 shall not be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee or otherwise and receiving compensation for those services. Members of special or standing committees may be allowed like compensation for attending committee meetings. 3.14 APPROVAL OF LOANS TO OFFICERS The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiary, including any officer or employee who is a director of the corporation or its subsidiary, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the board of directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in this Section 3.14 shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. 3.15 REMOVAL OF DIRECTORS Unless otherwise restricted by statute, by the certificate of incorporation or by these bylaws, any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director's term of office. -12- ARTICLE IV COMMITTEES 4.1 COMMITTEES OF DIRECTORS The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, with each committee to consist of one or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the board of directors or in the bylaws of the corporation, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority to (i) amend the certificate of incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the board of directors as provided in Section 151(a) of the General Corporation Law of Delaware, fix any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation), (ii) adopt an agreement of merger or consolidation under Sections 251 or 252 of the General Corporation Law of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, (iv) recommend to the stockholders a dissolution of the corporation or a revocation of a dissolution or (v) amend the bylaws of the corporation; and, unless the board resolution establishing the committee, the bylaws or the certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of Delaware. 4.2 COMMITTEE MINUTES Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. 4.3 MEETINGS AND ACTION OF COMMITTEES Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these bylaws, Section 3.5 (place of meetings and meetings by telephone), Section 3.7 (regular meetings), Section 3.8 (special meetings and notice), Section 3.9 (quorum), Section 3.10 (waiver of notice), Section 3.11 (adjournment and notice of adjournment), and Section 3.12 (action without a meeting), with such changes in the context of those bylaws as are -13- necessary to substitute the committee and its members for the board of directors and its members; provided, however, that the time of regular meetings of committees may also be called by resolution of the board of directors and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws. ARTICLE V OFFICERS 5.1 OFFICERS The officers of the corporation shall be a president, one or more vice presidents, a secretary, and a chief financial officer. The corporation may also have, at the discretion of the board of directors, a chairman of the board, one or more assistant vice presidents, assistant secretaries, and any such other officers as may be appointed in accordance with the provisions of Section 5.3 of these bylaws. Any number of offices may be held by the same person. 5.2 ELECTION OF OFFICERS The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Sections 5.3 or 5.5 of these bylaws, shall be chosen by the board of directors, subject to the rights, if any, of an officer under any contract of employment. 5.3 SUBORDINATE OFFICERS The board of directors may appoint, or empower the president to appoint, such other officers and agents as the business of the corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the board of directors may from time to time determine. 5.4 REMOVAL AND RESIGNATION OF OFFICERS Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the board of directors at any regular or special meeting of the board or, except in the case of an officer chosen by the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors. Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. -14- 5.5 VACANCIES IN OFFICES Any vacancy occurring in any office of the corporation shall be filled by the board of directors. 5.6 CHAIRMAN OF THE BOARD The chairman of the board, if such an officer be elected, shall, if present, preside at meetings of the board of directors and exercise and perform such other powers and duties as may from time to time be assigned to him by the board of directors or as may be prescribed by these bylaws. If there is no president, then the chairman of the board shall also be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 5.7 of these bylaws. 5.7 PRESIDENT Subject to such supervisory powers, if any, as may be given by the board of directors to the chairman of the board, if there be such an officer, the president shall be the chief executive officer of the corporation and shall, subject to the control of the board of directors, have general supervision, direction, and control of the business and the officers of the corporation. He shall preside at all meetings of the shareholders and, in the absence or nonexistence of a chairman of the board, at all meetings of the board of directors. He shall have the general powers and duties of management usually vested in the office of president of a corporation and shall have such other powers and duties as may be prescribed by the board of directors or these bylaws. 5.8 VICE PRESIDENT In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors, these bylaws, the president or the chairman of the board. 5.9 SECRETARY The secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the board of directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and shareholders. The minutes shall show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those present at directors' meetings or committee meetings, the number of shares present or represented at shareholders' meetings, and the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the board of directors, a share register, or a duplicate share register, showing the names of all -15- shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of the shareholders and of the board of directors required to be given by law or by these bylaws. He shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the board of directors or by these bylaws. 5.10 CHIEF FINANCIAL OFFICER The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director. The chief financial officer shall deposit all money and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the board of directors. He shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the president and directors, whenever they request it, an account of all of his transactions as chief financial officer and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the board of directors or these bylaws. 5.11 ASSISTANT SECRETARY The assistant secretary, or, if there is more than one, the assistant secretaries in the order determined by the stockholders or board of directors (or if there be no such determination, then in the order of their election) shall, in the absence of the secretary or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors or the stockholders may from time to time prescribe. 5.12 AUTHORITY AND DUTIES OF OFFICERS In addition to the foregoing authority and duties, all officers of the corporation shall respectively have such authority and perform such duties in the management of the business of the corporation as may be designated from time to time by the board of directors or the stockholders. ARTICLE VI INDEMNITY -16- 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS The corporation shall, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware as the same now exists or may hereafter be amended, indemnify any person against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred in connection with any threatened, pending or completed action, suit, or proceeding in which such person was or is a party or is threatened to be made a party by reason of the fact that such person is or was a director or officer of the corporation. For purposes of this Section 6.1, a "director" or "officer" of the corporation shall mean any person (i) who is or was a director or officer of the corporation, (ii) who is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise or (iii) who was a director or officer of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. The corporation shall be required to indemnify a director or officer in connection with an action, suit, or proceeding (or part thereof) initiated by such director or officer only if the initiation of such action, suit, or proceeding (or part thereof) by the director or officer was authorized by the board of directors of the corporation. The corporation shall pay the expenses (including attorney's fees) incurred by a director or officer of the corporation entitled to indemnification hereunder in defending any action, suit or proceeding referred to in this Section 6.1 in advance of its final disposition; provided, however, that payment of expenses incurred by a director or officer of the corporation in advance of the final disposition of such action, suit or proceeding shall be made only upon receipt of an undertaking by the director or officer to repay all amounts advanced if it should ultimately be determined that the director or officer is not entitled to be indemnified under this Section 6.1 or otherwise. The rights conferred on any person by this Article shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the corporation's Certificate of Incorporation, these bylaws, agreement, vote of the stockholders or disinterested directors or otherwise. Any repeal or modification of the foregoing provisions of this Article shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. 6.2 INDEMNIFICATION OF OTHERS The corporation shall have the power, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware as the same now exists or may hereafter be amended, to indemnify any person (other than directors and officers) against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred in connection with any threatened, pending or completed action, suit, or proceeding, in which such person was or is a party or is threatened to be made a party by reason of the fact that such person is or was an employee or agent of the corporation. For purposes of this Section 6.2, an "employee" or "agent" of -17- the corporation (other than a director or officer) shall mean any person (i) who is or was an employee or agent of the corporation, (ii) who is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise or (iii) who was an employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.3 INSURANCE The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of the General Corporation Law of Delaware. 6.4 SAVINGS CLAUSE If this Article VI or any portion thereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each director, officer, employee or agent of the corporation against expenses (including attorney's fees), judgments, fines and amounts paid in settlement with respect to any action, suit, proceeding or investigation, whether civil, criminal or administrative, and whether internal or external, including a grand jury proceeding and an action or suit brought by or in the right of the corporation, to the full extent permitted by any applicable portion of this Article that shall not have been invalidated, or by any other applicable law. 6.5 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VI shall, unless otherwise prided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. ARTICLE VII RECORDS AND REPORTS 7.1 MAINTENANCE AND INSPECTION OF RECORDS The corporation shall, either at its principal executive office or at such place or places as designated by the board of directors, keep a record of its shareholders listing their names and addresses and the number and class of shares held by each shareholder, a copy of these bylaws as amended to date, accounting books, and other records. -18- Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in Delaware or at its principal place of business. 7.2 INSPECTION BY DIRECTORS Any director shall have the right to examine the corporation's stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper. 7.3 ANNUAL STATEMENT TO STOCKHOLDERS The board of directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation. 7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS The chairman of the board, the president, any vice president, the chief financial officer, the secretary or assistant secretary of this corporation, or any other person authorized by the board of directors or the president or a vice president, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority. ARTICLE VIII GENERAL MATTERS 8.1 CHECKS From time to time, the board of directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other -19- evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments. 8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS The board of directors, except as otherwise provided in these bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. 8.3 STOCK CERTIFICATES; PARTLY PAID SHARES The shares of a corporation shall be represented by certificates, provided that the board of directors of the corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the adoption of such a resolution by the board of directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the corporation by the chairman or vice-chairman of the board of directors, or the president or vice-president, and by the chief financial officer, or the secretary or an assistant secretary of such corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, upon the books and records of the corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon. 8.4 SPECIAL DESIGNATION ON CERTIFICATES If the corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue to represent such class or series of -20- stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock a statement that the corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. 8.5 LOST CERTIFICATES Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and canceled at the same time. The corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares. 8.6 TRANSFER AGENTS AND REGISTRARS The board of directors may appoint one or more transfer agents or transfer clerks, and one or more registrars, each of which shall be an incorporated bank or trust company, either domestic or foreign, which shall be appointed at such times and places as the requirements of the corporation may necessitate and the board of directors may designate. 8.7 CONSTRUCTION; DEFINITIONS Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Delaware General Corporation Law shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. 8.8 DIVIDENDS The directors of the corporation, subject to any restrictions contained in the certificate of incorporation, may declare and pay dividends upon the shares of its capital stock pursuant to the General Corporation Law of Delaware. Dividends may be paid in cash, in property, or in shares of the corporation's capital stock. The directors of the corporation may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the corporation, and meeting contingencies. -21- 8.9 FISCAL YEAR The fiscal year of the corporation shall be fixed by resolution of the board of directors and may be changed by the board of directors. 8.10 SEAL This corporation may have a corporate seal which may be adopted or altered at the pleasure of the Board of directors, and may use the same by causing it or a facsimile thereof, to be impressed or affixed or in any manner reproduced. 8.11 TRANSFER OF STOCK Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books. 8.12 STOCK TRANSFER AGREEMENTS The corporation shall have power to enter into and perform any agreement with any number of shareholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Delaware. 8.13 REGISTERED STOCKHOLDERS The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE IX AMENDMENTS The original or other bylaws of the corporation may be adopted, amended or repealed by the stockholders entitled to vote; provided, however, that the corporation may, in its certificate of incorporation, confer the power to adopt, amend or repeal bylaws upon the directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal bylaws. -22- ARTICLE X DISSOLUTION If it should be deemed advisable in the judgment of the board of directors of the corporation that the corporation should be dissolved, the board, after the adoption of a resolution to that effect by a majority of the whole board at any meeting called for that purpose, shall cause notice to be mailed to each stockholder entitled to vote thereon of the adoption of the resolution and of a meeting of stockholders to take action upon the resolution. At the meeting a vote shall be taken for and against the proposed dissolution. If a majority of the outstanding stock of the corporation entitled to vote thereon votes for the proposed dissolution, then a certificate stating that the dissolution has been authorized in accordance with the provisions of Section 275 of the General Corporation Law of Delaware and setting forth the names and residences of the directors and officers shall be executed, acknowledged, and filed and shall become effective in accordance with Section 103 of the General Corporation Law of Delaware. Upon such certificate's becoming effective in accordance with Section 103 of the General Corporation Law of Delaware, the corporation shall be dissolved. Whenever all the stockholders entitled to vote on a dissolution consent in writing, either in person or by duly authorized attorney, to a dissolution, no meeting of directors or stockholders shall be necessary. The consent shall be filed and shall become effective in accordance with Section 103 of the General Corporation Law of Delaware. Upon such consent's becoming effective in accordance with Section 103 of the General Corporation Law of Delaware, the corporation shall be dissolved. If the consent is signed by an attorney, then the original power of attorney or a photocopy thereof shall be attached to and filed with the consent. The consent filed with the Secretary of State shall have attached to it the affidavit of the secretary or some other officer of the corporation stating that the consent has been signed by or on behalf of all the stockholders entitled to vote on a dissolution; in addition, there shall be attached to the consent a certification by the secretary or some other officer of the corporation setting forth the names and residences of the directors and officers of the corporation. ARTICLE XI CUSTODIAN 11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES The Court of Chancery, upon application of any stockholder, may appoint one or more persons to be custodians and, if the corporation is insolvent, to be receivers, of and for the corporation when: -23- (i) at any meeting held for the election of directors the stockholders are so divided that they have failed to elect successors to directors whose terms have expired or would have expired upon qualification of their successors; or (ii) the business of the corporation is suffering or is threatened with irreparable injury because the directors are so divided respecting the management of the affairs of the corporation that the required vote for action by the board of directors cannot be obtained and the stockholders are unable to terminate this division; or (iii) the corporation has abandoned its business and has failed within a reasonable time to take steps to dissolve, liquidate or distribute its assets. 11.2 DUTIES OF CUSTODIAN The custodian shall have all the powers and title of a receiver appointed under Section 291 of the General Corporation Law of Delaware, but the authority of the custodian shall be to continue the business of the corporation and not to liquidate its affairs and distribute its assets, except when the Court of Chancery otherwise orders and except in cases arising under Sections 226(a)(3) or 352(a)(2) of the General Corporation Law of Delaware. -24- CERTIFICATE OF ADOPTION OF AMENDED BYLAWS OF REALNAMES CORPORATION CERTIFICATE BY SECRETARY OF ADOPTION BY BOARD OF DIRECTORS' VOTE The undersigned hereby certifies that she is the duly elected, qualified, and acting Secretary of RealNames Corporation and that the foregoing Amended Bylaws, comprising of 24 pages, were submitted to the Board of Directors on ________ __, 1999, and recorded in the minutes thereof and were ratified by the unanimous vote of all of the members of the Board of Directors. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this ____ day of ________ 1999. --------------------------------------- Richard Steele Secretary -25- EX-10.1 5 EXHIBIT 10.1 Exhibit 10.1 CENTRAAL CORPORATION 1997 STOCK PLAN, AS AMENDED 1. PURPOSES OF THE PLAN. The purposes of this Stock Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees, Directors and Consultants and to promote the success of the Company's business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant. Stock Purchase Rights may also be granted under the Plan. 2. DEFINITIONS. As used herein, the following definitions shall apply: (a) "ADMINISTRATOR" means the Board or any of its Committees as shall be administering the Plan in accordance with Section 4 hereof. (b) "APPLICABLE LAWS" means the requirements relating to the administration of stock option plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any other country or jurisdiction where Options or Stock Purchase Rights are granted under the Plan. (c) "BOARD" means the Board of Directors of the Company. (d) "CODE" means the Internal Revenue Code of 1986, as amended. (e) "COMMITTEE" means a committee of Directors appointed by the Board in accordance with Section 4 hereof. (f) "COMMON STOCK" means the Common Stock of the Company. (g) "COMPANY" means Centraal Corporation, a Delaware corporation. (h) "CONSULTANT" means any person who is engaged by the Company or any Parent or Subsidiary to render consulting or advisory services to such entity. (i) "DIRECTOR" means a member of the Board of Directors of the Company. (j) "DISABILITY" means total and permanent disability as defined in Section 22(e)(3) of the Code. (k) "EMPLOYEE" means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. A Service Provider shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. For purposes of Incentive Stock Options, no such leave may exceed ninety days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 181st day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (m) "FAIR MARKET VALUE" means, as of any date, the value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination, as reported in THE WALL STREET JOURNAL or such other source as the Administrator deems reliable; (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination; or (iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator. (n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code. (o) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as an Incentive Stock Option. (p) "OFFICER" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (q) "OPTION" means a stock option granted pursuant to the Plan. -2- (r) "OPTION AGREEMENT" means a written or electronic agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan. (s) "OPTION EXCHANGE PROGRAM" means a program whereby outstanding Options are exchanged for Options with a lower exercise price. (t) "OPTIONED STOCK" means the Common Stock subject to an Option or a Stock Purchase Right. (u) "OPTIONEE" means the holder of an outstanding Option or Stock Purchase Right granted under the Plan. (v) "PARENT" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code. (w) "PLAN" means this 1997 Stock Plan, as amended. (x) "RESTRICTED STOCK" means shares of Common Stock acquired pursuant to a grant of a Stock Purchase Right under Section 11 below. (y) "SECTION 16(b)" means Section 16(b) of the Securities Exchange Act of 1934, as amended. (z) "SERVICE PROVIDER" means an Employee, Director or Consultant. (aa) "SHARE" means a share of the Common Stock, as adjusted in accordance with Section 12 below. (bb) "STOCK PURCHASE RIGHT" means a right to purchase Common Stock pursuant to Section 11 below. (cc) "SUBSIDIARY" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code. 3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 12 of the Plan, the maximum aggregate number of Shares which may be subject to option and sold under the Plan is 12,300,000 Shares. The Shares may be authorized but unissued, or reacquired Common Stock. If an Option or Stock Purchase Right expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unpurchased -3- Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). However, Shares that have actually been issued under the Plan, upon exercise of either an Option or Stock Purchase Right, shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if Shares of Restricted Stock are repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan. 4. ADMINISTRATION OF THE PLAN. (a) ADMINISTRATOR. The Plan shall be administered by the Board or a Committee appointed by the Board, which Committee shall be constituted to comply with Applicable Laws. (b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the Plan and, in the case of a Committee, the specific duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, the Administrator shall have the authority in its discretion: (i) to determine the Fair Market Value; (ii) to select the Service Providers to whom Options and Stock Purchase Rights may from time to time be granted hereunder; (iii) to determine the number of Shares to be covered by each such award granted hereunder; (iv) to approve forms of agreement for use under the Plan; (v) to determine the terms and conditions, of any Option or Stock Purchase Right granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options or Stock Purchase Rights may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or Stock Purchase Right or the Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine; (vi) to determine whether and under what circumstances an Option may be settled in cash under subsection 9(e) instead of Common Stock; (vii) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option has declined since the date the Option was granted; (viii) to initiate an Option Exchange Program; -4- (ix) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws; (x) to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option or Stock Purchase Right that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by Optionees to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable; and (xi) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan. (c) EFFECT OF ADMINISTRATOR'S DECISION. All decisions, determinations and interpretations of the Administrator shall be final and binding on all Optionees. 5. ELIGIBILITY. (a) Nonstatutory Stock Options and Stock Purchase Rights may be granted to Service Providers. Incentive Stock Options may be granted only to Employees. (b) Each Option shall be designated in the Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted. (c) Neither the Plan nor any Option or Stock Purchase Right shall confer upon any Optionee any right with respect to continuing the Optionee's relationship as a Service Provider with the Company, nor shall it interfere in any way with his or her right or the Company's right to terminate such relationship at any time, with or without cause. 6. TERM OF PLAN. The Plan shall become effective upon its adoption by the Board. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 14 of the Plan. -5- 7. TERM OF OPTION. The term of each Option shall be stated in the Option Agreement; provided, however, that the term shall be no more than ten (10) years from the date of grant thereof. In the case of an Incentive Stock Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Option Agreement. 8. OPTION EXERCISE PRICE AND CONSIDERATION. (a) The per share exercise price for the Shares to be issued upon exercise of an Option shall be such price as is determined by the Administrator, but shall be subject to the following: (i) In the case of an Incentive Stock Option (A) granted to an Employee who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. (B) granted to any other Employee, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (ii) In the case of a Nonstatutory Stock Option (A) granted to a Service Provider who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. (B) granted to any other Service Provider, the per Share exercise price shall be no less than 85% of the Fair Market Value per Share on the date of grant. (iii) Notwithstanding the foregoing, Options may be granted with a per Share exercise price other than as required above pursuant to a merger or other corporate transaction. (b) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant). Such consideration may consist of (1) cash, (2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares acquired upon exercise of an Option, have been owned by the Optionee for more than six months on the date of surrender, and (y) have a Fair Market Value on the date of surrender equal -6- to the aggregate exercise price of the Shares as to which such Option shall be exercised, (5) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan, or (6) any combination of the foregoing methods of payment. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company. 9. EXERCISE OF OPTION. (a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any Option granted hereunder shall be exercisable according to the terms hereof at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. Except in the case of Options granted to Officers, Directors and Consultants, Options shall become exercisable at a rate of no less than 20% per year over five (5) years from the date the Options are granted. Unless the Administrator provides otherwise, vesting of Options granted hereunder shall be tolled during any unpaid leave of absence. An Option may not be exercised for a fraction of a Share. An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Shares, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 12 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) TERMINATION OF RELATIONSHIP AS A SERVICE PROVIDER. If an Optionee ceases to be a Service Provider, such Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement (of at least thirty (30) days) to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of the Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for three (3) months following the Optionee's -7- termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (c) DISABILITY OF OPTIONEE. If an Optionee ceases to be a Service Provider as a result of the Optionee's Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement (of at least six (6) months) to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (d) DEATH OF OPTIONEE. If an Optionee dies while a Service Provider, the Option may be exercised within such period of time as is specified in the Option Agreement (of at least six (6) months) to the extent that the Option is vested on the date of death (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement) by the Optionee's estate or by a person who acquires the right to exercise the Option by bequest or inheritance. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, at the time of death, the Optionee is not vested as to the entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (e) BUYOUT PROVISIONS. The Administrator may at any time offer to buy out for a payment in cash or Shares, an Option previously granted, based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. 10. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. The Options and Stock Purchase Rights may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. 11. STOCK PURCHASE RIGHTS. -8- (a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing or electronically of the terms, conditions and restrictions related to the offer, including the number of Shares that such person shall be entitled to purchase, the price to be paid, and the time within which such person must accept such offer. The terms of the offer shall comply in all respects with Section 260.140.42 of Title 10 of the California Code of Regulations. The offer shall be accepted by execution of a Restricted Stock Purchase Agreement in the form determined by the Administrator. (b) REPURCHASE OPTION. Unless the Administrator determines otherwise, the Restricted Stock purchase agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser's service with the Company for any reason (including death or disability). The purchase price for Shares repurchased pursuant to the Restricted Stock purchase agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at such rate as the Administrator may determine. Except with respect to Shares purchased by Officers, Directors and Consultants, the repurchase option shall in no case lapse at a rate of less than 20% per year over five (5) years from the date of purchase. (c) OTHER PROVISIONS. The Restricted Stock purchase agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion. (d) RIGHTS AS A STOCKHOLDER. Once the Stock Purchase Right is exercised, the purchaser shall have rights equivalent to those of a stockholder and shall be a stockholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment shall be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 12 of the Plan. 12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR ASSET SALE. -9- (a) CHANGES IN CAPITALIZATION. Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by each outstanding Option or Stock Purchase Right, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options or Stock Purchase Rights have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option or Stock Purchase Right, as well as the price per share of Common Stock covered by each such outstanding Option or Stock Purchase Right, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company. The conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option or Stock Purchase Right. (b) DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for an Optionee to have the right to exercise his or her Option or Stock Purchase Right until fifteen (15) days prior to such transaction as to all of the Optioned Stock covered thereby, including Shares as to which the Option or Stock Purchase Right would not otherwise be exercisable. In addition, the Administrator may provide that any Company repurchase option applicable to any Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Option or Stock Purchase Right will terminate immediately prior to the consummation of such proposed action. (c) MERGER OR ASSET SALE. In the event of a merger of the Company with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Option and Stock Purchase Right shall be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Option or Stock Purchase Right, the Optionee shall fully vest in and have the right to exercise the Option or Stock Purchase Right as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable. If an Option or Stock Purchase Right becomes fully vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee in writing or electronically that the Option or Stock Purchase Right shall be fully exercisable for a period of fifteen (15) days from the date of such notice, and the Option or Stock -10- Purchase Right shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option or Stock Purchase Right shall be considered assumed if, following the merger or sale of assets, the option or right confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option or Stock Purchase Right immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consieration to be received upon the exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock subject to the Option or Stock Purchase Right, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets. 13. TIME OF GRANTING OPTIONS AND STOCK PURCHASE RIGHTS. The date of grant of an Option or Stock Purchase Right shall, for all purposes, be the date on which the Administrator makes the determination granting such Option or Stock Purchase Right, or such other date as is determined by the Administrator. Notice of the determination shall be given to each Service Provider to whom an Option or Stock Purchase Right is so granted within a reasonable time after the date of such grant. 14. AMENDMENT AND TERMINATION OF THE PLAN. (a) AMENDMENT AND TERMINATION. The Board may at any time amend, alter, suspend or terminate the Plan. (b) STOCKHOLDER APPROVAL. The Board shall obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws. (c) EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. Termination of the Plan shall not affect the Administrator's ability to exercise the powers granted to it hereunder with respect to Options granted under the Plan prior to the date of such termination. 15. CONDITIONS UPON ISSUANCE OF SHARES. (a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares shall -11- comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance. (b) INVESTMENT REPRESENTATIONS. As a condition to the exercise of an Option, the Administrator may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required. 16. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 17. RESERVATION OF SHARES. The Company, during the term of this Plan, shall at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 18. STOCKHOLDER APPROVAL. The Plan shall be subject to approval by the stockholders of the Company within twelve (12) months after the date the Plan is adopted. Such stockholder approval shall be obtained in the degree and manner required under Applicable Laws. 19. INFORMATION TO OPTIONEES AND PURCHASERS. The Company shall provide to each Optionee and to each individual who acquires Shares pursuant to the Plan, not less frequently than annually during the period such Optionee or purchaser has one or more Options or Stock Purchase Rights outstanding, and, in the case of an individual who acquires Shares pursuant to the Plan, during the period such individual owns such Shares, copies of annual financial statements. The Company shall not be required to provide such statements to key employees whose duties in connection with the Company assure their access to equivalent information. -12- REALNAMES CORPORATION 1997 STOCK PLAN STOCK OPTION AGREEMENT -- EARLY EXERCISE Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option Agreement. I. NOTICE OF STOCK OPTION GRANT ---------------------------- < < NameandAddress > > ______________________ You have been granted an option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as follows: Option Number: < < Company > > Date of Grant Vesting Commencement Date < < VestingCommencementDate > > Exercise Price per Share Total Number of Shares Granted < < SharesGranted > > Total Exercise Price $< < TotalPrice > > Type of Option: X Incentive Stock Option Nonstatutory Stock Option Term/Expiration Date: EXERCISE AND VESTING SCHEDULE: This Option shall be exercisable in whole or in part, and shall vest according to the following vesting schedule: 25% of the Shares subject to the option shall vest twelve months after the Vesting Commencement Date, and 1/48th of the Shares subject to the Option shall vest each month thereafter, subject to your continuing to be a Service Provider on such dates. TERMINATION PERIOD: This Option may be exercised, to the extent it is then vested, for three months after Optionee ceases to be a Service Provider. Upon death or Disability of the Optionee, this Option may be exercised, to the extent it is then vested, for one year after Optionee ceases to be Service Provider. In no event shall this Option be exercised later than the Term/Expiration Date as provided above. II. AGREEMENT --------- 1. GRANT OF OPTION. The Plan Administrator of the Company hereby grants to the Optionee named in the Notice of Grant (the "Optionee"), an option (the "Option") to purchase the number of Shares set forth in the Notice of Grant, at the exercise price per Share set forth in the Notice of Grant (the "Exercise Price"), and subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section 14(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and this Option Agreement, the terms and conditions of the Plan shall prevail. If designated in the Notice of Grant as an Incentive Stock Option ("ISO"), this Option is intended to qualify as an Incentive Stock Option as defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds the $100,000 rule of Code Section 422(d), this Option shall be treated as a Nonstatutory Stock Option ("NSO"). 2. EXERCISE OF OPTION. This Option shall be exercisable during its term in accordance with the provisions of Section 9 of the Plan as follows: (a) RIGHT TO EXERCISE. (i) Subject to subsections 2(a)(ii) and 2(a)(iii) below, this Option shall be exercisable cumulatively according to the vesting schedule set forth in the Notice of Grant. Alternatively, at the election of the Optionee, this option may be exercised in whole or in part at any time as to Shares which have not yet vested. For purposes of this Stock Option Agreement, Shares subject to the Option shall vest based on continued employment of Optionee with the Company. Vested Shares shall not be subject to the Company's repurchase right (as set forth in the Restricted Stock Purchase Agreement, attached hereto as EXHIBIT C-1). -2- (ii) As a condition to exercising this Option for unvested Shares, the Optionee shall execute the Restricted Stock Purchase Agreement. (iii) This Option may not be exercised for a fraction of a Share. (b) METHOD OF EXERCISE. This Option shall be exercisable by delivery of an exercise notice in the form attached as EXHIBIT A (the "Exercise Notice") which shall state the election to exercise the Option, the number of Shares with respect to which the Option is being exercised, and such other representations and agreements as may be required by the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by the aggregate Exercise Price. No Shares shall be issued pursuant to the exercise of an Option unless such issuance and such exercise complies with Applicable Laws. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to the Optionee on the date on which the Option is exercised with respect to such Shares. 3. OPTIONEE'S REPRESENTATIONS. In the event the Shares have not been registered under the Securities Act of 1933, as amended, at the time this Option is exercised, the Optionee shall, if required by the Company, concurrently with the exercise of all or any portion of this Option, deliver to the Company his or her Investment Representation Statement in the form attached hereto as Exhibit B. 4. LOCK-UP PERIOD. Optionee hereby agrees that, if so requested by the Company or any representative of the underwriters (the "Managing Underwriter") in connection with any registration of the offering of any securities of the Company under the Securities Act, Optionee shall not sell or otherwise transfer any Shares or other securities of the Company during the 180-day period (or such other period as may be requested in writing by the Managing Underwriter and agreed to in writing by the Company) (the "Market Standoff Period") following the effective date of a registration statement of the Company filed under the Securities Act. Such restriction shall apply only to the first registration statement of the Company to become effective under the Securities Act that includes securities to be sold on behalf of the Company to the public in an underwritten public offering under the Securities Act. The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such Market Standoff Period. 5. METHOD OF PAYMENT. Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee: (a) cash; (b) check; -3- (c) consideration received by the Company under a formal cashless exercise program adopted by the Company in connection with the Plan; or (d) surrender of other Shares which, (i) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (ii) have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Exercised Shares. 6. RESTRICTIONS ON EXERCISE. This Option may not be exercised until such time as the Plan has been approved by the shareholders of the Company, or if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any Applicable Law. 7. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by Optionee. The terms of the Plan and this Option Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee. 8. TERM OF OPTION. This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option. 9. TAX CONSEQUENCES. Set forth below is a brief summary as of the date of this Option of some of the federal tax consequences of exercise of this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. (a) EXERCISE OF ISO. If this Option qualifies as an ISO, there will be no regular federal income tax liability upon the exercise of the Option, although the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price will be treated as an adjustment to the alternative minimum tax for federal tax purposes and may subject the Optionee to the alternative minimum tax in the year of exercise. (b) EXERCISE OF NONSTATUTORY STOCK OPTION. There may be a regular federal income tax liability upon the exercise of a Nonstatutory Stock Option. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. If Optionee is an Employee or a former Employee, the Company will be required to withhold from Optionee's compensation or collect from Optionee and pay to the applicable taxing authorities an amount in cash equal to a percentage of this compensation income at the time of exercise, and may refuse to honor the exercise and refuse to deliver Shares if such withholding amounts are not delivered at the time of exercise. -4- (c) DISPOSITION OF SHARES. In the case of an NSO, if Shares are held for at least one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes. In the case of an ISO, if Shares transferred pursuant to the Option are held for at least one year after exercise and at least two years after the Date of Grant, any gain realized on disposition of the Shares will also be treated as long-term capital gain for federal income tax purposes. If Shares purchased under an ISO are disposed of within one year after exercise or two years after the Date of Grant, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the difference between the Exercise Price and the lesser of (i) the Fair Market Value of the Shares on the date of exercise, or (ii) the sale price of the Shares. Different rules may apply if the Shares are subject to a substantial risk of forfeiture (within the meaning of Section 83) at the time of purchase. Any additional gain will be taxed as capital gain, short-term depending on the period that the ISO Shares were held. (d) NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If the Option granted to Optionee herein is an ISO, and if Optionee sells or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (i) the date two years after the Date of Grant, or (ii) the date one year after the date of exercise, the Optionee shall immediately notify the Company in writing of such disposition. Optionee agrees that Optionee may be subject to income tax withholding by the Company on the compensation income recognized by the Optionee. (e) SECTION 83(B) ELECTION FOR UNVESTED SHARES PURCHASED PURSUANT TO OPTIONS. With respect to the exercise of an Option for unvested Shares, an election may be filed by the Optionee with the Internal Revenue Service, WITHIN 30 DAYS of the purchase of the Shares, electing pursuant to Section 83(b) of the Code to be taxed currently on any difference between the purchase price of the Shares and their Fair Market Value on the date of purchase. In the case of a Nonstatutory Stock Option, this will result in a recognition of taxable income to the Optionee on the date of exercise, measured by the excess, if any, of the fair market value of the Shares, at the time the Option is exercised over the purchase price for the Shares. Absent such an election, taxable income will be measured and recognized by Optionee at the time or times on which the Company's Repurchase Option lapses. In the case of an Incentive Stock Option, such an election will result in a recognition of income to the Optionee for alternative minimum tax purposes on the date of exercise, measured by the excess, if any, of the fair market value of the Shares, at the time the option is exercised, over the purchase price for the Shares. Absent such an election, alternative minimum taxable income will be measured and recognized by Optionee at the time or times on which the Company's Repurchase Option lapses. Optionee is strongly encouraged to seek the advice of his or her own tax consultants in connection with the purchase of the Shares and the advisability of filing of the Election under Section 83(b) of the Code. A form of Election under Section 83(b) is attached hereto as EXHIBIT C-5 for reference. OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), -5- EVEN IF OPTIONEE REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON OPTIONEE'S BEHALF. 10. ENTIRE AGREEMENT; GOVERNING LAW. The Plan is incorporated herein by reference. The Plan and this Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee's interest except by means of a writing signed by the Company and Optionee. This agreement is governed by the internal substantive laws but not the choice of law rules of California. 11. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE. Optionee acknowledges receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan or this Option. Optionee further agrees to notify the Company upon any change in the residence address indicated below. OPTIONEE: REALNAMES CORPORATION ____________________________________ ____________________________________ Signature By ____________________________________ ____________________________________ Print Name Title ____________________________________ ____________________________________ Residence Address -6- EXHIBIT A --------- 1997 STOCK PLAN EXERCISE NOTICE RealNames Corporation 2 Circle Star Way, 2nd Floor San Carlos, CA 94070-1350 Attention: Secretary 1. EXERCISE OF OPTION. Effective as of today, ___________, 19__, the undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase _________ shares of the Common Stock (the "Shares") of RealNames Corporation (the "Company") under and pursuant to the 1997 Stock Plan (the "Plan") and the Stock Option Agreement dated ________, 19__ (the "Option Agreement"). 2. DELIVERY OF PAYMENT. Purchaser herewith delivers to the Company the full purchase price of the Shares, as set forth in the Option Agreement. 3. REPRESENTATIONS OF OPTIONEE. Optionee acknowledges that Optionee has received, read and understood the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions. 4. RIGHTS AS SHAREHOLDER. Until the issuance of the Shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Shares shall be issued to the Optionee as soon as practicable after the Option is exercised. No adjustment shall be made for a dividend or other right for which the record date is prior to the date of issuance except as provided in Section 12 of the Plan. 5. COMPANY'S RIGHT OF FIRST REFUSAL. Before any Shares held by Optionee or any transferee (either being sometimes referred to herein as the "Holder") may be sold or otherwise transferred (including transfer by gift or operation of law), the Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in this Section (the "Right of First Refusal"). (a) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares shall deliver to the Company a written notice (the "Notice") stating: (i) the Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the name of each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number of Shares to be transferred to each Proposed Transferee; and (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Shares (the "Offered Price"), and the Holder shall offer the Shares at the Offered Price to the Company or its assignee(s). (b) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within thirty (30) days after receipt of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all, but not less than all, of the Shares proposed to be transferred to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (c) below. (c) PURCHASE PRICE. The purchase price ("Purchase Price") for the Shares purchased by the Company or its assignee(s) under this Section shall be the Offered Price. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board of Directors of the Company in good faith. (d) PAYMENT. Payment of the Purchase Price shall be made, at the option of the Company or its assignee(s), in cash (by check), by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or by any combination thereof within 30 days after receipt of the Notice or in the manner and at the times set forth in the Notice. (e) HOLDER'S RIGHT TO TRANSFER. If all of the Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer such Shares to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other transfer is consummated within 120 days after the date of the Notice, that any such sale or other transfer is effected in accordance with any applicable securities laws and that the Proposed Transferee agrees in writing that the provisions of this Section shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice are not transferred to the Proposed Transferee within such period, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred. (f) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything to the contrary contained in this Section notwithstanding, the transfer of any or all of the Shares during the Optionee's lifetime or on the Optionee's death by will or intestacy to the Optionee's immediate family or a trust for the benefit of the Optionee's immediate family shall be exempt from the provisions of this Section. "Immediate Family" as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister. In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions of this Section, and there shall be no further transfer of such Shares except in accordance with the terms of this Section. -2- (g) TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First Refusal shall terminate as to any Shares upon the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended. 6. TAX CONSULTATION. Optionee understands that Optionee may suffer adverse tax consequences as a result of Optionee's purchase or disposition of the Shares. Optionee represents that Optionee has consulted with any tax consultants Optionee deems advisable in connection with the purchase or disposition of the Shares and that Optionee is not relying on the Company for any tax advice. 7. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS. (a) LEGENDS. Optionee understands and agrees that the Company shall cause the legends set forth below or legends substantially equivalent thereto, to be placed upon any certificate(s) evidencing ownership of the Shares together with any other legends that may be required by the Company or by state or federal securities laws: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND RIGHT OF FIRST REFUSAL OPTIONS HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES. (b) STOP-TRANSFER NOTICES. Optionee agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" -3- instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. (c) REFUSAL TO TRANSFER. The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred. 8. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Agreement shall be binding upon Optionee and his or her heirs, executors, administrators, successors and assigns. 9. INTERPRETATION. Any dispute regarding the interpretation of this Agreement shall be submitted by Optionee or by the Company forthwith to the Administrator which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Administrator shall be final and binding on all parties. 10. GOVERNING LAW; SEVERABILITY. This Agreement is governed by the internal substantive laws, but not the choice of law rules, of California. 11. ENTIRE AGREEMENT. The Plan and Option Agreement are incorporated herein by reference. This Agreement, the Plan, the Restricted Stock Purchase Agreement, the Option Agreement and the Investment Representation Statement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee's interest except by means of a writing signed by the Company and Optionee. -4- Submitted by: Accepted by: OPTIONEE: REALNAMES CORPORATION ___________________________________ ______________________________ Signature By ___________________________________ ______________________________ Print Name Title ADDRESS: ADDRESS: ___________________________________ 2 Circle Star Way, 2nd Floor ___________________________________ San Carlos, CA 94070-1350 ___________________________________ ______________________________ Date Received -5- EXHIBIT B --------- INVESTMENT REPRESENTATION STATEMENT OPTIONEE : COMPANY : REALNAMES CORPORATION SECURITY : COMMON STOCK AMOUNT : < < SharesGranted > > DATE : In connection with the purchase of the above-listed Securities, the undersigned Optionee represents to the Company the following: (a) Optionee is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities. Optionee is acquiring these Securities for investment for Optionee's own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). (b) Optionee acknowledges and understands that the Securities constitute "restricted securities" under the Securities Act and have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Optionee's investment intent as expressed herein. In this connection, Optionee understands that, in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable if Optionee's representation was predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities, or for a period of one year or any other fixed period in the future. Optionee further understands that the Securities must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Optionee further acknowledges and understands that the Company is under no obligation to register the Securities. Optionee understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities unless they are registered or such registration is not required in the opinion of counsel satisfactory to the Company, a legend prohibiting their transfer without the consent of the Commissioner of Corporations of the State of California and any other legend required under applicable state securities laws. (c) Optionee is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit limited public resale of "restricted securities" acquired, directly or indirectly from the issuer thereof, in a non-public offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the time of the grant of the Option to the Optionee, the exercise will be exempt from registration under the Securities Act. In the event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter (or such longer period as any market stand-off agreement may require) the Securities exempt under Rule 701 may be resold, subject to the satisfaction of certain of the conditions specified by Rule 144, including: (1) the resale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of certain public information about the Company, (3) the amount of Securities being sold during any three month period not exceeding the limitations specified in Rule 144(e), and (4) the timely filing of a Form 144, if applicable. In the event that the Company does not qualify under Rule 701 at the time of grant of the Option, then the Securities may be resold in certain limited circumstances subject to the provisions of Rule 144, which requires the resale to occur not less than one year after the later of the date the Securities were sold by the Company or the date the Securities were sold by an affiliate of the Company, within the meaning of Rule 144; and, in the case of acquisition of the Securities by an affiliate, or by a non-affiliate who subsequently holds the Securities less than two years, the satisfaction of the conditions set forth in sections (1), (2), (3) and (4) of the paragraph immediately above. (d) Optionee further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rules 144 or 701 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. Optionee understands that no assurances can be given that any such other registration exemption will be available in such event. Signature of Optionee: ________________________________________ Date: ____________________________, 19__ -2- EXHIBIT C-1 ----------- REALNAMES CORPORATION 1997 STOCK PLAN RESTRICTED STOCK PURCHASE AGREEMENT THIS AGREEMENT is made between ____________________________________ (the "Purchaser") and RealNames Corporation (the "Company") as of __________________, 199__. RECITALS -------- A. Pursuant to the exercise of the Option granted to Purchaser under the Company's 1997 Stock Plan (the "Plan") and pursuant to the Stock Option Agreement (the "Option Agreement") dated August 16, 1999 by and between the Company and Purchaser with respect to such grant, which Plan and Option Agreement are hereby incorporated by reference, Purchaser has elected to purchase _________ of those shares which have not become vested under the vesting schedule set forth in the Option Agreement ("Unvested Shares"). The Unvested Shares and the shares subject to the Option Agreement which have become vested are sometimes collectively referred to herein as the "Shares". B. As required by the Option Agreement, as a condition to Purchaser's election to exercise the option, Purchaser must execute this Restricted Stock Purchase Agreement, which sets forth the rights and obligations of the parties with respect to Unvested Shares acquired upon exercise of the Option. 1. REPURCHASE OPTION. (a) If Purchaser's status as a Service Provider is terminated for any reason, including for cause, death, and Disability, the Company shall have the right and option to purchase from Purchaser, or Purchaser's personal representative, as the case may be, all of the Purchaser's Unvested Shares as of the date of such termination at the price paid by the Purchaser for such Shares (the "Repurchase Option"). (b) Upon the occurrence of a termination, the Company may exercise its Repurchase Option by delivering personally or by registered mail, to Purchaser (or his transferee or legal representative, as the case may be), within ninety (90) days of the termination, a notice in writing indicating the Company's intention to exercise the Repurchase Option and setting forth a date for closing not later than thirty (30) days from the mailing of such notice. The closing shall take place at the Company's office. At the closing, the holder of the certificates for the Unvested Shares being transferred shall deliver the stock certificate or certificates evidencing the Unvested Shares, and the Company shall deliver the purchase price therefor. (c) At its option, the Company may elect to make payment for the Unvested Shares to a bank selected by the Company. The Company shall avail itself of this option by a notice in writing to Purchaser stating the name and address of the bank, date of closing, and waiving the closing at the Company's office. (d) If the Company does not elect to exercise the Repurchase Option conferred above by giving the requisite notice within ninety (90) days following the termination, the Repurchase Option shall terminate. (e) The Repurchase Option shall terminate in accordance with the Vesting Schedule in Optionee's Option Agreement. 2. TRANSFERABILITY OF THE SHARES; ESCROW. (a) Purchaser hereby authorizes and directs the Secretary of the Company, or such other person designated by the Company, to transfer the Unvested Shares as to which the Repurchase Option has been exercised from Purchaser to the Company. (b) To insure the availability for delivery of Purchaser's Unvested Shares upon repurchase by the Company pursuant to the Repurchase Option under Section 1, Purchaser hereby appoints the Secretary, or any other person designated by the Company as escrow agent, as its attorney-in-fact to sell, assign and transfer unto the Company, such Unvested Shares, if any, repurchased by the Company pursuant to the Repurchase Option and shall, upon execution of this Agreement, deliver and deposit with the Secretary of the Company, or such other person designated by the Company, the share certificates representing the Unvested Shares, together with the stock assignment duly endorsed in blank, attached hereto as EXHIBIT C-2. The Unvested Shares and stock assignment shall be held by the Secretary in escrow, pursuant to the Joint Escrow Instructions of the Company and Purchaser attached as EXHIBIT C-3 hereto, until the Company exercises its purchase right as provided in Section 1, until such Unvested Shares are vested, or until such time as this Agreement no longer is in effect. As a further condition to the Company's obligations under this Agreement, the spouse of the Purchaser, if any, shall execute and deliver to the Company the Consent of Spouse attached hereto as EXHIBIT C-4. Upon vesting of the Unvested Shares, the escrow agent shall promptly deliver to the Purchaser the certificate or certificates representing such Shares in the escrow agent's possession belonging to the Purchaser, and the escrow agent shall be discharged of all further obligations hereunder; provided, however, that the escrow agent shall nevertheless retain such certificate or certificates as escrow agent if so required pursuant to other restrictions imposed pursuant to this Agreement. (c) The Company, or its designee, shall not be liable for any act it may do or omit to do with respect to holding the Shares in escrow and while acting in good faith and in the exercise of its judgment. (d) Transfer or sale of the Shares is subject to restrictions on transfer imposed by any applicable state and federal securities laws. Any transferee shall hold such Shares subject to all the provisions hereof and the Exercise Notice executed by the Purchaser with respect to any -2- Unvested Shares purchased by Purchaser and shall acknowledge the same by signing a copy of this Agreement. 3. OWNERSHIP, VOTING RIGHTS, DUTIES. This Agreement shall not affect in any way the ownership, voting rights or other rights or duties of Purchaser, except as specifically provided herein. 4. LEGENDS. The share certificate evidencing the Shares issued hereunder shall be endorsed with the following legend (in addition to any legend required under applicable state securities laws): THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. 5. ADJUSTMENT FOR STOCK SPLIT. All references to the number of Shares and the purchase price of the Shares in this Agreement shall be appropriately adjusted to reflect any stock split, stock dividend or other change in the Shares which may be made by the Company after the date of this Agreement. 6. NOTICES. Notices required hereunder shall be given in person or by registered mail to the address of Purchaser shown on the records of the Company, and to the Company at their respective principal executive offices. 7. SURVIVAL OF TERMS. This Agreement shall apply to and bind Purchaser and the Company and their respective permitted assignees and transferees, heirs, legatees, executors, administrators and legal successors. 8. SECTION 83(B) ELECTION. Purchaser hereby acknowledges that he or she has been informed that, with respect to the exercise of an Option for unvested Shares, an election may be filed by the Purchaser with the Internal Revenue Service, WITHIN 30 DAYS of the purchase of the Shares, electing pursuant to Section 83(b) of the Code to be taxed currently on any difference between the purchase price of the Shares and their Fair Market Value on the date of purchase. In the case of a Nonstatutory Stock Option, this will result in a recognition of taxable income to the Purchaser on the date of exercise, measured by the excess, if any, of the fair market value of the Shares, at the time the Option is exercised over the purchase price for the Shares. Absent such an election, taxable income will be measured and recognized by Purchaser at the time or times on which the Company's Repurchase Option lapses. In the case of an Incentive Stock Option, such an election will result in a recognition of income to the Purchaser for alternative minimum tax purposes on the date of exercise, measured by the excess, if any, of the Fair Market Value of the Shares, at the time the option is exercised, over the purchase price for the Shares. Absent such an election, alternative minimum taxable income will be measured and recognized by Purchaser at the time or times on which the Company's Repurchase Option lapses. Purchaser is strongly encouraged to seek the advice of his or her own tax consultants in connection with the purchase of the Shares and the advisability of filing -3- of the Election under Section 83(b) of the Code. A form of Election under Section 83(b) is attached hereto as EXHIBIT C-5 for reference. PURCHASER ACKNOWLEDGES THAT IT IS PURCHASER'S SOLE RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON PURCHASER'S BEHALF. 9. REPRESENTATIONS. Purchaser has reviewed with his own tax advisors the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by this Agreement. Purchaser is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. Purchaser understands that he (and not the Company) shall be responsible for his own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement. 10. GOVERNING LAW. This Agreement shall be governed by the internal substantive laws, but not the choice of law rules, of California. Purchaser represents that he has read this Agreement and is familiar with its terms and provisions. Purchaser hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under this Agreement. -4- IN WITNESS WHEREOF, this Agreement is deemed made as of the date first set forth above. PURCHASER REALNAMES CORPORATION ___________________________________ ______________________________ Signature By ___________________________________ ______________________________ Print Name Title ___________________________________ Soc. Sec. No. ADDRESS: ___________________________________ ___________________________________ -5- EXHIBIT C-2 ----------- ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED I, __________________________, hereby sell, assign and transfer unto RealNames Corporation (__________) shares of the Common Stock of RealNames Corporation standing in my name of the books of said corporation represented by Certificate No. _____ herewith and do hereby irrevocably constitute and appoint ____________________________________ _________________to transfer the said stock on the books of the within named corporation with full power of substitution in the premises. This Stock Assignment may be used only in accordance with the Restricted Stock Purchase Agreement of RealNames Corporation and the undersigned dated ______________, 19__. Dated: _______________, 19 __ Signature:______________________________ INSTRUCTIONS: Please do not fill in any blanks other than the signature line. The purpose of this assignment is to enable the Company to exercise its "repurchase option," as set forth in the Agreement, without requiring additional signatures on the part of the Purchaser. EXHIBIT C-3 ----------- JOINT ESCROW INSTRUCTIONS ------------------------- _____________________, 19__ RealNames Corporation 2 Circle Star Way, 2nd Floor San Carlos, CA 94070-1350 Attention: Secretary Dear Secretary: As Escrow Agent for both RealNames Corporation (the "Company"), and the undersigned purchaser of stock of the Company (the "Purchaser"), you are hereby authorized and directed to hold the documents delivered to you pursuant to the terms of that certain Restricted Stock Purchase Agreement ("Agreement") between the Company and the undersigned, in accordance with the following instructions: 1. In the event the Company and/or any assignee of the Company (referred to collectively for convenience herein as the "Company") exercises the Company's repurchase option set forth in the Agreement, the Company shall give to Purchaser and you a written notice specifying the number of shares of stock to be purchased, the purchase price, and the time for a closing hereunder at the principal office of the Company. Purchaser and the Company hereby irrevocably authorize and direct you to close the transaction contemplated by such notice in accordance with the terms of said notice. 2. At the closing, you are directed (a) to date the stock assignments necessary for the transfer in question, (b) to fill in the number of shares being transferred, and (c) to deliver same, together with the certificate evidencing the shares of stock to be transferred, to the Company or its assignee, against the simultaneous delivery to you of the purchase price (by cash, a check, or some combination thereof) for the number of shares of stock being purchased pursuant to the exercise of the Company's repurchase option. 3. Purchaser irrevocably authorizes the Company to deposit with you any certificates evidencing shares of stock to be held by you hereunder and any additions and substitutions to said shares as defined in the Agreement. Purchaser does hereby irrevocably constitute and appoint you as Purchaser's attorney-in-fact and agent for the term of this escrow to execute with respect to such securities all documents necessary or appropriate to make such securities negotiable and to complete any transaction herein contemplated, including but not limited to the filing with any applicable state blue sky authority of any required applications for consent to, or notice of transfer of, the securities. Subject to the provisions of this paragraph 3, Purchaser shall exercise all rights and privileges of a stockholder of the Company while the stock is held by you. 4. Upon written request of the Purchaser, but no more than once per calendar year, unless the Company's repurchase option has been exercised, you will deliver to Purchaser a certificate or certificates representing so many shares of stock as are not then subject to the Company's repurchase option. Within 120 days after cessation of Purchaser's continuous employment by or services to the Company, or any parent or subsidiary of the Company, you will deliver to Purchaser a certificate or certificates representing the aggregate number of shares held or issued pursuant to the Agreement and not purchased by the Company or its assignees pursuant to exercise of the Company's repurchase option. 5. If at the time of termination of this escrow you should have in your possession any documents, securities, or other property belonging to Purchaser, you shall deliver all of the same to Purchaser and shall be discharged of all further obligations hereunder. 6. Your duties hereunder may be altered, amended, modified or revoked only by a writing signed by all of the parties hereto. 7. You shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by you to be genuine and to have been signed or presented by the proper party or parties. You shall not be personally liable for any act you may do or omit to do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith, and any act done or omitted by you pursuant to the advice of your own attorneys shall be conclusive evidence of such good faith. 8. You are hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law and are hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case you obey or comply with any such order, judgment or decree, you shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction. 9. You shall not be liable in any respect on account of the identity, authorities or rights of the parties executing or delivering or purporting to execute or deliver the Agreement or any documents or papers deposited or called for hereunder. 10. You shall not be liable for the outlawing of any rights under the Statute of Limitations with respect to these Joint Escrow Instructions or any documents deposited with you. -2- 11. You shall be entitled to employ such legal counsel and other experts as you may deem necessary properly to advise you in connection with your obligations hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor. 12. Your responsibilities as Escrow Agent hereunder shall terminate if you shall cease to be an officer or agent of the Company or if you shall resign by written notice to each party. In the event of any such termination, the Company shall appoint a successor Escrow Agent. 13. If you reasonably require other or further instruments in connection with these Joint Escrow Instructions or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments. 14. It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the securities held by you hereunder, you are authorized and directed to retain in your possession without liability to anyone all or any part of said securities until such disputes shall have been settled either by mutual written agreement of the parties concerned or by a final order, decree or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but you shall be under no duty whatsoever to institute or defend any such proceedings. 15. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail with postage and fees prepaid, addressed to each of the other parties thereunto entitled at the following addresses or at such other addresses as a party may designate by ten days' advance written notice to each of the other parties hereto. COMPANY: RealNames Corporation 2 Circle Star Way, 2nd Floor San Carlos, CA 94070-1350 Attention: Secretary PURCHASER: ___________________ ___________________ ___________________ ESCROW AGENT: RealNames Corporation 2 Circle Star Way, 2nd Floor San Carlos, CA 94070-1350 Attention: Secretary -3- 16. By signing these Joint Escrow Instructions, you become a party hereto only for the purpose of said Joint Escrow Instructions; you do not become a party to the Agreement. 17. This instrument shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and permitted assigns. 18. These Joint Escrow Instructions shall be governed by the internal substantive laws, but not the choice of law rules, of California. REALNAMES CORPORATION PURCHASER _____________________________________ _____________________________________ By Signature _____________________________________ _____________________________________ Title Typed or Printed Name ESCROW AGENT _____________________________________ Secretary -4- EXHIBIT C-4 ----------- CONSENT OF SPOUSE ----------------- I, ____________________, spouse of ___________________, have read and approve the foregoing Agreement. In consideration of granting of the right to my spouse to purchase shares of RealNames Corporation, as set forth in the Agreement, I hereby appoint my spouse as my attorney-in-fact in respect to the exercise of any rights under the Agreement and agree to be bound by the provisions of the Agreement insofar as I may have any rights in said Agreement or any shares issued pursuant thereto under the community property laws or similar laws relating to marital property in effect in the state of our residence as of the date of the signing of the foregoing Agreement. Dated: _______________, 19__ Signature:___________________________________ EXHIBIT C-5 ----------- ELECTION UNDER SECTION 83(B) ---------------------------- OF THE INTERNAL REVENUE CODE OF 1986 ------------------------------------ The undersigned taxpayer hereby elects, pursuant to Sections 55 and 83(b) of the Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income or alternative minimum taxable income, as the case may be, for the current taxable year the amount of any compensation taxable to taxpayer in connection with taxpayer's receipt of the property described below: 1. The name, address, taxpayer identification number and taxable year of the undersigned are as follows: NAME: TAXPAYER: SPOUSE: ADDRESS: IDENTIFICATION NO.: TAXPAYER: SPOUSE: TAXABLE YEAR: 2. The property with respect to which the election is made is described as follows: _____________________shares (the "Shares") of the Common Stock of RealNames Corporation (the "Company"). 3. The date on which the property was transferred is: ________________________________, 19 ____. 4. The property is subject to the following restrictions: The Shares may not be transferred and are subject to forfeiture under the terms of an agreement between the taxpayer and the Company. These restrictions lapse upon the satisfaction of certain conditions contained in such agreement. 5. The fair market value at the time of transfer, determined without regard to any restriction other than a restriction which by its terms will never lapse, of such property is: $______________________. 6. The amount (if any) paid for such property is: $______________________. The undersigned has submitted a copy of this statement to the person for whom the services were performed in connection with the undersigned's receipt of the above-described property. The transferee of such property is the person performing the services in connection with the transfer of said property. THE UNDERSIGNED UNDERSTANDS THAT THE FOREGOING ELECTION MAY NOT BE REVOKED EXCEPT WITH THE CONSENT OF THE COMMISSIONER. Dated: ___________________, 19____ ________________________________________ Taxpayer The undersigned spouse of taxpayer joins in this election. Dated: ___________________, 19____ ________________________________________ EX-10.2 6 EXHIBIT 10.2 Exhibit 10.2 REALNAMES CORPORATION 1999 STOCK PLAN 1. PURPOSES OF THE PLAN. The purposes of this 1999 Stock Plan are: - to attract and retain the best available personnel for positions of substantial responsibility, - to provide additional incentive to Employees, Directors and Consultants, and - to promote the success of the Company's business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant. Stock Purchase Rights may also be granted under the Plan. 2. DEFINITIONS. As used herein, the following definitions shall apply: (a) "ADMINISTRATOR" means the Board or any of its Committees as shall be administering the Plan, in accordance with Section 4 of the Plan. (b) "APPLICABLE LAWS" means the requirements relating to the administration of stock option plans under U. S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Options or Stock Purchase Rights are, or will be, granted under the Plan. (c) "BOARD" means the Board of Directors of the Company. (d) "CODE" means the Internal Revenue Code of 1986, as amended. (e) "COMMITTEE" means a committee of Directors appointed by the Board in accordance with Section 4 of the Plan. (f) "COMMON STOCK" means the common stock of the Company. (g) "COMPANY" means RealNames Corporation, a Delaware corporation. (h) "CONSULTANT" means any person, including an advisor, engaged by the Company or a Parent or Subsidiary to render services to such entity. (i) "DIRECTOR" means a member of the Board. (j) "DISABILITY" means total and permanent disability as defined in Section 22(e)(3) of the Code. -1- (k) "EMPLOYEE" means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. A Service Provider shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. For purposes of Incentive Stock Options, no such leave may exceed ninety days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 181st day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (m) "FAIR MARKET VALUE" means, as of any date, the value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination, as reported in THE WALL STREET JOURNAL or such other source as the Administrator deems reliable; (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination, as reported in THE WALL STREET JOURNAL or such other source as the Administrator deems reliable; or (iii) In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Administrator. (n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (o) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as an Incentive Stock Option. (p) "NOTICE OF GRANT" means a written or electronic notice evidencing certain terms and conditions of an individual Option or Stock Purchase Right grant. The Notice of Grant is part of the Option Agreement. (q) "OFFICER" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (r) "OPTION" means a stock option granted pursuant to the Plan. -2- (s) "OPTION AGREEMENT" means an agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan. (t) "OPTION EXCHANGE PROGRAM" means a program whereby outstanding Options are surrendered in exchange for Options with a lower exercise price. (u) "OPTIONED STOCK" means the Common Stock subject to an Option or Stock Purchase Right. (v) "OPTIONEE" means the holder of an outstanding Option or Stock Purchase Right granted under the Plan. (w) "PLAN" means this 1999 Stock Plan. (x) "RESTRICTED STOCK" means shares of Common Stock acquired pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan. (y) "RESTRICTED STOCK PURCHASE AGREEMENT" means a written agreement between the Company and the Optionee evidencing the terms and restrictions applying to stock purchased under a Stock Purchase Right. The Restricted Stock Purchase Agreement is subject to the terms and conditions of the Plan and the Notice of Grant. (z) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan. (aa) "SECTION 16(b) " means Section 16(b) of the Exchange Act. (bb) "SERVICE PROVIDER" means an Employee, Director or Consultant. (cc) "SHARE" means a share of the Common Stock, as adjusted in accordance with Section 14 of the Plan. (dd) "STOCK PURCHASE RIGHT" means the right to purchase Common Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant. (ee) "SUBSIDIARY" means a "subsidiary corporation", whether now or hereafter existing, as defined in Section 424(f) of the Code. 3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 13 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 3,500,000 Shares, plus (a) any Shares which were reserved but unissued under the Company's 1997 Stock Plan ("1997 Plan") as of the date of stockholder approval of the original adoption of this Plan, (b) any Shares subsequently returned to the 1997 Plan as a result of termination of options or repurchase of Shares issued under the 1997 Plan, and (c) an annual increase to be added on the first day of each of the Company's fiscal years during the term of this Plan beginning in fiscal year 2001 equal to the lesser of (i) 6,000,000 Shares, (ii) 4% of the outstanding Shares on such date, or (iii) an amount -3- determined by the Board. The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option or Stock Purchase Right expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated); PROVIDED, however, that Shares that have actually been issued under the Plan, whether upon exercise of an Option or Right, shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if Shares of Restricted Stock are repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan. 4. ADMINISTRATION OF THE PLAN. (a) PROCEDURE. (i) MULTIPLE ADMINISTRATIVE BODIES. The Plan may be administered by different Committees with respect to different groups of Service Providers. (ii) SECTION 162(m). To the extent that the Administrator determines it to be desirable to qualify Options granted hereunder as "performance-based compensation" within the meaning of Section 162(m) of the Code, the Plan shall be administered by a Committee of two or more "outside directors" within the meaning of Section 162(m) of the Code. (iii) RULE 16b-3. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder shall be structured to satisfy the requirements for exemption under Rule 16b-3. (iv) OTHER ADMINISTRATION. Other than as provided above, the Plan shall be administered by (A) the Board or (B) a Committee, which committee shall be constituted to satisfy Applicable Laws. (b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion: (i) to determine the Fair Market Value; (ii) to select the Service Providers to whom Options and Stock Purchase Rights may be granted hereunder; (iii) to determine the number of shares of Common Stock to be covered by each Option and Stock Purchase Right granted hereunder; (iv) to approve forms of agreement for use under the Plan; (v) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Option or Stock Purchase Right granted hereunder. Such terms and conditions -4- include, but are not limited to, the exercise price, the time or times when Options or Stock Purchase Rights may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or Stock Purchase Right or the shares of Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine; (vi) to reduce the exercise price of any Option or Stock Purchase Right to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option or Stock Purchase Right shall have declined since the date the Option or Stock Purchase Right was granted; (vii) to institute an Option Exchange Program; (viii) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan; (ix) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws; (x) to modify or amend each Option or Stock Purchase Right (subject to Section 15(c) of the Plan), including the discretionary authority to extend the post-termination exercisability period of Options longer than is otherwise provided for in the Plan; (xi) to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option or Stock Purchase Right that number of Shares having a Fair Market Value equal to (or less than) the minimum amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by an Optionee to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable; (xii) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Option or Stock Purchase Right previously granted by the Administrator; (xiii) to make all other determinations deemed necessary or advisable for administering the Plan. (c) EFFECT OF ADMINISTRATOR'S DECISION. The Administrator's decisions, determinations and interpretations shall be final and binding on all Optionees and any other holders of Options or Stock Purchase Rights. 5. ELIGIBILITY. Nonstatutory Stock Options and Stock Purchase Rights may be granted to Service Providers. Incentive Stock Options may be granted only to Employees. -5- 6. LIMITATIONS. (a) Each Option shall be designated in the Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted. (b) Neither the Plan nor any Option or Stock Purchase Right shall confer upon an Optionee any right with respect to continuing the Optionee's relationship as a Service Provider with the Company, nor shall they interfere in any way with the Optionee's right or the Company's right to terminate such relationship at any time, with or without cause. (c) The following limitations shall apply to grants of Options: (i) No Service Provider shall be granted, in any fiscal year of the Company, Options to purchase more than 1,500,000 Shares. (ii) In connection with his or her initial service, a Service Provider may be granted Options to purchase up to an additional 1,500,000 Shares that shall not count against the limit set forth in subsection (i) above. (iii) The foregoing limitations shall be adjusted proportionately in connection with any change in the Company's capitalization as described in Section 13. (iv) If an Option is cancelled in the same fiscal year of the Company in which it was granted (other than in connection with a transaction described in Section 13, the cancelled Option will be counted against the limits set forth in subsections (i) and (ii) above. For this purpose, if the exercise price of an Option is reduced, the transaction will be treated as a cancellation of the Option and the grant of a new Option. 7. TERM OF PLAN. Subject to Section 19 of the Plan, the Plan shall become effective upon its adoption by the Board. It shall continue in effect for a term of ten (10) years unless terminated earlier under Section 15 of the Plan. 8. TERM OF OPTION. The term of each Option shall be stated in the Option Agreement. In the case of an Incentive Stock Option, the term shall be ten (10) years from the date of grant or such shorter term as may be provided in the Option Agreement. Moreover, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Option Agreement. -6- 9. OPTION EXERCISE PRICE AND CONSIDERATION. (a) EXERCISE PRICE. The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be determined by the Administrator, subject to the following: (i) In the case of an Incentive Stock Option (A) granted to an Employee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. (B) granted to any Employee other than an Employee described in paragraph (A) immediately above, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (ii) In the case of a Nonstatutory Stock Option, the per Share exercise price shall be determined by the Administrator. In the case of a Nonstatutory Stock Option intended to qualify as "performance-based compensation" within the meaning of Section 162(m) of the Code, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (iii) Notwithstanding the foregoing, Options may be granted with a per Share exercise price of less than 100% of the Fair Market Value per Share on the date of grant pursuant to a merger or other corporate transaction. (b) WAITING PERIOD AND EXERCISE DATES. At the time an Option is granted, the Administrator shall fix the period within which the Option may be exercised and shall determine any conditions that must be satisfied before the Option may be exercised. (c) FORM OF CONSIDERATION. The Administrator shall determine the acceptable form of consideration for exercising an Option, including the method of payment. In the case of an Incentive Stock Option, the Administrator shall determine the acceptable form of consideration at the time of grant. Such consideration may consist entirely of: (i) cash; (ii) check; (iii) promissory note; (iv) other Shares which (A) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six months on the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised; (v) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan; -7- (vi) a reduction in the amount of any Company liability to the Optionee, including any liability attributable to the Optionee's participation in any Company-sponsored deferred compensation program or arrangement; (vii) any combination of the foregoing methods of payment; or (viii) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws. 10. EXERCISE OF OPTION. (a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. Unless the Administrator provides otherwise, vesting of Options granted hereunder shall be tolled during any unpaid leave of absence. An Option may not be exercised for a fraction of a Share. An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 13 of the Plan. Exercising an Option in any manner shall decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) TERMINATION OF RELATIONSHIP AS A SERVICE PROVIDER. Subject to Section 13, if an Optionee ceases to be a Service Provider (but not in the event of an Optionee's change of status from Employee to Consultant (in which case an Employee's Incentive Stock Option shall automatically convert to a Nonstatutory Stock Option on the ninety-first (91st) day following such change of status) or from Consultant to Employee), such Optionee may, but only within such period of time as is specified in the Option Agreement (but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise his or her Option to the extent that Optionee was entitled to exercise it at the date of such termination. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for three (3) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the -8- Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (c) DISABILITY OF OPTIONEE. If an Optionee ceases to be a Service Provider as a result of the Optionee's Disability, the Optionee may, but only within twelve (12) months from the date of such termination (and in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise his or her Option the extent the Option is vested on the date of termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (d) DEATH OF OPTIONEE. If an Optionee dies while a Service Provider, the Option may be exercised at any time within twelve (12) months following the date of death (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), by the Optionee's estate or by a person who acquires the right to exercise the Option by bequest or inheritance, but only to the extent that the Option is vested on the date of death. If, at the time of death, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. The Option may be exercised by the executor or administrator of the Optionee's estate or, if none, by the person(s) entitled to exercise the Option under the Optionee's will or the laws of descent or distribution. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (e) BUYOUT PROVISIONS. The Administrator may at any time offer to buy out for a payment in cash or Shares an Option previously granted based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. 11. STOCK PURCHASE RIGHTS. (a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing or electronically, by means of a Notice of Grant, of the terms, conditions and restrictions related to the offer, including the number of Shares that the offeree shall be entitled to purchase, the price to be paid, and the time within which the offeree must accept such offer. The offer shall be accepted by execution of a Restricted Stock Purchase Agreement in the form determined by the Administrator. (b) REPURCHASE OPTION. Unless the Administrator determines otherwise, the Restricted Stock Purchase Agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser's service with the Company for any reason (including death or Disability). The purchase price for Shares repurchased pursuant to the Restricted Stock Purchase Agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at a rate determined by the Administrator. -9- (c) OTHER PROVISIONS. The Restricted Stock Purchase Agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion. (d) RIGHTS AS A SHAREHOLDER. Once the Stock Purchase Right is exercised, the purchaser shall have the rights equivalent to those of a shareholder, and shall be a shareholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 13 of the Plan. 12. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. Unless determined otherwise by the Administrator, an Option or Stock Purchase Right may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. If the Administrator makes an Option or Stock Purchase Right transferable, such Option or Stock Purchase Right shall contain such additional terms and conditions as the Administrator deems appropriate. 13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR ASSET SALE. (a) CHANGES IN CAPITALIZATION. Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by each outstanding Option and Stock Purchase Right, the number of shares of Common Stock covered by First Options and Subsequent Options to be granted under the Plan, the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options or Stock Purchase Rights have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option or Stock Purchase Right and the number of shares of Common Stock which may be added to the Plan each fiscal year (pursuant to Section 3), as well as the price per share of Common Stock covered by each such outstanding Option or Stock Purchase Right, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option or Stock Purchase Right. (b) DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for an Optionee to have the right to exercise his or her Option until ten (10) days prior to such transaction as to all of the Optioned Stock covered thereby, including Shares as to which the Option would not otherwise be exercisable. In addition, the Administrator may provide that any Company repurchase option applicable to any Shares purchased upon exercise of an Option or Stock Purchase -10- Right shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Option or Stock Purchase Right will terminate immediately prior to the consummation of such proposed action. (c) MERGER OR ASSET SALE. In the event of a merger of the Company with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Option and Stock Purchase Right shall be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Option or Stock Purchase Right, the Optionee shall fully vest in and have the right to exercise the Option or Stock Purchase Right as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable. If an Option or Stock Purchase Right becomes fully vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee in writing or electronically that the Option or Stock Purchase Right shall be fully vested and exercisable for a period of fifteen (15) days from the date of such notice, and the Option or Stock Purchase Right shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option or Stock Purchase Right shall be considered assumed if, following the merger or sale of assets, the option or right confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option or Stock Purchase Right immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide forthe consideration to be received upon the exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock subject to the Option or Stock Purchase Right, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets. 14. DATE OF GRANT. The date of grant of an Option or Stock Purchase Right shall be, for all purposes, the date on which the Administrator makes the determination granting such Option or Stock Purchase Right, or such other later date as is determined by the Administrator. Notice of the determination shall be provided to each Optionee within a reasonable time after the date of such grant. 15. AMENDMENT AND TERMINATION OF THE PLAN. (a) AMENDMENT AND TERMINATION. The Board may at any time amend, alter, suspend or terminate the Plan. (b) SHAREHOLDER APPROVAL. The Company shall obtain shareholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws. (c) EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise -11- between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. Termination of the Plan shall not affect the Administrator's ability to exercise the powers granted to it hereunder with respect to Options granted under the Plan prior to the date of such termination. 16. CONDITIONS UPON ISSUANCE OF SHARES. (a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to the exercise of an Option or Stock Purchase Right unless the exercise of such Option or Stock Purchase Right and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance. (b) INVESTMENT REPRESENTATIONS. As a condition to the exercise of an Option or Stock Purchase Right, the Company may require the person exercising such Option or Stock Purchase Right to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required. 17. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 18. RESERVATION OF SHARES. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 19. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by the shareholders of the Company within twelve (12) months after the date the Plan is adopted. Such shareholder approval shall be obtained in the manner and to the degree required under Applicable Laws. -12- REALNAMES CORPORATION 1999 STOCK PLAN STOCK OPTION AGREEMENT Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option Agreement. I. NOTICE OF STOCK OPTION GRANT [Optionee's Name and Address] You have been granted an option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as follows: Grant Number ______________________________ Date of Grant ______________________________ Vesting Commencement Date ______________________________ Exercise Price per Share $_____________________________ Total Number of Shares Granted ______________________________ Total Exercise Price $_____________________________ Type of Option: ___ Incentive Stock Option ___ Nonstatutory Stock Option Term/Expiration Date: ______________________________ VESTING SCHEDULE: Subject to accelerated vesting as set forth in the Plan, this Option may be exercised, in whole or in part, in accordance with the following schedule: 25% of the Shares subject to the Option shall vest twelve months after the Vesting Commencement Date, and 1/48 of the Shares subject to the Option shall vest each month thereafter, subject to the Optionee continuing to be a Service Provider on such dates. TERMINATION PERIOD: This Option may be exercised for three (3) months after Optionee ceases to be a Service Provider. Upon the death or Disability of the Optionee, this Option may be exercised for twelve (12) months after Optionee ceases to be a Service Provider. In no event shall this Option be exercised later than the Term/Expiration Date as provided above. II. AGREEMENT A. GRANT OF OPTION. The Plan Administrator of the Company hereby grants to the Optionee named in the Notice of Grant attached as Part I of this Agreement (the "Optionee") an option (the "Option") to purchase the number of Shares, as set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the "Exercise Price"), subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section 15(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Option Agreement, the terms and conditions of the Plan shall prevail. If designated in the Notice of Grant as an Incentive Stock Option ("ISO"), this Option is intended to qualify as an Incentive Stock Option under Section 422 of the Code. However, if this Option is intended to be an Incentive Stock Option, to the extent that it exceeds the $100,000 rule of Code Section 422(d) it shall be treated as a Nonstatutory Stock Option ("NSO"). B. EXERCISE OF OPTION. (a) RIGHT TO EXERCISE. This Option is exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Grant and the applicable provisions of the Plan and this Option Agreement. (b) METHOD OF EXERCISE. This Option is exercisable by delivery of an exercise notice, in the form attached as Exhibit A (the "Exercise Notice"), which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the "Exercised Shares"), and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice shall be completed by the Optionee and delivered to the Stock Plan Administrator of the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by such aggregate Exercise Price. No Shares shall be issued pursuant to the exercise of this Option unless such issuance and exercise complies with Applicable Laws. Assuming such compliance, for income tax purposes the Exercised Shares shall be considered transferred to the Optionee on the date the Option is exercised with respect to such Exercised Shares. -2- C. METHOD OF PAYMENT. Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee: 1. cash; or 2. check; or 3. consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan; or 4. surrender of other Shares which (i) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (ii) have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Exercised Shares. D. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by the Optionee. The terms of the Plan and this Option Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee. E. TERM OF OPTION. This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option Agreement. F. TAX CONSEQUENCES. Some of the federal tax consequences relating to this Option, as of the date of this Option, are set forth below. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. 1. EXERCISING THE OPTION. (a) NONSTATUTORY STOCK OPTION. The Optionee may incur regular federal income tax liability upon exercise of a NSO. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Exercised Shares on the date of exercise over their aggregate Exercise Price. If the Optionee is an Employee or a former Employee, the Company will be required to withhold from his or her compensation or collect from Optionee and pay to the applicable taxing authorities an amount in cash equal to a percentage of this compensation income at the time of exercise, and may -3- refuse to honor the exercise and refuse to deliver Shares if such withholding amounts are not delivered at the time of exercise. (b) INCENTIVE STOCK OPTION. If this Option qualifies as an ISO, the Optionee will have no regular federal income tax liability upon its exercise, although the excess, if any, of the Fair Market Value of the Exercised Shares on the date of exercise over their aggregate Exercise Price will be treated as an adjustment to alternative minimum taxable income for federal tax purposes and may subject the Optionee to alternative minimum tax in the year of exercise. In the event that the Optionee ceases to be an Employee but remains a Service Provider, any Incentive Stock Option of the Optionee that remains unexercised shall cease to qualify as an Incentive Stock Option and will be treated for tax purposes as a Nonstatutory Stock Option on the date three (3) months and one (1) day following such change of status. 2. DISPOSITION OF SHARES. (a) NSO. If the Optionee holds NSO Shares for at least one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes. (b) ISO. If the Optionee holds ISO Shares for at least one year after exercise and two years after the grant date, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes. If the Optionee disposes of ISO Shares within one year after exercise or two years after the grant date, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the excess, if any, of the lesser of (A) the difference between the Fair Market Value of the Shares acquired on the date of exercise and the aggregate Exercise Price, or (B) the difference between the sale price of such Shares and the aggregate Exercise Price. Any additional gain will be taxed as capital gain, short-term or long-term depending on the period that the ISO Shares were held. (c) NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If the Optionee sells or otherwise disposes of any of the Shares acquired pursuant to an ISO on or before the later of (i) two years after the grant date, or (ii) one year after the exercise date, the Optionee shall immediately notify the Company in writing of such disposition. The Optionee agrees that he or she may be subject to income tax withholding by the Company on the compensation income recognized from such early disposition of ISO Shares by payment in cash or out of the current earnings paid to the Optionee. G. ENTIRE AGREEMENT; GOVERNING LAW. The Plan is incorporated herein by reference. The Plan and this Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee's interest except by means of a writing signed by the Company and Optionee. This agreement is governed by the internal substantive laws, but not the choice of law rules, of California. -4- H. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE. By your signature and the signature of the Company's representative below, you and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan and this Option Agreement. Optionee has reviewed the Plan and this Option Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option Agreement and fully understands all provisions of the Plan and Option Agreement. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and Option Agreement. Optionee further agrees to notify the Company upon any change in the residence address indicated below. OPTIONEE: REALNAMES CORPORATION _________________________________ ___________________________________ Signature By _________________________________ ___________________________________ Print Name Title _________________________________ Residence Address _________________________________ -5- EXHIBIT A REALNAMES CORPORATION 1999 STOCK PLAN EXERCISE NOTICE RealNames Corporation P.O. Box 3500 San Carlos, CA 94070-1350 Attention: [Title] 1. EXERCISE OF OPTION. Effective as of today, ________________, _____, the undersigned ("Purchaser") hereby elects to purchase ______________ shares (the "Shares") of the Common Stock of RealNames Corporation (the "Company") under and pursuant to the RealNames Corporation 1999 Stock Plan (the "Plan") and the Stock Option Agreement dated, _____ (the "Option Agreement"). The purchase price for the Shares shall be $_____, as required by the Option Agreement. 2. DELIVERY OF PAYMENT. Purchaser herewith delivers to the Company the full purchase price for the Shares. 3. REPRESENTATIONS OF PURCHASER. Purchaser acknowledges that Purchaser has received, read and understood the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions. 4. RIGHTS AS SHAREHOLDER. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Shares so acquired shall be issued to the Optionee as soon as practicable after exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date of issuance, except as provided in Section 13 of the Plan. 5. TAX CONSULTATION. Purchaser understands that Purchaser may suffer adverse tax consequences as a result of Purchaser's purchase or disposition of the Shares. Purchaser represents that Purchaser has consulted with any tax consultants Purchaser deems advisable in connection with the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice. 6. ENTIRE AGREEMENT; GOVERNING LAW. The Plan and Option Agreement are incorporated herein by reference. This Agreement, the Plan and the Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Purchaser with respect to the subject matter hereof, and may not be modified adversely to the Purchaser's interest except by means of a writing signed by the Company and Purchaser. This agreement is governed by the internal substantive laws, but not the choice of law rules, of California. Submitted by: Accepted by: PURCHASER REALNAMES CORPORATION ________________________________ ___________________________________ Signature By ________________________________ ___________________________________ Print Name Its ADDRESS: ADDRESS: ________________________________ RealNames Corporation P.O. Box 3500 ________________________________ San Carlos, CA 94070-1350 ___________________________________ Date Received -2- EX-10.3 7 EXHIBIT 10.3 Exhibit 10.3 REALNAMES CORPORATION 1999 EMPLOYEE STOCK PURCHASE PLAN The following constitute the provisions of the 1999 Employee Stock Purchase Plan of RealNames Corporation. 1. PURPOSE. The purpose of the Plan is to provide employees of the Company and its Designated Subsidiaries with an opportunity to purchase Common Stock of the Company through accumulated payroll deductions. It is the intention of the Company to have the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The provisions of the Plan, accordingly, shall be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code. 2. DEFINITIONS. (a) "BOARD" shall mean the Board of Directors of the Company. (b) "CODE" shall mean the Internal Revenue Code of 1986, as amended. (c) "COMMON STOCK" shall mean the common stock of the Company. (d) "COMPANY" shall mean RealNames Corporation and any Designated Subsidiary of the Company. (e) "COMPENSATION" shall mean all base straight time gross earnings and commissions, but exclusive of payments for overtime, shift premium, incentive compensation, incentive payments, bonuses and other compensation. (f) "DESIGNATED SUBSIDIARY" shall mean any Subsidiary that has been designated by the Board from time to time in its sole discretion as eligible to participate in the Plan. (g) "EMPLOYEE" shall mean any individual who is an Employee of the Company for tax purposes whose customary employment with the Company is at least twenty (20) hours per week and more than five (5) months in any calendar year. For purposes of the Plan, the employment relationship shall be treated as continuing intact while the individual is on sick leave or other leave of absence approved by the Company. Where the period of leave exceeds 90 days and the individual's right to reemployment is not guaranteed either by statute or by contract, the employment relationship shall be deemed to have terminated on the 91st day of such leave. (h) "ENROLLMENT DATE" shall mean the first Trading Day of each Offering Period. (i) "EXERCISE DATE" shall mean the last Trading Day of each Purchase Period. (j) "FAIR MARKET VALUE" shall mean, as of any date, the value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the date of determination, as reported in THE WALL STREET JOURNAL or such other source as the Board deems reliable; (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean of the closing bid and asked prices for the Common Stock prior to the date of determination, as reported in THE WALL STREET JOURNAL or such other source as the Board deems reliable; (iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Board; or (iv) For purposes of the Enrollment Date of the first Offering Period under the Plan, the Fair Market Value shall be the initial price to the public as set forth in the final prospectus included within the registration statement in Form S-1 filed with the Securities and Exchange Commission for the initial public offering of the Company's Common Stock (the "Registration Statement"). (k) "OFFERING PERIODS" shall mean the periods of approximately twenty-four (24) months during which an option granted pursuant to the Plan may be exercised, commencing on the first Trading Day on or after February 1 and August 1 of each year and terminating on the last Trading Day in the periods ending twenty-four months later; provided, however, that the first Offering Period under the Plan shall commence with the first Trading Day on or after the date on which the Securities and Exchange Commission declares the Company's Registration Statement effective and ending on the last Trading Day on or before July 31, 2001. The duration and timing of Offering Periods may be changed pursuant to Section 4 of this Plan. (l) "PLAN" shall mean this 1999 Employee Stock Purchase Plan. (m) "PURCHASE PERIOD" shall mean the approximately six month period commencing after one Exercise Date and ending with the next Exercise Date, except that the first Purchase Period of any Offering Period shall commence on the Enrollment Date and end with the next Exercise Date. (n) "PURCHASE PRICE" shall mean 85% of the Fair Market Value of a share of Common Stock on the Enrollment Date or on the Exercise Date, whichever is lower; provided however, that the Purchase Price may be adjusted by the Board pursuant to Section 20. -2- (o) "RESERVES" shall mean the number of shares of Common Stock covered by each option under the Plan which have not yet been exercised and the number of shares of Common Stock which have been authorized for issuance under the Plan but not yet placed under option. (p) "SUBSIDIARY" shall mean a corporation, domestic or foreign, of which not less than 50% of the voting shares are held by the Company or a Subsidiary, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary. (q) "TRADING DAY" shall mean a day on which national stock exchanges and the Nasdaq System are open for trading. 3. ELIGIBILITY. (a) Any Employee who shall be employed by the Company on a given Enrollment Date shall be eligible to participate in the Plan. (b) Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option under the Plan (i) to the extent that, immediately after the grant, such Employee (or any other person whose stock would be attributed to such Employee pursuant to Section 424(d) of the Code) would own capital stock of the Company and/or hold outstanding options to purchase such stock possessing five percent (5%) or more of the total combined voting power or value of all classes of the capital stock of the Company or of any Subsidiary, or (ii) to the extent that his or her rights to purchase stock under all employee stock purchase plans of the Company and its subsidiaries accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of stock (determined at the fair market value of the shares at the time such option is granted) for each calendar year in which such option is outstanding at any time. 4. OFFERING PERIODS. The Plan shall be implemented by consecutive, overlapping Offering Periods with a new Offering Period commencing on the first Trading Day on or after February 1 and August 1 each year, or on such other date as the Board shall determine, and continuing thereafter until terminated in accordance with Section 20 hereof; provided, however, that the first Offering Period under the Plan shall commence with the first Trading Day on or after the date on which the Securities and Exchange Commission declares the Company's Registration Statement effective and ending on the last Trading Day on or before July 31, 2001. The Board shall have the power to change the duration of Offering Periods (including the commencement dates thereof) with respect to future offerings without shareholder approval if such change is announced at least five (5) days prior to the scheduled beginning of the first Offering Period to be affected thereafter. 5. PARTICIPATION. (a) An eligible Employee may become a participant in the Plan by completing a subscription agreement authorizing payroll deductions in the form of Exhibit A to this Plan and filing it with the Company's payroll office prior to the applicable Enrollment Date. -3- (b) Payroll deductions for a participant shall commence on the first payroll following the Enrollment Date and shall end on the last payroll in the Offering Period to which such authorization is applicable, unless sooner terminated by the participant as provided in Section 10 hereof. 6. PAYROLL DEDUCTIONS. (a) At the time a participant files his or her subscription agreement, he or she shall elect to have payroll deductions made on each pay day during the Offering Period in an amount not exceeding fifteen percent (15%) of the Compensation which he or she receives on each pay day during the Offering Period. (b) All payroll deductions made for a participant shall be credited to his or her account under the Plan and shall be withheld in whole percentages only. A participant may not make any additional payments into such account. (c) A participant may discontinue his or her participation in the Plan as provided in Section 10 hereof, or may increase or decrease the rate of his or her payroll deductions during the Offering Period by completing or filing with the Company a new subscription agreement authorizing a change in payroll deduction rate. The Board may, in its discretion, limit the number of participation rate changes during any Offering Period. The change in rate shall be effective with the first full payroll period following five (5) business days after the Company's receipt of the new subscription agreement unless the Company elects to process a given change in participation more quickly. A participant's subscription agreement shall remain in effect for successive Offering Periods unless terminated as provided in Section 10 hereof. (d) Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's payroll deductions may be decreased to zero percent (0%) at any time during a Purchase Period. Payroll deductions shall recommence at the rate provided in such participant's subscription agreement at the beginning of the first Purchase Period which is scheduled to end in the following calendar year, unless terminated by the participant as provided in Section 10 hereof. (e) At the time the option is exercised, in whole or in part, or at the time some or all of the Company's Common Stock issued under the Plan is disposed of, the participant must make adequate provision for the Company's federal, state, or other tax withholding obligations, if any, which arise upon the exercise of the option or the disposition of the Common Stock. At any time, the Company may, but shall not be obligated to, withhold from the participant's compensation the amount necessary for the Company to meet applicable withholding obligations, including any withholding required to make available to the Company any tax deductions or benefits attributable to sale or early disposition of Common Stock by the Employee. 7. GRANT OF OPTION. On the Enrollment Date of each Offering Period, each eligible Employee participating in such Offering Period shall be granted an option to purchase on each Exercise Date during such Offering Period (at the applicable Purchase Price) up to a number of shares of the -4- Company's Common Stock determined by dividing such Employee's payroll deductions accumulated prior to such Exercise Date and retained in the Participant's account as of the Exercise Date by the applicable Purchase Price; provided that in no event shall an Employee be permitted to purchase during each Purchase Period more than 5,000 shares of the Company's Common Stock (subject to any adjustment pursuant to Section 19), and provided further that such purchase shall be subject to the limitations set forth in Sections 3(b) and 12 hereof. The Board may, for future Offering Periods, increase or decrease, in its absolute discretion, the maximum number of shares of the Company's Common Stock an Employee may purchase during each Purchase Period of such Offering Period. Exercise of the option shall occur as provided in Section 8 hereof, unless the participant has withdrawn pursuant to Section 10 hereof. The option shall expire on the last day of the Offering Period. 8. EXERCISE OF OPTION. (a) Unless a participant withdraws from the Plan as provided in Section 10 hereof, his or her option for the purchase of shares shall be exercised automatically on the Exercise Date, and the maximum number of full shares subject to option shall be purchased for such participant at the applicable Purchase Price with the accumulated payroll deductions in his or her account. No fractional shares shall be purchased; any payroll deductions accumulated in a participant's account which are not sufficient to purchase a full share shall be retained in the participant's account for the subsequent Purchase Period or Offering Period, subject to earlier withdrawal by the participant as provided in Section 10 hereof. Any other monies left over in a participant's account after the Exercise Date shall be returned to the participant. During a participant's lifetime, a participant's option to purchase shares hereunder is exercisable only by him or her. (b) If the Board determines that, on a given Exercise Date, the number of shares with respect to which options are to be exercised may exceed (i) the number of shares of Common Stock that were available for sale under the Plan on the Enrollment Date of the applicable Offering Period, or (ii) the number of shares available for sale under the Plan on such Exercise Date, the Board may in its sole discretion (x) provide that the Company shall make a pro rata allocation of the shares of Common Stock available for purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on such Exercise Date, and continue all Offering Periods then in effect, or (y) provide that the Company shall make a pro rata allocation of the shares available for purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on such Exercise Date, and terminate any or all Offering Periods then in effect pursuant to Section 20 hereof. The Company may make pro rata allocation of the shares available on the Enrollment Date of any applicable Offering Period pursuant to the preceding sentence, notwithstanding any authorization of additional shares for issuance under the Plan by the Company's shareholders subsequent to such Enrollment Date. -5- 9. DELIVERY. As promptly as practicable after each Exercise Date on which a purchase of shares occurs, the Company shall arrange the delivery to each participant, as appropriate, of a certificate representing the shares purchased upon exercise of his or her option. 10. WITHDRAWAL. (a) A participant may withdraw all, but not less than all the payroll deductions credited to his or her account and not yet used to exercise his or her option under the Plan at any time by giving written notice to the Company in the form of Exhibit B to this Plan. All of the participant's payroll deductions credited to his or her account shall be paid to such participant promptly after receipt of notice of withdrawal and such participant's option for the Offering Period shall be automatically terminated, and no further payroll deductions for the purchase of shares shall be made for such Offering Period. If a participant withdraws from an Offering Period, payroll deductions shall not resume at the beginning of the succeeding Offering Period unless the participant delivers to the Company a new subscription agreement. (b) A participant's withdrawal from an Offering Period shall not have any effect upon his or her eligibility to participate in any similar plan which may hereafter be adopted by the Company or in succeeding Offering Periods which commence after the termination of the Offering Period from which the participant withdraws. 11. TERMINATION OF EMPLOYMENT. Upon a participant's ceasing to be an Employee, for any reason, he or she shall be deemed to have elected to withdraw from the Plan and the payroll deductions credited to such participant's account during the Offering Period but not yet used to exercise the option shall be returned to such participant or, in the case of his or her death, to the person or persons entitled thereto under Section 15 hereof, and such participant's option shall be automatically terminated. The preceding sentence notwithstanding, a participant who receives payment in lieu of notice of termination of employment shall be treated as continuing to be an Employee for the participant's customary number of hours per week of employment during the period in which the participant is subject to such payment in lieu of notice. 12. INTEREST. No interest shall accrue on the payroll deductions of a participant in the Plan. 13. STOCK. (a) Subject to adjustment upon changes in capitalization of the Company as provided in Section 19 hereof, the maximum number of shares of the Company's Common Stock which shall be made available for sale under the Plan shall be 1,000,000 shares, plus an annual increase to be added on the first day of each of the Company's fiscal years during the term of this Plan beginning in fiscal year 2001 equal to the lesser of (i) 3,000,000 shares, (ii) 2% of the outstanding shares on such date, or (iii) an amount determined by the Board. If, on a given Exercise Date, the number of shares with respect to which options are to be exercised exceeds the number of shares then available under the Plan, the -6- Company shall make a pro rata allocation of the shares remaining available for purchase in as uniform a manner as shall be practicable and as it shall determine to be equitable. (b) The participant shall have no interest or voting right in shares covered by his option until such option has been exercised. (c) Shares to be delivered to a participant under the Plan shall be registered in the name of the participant or in the name of the participant and his or her spouse. 14. ADMINISTRATION. The Plan shall be administered by the Board or a committee of members of the Board appointed by the Board. The Board or its committee shall have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility and to adjudicate all disputed claims filed under the Plan. Every finding, decision and determination made by the Board or its committee shall, to the full extent permitted by law, be final and binding upon all parties. 15. DESIGNATION OF BENEFICIARY. (a) A participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the participant's account under the Plan in the event of such participant's death subsequent to an Exercise Date on which the option is exercised but prior to delivery to such participant of such shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant's account under the Plan in the event of such participant's death prior to exercise of the option. If a participant is married and the designated beneficiary is not the spouse, spousal consent shall be required for such designation to be effective. (b) Such designation of beneficiary may be changed by the participant at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant's death, the Company shall deliver such shares and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate. 16. TRANSFERABILITY. Neither payroll deductions credited to a participant's account nor any rights with regard to the exercise of an option or to receive shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 15 hereof) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds from an Offering Period in accordance with Section 10 hereof. -7- 17. USE OF FUNDS. All payroll deductions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions. 18. REPORTS. Individual accounts shall be maintained for each participant in the Plan. Statements of account shall be given to participating Employees at least annually, which statements shall set forth the amounts of payroll deductions, the Purchase Price, the number of shares purchased and the remaining cash balance, if any. 19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, LIQUIDATION, MERGER OR ASSET SALE. (a) CHANGES IN CAPITALIZATION. Subject to any required action by the shareholders of the Company, the Reserves and the number of shares of Common Stock which may be added to the Plan each fiscal year (pursuant to Section 13), the maximum number of shares each participant may purchase each Purchase Period (pursuant to Section 7), as well as the price per share and the number of shares of Common Stock covered by each option under the Plan which has not yet been exercised shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an option. (b) DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution or liquidation of the Company, the Offering Period then in progress shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and shall terminate immediately prior to the consummation of such proposed dissolution or liquidation, unless provided otherwise by the Board. The New Exercise Date shall be before the date of the Company's proposed dissolution or liquidation. The Board shall notify each participant in writing, at least ten (10) business days prior to the New Exercise Date, that the Exercise Date for the participant's option has been changed to the New Exercise Date and that the participant's option shall be exercised automatically on the New Exercise Date, unless prior to such date the participant has withdrawn from the Offering Period as provided in Section 10 hereof. (c) MERGER OR ASSET SALE. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each outstanding option shall be assumed or an equivalent option substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the option, any Purchase Periods then in progress shall be shortened by setting a new Exercise Date (the "New Exercise Date") and any Offering Periods then in progress shall -8- end on the New Exercise Date. The New Exercise Date shall be before the date of the Company's proposed sale or merger. The Board shall notify each participant in writing, at least ten (10) business days prior to the New Exercise Date, that the Exercise Date for the participant's option has been changed to the New Exercise Date and that the participant's option shall be exercised automatically on the New Exercise Date, unless prior to such date the participant has withdrawn from the Offering Period as provided in Section 10 hereof. 20. AMENDMENT OR TERMINATION. (a) The Board of Directors of the Company may at any time and for any reason terminate or amend the Plan. Except as provided in Section 19 hereof, no such termination can affect options previously granted, provided that an Offering Period may be terminated by the Board of Directors on any Exercise Date if the Board determines that the termination of the Offering Period or the Plan is in the best interests of the Company and its shareholders. Except as provided in Section 19 and this Section 20 hereof, no amendment may make any change in any option theretofore granted which adversely affects the rights of any participant. To the extent necessary to comply with Section 423 of the Code (or any successor rule or provision or any other applicable law, regulation or stock exchange rule), the Company shall obtain shareholder approval in such a manner and to such a degree as required. (b) Without shareholder consent and without regard to whether any participant rights may be considered to have been "adversely affected," the Board (or its committee) shall be entitled to change the Offering Periods, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a participant in order to adjust for delays or mistakes in the Company's processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each participant properly correspond with amounts withheld from the participant's Compensation, and establish such other limitations or procedures as the Board (or its committee) determines in its sole discretion advisable which are consistent with the Plan. (c) In the event the Board determines that the ongoing operation of the Plan may result in unfavorable financial accounting consequences, the Board may, in its discretion and, to the extent necessary or desirable, modify or amend the Plan to reduce or eliminate such accounting consequence including, but not limited to: (i) altering the Purchase Price for any Offering Period including an Offering Period underway at the time of the change in Purchase Price; (ii) shortening any Offering Period so that Offering Period ends on a new Exercise Date, including an Offering Period underway at the time of the Board action; and (iii) allocating shares. -9- Such modifications or amendments shall not require stockholder approval or the consent of any Plan participants. 21. NOTICES. All notices or other communications by a participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof. 22. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law. 23. TERM OF PLAN. The Plan shall become effective upon the earlier to occur of its adoption by the Board of Directors or its approval by the shareholders of the Company. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 20 hereof. 24. AUTOMATIC TRANSFER TO LOW PRICE OFFERING PERIOD. To the extent permitted by any applicable laws, regulations, or stock exchange rules if the Fair Market Value of the Common Stock on any Exercise Date in an Offering Period is lower than the Fair Market Value of the Common Stock on the Enrollment Date of such Offering Period, then all participants in such Offering Period shall be automatically withdrawn from such Offering Period immediately after the exercise of their option on such Exercise Date and automatically re-enrolled in the immediately following Offering Period as of the first day thereof. -10- EXHIBIT A REALNAMES CORPORATION 1999 EMPLOYEE STOCK PURCHASE PLAN SUBSCRIPTION AGREEMENT _____ Original Application Enrollment Date: ___________ _____ Change in Payroll Deduction Rate _____ Change of Beneficiary(ies) 1. ____________________ hereby elects to participate in the RealNames Corporation 1999 Employee Stock Purchase Plan (the "Employee Stock Purchase Plan") and subscribes to purchase shares of the Company's Common Stock in accordance with this Subscription Agreement and the Employee Stock Purchase Plan. 2. I hereby authorize payroll deductions from each paycheck in the amount of ____% of my Compensation on each payday (from 0 to _____%) during the Offering Period in accordance with the Employee Stock Purchase Plan. (Please note that no fractional percentages are permitted.) 3. I understand that said payroll deductions shall be accumulated for the purchase of shares of Common Stock at the applicable Purchase Price determined in accordance with the Employee Stock Purchase Plan. I understand that if I do not withdraw from an Offering Period, any accumulated payroll deductions will be used to automatically exercise my option. 4. I have received a copy of the complete Employee Stock Purchase Plan. I understand that my participation in the Employee Stock Purchase Plan is in all respects subject to the terms of the Plan. I understand that my ability to exercise the option under this Subscription Agreement is subject to shareholder approval of the Employee Stock Purchase Plan. 5. Shares purchased for me under the Employee Stock Purchase Plan should be issued in the name(s) of (Employee or Employee and Spouse only):. 6. I understand that if I dispose of any shares received by me pursuant to the Plan within 2 years after the Enrollment Date (the first day of the Offering Period during which I purchased such shares) or one year after the Exercise Date, I will be treated for federal income tax purposes as having received ordinary income at the time of such disposition in an amount equal to the excess of the fair market value of the shares at the time such shares were purchased by me over the price which I paid for the shares. I HEREBY AGREE TO NOTIFY THE COMPANY IN WRITING WITHIN 30 DAYS AFTER THE DATE OF ANY DISPOSITION OF MY SHARES AND I WILL MAKE ADEQUATE PROVISION FOR FEDERAL, STATE OR OTHER TAX WITHHOLDING OBLIGATIONS, IF ANY, WHICH ARISE UPON THE DISPOSITION OF THE COMMON STOCK. The Company may, but will not be obligated to, withhold from my compensation the amount necessary to meet any applicable withholding obligation including any withholding necessary to make available to the Company any tax deductions or benefits attributable to sale or early disposition of Common Stock by me. If I dispose of such shares at any time after the expiration of the 2-year and 1-year holding periods, I understand that I will be treated for federal income tax purposes as having received income only at the time of such disposition, and that such income will be taxed as ordinary income only to the extent of an amount equal to the lesser of (1) the excess of the fair market value of the shares at the time of such disposition over the purchase price which I paid for the shares, or (2) 15% of the fair market value of the shares on the first day of the Offering Period. The remainder of the gain, if any, recognized on such disposition will be taxed as capital gain. 7. I hereby agree to be bound by the terms of the Employee Stock Purchase Plan. The effectiveness of this Subscription Agreement is dependent upon my eligibility to participate in the Employee Stock Purchase Plan. 8. In the event of my death, I hereby designate the following as my beneficiary(ies) to receive all payments and shares due me under the Employee Stock Purchase Plan: NAME: (Please print) __________________________________________________________ (First) (Middle) (Last) ____________________________________ ____________________________________ Relationship ____________________________________ (Address) -2- Employee's Social Security Number: ________________________________ Employee's Address: ________________________________ ________________________________ ________________________________ I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME. Dated:_________________________ ____________________________________ Signature of Employee ____________________________________ Spouse's Signature (If beneficiary other than spouse) -3- EXHIBIT B REALNAMES CORPORATION 1999 EMPLOYEE STOCK PURCHASE PLAN NOTICE OF WITHDRAWAL The undersigned participant in the Offering Period of the RealNames Corporation 1999 Employee Stock Purchase Plan that began on ____________, ______ (the Enrollment Date") hereby notifies the Company that, he or she hereby withdraws from the Offering Period. He or she hereby directs the Company to pay to the undersigned as promptly as practicable all the payroll deductions credited to his or her account with respect to such Offering Period. The undersigned understands and agrees that his or her option for such Offering Period will be automatically terminated. The undersigned understands further that no further payroll deductions will be made for the purchase of shares in the current Offering Period and the undersigned shall be eligible to participate in succeeding Offering Periods only by delivering to the Company a new Subscription Agreement. Name and Address of Participant: ____________________________________ ____________________________________ ____________________________________ Signature: ____________________________________ Date:_______________________________ EX-10.4 8 EXHIBIT 10.4 Exhibit 10.4 REALNAMES CORPORATION 1999 DIRECTOR OPTION PLAN 1. PURPOSES OF THE PLAN. The purposes of this 1999 Director Option Plan are to attract and retain the best available personnel for service as Outside Directors (as defined herein) of the Company, to provide additional incentive to the Outside Directors of the Company to serve as Directors, and to encourage their continued service on the Board. All options granted hereunder shall be nonstatutory stock options. 2. DEFINITIONS. As used herein, the following definitions shall apply: (a) "BOARD" means the Board of Directors of the Company. (b) "CODE" means the Internal Revenue Code of 1986, as amended. (c) "COMMON STOCK" means the common stock of the Company. (d) "COMPANY" means RealNames Corporation, a Delaware corporation. (e) "DIRECTOR" means a member of the Board. (f) "DISABILITY" means total and permanent disability as defined in section 22(e)(3) of the Code. (g) "EMPLOYEE" means any person, including officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. The payment of a Director's fee by the Company shall not be sufficient in and of itself to constitute "employment" by the Company. (h) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (i) "FAIR MARKET VALUE" means, as of any date, the value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination as reported in THE WALL STREET JOURNAL or such other source as the Administrator deems reliable; (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock for the last market trading day prior to the time of determination, as reported in THE WALL STREET JOURNAL or such other source as the Board deems reliable; or (iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Board. (j) "INSIDE DIRECTOR" means a Director who is an Employee. (k) "OPTION" means a stock option granted pursuant to the Plan. (l) "OPTIONED STOCK" means the Common Stock subject to an Option. (m) "OPTIONEE" means a Director who holds an Option. (n) "OUTSIDE DIRECTOR" means a Director who is not an Employee. (o) "PARENT" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code. (p) "PLAN" means this 1999 Director Option Plan. (q) "SHARE" means a share of the Common Stock, as adjusted in accordance with Section 10 of the Plan. (r) "SUBSIDIARY" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of 1986. 3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 10 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 500,000 Shares (the "Pool"). The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option expires or becomes unexercisable without having been exercised in full, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). Shares that have actually been issued under the Plan shall not be returned to the Plan and shall not become available for future distribution under the Plan. 4. ADMINISTRATION AND GRANTS OF OPTIONS UNDER THE PLAN. (a) PROCEDURE FOR GRANTS. All grants of Options to Outside Directors under this Plan shall be automatic and nondiscretionary and shall be made strictly in accordance with the following provisions: (i) No person shall have any discretion to select which Outside Directors shall be granted Options or to determine the number of Shares to be covered by Options. -2- (ii) Each Outside Director shall be automatically granted an Option to purchase 40,000 Shares (the "First Option") on the date on which the later of the following events occurs: (A) the effective date of this Plan, as determined in accordance with Section 6 hereof, or (B) the date on which such person first becomes an Outside Director, whether through election by the shareholders of the Company or appointment by the Board to fill a vacancy; provided, however, that an Inside Director who ceases to be an Inside Director but who remains a Director shall not receive a First Option. (iii) Each Outside Director shall be automatically granted an Option to purchase 20,000 Shares (a "Subsequent Option") following each annual meeting of the stockholders of the Company provided he or she is then an Outside Director and if as of such date, he or she shall have served on the Board for at least the preceding six (6) months. (iv) Notwithstanding the provisions of subsections (ii) and (iii) hereof, any exercise of an Option granted before the Company has obtained shareholder approval of the Plan in accordance with Section 16 hereof shall be conditioned upon obtaining such shareholder approval of the Plan in accordance with Section 16 hereof. (v) The terms of a First Option granted hereunder shall be as follows: (A) the term of the First Option shall be ten (10) years. (B) the First Option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in Sections 8 and 10 hereof. (C) the exercise price per Share shall be 100% of the Fair Market Value per Share on the date of grant of the First Option. (D) subject to Section 10 hereof, the First Option shall become exercisable as to 1/4 of the Shares subject to the First Option on each anniversary of its date of grant, provided that the Optionee continues to serve as a Director on such dates. (vi) The terms of a Subsequent Option granted hereunder shall be as follows: (A) the term of the Subsequent Option shall be ten (10) years. (B) the Subsequent Option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in Sections 8 and 10 hereof. (C) the exercise price per Share shall be 100% of the Fair Market Value per Share on the date of grant of the Subsequent Option. (D) subject to Section 10 hereof, the Subsequent Option shall become exercisable as to 1/4 of the Shares subject to the Subsequent Option on each anniversary of its date of grant, provided that the Optionee continues to serve as a Director on such dates. -3- (vii) In the event that any Option granted under the Plan would cause the number of Shares subject to outstanding Options plus the number of Shares previously purchased under Options to exceed the Pool, then the remaining Shares available for Option grant shall be granted under Options to the Outside Directors on a pro rata basis. No further grants shall be made until such time, if any, as additional Shares become available for grant under the Plan through action of the Board or the shareholders to increase the number of Shares which may be issued under the Plan or through cancellation or expiration of Options previously granted hereunder. 5. ELIGIBILITY. Options may be granted only to Outside Directors. All Options shall be automatically granted in accordance with the terms set forth in Section 4 hereof. The Plan shall not confer upon any Optionee any right with respect to continuation of service as a Director or nomination to serve as a Director, nor shall it interfere in any way with any rights which the Director or the Company may have to terminate the Director's relationship with the Company at any time. 6. TERM OF PLAN. The Plan shall become effective upon the earlier to occur of its adoption by the Board or its approval by the shareholders of the Company as described in Section 16 of the Plan. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 11 of the Plan. 7. FORM OF CONSIDERATION. The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall consist of (i) cash, (ii) check, (iii) other shares which (x) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised, (iv) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan, or (v) any combination of the foregoing methods of payment. 8. EXERCISE OF OPTION. (a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option granted hereunder shall be exercisable at such times as are set forth in Section 4 hereof; provided, however, that no Options shall be exercisable until shareholder approval of the Plan in accordance with Section 16 hereof has been obtained. An Option may not be exercised for a fraction of a Share. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may consist of any consideration and method of payment allowable under Section 7 of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the -4- Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. A share certificate for the number of Shares so acquired shall be issued to the Optionee as soon as practicable after exercise of the Option. No adjustment shall be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 10 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) TERMINATION OF CONTINUOUS STATUS AS A DIRECTOR. Subject to Section 10 hereof, in the event an Optionee's status as a Director terminates (other than upon the Optionee's death or Disability), the Optionee may exercise his or her Option, but only within three (3) months following the date of such termination, and only to the extent that the Optionee was entitled to exercise it on the date of such termination (but in no event later than the expiration of its ten (10) year term). To the extent that the Optionee was not entitled to exercise an Option on the date of such termination, and to the extent that the Optionee does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate. (c) DISABILITY OF OPTIONEE. In the event Optionee's status as a Director terminates as a result of Disability, the Optionee may exercise his or her Option, but only within twelve (12) months following the date of such termination, and only to the extent that the Optionee was entitled to exercise it on the date of such termination (but in no event later than the expiration of its ten (10) year term). To the extent that the Optionee was not entitled to exercise an Option on the date of termination, or if he or she does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate. (d) DEATH OF OPTIONEE. In the event of an Optionee's death, the Optionee's estate or a person who acquired the right to exercise the Option by bequest or inheritance may exercise the Option, but only within twelve (12) months following the date of death, and only to the extent that the Optionee was entitled to exercise it on the date of death (but in no event later than the expiration of its ten (10) year term). To the extent that the Optionee was not entitled to exercise an Option on the date of death, and to the extent that the Optionee's estate or a person who acquired the right to exercise such Option does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate. 9. NON-TRANSFERABILITY OF OPTIONS. The Option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. 10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR ASSET SALE. (a) CHANGES IN CAPITALIZATION. Subject to any required action by the shareholders of the Company, the number of Shares covered by each outstanding Option, the number of Shares -5- which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per Share covered by each such outstanding Option, and the number of Shares issuable pursuant to the automatic grant provisions of Section 4 hereof shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an Option. (b) DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution or liquidation of the Company, to the extent that an Option has not been previously exercised, it shall terminate immediately prior to the consummation of such proposed action. (c) MERGER OR ASSET SALE. In the event of a merger of the Company with or into another corporation or the sale of substantially all of the assets of the Company, outstanding Options may be assumed or equivalent options may be substituted by the successor corporation or a Parent or Subsidiary thereof (the "Successor Corporation"). If an Option is assumed or substituted for, the Option or equivalent option shall continue to be exercisable as provided in Section 4 hereof for so long as the Optionee serves as a Director or a director of the Successor Corporation. Following such assumption or substitution, if the Optionee's status as a Director or director of the Successor Corporation, as applicable, is terminated other than upon a voluntary resignation by the Optionee, the Option or option shall become fully exercisable, including as to Shares for which it would not otherwise be exercisable. Thereafter, the Option or option shall remain exercisable in accordance with Sections 8(b) through (d) above. If the Successor Corporation does not assume an outstanding Option or substitute for it an equivalent option, the Option shall become fully vested and exercisable, including as to Shares for which it would not otherwise be exercisable. In such event the Board shall notify the Optionee that the Option shall be fully exercisable for a period of thirty (30) days from the date of such notice, and upon the expiration of such period the Option shall terminate. For the purposes of this Section 10(c), an Option shall be considered assumed if, following the merger or sale of assets, the Option confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares). If such consideration received in the merger or sale of assets is not solely common stock of the Successor Corporation or its Parent, the Administrator may, with the consent of the Successor Corporation, provide for the consideration to be received upon the exercise -6- of the Option, for each Share of Optioned Stock subject to the Option, to be solely common stock of the Successor Corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets. 11. AMENDMENT AND TERMINATION OF THE PLAN. (a) AMENDMENT AND TERMINATION. The Board may at any time amend, alter, suspend, or discontinue the Plan, but no amendment, alteration, suspension, or discontinuation shall be made which would impair the rights of any Optionee under any grant theretofore made, without his or her consent. In addition, to the extent necessary and desirable to comply with any applicable law, regulation or stock exchange rule, the Company shall obtain shareholder approval of any Plan amendment in such a manner and to such a degree as required. (b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or termination of the Plan shall not affect Options already granted and such Options shall remain in full force and effect as if this Plan had not been amended or terminated. 12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for all purposes, be the date determined in accordance with Section 4 hereof. 13. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, state securities laws, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares, if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law. Inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 14. RESERVATION OF SHARES. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. -7- 15. OPTION AGREEMENT. Options shall be evidenced by written option agreements in such form as the Board shall approve. 16. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by the shareholders of the Company within twelve (12) months after the date the Plan is adopted. Such shareholder approval shall be obtained in the degree and manner required under applicable state and federal law and any stock exchange rules. -8- EX-10.5 9 EXHIBIT 10.5 Exhibit 10.5 REALNAMES CORPORATION INDEMNIFICATION AGREEMENT This Indemnification Agreement ("AGREEMENT") is effective as of by and between RealNames Corporation, a Delaware corporation (the "COMPANY"), and ("INDEMNITEE"). WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve the Company and its related entities; WHEREAS, in order to induce Indemnitee to continue to provide services to the Company, the Company wishes to provide for the indemnification of, and the advancement of expenses to, Indemnitee to the maximum extent permitted by law; WHEREAS, the Company and Indemnitee recognize the continued difficulty in obtaining liability insurance for the Company's directors, officers, employees, agents and fiduciaries, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance; WHEREAS, the Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting directors, officers, employees, agents and fiduciaries to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited; and WHEREAS, in view of the considerations set forth above, the Company desires that Indemnitee shall be indemnified and advanced expenses by the Company as set forth herein; NOW, THEREFORE, the Company and Indemnitee hereby agree as set forth below. 1. CERTAIN DEFINITIONS. (a) "CHANGE IN CONTROL" shall mean, and shall be deemed to have occurred if, on or after the date of this Agreement, (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company acting in such capacity or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing more than 50% of the total voting power represented by the Company's then outstanding Voting Securities (as defined below), (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 80% of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of related transactions) all or substantially all of the Company's assets. (b) "CLAIM" shall mean with respect to a Covered Event (as defined below): any threatened, pending or completed action, suit, proceeding or alternative dispute resolution mechanism, or any hearing, inquiry or investigation that Indemnitee in good faith believes might lead to the institution of any such action, suit, proceeding or alternative dispute resolution mechanism, whether civil, criminal, administrative, investigative or other. (c) References to the "COMPANY" shall include, in addition to RealNames Corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger to which RealNames Corporation (or any of its wholly owned subsidiaries) is a party which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees, agents or fiduciaries, so that if Indemnitee is or was a director, officer, employee, agent or fiduciary of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued. (d) "COVERED EVENT" shall mean any event or occurrence related to the fact that Indemnitee is or was a director, officer, employee, agent or fiduciary of the Company, or any subsidiary of the Company, or is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action or inaction on the part of Indemnitee while serving in such capacity. (e) "EXPENSES" shall mean any and all expenses (including attorneys' fees and all other costs, expenses and obligations incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, to be a witness in or to participate in, any action, suit, proceeding, alternative dispute resolution mechanism, hearing, inquiry or investigation), judgments, fines, penalties and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld), actually and reasonably incurred, of any Claim and any federal, state, local or foreign taxes imposed on the Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement. -2- (f) "EXPENSE ADVANCE" shall mean a payment to Indemnitee pursuant to Section 3 of Expenses in advance of the settlement of or final judgement in any action, suit, proceeding or alternative dispute resolution mechanism, hearing, inquiry or investigation which constitutes a Claim. (g) "INDEPENDENT LEGAL COUNSEL" shall mean an attorney or firm of attorneys, selected in accordance with the provisions of Section 2(d) hereof, who shall not have otherwise performed services for the Company or Indemnitee within the last three years (other than with respect to matters concerning the rights of Indemnitee under this Agreement, or of other indemnitees under similar indemnity agreements). (h) References to "OTHER ENTERPRISES" shall include employee benefit plans; references to "FINES" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "SERVING AT THE REQUEST OF THE COMPANY" shall include any service as a director, officer, employee, agent or fiduciary of the Company which imposes duties on, or involves services by, such director, officer, employee, agent or fiduciary with respect to an employee benefit plan, its participants or its beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner "NOT OPPOSED TO THE BEST INTERESTS OF THE COMPANY" as referred to in this Agreement. (i) "REVIEWING PARTY" shall mean, subject to the provisions of Section 2(d), any person or body appointed by the Board of Directors in accordance with applicable law to review the Company's obligations hereunder and under applicable law, which may include a member or members of the Company's Board of Directors, Independent Legal Counsel or any other person or body not a party to the particular Claim for which Indemnitee is seeking indemnification. (j) "SECTION" refers to a section of this Agreement unless otherwise indicated. (k) "VOTING SECURITIES" shall mean any securities of the Company that vote generally in the election of directors. 2. INDEMNIFICATION. (a) INDEMNIFICATION OF EXPENSES. Subject to the provisions of Section 2(b) below, the Company shall indemnify Indemnitee for Expenses to the fullest extent permitted by law if Indemnitee was or is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, any Claim (whether by reason of or arising in part out of a Covered Event), including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses. (b) REVIEW OF INDEMNIFICATION OBLIGATIONS. Notwithstanding the foregoing, in the event any Reviewing Party shall have determined (in a written opinion, in any case in which Independent Legal Counsel is the Reviewing Party) that Indemnitee is not entitled to be indemnified hereunder under applicable law, (i) the Company shall have no further obligation under Section 2(a) to make any payments to Indemnitee not made prior to such determination by such Reviewing Party, -3- and (ii) the Company shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all Expenses theretofore paid in indemnifying Indemnitee; PROVIDED, HOWEVER, that if Indemnitee has commenced or thereafter commences legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee is entitled to be indemnified hereunder under applicable law, any determination made by any Reviewing Party that Indemnitee is not entitled to be indemnified hereunder under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any Expenses theretofore paid in indemnifying Indemnitee until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). Indemnitee's obligation to reimburse the Company for any Expenses shall be unsecured and no interest shall be charged thereon. (c) INDEMNITEE RIGHTS ON UNFAVORABLE DETERMINATION; BINDING EFFECT. If any Reviewing Party determines that Indemnitee substantively is not entitled to be indemnified hereunder in whole or in part under applicable law, Indemnitee shall have the right to commence litigation seeking an initial determination by the court or challenging any such determination by such Reviewing Party or any aspect thereof, including the legal or factual bases therefor, and, subject to the provisions of Section 15, the Company hereby consents to service of process and to appear in any such proceeding. Absent such litigation, any determination by any Reviewing Party shall be conclusive and binding on the Company and Indemnitee. (d) SELECTION OF REVIEWING PARTY; CHANGE IN CONTROL. If there has not been a Change in Control, any Reviewing Party shall be selected by the Board of Directors, and if there has been such a Change in Control (other than a Change in Control which has been approved by a majority of the Company's Board of Directors who were directors immediately prior to such Change in Control), any Reviewing Party with respect to all matters thereafter arising concerning the rights of Indemnitee to indemnification of Expenses under this Agreement or any other agreement or under the Company's certificate of incorporation or bylaws as now or hereafter in effect, or under any other applicable law, if desired by Indemnitee, shall be Independent Legal Counsel selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld). Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent Indemnitee would be entitled to be indemnified hereunder under applicable law and the Company agrees to abide by such opinion. The Company agrees to pay the reasonable fees of the Independent Legal Counsel referred to above and to indemnify fully such counsel against any and all expenses (including attorneys' fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto. Notwithstanding any other provision of this Agreement, the Company shall not be required to pay Expenses of more than one Independent Legal Counsel in connection with all matters concerning a single Indemnitee, and such Independent Legal Counsel shall be the Independent Legal Counsel for any or all other Indemnitees unless (i) the Company otherwise determines or (ii) any Indemnitee shall provide a written statement setting forth in detail a reasonable objection to such Independent Legal Counsel representing other Indemnitees. (e) MANDATORY PAYMENT OF EXPENSES. Notwithstanding any other provision of this Agreement other than Section 10 hereof, to the extent that Indemnitee has been successful on the merits or otherwise, including, without limitation, the dismissal of an action without prejudice, in -4- defense of any Claim, Indemnitee shall be indemnified against all Expenses incurred by Indemnitee in connection therewith. 3. EXPENSE ADVANCES. (a) OBLIGATION TO MAKE EXPENSE ADVANCES. The Company shall make Expense Advances to Indemnitee upon receipt of a written undertaking by or on behalf of the Indemnitee to repay such amounts if it shall ultimately be determined that the Indemnitee is not entitled to be indemnified therefor by the Company. (b) FORM OF UNDERTAKING. Any written undertaking by the Indemnitee to repay any Expense Advances hereunder shall be unsecured and no interest shall be charged thereon. (c) DETERMINATION OF REASONABLE EXPENSE ADVANCES. The parties agree that for the purposes of any Expense Advance for which Indemnitee has made written demand to the Company in accordance with this Agreement, all Expenses included in such Expense Advance that are certified by affidavit of Indemnitee's counsel as being reasonable shall be presumed conclusively to be reasonable. 4. PROCEDURES FOR INDEMNIFICATION AND EXPENSE ADVANCES. (a) TIMING OF PAYMENTS. All payments of Expenses (including without limitation Expense Advances) by the Company to the Indemnitee pursuant to this Agreement shall be made to the fullest extent permitted by law as soon as practicable after written demand by Indemnitee therefor is presented to the Company, but in no event later than forty-five (45) business days after such written demand by Indemnitee is presented to the Company, except in the case of Expense Advances, which shall be made no later than twenty (20) business days after such written demand by Indemnitee is presented to the Company. (b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a condition precedent to Indemnitee's right to be indemnified or Indemnitee's right to receive Expense Advances under this Agreement, give the Company notice in writing as soon as practicable of any Claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company at the address shown on the signature page of this Agreement (or such other address as the Company shall designate in writing to Indemnitee). In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power. (c) NO PRESUMPTIONS; BURDEN OF PROOF. For purposes of this Agreement, the termination of any Claim by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of NOLO CONTENDERE, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by this Agreement or applicable law. In addition, neither the failure of any Reviewing Party to have made a determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by any Reviewing Party that Indemnitee has not met such standard of conduct or did -5- not have such belief, prior to the commencement of legal proceedings by Indemnitee to secure a judicial determination that Indemnitee should be indemnified under this Agreement or applicable law, shall be a defense to Indemnitee's claim or create a presumption that Indemnitee has not met any particular standard of conduct or did not have any particular belief. In connection with any determination by any Reviewing Party or otherwise as to whether the Indemnitee is entitled to be indemnified hereunder, the burden of proof shall be on the Company to establish that Indemnitee is not so entitled. (d) NOTICE TO INSURERS. If, at the time of the receipt by the Company of a notice of a Claim pursuant to Section 4(b) hereof, the Company has liability insurance in effect which may cover such Claim, the Company shall give prompt notice of the commencement of such Claim to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such Claim in accordance with the terms of such policies. (e) SELECTION OF COUNSEL. In the event the Company shall be obligated hereunder to provide indemnification for or make any Expense Advances with respect to the Expenses of any Claim, the Company, if appropriate, shall be entitled to assume the defense of such Claim with counsel approved by Indemnitee (which approval shall not be unreasonably withheld) upon the delivery to Indemnitee of written notice of the Company's election to do so. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees or expenses of separate counsel subsequently employed by or on behalf of Indemnitee with respect to the same Claim; PROVIDED, HOWEVER, that (i) Indemnitee shall have the right to employ Indemnitee's separate counsel in any such Claim at Indemnitee's expense and (ii) if (A) the employment of separate counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense, or (C) the Company shall not continue to retain such counsel to defend such Claim, then the fees and expenses of Indemnitee's separate counsel shall be Expenses for which Indemnitee may receive indemnification or Expense Advances hereunder. 5. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY. (a) SCOPE. The Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's certificate of incorporation, the Company's bylaws or by statute. In the event of any change after the date of this Agreement in any applicable law, statute or rule which expands the right of a Delaware corporation to indemnify a member of its board of directors or an officer, employee, agent or fiduciary, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits afforded by such change. In the event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its board of directors or an officer, employee, agent or fiduciary, such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties' rights and obligations hereunder except as set forth in Section 10(a) hereof. -6- (b) NONEXCLUSIVITY. The indemnification and the payment of Expense Advances provided by this Agreement shall be in addition to any rights to which Indemnitee may be entitled under the Company's certificate of incorporation, its bylaws, any other agreement, any vote of stockholders or disinterested directors, the General Corporation Law of the State of Delaware, or otherwise. The indemnification and the payment of Expense Advances provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though subsequent thereto Indemnitee may have ceased to serve in such capacity. 6. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under this Agreement to make any payment in connection with any Claim made against Indemnitee to the extent Indemnitee has otherwise actually received payment (under any insurance policy, provision of the Company's certificate of incorporation, bylaws or otherwise) of the amounts otherwise payable hereunder. 7. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of Expenses incurred in connection with any Claim, but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses to which Indemnitee is entitled. 8. MUTUAL ACKNOWLEDGEMENT. Both the Company and Indemnitee acknowledge that in certain instances, federal law or applicable public policy may prohibit the Company from indemnifying its directors, officers, employees, agents or fiduciaries under this Agreement or otherwise. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee. 9. LIABILITY INSURANCE. To the extent the Company maintains liability insurance applicable to directors, officers, employees, agents or fiduciaries, Indemnitee shall be covered by such policies in such a manner as to provide Indemnitee the same rights and benefits as are provided to the most favorably insured of the Company's directors, if Indemnitee is a director; or of the Company's officers, if Indemnitee is not a director of the Company but is an officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee is not an officer or director but is a key employee, agent or fiduciary. 10. EXCEPTIONS. Notwithstanding any other provision of this Agreement, the Company shall not be obligated pursuant to the terms of this Agreement: (a) EXCLUDED ACTION OR OMISSIONS. To indemnify Indemnitee for Expenses resulting from acts, omissions or transactions for which Indemnitee is prohibited from receiving indemnification under this Agreement or applicable law; PROVIDED, HOWEVER, that notwithstanding any limitation set forth in this Section 10(a) regarding the Company's obligation to provide indemnification, Indemnitee shall be entitled under Section 3 to receive Expense Advances hereunder with respect to any such Claim unless and until a court having jurisdiction over the Claim shall have made a final judicial determination (as to which all rights of appeal therefrom have been -7- exhausted or lapsed) that Indemnitee has engaged in acts, omissions or transactions for which Indemnitee is prohibited from receiving indemnification under this Agreement or applicable law. (b) CLAIMS INITIATED BY INDEMNITEE. To indemnify or make Expense Advances to Indemnitee with respect to Claims initiated or brought voluntarily by Indemnitee and not by way of defense, counterclaim or crossclaim, except (i) with respect to actions or proceedings brought to establish or enforce a right to indemnification under this Agreement or any other agreement or insurance policy or under the Company's certificate of incorporation or bylaws now or hereafter in effect relating to Claims for Covered Events, (ii) in specific cases if the Board of Directors has approved the initiation or bringing of such Claim, or (iii) as otherwise required under Section 145 of the Delaware General Corporation Law (relating to indemnification of officers, directors, employees and agents; and insurance), regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification or insurance recovery, as the case may be. (c) LACK OF GOOD FAITH. To indemnify Indemnitee for any Expenses incurred by the Indemnitee with respect to any action instituted (i) by Indemnitee to enforce or interpret this Agreement, if a court having jurisdiction over such action determines as provided in Section 13 that each of the material assertions made by the Indemnitee as a basis for such action was not made in good faith or was frivolous, or (ii) by or in the name of the Company to enforce or interpret this Agreement, if a court having jurisdiction over such action determines as provided in Section 13 that each of the material defenses asserted by Indemnitee in such action was made in bad faith or was frivolous. (d) CLAIMS UNDER SECTION 16(b). To indemnify Indemnitee for expenses and the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute; PROVIDED, HOWEVER, that notwithstanding any limitation set forth in this Section 10(d) regarding the Company's obligation to provide indemnification, Indemnitee shall be entitled under Section 3 to receive Expense Advances hereunder with respect to any such Claim unless and until a court having jurisdiction over the Claim shall have made a final judicial determination (as to which all rights of appeal therefrom have been exhausted or lapsed) that Indemnitee has violated said statute. 11. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall constitute an original. 12. BINDING EFFECT; SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), spouses, heirs and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect, and whether by purchase, merger, consolidation or otherwise) to all, substantially all, or a substantial part, of the business or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. This Agreement shall continue in effect regardless of whether -8- Indemnitee continues to serve as a director, officer, employee, agent or fiduciary (as applicable) of the Company or of any other enterprise at the Company's request. 13. EXPENSES INCURRED IN ACTION RELATING TO ENFORCEMENT OR INTERPRETATION. In the event that any action is instituted by Indemnitee under this Agreement or under any liability insurance policies maintained by the Company to enforce or interpret any of the terms hereof or thereof, Indemnitee shall be entitled to be indemnified for all Expenses incurred by Indemnitee with respect to such action (including without limitation attorneys' fees), regardless of whether Indemnitee is ultimately successful in such action, unless as a part of such action a court having jurisdiction over such action makes a final judicial determination (as to which all rights of appeal therefrom have been exhausted or lapsed) that each of the material assertions made by Indemnitee as a basis for such action was not made in good faith or was frivolous; PROVIDED, HOWEVER, that until such final judicial determination is made, Indemnitee shall be entitled under Section 3 to receive payment of Expense Advances hereunder with respect to such action. In the event of an action instituted by or in the name of the Company under this Agreement to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be indemnified for all Expenses incurred by Indemnitee in defense of such action (including without limitation costs and expenses incurred with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of such action a court having jurisdiction over such action makes a final judicial determination (as to which all rights of appeal therefrom have been exhausted or lapsed) that each of the material defenses asserted by Indemnitee in such action was made in bad faith or was frivolous; PROVIDED, HOWEVER, that until such final judicial determination is made, Indemnitee shall be entitled under Section 3 to receive payment of Expense Advances hereunder with respect to such action. 14. NOTICE. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and signed for by the party addressed, on the date of such delivery, or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked. Addresses for notice to either party are as shown on the signature page of this Agreement or as subsequently modified by written notice. 15. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of Delaware for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be commenced, prosecuted and continued only in the Court of Chancery of the State of Delaware in and for New Castle County, which shall be the exclusive and only proper forum for adjudicating such a claim. 16. SEVERABILITY. The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest extent permitted by law. Furthermore, to the fullest extent possible, the provisions of this Agreement (including without limitation each portion of this Agreement containing any provision held to be invalid, void or otherwise unenforceable, that is not itself invalid, void or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. -9- 17. CHOICE OF LAW. This Agreement, and all rights, remedies, liabilities, powers and duties of the parties to this Agreement, shall be governed by and construed in accordance with the laws of the State of Delaware without regard to principles of conflicts of laws. 18. SUBROGATION. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights. 19. AMENDMENT AND TERMINATION. No amendment, modification, termination or cancellation of this Agreement shall be effective unless it is in writing signed by both the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed to be or shall constitute a waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver. 20. INTEGRATION AND ENTIRE AGREEMENT. This Agreement sets forth the entire understanding between the parties hereto and supersedes and merges all previous written and oral negotiations, commitments, understandings and agreements relating to the subject matter hereof between the parties hereto. 21. NO CONSTRUCTION AS EMPLOYMENT AGREEMENT. Nothing contained in this Agreement shall be construed as giving Indemnitee any right to be retained in the employ of the Company or any of its subsidiaries or affiliated entities. -10- IN WITNESS WHEREOF, the parties hereto have executed this Indemnification Agreement as of the date first above written. REALNAMES CORPORATION By:_____________________________________ Name____________________________________ Title:__________________________________ Address: RealNames Corporation Two Circle Star Way Second Floor San Carlos, CA 94070 AGREED TO AND ACCEPTED BY: INDEMNITEE ___________________________________ (signature) -11- EX-10.6 10 EXHIBIT 10.6 Exhibit 10.6 CIRCLE STAR LEASE AGREEMENT BY AND BETWEEN CIRCLE STAR CENTER ASSOCIATES, L.P. ("LANDLORD") AND CENTRAAL CORPORATION ("TENANT")
(b) INSURANCE REQUIREMENTS. 5 (c) NO LIMITATION ON OBLIGATIONS. 6 TABLE OF CONTENTS PARAGRAPH DESCRIPTION PAGE BASIC LEASE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . v 1. OCCUPANCY AND USE . . . . . . . . . . . . . . . . . . . . . . . . 1 2. TERMS AND POSSESSION . . . . . . . . . . . . . . . . . . . . . . . 1 3. RENT; RENT ADJUSTMENTS; ADDITIONAL CHARGES FOR EXPENSES AND TAXES 2 (A) MONTHLY BASE RENT . . . . . . . . . . . . . . . . . . . . . . 2 (B) ADJUSTMENTS IN BASE RENT . . . . . . . . . . . . . . . . . . . 2 (C) ADDITIONAL CHARGES FOR EXPENSES AND TAXES . . . . . . . . . . 2 (1) DEFINITIONS OF ADDITIONAL CHARGES: . . . . . . . . . . . . . . 2 (A) "TAX YEAR" . . . . . . . . . . . . . . . . . . . . . . . . . . 2 (B) "TENANT'S SHARE" . . . . . . . . . . . . . . . . . . . . . . . 2 (C) "REAL ESTATE TAXES" . . . . . . . . . . . . . . . . . . . . . 2 (D) "EXPENSES" . . . . . . . . . . . . . . . . . . . . . . . . . . 3 (E) "EXPENSE YEAR" . . . . . . . . . . . . . . . . . . . . . . . . 4 (2) PAYMENT OF REAL ESTATE TAXES: . . . . . . . . . . . . . . . . 4 (3) PAYMENT OF EXPENSES: . . . . . . . . . . . . . . . . . . . . . 4 (4) OTHER: . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 (5) AUDIT: . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 (D) LATE CHARGES . . . . . . . . . . . . . . . . . . . . . . . . . 5 4. RESTRICTIONS ON USE . . . . . . . . . . . . . . . . . . . . . . . 5 5. COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . . . . 5 6. ADDITIONAL ALTERATIONS . . . . . . . . . . . . . . . . . . . . . . 6 7. REPAIR AND MAINTENANCE . . . . . . . . . . . . . . . . . . . . . . 6 8. LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 9. ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . . . . . 7 10. INSURANCE AND INDEMNIFICATION . . . . . . . . . . . . . . . . . . 9 11. WAIVER OF SUBROGATION . . . . . . . . . . . . . . . . . . . . . .10 12. SERVICES AND UTILITIES . . . . . . . . . . . . . . . . . . . . . .10 13. TENANT'S CERTIFICATES . . . . . . . . . . . . . . . . . . . . . .11 14. HOLDING OVER . . . . . . . . . . . . . . . . . . . . . . . . . . .11 15. SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . . .12 16. RULES AND REGULATIONS . . . . . . . . . . . . . . . . . . . . . .12 17. RE-ENTRY BY LANDLORD . . . . . . . . . . . . . . . . . . . . . . .12 18. INSOLVENCY OR BANKRUPTCY . . . . . . . . . . . . . . . . . . . . .13 19. DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 20. DAMAGE BY FIRE, ETC. . . . . . . . . . . . . . . . . . . . . . . .14 21. EMINENT DOMAIN . . . . . . . . . . . . . . . . . . . . . . . . . .14 22. SALE BY LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . .15 23. RIGHT OF LANDLORD TO PERFORM . . . . . . . . . . . . . . . . . . .15 i 24. SURRENDER OF PREMISES . . . . . . . . . . . . . . . . . . . . . .15 25. WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 26 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 27. TAXES PAYABLE BY TENANT . . . . . . . . . . . . . . . . . . . . .16 28. ABANDONMENT . . . . . . . . . . . . . . . . . . . . . . . . . . .16 29. SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . . . . .16 30. ATTORNEY'S FEES . . . . . . . . . . . . . . . . . . . . . . . . .16 31. LIGHT AND AIR . . . . . . . . . . . . . . . . . . . . . . . . . .16 32. SECURITY DEPOSIT . . . . . . . . . . . . . . . . . . . . . . . . .16 33. CORPORATE AUTHORITY; FINANCIAL INFORMATION . . . . . . . . . . . .17 34. PARKING . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 35. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . .18 36. TENANT'S REMEDIES . . . . . . . . . . . . . . . . . . . . . . . .18 37. REAL ESTATE BROKERS . . . . . . . . . . . . . . . . . . . . . . .18 38. LEASE EFFECTIVE DATE . . . . . . . . . . . . . . . . . . . . . . .18 39. HAZARDOUS SUBSTANCE LIABILITY . . . . . . . . . . . . . . . . . .18 40. ARBITRATION OF DISPUTES . . . . . . . . . . . . . . . . . . . . .19 41. SIGNAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 42. OPTION TO RENEW . . . . . . . . . . . . . . . . . . . . . . . . .19 43. RENT DURING EXTENSION TERM . . . . . . . . . . . . . . . . . . . .19 44. SATELLITE ANTENNA . . . . . . . . . . . . . . . . . . . . . . . .20 45. RIGHT TO RELOCATE TENANT . . . . . . . . . . . . . . . . . . . . .21
EXHIBIT "A" PREMISES EXHIBIT "B" WORK LETTER Exhibit "B-1" Landlord's Plans Exhibit "B-2" Minimum Information Required Exhibit "C" Rules and Regulations Exhibit "D" Form of Tenant Estoppel Certificate Exhibit "E" Encumbrances Exhibit "F" Subordination, Nondisturbance and Attornment Agreement Exhibit "G" Form of Letter of Credit ii
BASIC LEASE INFORMATION - ------------------------------------------------------------------------------- Lease Date: December 16, 1998 LANDLORD: CIRCLE STAR CENTER ASSOCIATES, L.P. a California limited partnership Managing Agent: THE MOZART DEVELOPMENT COMPANY Landlord's and Managing Agent's Address: c/o THE MOZART DEVELOPMENT COMPANY 1068 East Meadow Circle Palo Alto, CA 94303 TENANT: CENTRAAL CORPORATION a California Corporation Tenant's Address: Prior to Occupancy: After Commencement Date: 811 Hansen Way at the Premises Palo Alto, CA 94303 Attn: Chief Financial Attn: Doug Finlay Officer Building: Two Circle Star Way, San Carlos, California Suite: 200 Rentable Area of the Premises: 25,179 square feet Rentable Area of the Building: 102,973 square feet Tenant's Use of the Premises: General Office and Administration (including twenty-four hour live internet services and software development) Lease Term: Seven (7) years Scheduled Commencement Date: March 26,. 1999 Scheduled Expiration Date: February 28, 2006 Tenant Allowance: $579,800 ($25 pusf x 23,192 usf) plus up to $15,000 for the cost of installation of glass and glazing in the wall of the Premises overlooking the first floor lobby; provided, however, if Tenant does not install a continuous drop ceiling grid throughout the Premises the Tenant Allowance shall be reduced by the amount estimated by Devcon Construction to complete the drop ceiling grid throughout the Premises. Additional Allowance: None Tenant's Plan Delivery Date: December 20, 1998 Outside Delivery Date: May 31, 1999 Monthly Base Rent: $2.55 per Rentable Square Foot of the Rentable Area of the Premises. Base Rent Adjustment: On each anniversary of the Rent Commencement Date the Monthly Base Rent shall increase by three percent (3 9[) over the Monthly Base Rent applicable to the month immediately prior, to the applicable anniversary. Tenant's Share of Expenses and Taxes ("Additional Charges"): 24.45% Security Deposit: $650,000 plus additional security as provided in Paragraph 32. Guarantor of Lease: See Security Deposit Broker: Cornish & Carey Commercial (Landlord & Tenant) Broker's Fee or Commission, If Any, Paid By: Landlord
The foregoing Basic Lease Information is hereby incorporated into and made a part of this Lease. Each reference in this Lease to any of the Basic Lease Information shall mean the respective information hereinabove set forth and shall be construed to incorporate all of the terms provided under the particular paragraph pertaining to such information. In the event of any conflict between any Basic Lease Information and the Lease, the latter shall control. iii LANDLORD: CIRCLE STAR CENTER ASSOCIATES, L.P. a California limited partnership By: M-D Ventures, Inc. Its: General Partner By: /s/ Steve Dostart --------------------------------- Steve Dostart Its: Vice President TENANT: CENTRAAL CORPORATION a California corporation By: /s/ Keith Teare --------------------------------- Keith W. Teare Its: President & CEO iv LEASE AGREEMENT THIS LEASE AGREEMENT is made and entered into as of December 16, 1998, by and between CIRCLE STAR CENTER ASSOCIATES, L.P., a California limited partnership, (herein called "Landlord"), and CENTRAAL CORPORATION, a California corporation, (herein called "Tenant"). Upon and subject to the terms, covenants and conditions hereinafter set forth, Landlord hereby leases to Tenant and Tenant hereby hires from Landlord those premises (the "Premises") comprising the area substantially as crosshatched on the attached EXHIBIT "A", in the building (hereinafter referred to as the "Building") specified in the Basic Lease Information attached hereto. The number of square feet designated as Rentable Area of the Premises on the Basic Lease Information may include portions of the Building Common Area attributed to the Premises and not located within the area outlined on EXHIBIT A. The Building is located on land on which Landlord intends to develop two buildings as an integrated project (the "Project"). The term "Common Area" shall mean all areas and facilities within the Project that are not designated by Landlord for the exclusive use of Tenant or any other tenant or other occupant of the Project, including the parking areas, access and perimeter roads, pedestrian sidewalks, landscaped areas, trash enclosures, recreation areas and the like. 1. OCCUPANCY AND USE. Tenant may use and occupy the Premises for the purpose specified in the Basic Lease Information and for no other use or purpose without the prior written consent of Landlord. Landlord shall have the right to grant or withhold consent to a proposed change of use in its sole discretion. Tenant shall be entitled to the benefit on a nonexclusive basis of (i) the Building Common Areas with other occupants of the Building, and (ii) to the extent and for so long as Landlord continues to own the Project, the Project Common Areas with other occupants of the Project in accordance with the Rules and Regulations established by Landlord from time to time. Provided, however, that if Landlord sells a portion of the Project, Landlord shall assure to Tenant that Tenant's rights to access and parking are assured through a Reciprocal Easement Agreement or other like mechanism. Notwithstanding the above, Tenant understands and agrees that (a) a Declaration of Covenants, Conditions and Restrictions ("CC&R's"), (b) a ground lease and (c) a Conditional Use Permit may encumber the Land and Project and that Tenant's Occupancy and Use of the Premises may be restricted by such encumbrances. If necessary, Tenant shall execute such documents as are reasonably necessary to cause this Lease to become subordinate to such encumbrances (see the attached EXHIBIT E, Encumbrances). 2. TERMS AND POSSESSION. (a) The term of this Lease (the "Term") shall be for the period specified in the Basic Lease Information (or until sooner terminated as herein provided). Subject to Tenant's termination right set forth below in this Paragraph, if Landlord, for any reason whatsoever, cannot deliver possession of the Premises in the condition required under this Lease (including the Substantial Completion of the Tenant Improvements), with all governmental permits required for the occupancy of the Premises, to Tenant on the date specified in the Basic Lease Information for the commencement of the Term, this Lease shall not be void or voidable, nor shall Landlord be liable to Tenant for any loss or damage resulting therefrom. In that event, however, the Term of the Lease shall not commence until such commencement date as is determined pursuant to EXHIBIT B. In such event, the scheduled commencement date and scheduled expiration date shall be adjusted accordingly. Payment of Rent and Additional Charges by Tenant due to delay in delivery of the Premises caused by Tenant shall also be governed by EXHIBIT B hereof. Notwithstanding the provisions above and of EXHIBIT B, if the delivery of the Premises is delayed beyond Outside Delivery Date, as set forth in the Basic Lease Information, Tenant shall have the right to terminate this Lease by notifying Landlord in writing of its intent to do so no later than ten (10) business days after the Outside Delivery Date. The Outside Delivery Date shall be extended one day for each day of delay caused by (i) Tenant Delays as more particularly set forth in EXHIBIT B hereof and (ii) acts of God or the elements, acts of the Government, labor disturbances of any character, a shortage of material or labor, or other causes beyond the reasonable control of Landlord (any of the foregoing, "Force Majeure"), provided that any such delay shall not exceed sixty (60) days. The dates upon which the Term shall actually commence and terminate pursuant to this Paragraph 2(a) are herein called the "Commencement Date" and the "Expiration Date," respectively. (b) Completion of the improvements to the Premises and Building shall be governed by the terms and conditions of the separate work letter ("Work Letter"), attached hereto as EXHIBIT "B". (c) The Premises shall be deemed "delivered" and the Term shall commence as defined in EXHIBIT B. (d) Tenant shall, no later than thirty (30) days after the date of issuance by the appropriate governmental agency of a Certificate of Occupancy or its equivalent concerning the Improvements, occupy a portion of the Premises or deliver a letter to Landlord confirming that possession of the Premises has been tendered to and accepted by Tenant and that Tenant, by virtue of such acceptance, is in occupancy of the Premises. Time is of essence. This subparagraph 2(d) shall not be construed as an obligation of Tenant to continuously occupy the Premises. 1 3. RENT; RENT ADJUSTMENTS; ADDITIONAL CHARGES FOR EXPENSES AND TAXES. (a) MONTHLY BASE RENT. (i) PAYMENT OF BASE RENT. Commencing on the Commencement Date, except to the extent otherwise provided for in Paragraph 2(a), Tenant shall pay to Landlord throughout the Term Base Rent in an amount equal to the Monthly Base Rent rate specified in the Basic Lease Information multiplied by the Rentable Area of the Premises, as specified in the Basic Lease Information ("Base Rent"), which sum shall be payable by Tenant in equal monthly installments on, or, at Tenant's election, before, the first clay of each month, in advance, with the first month's rent due upon execution of this Lease Agreement, in lawful money of the United States (without any prior demand therefor and without deduction or offset whatsoever, except as expressly provided for in Paragraphs 20 & 21) to Landlord or its managing agent at the address specified in the Basic Lease Information or to such other firm or to such other place as Landlord or its Managing Agent may from time to time designate in writing. Tenant shall pay to Landlord all charges and other amounts whatsoever as provided in this Lease ("Additional Charges") at the place where the Base Rent is payable, and Landlord shall have the same remedies for a default in the payment of Additional Charges as for a default in the payment of Base Rent. As used herein, the term "Rent" shall include all Base Rent and Additional Charges (including, without limitation, Additional Charges for Real Estate Taxes and Expenses pursuant to Paragraph 3(c) below, and Additional Charges pursuant to Paragraphs 7(b), 8, 10(d) 23). If the Commencement Date should occur on a day other than the first day of a calendar month, or the Expiration Date should occur on a day other than the last day of a calendar month, then the Rent and Additional Charges for such fractional month shall be prorated on a daily basis. (ii) PARTIAL WAIVER OF RENT & ADDITIONAL CHARGES: During the first 122 days of the Term, for each four-week period that at least 10,000 rentable square fee of the Premises is not occupied by Tenant (or its subtenant or assignee), Tenant shall be entitled to a waiver of 40% of the Base Rent and Additional Charges due for such period ("Partial Rent Waiver Entitlement"). For such waiver to be valid, Tenant shall be required to notify Landlord in writing during the first week of the subject period of such Partial Rent Waiver Entitlement and Landlord shall have the opportunity to verify the validity of such notice during business hours on any business day during the subject period. (b) ADJUSTMENTS IN BASE RENT. The Monthly Base Rent under Paragraph 3(a) shall be adjusted as provided in the Basic Lease Information. Additionally, the Monthly Base Rent shall be increased in the event that Tenant elects to utilize any of the Additional Allowance specified in the Basic Lease Information. The amount of such increase shall be determined by calculating the monthly payment amount for a fully amortizing loan where (i) the original principal amount equals the amount of the Additional Allowance utilized by Tenant, (ii) the annual interest rate is ten percent (10%), and (iii) the term of the loan is the number of months in the initial Lease Term. For example, if the entire amount of the Additional Allowance were utilized, then the addition to Monthly Base Rent would be $3,850.15 per month, throughout the initial Lease Term. (c) ADDITIONAL CHARGES FOR EXPENSES AND TAXES. (1) DEFINITIONS OF ADDITIONAL CHARGES: For purposes of this Paragraph 3(c), the following terms shall have the meanings hereinafter set forth: (A) "TAX YEAR" shall mean each twelve (12) consecutive month period commencing January 1st of the calendar year during which the Commencement Date of this Lease occurs, provided that Landlord, upon notice to Tenant, may change the Tax Year from time to time to any other twelve (12) consecutive month period and, in the event of any such change, Tenant's Share of Real Estate Taxes (as hereinafter defined) shall be equitably adjusted for the Tax Years involved in any such change. (B) "TENANT'S SHARE" shall mean the percentage figure so specified in the Basic Lease Information. (C) "REAL ESTATE TAXES" shall mean all taxes, assessments and charges levied upon or with respect to the Project or any personal property of Landlord used in the operation of thereof, or Landlord's interest in the Project or such personal property. Real Estate Taxes shall include, without limitation, all general real property taxes and general and special assessments, charges, fees or assessments for transit, housing, police, fire or other governmental services or purported benefits to the Building (provided, however, that any refunds of Real Estate Taxes paid by Tenant (as part of Tenant's Share of Real Estate Taxes) shall be credited against Tenant's further obligation to pay Real Estate Taxes during the Term), service payments in lieu of taxes, and any tax, fee or excise on the act of entering into this Lease, or any other lease of space in the Building, or on the use or occupancy of the Building or any part thereof, or on the rent payable under any lease or in connection with the business of renting space in the Building, that are now or hereafter levied or assessed against Landlord by the United States of America, the State of California, or any political subdivision, public corporation, district or any other political or public entity, and shall also include any other tax, fee or other excise, however described, that may be levied or assessed as a substitute for, or as an addition to, in whole or in part, any other Real Estate Taxes, whether or not now customary or in the contemplation of the parties on the date of this Lease. Real Estate Taxes shall not include franchise, transfer, inheritance or capital stock taxes, gift Or estate taxes, any assessments in excess of the amount which would be payable if such tax or assessment expense were paid in installments over the longest 2 permitted term, any increases in taxes due to the improvement of the Project for the sole use of other occupants, or income taxes measured by the net income of Landlord from all sources unless, due to a change in the method of taxation, any of such taxes is levied or assessed against Landlord as a substitute for, in whole or in part, any other tax that would otherwise constitute a Real Estate Tax. Additionally, Real Estate Taxes shall not include any assessments or like charges to pay for any remediation of contamination from any Hazardous Substance (which are not the liability of Tenant pursuant to Paragraph 39 hereof). Real Estate Taxes shall also include reasonable legal fees, costs and disbursements incurred in connection with proceedings to contest, determine or reduce Real Estate Taxes; provided that such fees, costs and disbursements do not exceed the actual savings in Real Estate Taxes obtained by Tenant over the Term of the Lease. If any assessments are levied on the Project, Tenant shall have no obligation to pay more than that amount of annual installments of principal and interest that would become due during the Lease Term had Landlord elected to pay the assessment in installment payments, even if Landlord pays the assessment in full. (D) "EXPENSES" shall mean the total costs and expenses reasonably paid or incurred by Landlord in connection with the management, operation, maintenance and repair of the Building, including, without limitation (i) the cost of air conditioning, electricity, steam, heating, mechanical, ventilating, elevator systems and all other utilities and the cost of supplies and equipment and maintenance and service contracts in connection therewith; (ii) the cost of repairs and general maintenance and cleaning; (iii) the cost of fire, extended coverage, boiler, sprinkler, public liability, property damage, rent, earthquake (if Landlord determines that it is available at commercially reasonable rates) and other insurance obtained by Landlord in connection with the Project, all including, without limitation, insurance premiums and any deductible amounts paid by Landlord; (iv) fees, charges and other costs, including management fees, consulting fees, legal fees (which are allowed elsewhere in the Lease) and accounting fees, fees of all independent contractors engaged by Landlord directly related to the operation of the Building or reasonably charged by Landlord if Landlord performs management services in connection with the Building, (though the management fee shall not exceed the cap noted in the following paragraph); (v) the cost of any capital improvements made to the Building after the Commencement Date (a) as a labor saving device or to effect other economies in the operation or maintenance of the Building (from which a reasonable person would anticipate that savings would actually result), (b) to repair or replace capital items which are no longer capable of providing the services required of them, or (c) that are made to the Building after the date of this Lease and are required under any Laws (as defined in Paragraph 5), where such capital improvements were not required under any such Laws to be completed with respect to the Building prior to the date the Lease was executed, and in this regard, during any calendar year, the cost of any capital improvements up to $.24 per square foot of the Rentable Area of the Premises, which are Tenant's responsibility under the Lease, shall be expensed during that year, and the cost of capital improvements incurred during any calendar year in excess of such amount, which are the responsibility of Tenant pursuant to this Lease, shall be amortized over the useful life of the capital item in question as determined in accordance with generally accepted accounting principles ("GAAP"), together with interest on the unamortized balance at the greater of (x) the rate paid by Landlord on funds borrowed for the purpose of constructing such capital improvements; or (y) 10% per annum; and (vi) any other reasonable expenses of any other kind whatsoever reasonably incurred in managing, operating, maintaining and repairing the Building, including, but not limited to, costs incurred pursuant to the Encumbrances identified in EXHIBIT E and the Building's Share of Project Common Expenses. "Project Common Expenses" shall mean any expenses paid or incurred by Landlord in connection with the management, operation, maintenance and repair of the Project Common Areas in the Project and any other Expenses paid or incurred by Landlord for the benefit of the Project as a whole, including, but not limited to, the cost of maintaining the parking lot and facilities and landscaping. "Building's Share" shall mean the prorata portion of all Project Common Expenses based on the amount of gross floor area of the Building as a portion of the gross floor area of all applicable buildings in the Project, all as reasonably determined by Landlord. Any "deductible" amounts relating to capital improvements required to be paid by Tenant hereunder in connection with any casualty policy carried by Landlord shall be amortized over the useful life of the restoration work in accordance with GAAP; provided, however, such amounts shall no longer constitute Expenses from and after the date upon which Monthly Base Rent is adjusted to fair market rental pursuant to the terms and conditions of this Lease. Notwithstanding anything to the contrary herein contained, Expenses shall not include, and in no event shall Tenant have any obligation to pay for pursuant to this Paragraph 3 or Paragraph 7(b), (aa) the initial construction cost of the Project or real property on which the Building is located; (bb) the cost of providing tenant improvements, renovations, painting or redecorating (other than in Common Areas) to Tenant or any other tenant; (cc) debt service (including, but without limitation, interest, principal and any impound payments) required to be made on any mortgage or deed of trust recorded with respect to the Building and/or the real property on which the Building is located other than debt service and financing charges imposed pursuant to Paragraph 3(c)(1)(D)(v) above; (dd) the cost of special services, goods or materials provided to any tenant; (ee) depreciation; (if) the portion of a management fee paid to Landlord or affiliate in excess of three percent (3 %) of Base Rent and Additional Charges (excluding the management fee); (gg) costs occasioned by Landlord's fraud or willful misconduct under applicable laws; (hh) costs for which Landlord has a right of and has received reimbursement from others; (ii) costs to correct any construction or design defects in the original construction of the Premises, the Building or the Project; (ii) costs arising from a disproportionate use of any utility or service supplied by Landlord to any other occupant of the Building to the extent that Landlord has the ability to charge such other tenant for said costs under the terms of a lease comparable to terms governing said costs in this Lease; (kk) repairs, replacement and upgrades to the structural elements of the Building; (ll) 3 environmental pollution remediation related costs in connection with the remediation of the Project including costs for which Landlord has indemnified Tenant pursuant to Paragraph 39, except any such costs incurred as the result of Tenant's use of the Premises; (mm) advertising or promotional costs; (nn) leasing commissions; (oo) except as provided in Paragraph 20, costs occasioned by casualties or by the exercise of the power of eminent domain (other than deductible amounts under insurance policies which shall be included as an Expense); and (pp) legal costs incurred in connection with negotiations or disputes with any other occupant (or prospective occupant) of the Project. In the event that the Building or the Project is not at least ninety-five percent (95 5) occupied during any fiscal year of the Term as determined by Landlord, an adjustment shall be made in computing the Expenses and/or the Project Common Expenses, as applicable, for such year so that Expenses and/or Project Common Expenses, as applicable, which vary with occupancy shall be computed as though the Building or Project, as applicable, had been ninety-five percent (95 %) occupied; provided, however, that in no event shall Landlord be entitled to collect in excess of one hundred percent (100%) of the total Expenses from all of the tenants in the Building including Tenant. All costs and expenses shall be determined in accordance with generally accepted accounting principles which shall be consistently applied (with accruals appropriate to Landlord's business). Expenses shall not include specific costs incurred for the account of, separately billed to and paid by specific tenants. (E) "EXPENSE YEAR" shall mean each twelve (12) consecutive month period commencing January 1 of the calendar year during which the Commencement Date of the Lease occurs, provided that Landlord, upon notice to Tenant, may change the Expense Year from time to time to any other twelve (12) consecutive month period, and, in the event of any such change, Tenant's Share of Expenses shall be equitably adjusted for the Expense Years involved in any such change. (2) PAYMENT OF REAL ESTATE TAXES: Commencing on the Commencement Date, unless otherwise provided for in Paragraph 3 (a), Tenant shall pay to Landlord as Additional Charges one-twelfth (1/12th) of Tenant's Share of Real Estate Taxes fairly allocable to the Building as reasonably determined by Landlord for each Tax Year on or before the first day of each month during such Tax Year, in advance, in an amount reasonably estimated by Landlord and billed by Landlord to Tenant, and Landlord shall have the right initially to determine monthly estimates and to revise such estimates from time to time. With reasonable promptness after Landlord has received the tax bills for any Tax Year, Landlord shall furnish Tenant with a statement (herein called "Landlord's Tax Statement") setting forth the amount of Real Estate Taxes for such Tax Year, and Tenant's Share thereof. If the actual Real Estate Taxes for such Tax Year exceed the estimated Real Estate Taxes paid by Tenant for such Tax Year, Tenant shall pay to Landlord the difference between the amount paid by Tenant and the actual Real Estate Taxes within fifteen (15) days after the receipt of Landlord's Tax Statement, and if the total amount paid by Tenant for any such Tax Year shall exceed the actual Real Estate Taxes for such Tax Year, such excess shall be credited against the next installment of Real Estate Taxes due from Tenant to. Landlord hereunder. If it has been determined that Tenant has overpaid Real Estate Taxes during the last year of the Lease Term, then Landlord shall reimburse Tenant for such overage on or before the thirtieth (30th) day following the Expiration Date. (3) PAYMENT OF EXPENSES: Commencing on the Commencement Date, unless otherwise provided for in Paragraph 3(a), Tenant shall pay to Landlord as Additional Charges one-twelfth (1/12th) of Tenant's Share of the Expenses for each Expense Year on or before the first day of each month of such Expense Year, in advance, in an amount reasonably estimated by Landlord and billed by Landlord to Tenant, and Landlord shall have the right initially to determine monthly estimates and to revise such estimates from time to time. With reasonable promptness after the expiration of each Expense Year, Landlord shall furnish Tenant with a statement (herein called "Landlord's Expense Statement"), setting forth in reasonable detail the Expenses for such Expense Year and Tenant's Share thereof. If the actual Expenses for such Expense Year exceed the estimated Expenses paid by Tenant for such Expense Year, Tenant shall pay to Landlord the difference between the amount paid by Tenant and the actual Expenses within fifteen (15) days after the receipt of Landlord's Expense Statement, and if the total amount paid by Tenant for any such Expense Year shall exceed the actual Expenses for such Expense Year, such excess shall be credited against the next installment of the estimated Expenses due from Tenant to Landlord hereunder or if the Term has ended it shall be returned to Tenant within thirty (30) days. Any utility rebates for the Project which Landlord receives for payments made by Tenant (as part of Tenant's Share of Expenses) shall be forwarded to Tenant so long as such rebate is received within one year following the Expiration Date or sooner termination of the Lease. If it has been determined that Tenant has overpaid Expenses during the last year of the Lease Term (including rebates of utilities applicable to Tenant), then Landlord shall reimburse Tenant for such overage on or before the thirtieth (30th) day following the Expiration Date. (4) OTHER: To the extent any item of Real Estate Taxes or Expenses is payable by Landlord in advance of the period to which it is applicable (e.g. insurance and tax escrows required by Landlord's Lender), or to the extent that prepayment is customary for the service or matter, Landlord may (i) include such items in Landlord's estimate for periods prior to the date such item is to be paid by Landlord and (ii) to the extent Landlord has not collected the full amount of such item prior to the date such item is to be paid by Landlord, Landlord may include the balance of such full amount in a revised monthly estimate for Additional Charges. If the Commencement Date or Expiration Date shall occur on a date other than the first day of a Tax Year and/or Expense Year, Tenant's share of Real Estate Taxes and Expenses, for the Tax Year and/or Expense Year in which the Commencement Date occurs shall be prorated. (5) AUDIT: Within ninety (90) days after receipt of any Expense Statement or Tax Statement from Landlord, Tenant shall have the right to examine Landlord's books and records relating to such Expense Statements and Tax Statements, or cause an independent audit thereof to be conducted by an accounting 4 firm to be selected by Tenant and subject to the reasonable approval of Landlord. If the audit conclusively proves that Tenant has overpaid either Expenses or Real Estate Taxes, then Landlord shall promptly reimburse Tenant for such overage, and if such overage exceeds five percent (5 %) of the actual amount of Expenses or Real Estate Taxes paid by Landlord for the Tax or Expense Year covered by such audit, then Landlord shall bear the cost of such audit, up to a maximum cost of $5,000. If Tenant fails to object to any such Expense Statement or Tax Statement or request an independent audit thereof within such ninety (90) day period, such Expense Statement and/or Tax Statement shall be final and shall not be subject to any audit, challenge or adjustment. (d) LATE CHARGES. Tenant recognizes that late payment of any Base Rent or Additional Charges will result in administrative expenses to Landlord, the extent of which additional expense is extremely difficult and economically impractical to ascertain. Tenant therefore agrees that if any Base Rent or Additional Charges remain unpaid three (3) days after such amount is due, the amount of such unpaid Base Rent or Additional Charges shall be increased by a late charge to be paid to Landlord by Tenant in an amount equal to four percent (4 %) of the amount of the delinquent Base Rent or Additional Charges. Tenant shall be excused once each twelve (12) month period of the Term from the application of a late fee to any Base Rent or Additional Charge which became delinquent without a prior written invoice or other notice of Landlord; provided, however, the late fee shall nevertheless be payable if Tenant does not cure the delinquency within ten (10) days after written notice from Landlord. In addition, any outstanding Base Rent, Additional Charges, late charges and other outstanding amounts shall accrue interest at annualized rate of the lesser of (i) the greater of, 10% or The Federal Reserve Discount Rate plus 5%, or (ii) the maximum rate permitted by law (the "Default Rate"), until paid to Landlord. Tenant agrees that such amount is a reasonable estimate of the loss and expense to be suffered by Landlord as a result of such late payment by Tenant and may be charged by Landlord to defray such loss and expense. The provisions of this Paragraph 3(d) in no way relieve Tenant of the obligation to pay Rent or Additional Charges on or before the date on which they are due, nor do the terms of this Paragraph 3(d) in any way affect Landlord's remedies pursuant to Paragraph 19 in the event any Base Rent or Additional Charges are unpaid after the date due. 4. RESTRICTIONS ON USE. Tenant shall not do or permit anything to be done in or about the Premises which will obstruct or interfere with the rights of other tenants or occupants of the Building or the Project or injure or annoy them, nor use or allow the Premises to be used for any unlawful purpose, nor shall Tenant cause or maintain or permit any nuisance in, on or about the Premises. Tenant shall not commit or suffer the commission of any waste in, on or about the Premises. 5. COMPLIANCE WITH LAWS. (a) TENANT'S COMPLIANCE OBLIGATIONS. Tenant shall not use the Premises or permit anything to be done in or about the Premises which will in any way conflict with any present and future laws, statutes, ordinances, resolutions, regulations, proclamations, orders or decrees of any municipal, county, state or federal government or other governmental or regulatory authority with jurisdiction over the Project, or any portion thereof, whether currently in effect or adopted in the future and whether or not in the contemplation of the parties hereto (collectively, "Laws"), and Tenant shall promptly, at its sole expense, maintain the Premises, any Alterations (as defined in Paragraph 6 below) permitted hereunder and Tenant's use and operations thereon in strict compliance at all times with all Laws. "Laws" shall include, without limitation, all Laws relating to health and safety (including, without limitation, the California Occupational Safety and Health Act of 1973 an the California Safe Drinking Water and Toxic Enforcement Act of 1986, including posting and delivery of notices required by such Laws with respect to the Premises) and disabled accessibility (including, without limitation, the Americans with Disabilities Act, 42 U.S.C. section 12101 ET SEQ.), Hazardous Substances, and all present and future life safety, fire, sprinkler, seismic retrofit, building code and municipal code requirements; provided however, that Tenant's obligation to comply with Laws relating to Hazardous Substances is subject to the terms and conditions of Paragraph 39, and Tenant shall not be responsible for compliance with clean-up provisions of any Laws with respect to Hazardous Substances except to the extent of any release caused by the Tenant Parties or otherwise included in Tenant's indemnity contained in Paragraph 39. Notwithstanding the foregoing, Landlord, and not Tenant, shall be responsible for correcting any condition at the Premises which is in violation of applicable Laws on or prior to the Commencement Date, except to the extent such condition is caused by the acts or omissions of the Tenant Parties or such violation results from Tenant's use of the Premises in a manner other than as permitted under this Lease. Notwithstanding the first sentence of this Paragraph 5(a), Tenant shall not be required to make any alterations to the Premises in order to comply with Laws unless the requirement that such alterations be made is triggered by any of the following (or, if such requirement results from the cumulative effect of any of the following when added to other acts, omissions, negligence or events, to the extent such alterations are required by any of the following): (i) the installation, use or operation of any Alterations, or any of Tenant's trade fixtures or personal property; (ii) the acts, omissions or negligence of Tenant, or any of its servants, employees, contractors, agents or licensees; or (iii) the particular use or particular occupancy or manner of use or occupancy of the Premises by Tenant, or any of its servants, employees, contractors, agents or licensees. Any alterations that are Tenant's responsibility pursuant to this Paragraph 5 shall be made in accordance with Paragraph 6 below. The parties acknowledge and agree that Tenant's obligation to comply with all Laws as provided in this paragraph (subject to the limitations contained herein) is a material part of the bargained-for consideration under this Lease. Tenant's obligations under this Paragraph and under Paragraph 7(c) below shall include, without limitation, the responsibility of Tenant to make substantial or structural repairs and alterations to the Premises to the extent provided above, regardless of, among other factors, the relationship of the cost of curative action to the Rent under this Lease, the length of the then remaining Term hereof, the relative benefit of the repairs to Tenant or landlord, the degree to which the curative action may interfere with Tenant's use or enjoyment of the Premises, and the likelihood that the parties contemplated the particular Law involved. 5 (b) INSURANCE REQUIREMENTS. Tenant shall not do or permit anything to be done in or about the Premises or bring or keep anything therein which will in any way increase the rate of any insurance upon the Project or any of its contents (unless Tenant agrees to pay for such increase) or cause a cancellation of any insurance on the Project or otherwise violate any requirements, guidelines, conditions, rules or orders with respect to such insurance. Tenant shall at its sole cost and expense promptly comply with the requirements of the ISO, board of fire underwriters, or other similar body now or hereafter constituted relating to or affecting Tenant's use or occupancy of the Project (other than in situations where compliance involves repair, maintenance or replacement of items that Landlord is expressly required to repair, maintain or replace under this Lease). (c) NO LIMITATION ON OBLIGATIONS. The provisions of this Paragraph 5 shall in no way limit Tenant's maintenance, repair and replacement obligations under Paragraph 7 or Tenant's obligation to pay Expenses under Paragraph 3(c). The judgment of any court of competent jurisdiction or the admission of Tenant in an action against Tenant, whether Landlord is a party thereto or not, that Tenant has so violated any such Law shall be conclusive of such violation as between Landlord and Tenant. or cause a cancellation of such insurance or otherwise affect such insurance in any manner, and Tenant shall at its sole cost and expense promptly comply with all laws, statutes, ordinances and governmental rules, regulations or requirements now in force or which may hereafter be in force and with the requirements of any board or fire underwriters or other similar body now or hereafter constituted relating to or affecting the condition, use or occupancy of the Premises, to the extent required because of (i) Tenant's unique use of the Premises, (ii) alterations or improvements made by or for Tenant, or (iii) Tenant's negligence or willful misconduct. The provisions of this Paragraph 5 shall in no way limit Tenant's obligation to pay Expenses as noted in Paragraph 3 of the Lease. The judgment of any court of competent jurisdiction or the admission of Tenant in an action against Tenant, whether Landlord be a party thereto or not, that Tenant has so violated any such law, statute, ordinance, rule, regulation or requirement, shall be conclusive of such violation as between Landlord and Tenant. 6. ADDITIONAL ALTERATIONS. Tenant shall not make or suffer to be made any additional alterations, additions or improvements ("Alterations") in, on or to the Premises or any part thereof without the prior written consent of Landlord. Failure of Landlord to give its disapproval within fifteen (15) calendar days after receipt of Tenant's written request for approval shall constitute disapproval by Landlord. Any alterations in, on or to the Premises, except for Tenant's movable furniture and equipment (including the telephone system, security system, demountable partitions, secretarial stations, cubicles, cabinets or shelving systems and kitchen equipment, except to the extent paid for with the Tenant Improvement Allowance or Additional Allowance), shall be the property of Tenant during the Term and shall become Landlord's property at the end of the Term without compensation to Tenant. Landlord shall not unreasonably withhold its consent to Alterations that (i) do not materially affect the structure of the Building or its electrical, plumbing, HVAC, security or other systems, (ii) are not visible from the exterior of the Premises, (iii) are consistent with Tenant's permitted use hereunder, and (iv) do not adversely affect the value or marketability of Landlord's reversionary interest upon termination or expiration of this Lease. In the event Landlord consents to the making of any Alterations by Tenant, the same shall be made by Tenant, at Tenant's sole cost and expense, in accordance with plans and specifications reasonably approved by Landlord, and any contractor or person selected by Tenant to make the same must first be reasonably approved in writing by Landlord or, at Landlord's option, the Alterations shall be made by Landlord (substantially in accordance with the terms of the Work Letter attached hereto to the extent applicable to such alterations) for Tenant's account and Tenant shall reimburse Landlord. for the cost thereof (including a reasonable charge for Landlord's overhead) within twenty (20) days after receipt of a statement from Landlord therefor. Upon the expiration or sooner termination of the Term, Tenant shall upon demand by Landlord, at Landlord's election either (i) at Tenant's sole cost and expense, forthwith and with all due diligence remove any Alterations made by or for the account of Tenant, designated by Landlord to be removed (provided, however, that upon the written request of Tenant prior to installation of such Alterations Landlord shall advise Tenant at that time whether or not such Alterations must be removed upon the expiration or sooner termination of this Lease), and restore the Premises to its original condition as of the Commencement Date, subject to normal wear and tear and the rights and obligations of Tenant concerning casualty damage pursuant to Paragraph 20 or (ii) pay Landlord the reasonable estimated cost thereof. 7. REPAIR AND MAINTENANCE. (a) Landlord shall be responsible for the following repair, replacement and maintenance obligations: (i) maintenance and repair of the exterior of the Building, roof and structural portions of the Building, (ii) repairs, replacement, and maintenance of the Building systems, including, without limitation, electrical, mechanical, HVAC and plumbing and all controls appurtenant thereto, (iii) repairs, replacement and maintenance of any elevators in the Building, (iv) repair, replacement and maintenance of Common Areas, (v) alterations to the Premises required under applicable Laws to the extent not the responsibility of Tenant pursuant to Paragraph 5 or 6 hereof, (vi) any repair, maintenance or improvements which could be treated as a "capital expenditure" under generally accepted accounting principles, (vii) any repair, maintenance or improvements which are a result of casualty or the exercise of the power of eminent domain which are Landlord's responsibility under Paragraph 20 or 21, (viii) repairs and replacements of lighting equipment (including light bulbs), (ix) any repair, maintenance or improvements which are required as a consequence of construction defects in Landlord's work or the Tenant Improvements, (x) any repair, maintenance or improvements for which Landlord has a right of reimbursement from others. Notwithstanding the foregoing, Tenant shall be responsible for Tenant's Share of the costs described in the previous sentence to the extend such costs are properly included in Expenses. (b) Tenant shall maintain and repair the interior portion of the Premises and any Alterations 6 installed by or on behalf of Tenant within the Premises, however, excluding any portions thereof which are structural in nature or which are the obligation of Landlord under Paragraph 7(a) (subject to Paragraphs 5 and 7(c)). Tenant shall be responsible for the expense of installation, operation, and maintenance of its telephone and other communications cabling from the point of entry into the Building to the Premises and throughout the Premises; though Landlord shall have the right to perform such work on behalf of Tenant in Common Areas. Tenant hereby waives and releases its right to make repairs at Landlord's expense under Sections 1941 and 1942 of the California Civil Code or under any similar law, statute or ordinance now or hereafter in effect. In addition, Tenant hereby waives and releases its right to terminate this Lease under Section 1932(1) of the California Civil Code or under any similar law, statute or ordinance now or hereafter in effect. If Tenant fails after thirty (30) days' written notice by Landlord to proceed with due diligence to make repairs required to be made by Tenant, the same may be made by Landlord at the expense of Tenant and the expenses thereof incurred by Landlord shall be reimbursed (with interest at the Default Rate from the date Landlord incurs such cost) as Additional Charges within thirty (30) days after submission of a bill or statement therefor. (c) The purpose of Paragraph 7(a) and 7(b) is to define the obligations of Landlord and Tenant to perform various repair and maintenance functions; the allocation of the costs therefor are covered under this Paragraph 7(c) and Paragraph 3. Tenant shall bear the full cost of repairs or maintenance interior or exterior, structural or otherwise, to preserve the Premises and the Building in good working order and condition, arising out of (i) the existence, installation, use or operation of any Alterations, or any of Tenant's trade fixtures or personal property; (ii) the moving of Tenant's property or fixtures in or out of the Building or Project or in and about the Premises; or (iii) except to the extent any claims arising from any of the foregoing are reimbursed by insurance carried by Landlord, are covered by the waiver of subrogation in Paragraph 11 or are otherwise provided for in Paragraph 20, the acts, omissions or negligence of Tenant, or any of its servants, employees, contractors, agents, visitors, or licensees, or the particular use or particular occupancy or manner of use or occupancy of the Premises by Tenant or any such person. Any to Alterations required with respect Tenant's responsibilities pursuant to this Paragraph 7(c) shall be made in accordance with Paragraph 6. (d) Except to the extent any claims arising from any of the foregoing are reimbursed by rental abatement insurance carried by Landlord, are covered by the waiver of subrogation in Paragraph 11 or are otherwise provided for in Paragraph 20, there shall be no abatement of Rent with respect to, and except for Landlord's active negligence or willful misconduct, Landlord shall not be liable for any injury to or interference with Tenant's business arising from any repairs, maintenance, alteration or improvement in or to any portion of the Building, including the Premises, or in or to the fixtures, appurtenances and equipment therein. 8. LIENS. Tenant shall keep the Premises free from any liens arising out of any work performed, material furnished or obligations incurred by Tenant. In the event that Tenant shall not, within fifteen (15) clays after Tenant receives actual notice of the imposition of any such lien, cause the same to be released of record by payment or posting of a proper bond, Landlord shall have, in addition to all other remedies provided herein and by law, the right, but not the obligation, to cause the same to be released by such means as it shall deem proper, including payment of the claim giving rise to such lien. All such sums paid by Landlord and all expenses incurred by it in connection therewith shall be considered Additional Charges and shall be payable to it by Tenant on demand with interest at the Default Rate. Landlord shall have the right at all times to post and keep posted on the Premises any notices permitted or required by law, or which Landlord shall deem proper, for the protection of Landlord, the Premises, the Building and any other party having an interest therein, from mechanics and materialmen's liens, and Tenant shall give notice to Landlord at least five (5) business days' prior notice of commencement of any construction on the Premises. 9. ASSIGNMENT AND SUBLETTING. (a) Tenant shall not directly or indirectly, voluntarily or by operation of law, sell, assign, encumber, pledge or otherwise transfer or hypothecate all or any part of the Premises or Tenant's leasehold estate hereunder (collectively, "Assignment"), or permit the Premises to be occupied by anyone other than Tenant or sublet the Premises or any portion thereof (collectively, "Sublease"), without Landlord's prior written consent in each instance, which consent shall not be unreasonably withheld by Landlord. Without otherwise limiting the criteria upon which Landlord may withhold its consent to any proposed Sublease or Assignment, if Landlord withholds its consent where either (i) the creditworthiness of the proposed Sublessee or Assignee is not reasonably acceptable to Landlord or, (ii) the proposed Sublessee's or Assignee's use of the Premises is not in compliance with the allowed Tenant's Use of the Premises as described in the Basic Lease Information, such withholding of consent shall be presumptively reasonable. If Landlord consents to the Sublease or Assignment, Tenant may thereafter enter into a valid Sublease or Assignment upon the terms and condition set forth in this Paragraph 9. (b) If Tenant desires at any time to enter into an Assignment of this Lease or a Sublease of the Premises or any portion thereof, it shall first give written notice to Landlord of its desire to do so, which notice shall contain (i) the name of the proposed assignee, subtenant or occupant; (ii) the name of the proposed assignee's, subtenant, or occupant's business to be carried on in the Premises; (iii) the terms and provisions of the proposed Assignment or Sublease; and (iv) such financial information as Landlord may request concerning the proposed assignee, subtenant or occupant. (c) At any time within fifteen (15) days after Landlord's receipt of the notice specified in Paragraph 9(b), Landlord may by written notice to Tenant elect to (i) consent to the Sublease or Assignment; (ii) disapprove the Sublease or Assignment; or (iii) terminate this Lease as to the portion of the Premises that is specified in Tenant's notice, with a proportionate abatement in Base Rent and Additional Charges and Security Deposit/Letter of Credit; provided, however, that Landlord shall only have the termination option set forth in 7 clause (iii) if at the time of receipt of such notice, and after taking into account the Assignment or Sublease contemplated by such notice and the Initial Sublease (if any), Tenant will directly occupy less than seventy-five percent (75%) of the Premises. If Landlord elects to terminate the Lease as to a portion of the Premises pursuant to clause (iii) above, Tenant shall it all times provide reasonable and appropriate access to such portion of the Premises and use of any common facilities within the Building. Promptly after request from Landlord, Tenant shall enter into any amendment to this Lease or other documentation reasonably requested by Landlord in connection with any such termination of this Lease as to a portion of the Premises. Failure by Landlord to either consent to or disapprove a proposed Assignment or Sublease within the fifteen (15) day time period specified above shall be deemed to be Landlord's consent thereto. If Landlord consents to the Sublease or Assignment within said fifteen (15) day period, Tenant may thereafter Within one hundred twenty (120) days after Landlord's consent, but not later than the expiration of said one hundred twenty (120) days, enter into such Assignment or Sublease of the Premises or portion thereof upon the terms and conditions set forth in the notice furnished by Tenant to Landlord pursuant to Paragraph 9(b). However;, during any period of time in which Tenant directly occupies less than seventy-five percent (75%) of the Premises (regardless of whether such occupancy threshold is not met at the time the Sublease or Assignment is entered into or at any time after such Assignment or during the term of such Sublease), fifty percent (50%) of any rent or other consideration realized by Tenant under any such Assignment or Sublease in excess of the Base Rent and Additional Charges payable hereunder (or the amount thereof proportionate to the portion of the Premises subject to such Sublease or Assignment) shall be paid to Landlord ("Bonus Rent"), after first deducting from such excess the unamortized costs of any portion of the Tenant Improvements paid for by Tenant, (and not from the Tenant Improvement Allowance or Additional Allowance) or costs reasonably incurred for tenant improvements installed by Tenant to obtain the Sublease or Assignment in question, each of which are installed in that portion of the Premises which is the subject of the Sublease or Assignment and which unamortized costs shall be amortized on a straight line basis (without interest) over the term of the Sublease or Assignment in equal installments, and after deducting therefrom any customary brokers' commissions that Tenant has incurred in connection with such Assignment or Sublease amortized on a straight line basis (without interest) over the term of the Sublease or Assignment. (d) No consent by Landlord to any Assignment or Sublease by Tenant shall relieve Tenant of any obligation to be performed by Tenant under this Lease, whether arising before or after the Assignment or Sublease. The consent by Landlord to any Assignment or Sublease shall not relieve Tenant from the obligation to obtain Landlord's express written consent to any other Assignment or Sublease. Any Assignment or Sublease that is not in compliance with this Paragraph 9 shall be void and, at the option of Landlord, shall constitute a material default by Tenant under this Lease. The acceptance of Base Rent or Additional Charges by Landlord from a proposed assignee or sublessee shall not constitute the consent to such Assignment or Sublease by Landlord. (e) The following shall be deemed a voluntary assignment of Tenant's interest in this Lease: (i) any dissolution, merger, consolidation, or other reorganization of Tenant; and (ii) if the capital stock of Tenant is not publicly traded, the sale or transfer to one person or entity stock possessing more than fifty percent (50%) of the total combined voting power of all classes of Tenant's stock issued, outstanding and entitled to vote for the election of directors. Notwithstanding anything to the contrary contained in this Paragraph 9, Tenant may enter into any of the following transfers (a "Permitted Transfer") without Landlord's prior written consent: (1) Tenant may assign its interest in the Lease to a corporation which results from a merger, consolidation or other reorganization, so long as the surviving corporation has a net worth immediately following such transaction that is equal to or greater than the net worth of Tenant as of the date immediately prior to such transaction; and (2) Tenant may assign this Lease to a corporation which purchases or otherwise acquires all or substantially all of the assets of Tenant, so long as such acquiring corporation has a net worth immediately following such transaction that is equal to or greater than the net worth of Tenant as of the date immediately prior to such transaction. (f) Each assignee, sublessee or other transferee, other than Landlord, shall assume, as provided in this Paragraph 9(f), all obligations of Tenant under this Lease and shall be and remain liable jointly and severally with Tenant for the payment of Base Rent and Additional Charges, and for the performance of all the terms, covenants, conditions and agreements herein contained on Tenant's part to be performed for the Term; provided, however, that the assignee, sublessee, mortgagee, pledgee or other transferee shall be liable to Landlord for rent only in the amount set forth in the Assignment or Sublease and shall only be required to perform those obligations under the Lease to the extent that they relate to the portion of the Premises subleased or interest in the Lease assigned. No Assignment shall be binding on Landlord unless the assignee or Tenant shall deliver to Landlord a counterpart of the Assignment and an instrument in recordable form that contains a covenant of assumption by the assignee satisfactory in substance and form to Landlord, consistent with the requirements of this Paragraph 9(f), but the failure or refusal of the assignee to execute such instrument of assumption shall not release or discharge the assignee from its liability as set forth above. (g) Tenant shall have the right, without Landlord's consent but with written notice to Landlord at least ten (10) days prior thereto, to enter into an Assignment of Tenant's interest in the Lease or a Sublease of all or any portion of the Premises to an Affiliate (as defined below) of Tenant, provided that (i) in connection with an Assignment that is not a sublease, the Affiliate delivers to Landlord concurrent with such Assignment a written notice of the Assignment and an assumption agreement whereby the Affiliate assumes and agrees to 8 perform, observe and abide by the terms, conditions, obligations, and provisions of this Lease; and (ii) the entity remains an Affiliate throughout the term of this Lease (and the assumption agreement shall contain provisions consistent with the provisions of this subparagraph allowing Landlord to terminate this Lease at such time as the entity is no longer an Affiliate of the original Tenant). If this Lease is assigned to an Affiliate and thereafter any circumstance occurs which causes such assignee to no longer be an Affiliate of the original Tenant, Tenant shall give written notice thereof to Landlord, which notice, to become effective, shall refer to Landlord's right to terminate this Lease pursuant to this subparagraph ("Affiliation Termination Notice"). Following occurrence of the circumstance giving rise to the discontinuation of such assignee being an Affiliate ("Affiliate Termination") of the original Tenant, Landlord shall be entitled to terminate this Lease unless Landlord has given its prior written consent to such circumstance, which consent shall not be unreasonably withheld by Landlord so long as such assignee (after giving effect to such circumstance) has financial strength (as demonstrated by audited financial statements) equal to or greater than the original Tenant (including its net worth) as of the date of execution of this Lease, or the original Tenant executes a guaranty in usual form reasonably acceptable to Landlord (however, this does not imply that Tenant would be released without such guaranty). No Sublease or Assignment by Tenant made pursuant to this Paragraph shall relieve Tenant of Tenant's obligations under this Lease. As used in this paragraph, the term "Affiliate" shall mean and collectively refer to a corporation or other entity which controls, is controlled by or is under common control with Tenant, by means of an ownership of either (aa) more than fifty percent (50%) of the outstanding voting shares of stock or partnership or other ownership interests, or (bb) stock, or partnership or other ownership interests, which provide the right to control the operations, transactions and activities of the applicable entity. (h) Tenant shall have a one-time right to sublease a portion of the Premises, not to exceed 10,000 Rentable Square Feet, to a single subtenant for a term not to exceed the Initial Term of this Lease (the "Initial Sublease"), upon Landlord's prior written consent in accordance with the standards set forth in this Paragraph 9(a); provided, however, that with respect to the Initial Sublease (i) Tenant's request to Landlord for consent to such Sublease shall state that, if approved, it will be the "Initial Sublease", (ii) Landlord shall not have the termination right set forth in clause (iii) of Paragraph 9(c), and (iii) Landlord shall not be entitled to share in any Bonus Rent as provided in Paragraph 9(c). 10. INSURANCE AND INDEMNIFICATION. (a) Except to the extent caused by the negligence or willful misconduct of Tenant Parties (as defined in Paragraph 10(c) below) or Tenant's breach of this Lease, Landlord shall indemnify and hold Tenant harmless from and against any and all claims or liability for any injury or damage to any person or property including any reasonable attorney's fees (but excluding any consequential damages or loss of business) occurring in, on, or about the Project to the extent such injury or damage is caused by the negligence or willful misconduct of Landlord, its agents, servants, contractors, employees (collectively, including Landlord, "Landlord Parties") or Landlord's breach of this Lease. (b) Landlord shall not be liable to Tenant, and Tenant hereby waives all claims against Landlord Parties for any injury or damage to any person or property in or about the Premises by or from any cause whatsoever (other than the negligence or willful misconduct of Landlord Parties, including Landlord's negligence or willful misconduct as related to construction or property management), and without limiting the generality of the foregoing, whether caused by water leakage of any character from the roof, walls, basement, or other portion of the Premises or the Building, or caused by gas, fire, oil, electricity, or any cause whatsoever, in, on, or about the Premises, the Building or any part thereof (other than that caused by the negligence or willful misconduct of Landlord Parties). Tenant acknowledges that any casualty insurance carried by Landlord will not cover loss of income to Tenant or damage to the alterations in the Premises installed by Tenant or Tenant's personal property located within the Premises. Tenant shall be required to maintain the insurance described in Subparagraph 10(d) below during the Term. (c) Except to the extent caused by the negligence or willful misconduct of Landlord Parties or Landlord's breach of this Lease, Tenant shall indemnify and hold Landlord harmless from and defend Landlord against any and all claims or liability for any injury or damage to any person or property whatsoever: (i) occurring in or on the Premises; or (ii) occurring in, on, or about any other portion of the Project to the extent such injury or damage shall be caused by the negligence or willful misconduct by Tenant, its agents, servants, employees, or invitees (collectively, including Tenant, "Tenant Parties"). Tenant further agrees to indemnify and hold Landlord harmless from, and defend Landlord against, any and all claims, losses, or liabilities (including damage to Landlord's property) arising from (x) any breach of this Lease by Tenant and/or (y) the conduct of any work or business of Tenant Parties in or about the Project. This Section 20 does not govern liability for Hazardous Substances, which subject is governed by Paragraph 39 of the Lease concerning Hazardous Substance liability. (d) Tenant shall procure at its cost and expense and keep in effect during the Term the following insurance: (i) commercial general liability insurance including contractual liability with a minimum combined single limit of liability of Three Million Dollars ($3,000,000). Such insurance shall name Landlord as an additional insured, shall specifically include the liability assumed hereunder by Tenant, and shall provide that it is primary insurance, and not excess over or contributory with any other valid, existing, and applicable insurance in force for or on behalf of Landlord, and shall provide that Landlord shall receive thirty (30) days' written notice from the insurer prior to any cancellation or change of coverage; (ii) business interruption insurance, insuring Tenant for a period of twelve (12) months against losses arising from the interruption of Tenant's business, and for lost profits, and charges and expenses which continue but would have been earned if the business had gone on without interruption, insuring against such perils, in such form and with such deductible amount as are reasonably satisfactory to Landlord, (iii) "all risk" property insurance (including, 9 without limitation, boiler and machinery (if applicable); sprinkler damage, vandalism and malicious mischief) on all leasehold improvements installed in the Premises by Tenant at its expense (if any), and on all Tenant's personal property. Such insurance shall be an amount equal to full replacement cost of the aggregate of the foregoing and shall provide coverage comparable to the coverage in the standard ISO All Risk form, when such form is supplemented with the coverages required above; (iv) worker's compensation insurance; and (v) such other insurance as may be required by the law. Tenant shall deliver policies of such insurance or certificates thereof to Landlord on or before the Commencement Date, and thereafter at least thirty (30) days before the expiration dates of expiring policies; and, in the event Tenant shall fail to procure such insurance, or to deliver such policies or certificates, Landlord may, at its option, procure same for the account of Tenant, and the cost thereof shall be paid to Landlord as Additional Charges within five (5) days after delivery to Tenant of bills therefor. (e) The provisions of this paragraph 10 shall survive the expiration or termination of this Lease with respect to any claims or liability occurring prior to such expiration or termination. (f) Landlord shall maintain insurance on the Project against fire and risks covered by "all risk" (excluding earthquake and flood, though Landlord, at its option, may include this coverage) on a 100% of "replacement cost" basis (though reasonable deductibles may be included under such coverage). Landlord's insurance shall also cover the improvements installed by Landlord prior to the commencement of the Term, shall have a building ordinance provision, and shall provide fax rental interruption insurance covering a period of twelve (12) full months. In no event shall Landlord be deemed a co-insurer under such policy. Landlord shall also maintain contractual liability coverage (or with contractual liability endorsement) on an occurrence basis in amounts not less than Three Million Dollars ($3,000,000) per occurrence with respect to bodily injury or death and property damage. Notwithstanding the foregoing obligations of Landlord to carry insurance, Landlord may modify the foregoing coverages if and to the extent it is commercially reasonable to do so. 11. WAIVER OF SUBROGATION. Notwithstanding anything to the contrary in this Lease, to the extent that this waiver does not invalidate or impair their respective insurance policies, the parties hereto release each other and their respective agents, employees, successors, assignees and subtenants from all liability for injury to any person or damage to any property that is caused by or results from a risk (i) which is actually insured against, to the extent of receipt of payment under such policy (unless the failure to receive payment under any such policy results from a failure of the insured party to comply with or observe the terms and conditions of the insurance policy covering such liability, in which event, such release shall not be so limited), (ii) which is required to be insured against under this Lease, or (iii) which would normally be covered by the standard form of "all risk-extended coverage" casualty insurance, without regard to the negligence or willful misconduct of the entity so released. Landlord and Tenant shall each obtain from their respective insurers under all policies of fire, theft, and other property insurance maintained by either of them at any time during the Term insuring or covering the Project or any portion thereof of its contents therein, a waiver of all rights of subrogation which the insurer of one party might otherwise, if at all, have against the other party, and Landlord and Tenant shall each indemnify the other against any loss or expense, including reasonable attorneys' fees, resulting from the failure to obtain such waiver. 12. SERVICES AND UTILITIES. (a) Landlord shall provide the maintenance and repairs described in paragraph 7(a), except for damage occasioned by the act of Tenant, which damage shall be repaired by Landlord at Tenant's expense. (b) Subject to the provisions elsewhere herein contained and to the rules and regulations of the Building, Landlord agrees to furnish to the premises during ordinary business hours of generally recognized business days, to be determined by Landlord (but exclusive, in any event, of Saturdays, Sundays and legal holidays), water and electricity suitable for the intended use of the Premises, heat and air conditioning required in Landlord's judgment for the comfortable use and occupation of the Premises, janitorial services during the times and in the manner that such services are, in landlord's judgment, customarily furnished in comparable office buildings in the immediate market area, and elevator service (if the Building has an elevator) which shall mean service either by non-attended automatic elevators or elevators with attendants, or both, at the option of the Landlord. Notwithstanding the above, except in the case of emergencies, utilities to the Building shall be provided every day. At Tenant's request, Landlord shall provide additional or after hours heating or air conditioning and Tenant shall pay to Landlord a reasonable charge for such services as determined by Landlord (not to exceed Landlord's actual costs, which costs do not include depreciation). Tenant agrees at all times to cooperate fully with Landlord and to abide by all the regulations and requirements which Landlord may prescribe for the proper functioning and protection of the heating, ventilating and air conditioning system. Wherever heat generating machines, excess lighting or equipment are used in the Premises which affect the temperature otherwise maintained by the air conditioning system, Landlord reserves the right to install supplementary air conditioning units in the Premises, and the cost thereof, including the cost of installation and the cost of operation and maintenance thereof, shall be paid by Tenant to Landlord upon demand by Landlord. To the extent Tenant requires water, electricity, heat, air conditioning or other services in portions of the Premises which are not metered separately from other tenants of the Project and in amounts in excess of amounts delivered to such other tenants of the Project as reasonably determined by Landlord, Tenant shall pay to Landlord a reasonable charge for such excess amounts as determined by Landlord. Landlord shall make available to Tenant reasonable documentation supporting its charges for such excess services. (c) Tenant will not without the written consent of Landlord, which consent shall not be unreasonably withheld or delayed, use any apparatus or device in the Premises which, when used, puts an excessive load on the Building or its structure or systems, including, without limitation, electronic data 10 processing machines, punch card machines and machines using excess lighting or voltage in excess of the amount for which the Building is designed, which will in any way materially increase the amount of gas, electricity or water usually furnished or supplied for use of the Premises as general office space; nor connect with electric current, except through existing electrical outlets in the Premises, or water pipes or gas outlets, any apparatus or device for the purposes of using gas, electrical current or water. If Tenant shall require water or electrical current or any other resource in excess of that usually furnished or supplied for use of the Premises as general office space, Tenant shall first obtain the consent of Landlord, which Landlord may refuse, to the use thereof, and Landlord may cause a special meter to be installed in the Premises so as to measure the amount of water, electric current or other resource consumed for any such other use. The cost of any such meters and of installation, maintenance an repair thereof shall be paid for by Tenant, and Tenant agrees to pay Landlord promptly upon demand by Landlord for all such water, electric current or other resource consumed, as shown by said meters, at the rates charged by the local public utility, furnishing the same, plus any additional expense incurred in keeping account of the water, electric current or other resource so consumed. (d) Landlord shall not be in default hereunder, nor be deemed to have evicted Tenant, nor be liable for any damages directly or indirectly resulting from, nor shall the rental herein reserved be abated by reason of (i) the installation, use or interruption of use of any equipment in connection with the foregoing utilities and services; (ii) failure to furnish or delay in furnishing any services to be provided by Landlord when such failure or delay is caused by Force Majeure, or by the making of repairs or improvements to the Premises or to the Building (unless such failure or delay is caused by Landlord's negligence or willful misconduct); or (iii) the limitation, curtailment, rationing or restriction on use of water, electricity, gas or any other form of energy, or any other service or utility whatsoever serving the Premises, the Building or the Project. Furthermore, Landlord shall be entitled to cooperate with the mandatory requirements of national, state or local governmental agencies or Utilities suppliers in connection with reducing energy or other resources consumption. If the Premises become unsuitable for Tenant's use as a consequence of cessation of gas and electric utilities or other services provided to the Premises resulting from a casualty covered by Landlord's insurance, then Tenant's Base Rent and Additional Charges shall abate during the period of time in which Tenant cannot occupy the Premises for Tenant's use, but only to the extent of rental abatement insurance proceeds received by Landlord. Landlord shall use reasonable diligence to make such repairs as may be required to lines, cables, wires, pipes equipment or machinery within the Project to provide restoration of the services Landlord is responsible for providing under this Paragraph 12 and, where the cessation or interruption of such services has occurred due to circumstances or conditions beyond Project boundaries, to cause the same to be restored, by diligent application or request to the provider thereof. In no event shall any mortgagee or beneficiary under any mortgage or deed of trust on all or any portion of the Project, the Building, or the land on which all or any portion of the Project is located (any such mortgagee or beneficiary, a "Mortgagee") be or become liable for any default of Landlord under this Paragraph 12. 13. TENANT'S CERTIFICATES. Tenant, at any time and from time to time, within ten (10) days from receipt of written notice from Landlord, will execute, acknowledge and deliver to Landlord and, at Landlord's request, to any prospective tenant, purchaser, ground or underlying lessor or Mortgagee or any other party acquiring an interest in Landlord, a certificate of Tenant substantially in the form attached as EXHIBIT "D" and also containing any other information that may reasonably be required by any of such persons. It is intended that any such certificate of Tenant delivered pursuant to this Paragraph 13 may be relied upon by Landlord and any prospective tenant, purchaser, ground or underlying lessor or Mortgagee, or such other party. If requested by Tenant, Landlord shall provide Tenant with a similar certificate. 14. HOLDING OVER. If Tenant (directly or through any successor-in-interest of Tenant) remains in possession of any or all of the Premises after the expiration or termination of this Lease with the consent of Landlord, such continued possession shall be construed to be a tenancy from month to month at one hundred twenty-five percent (125 %) of the Monthly Base Rent herein specified (and shall be increased in accordance with Paragraph 4(b) [Adjustments in Base Rent]), together with an amount estimated by Landlord for the monthly Additional Charges payable under this Lease, and shall otherwise be on the terms and conditions herein specified so far-as applicable. If Tenant (directly or through any successor-in-interest of Tenant) remains in possession of all or any portion of the Premises after the expiration or termination of this Lease without the consent of Landlord, Tenant's continued possession shall be on the basis of a tenancy at the sufferance of Landlord. In such event, Tenant shall continue to comply with or perform all the terms and obligations of Tenant under this Lease, except that the Monthly Base Rent during Tenant's holding over shall be the greater of the then-fair market rent for the Premises (as reasonably determined by Landlord) or one hundred fifty percent (150%) of the Monthly Base Rent and Additional Charges payable in the last full month prior to the termination hereof (and shall be increased in accordance with Paragraph 4(b) [Adjustments in Base Rent]). In addition to Rent, Tenant shall pay Landlord for all damages proximately caused by reason of the Tenant's retention of possession. Landlord's acceptance of Rent after the termination of this Lease shall not constitute a renewal of this Lease, and nothing contained in this provision shall be deemed to waive Landlord's right of reentry or any other right hereunder or at law. Tenant acknowledges that, in Landlord's marketing and re-leasing efforts for the Premises, Landlord is relying on Tenant's vacation of the Premises on the Expiration Date. Accordingly, Tenant shall indemnify, defend and hold Landlord harmless from and against all claims, liabilities, losses, costs, expenses and damages arising or resulting directly or indirectly from Tenant's failure to timely surrender the Premises, including (i) any loss, cost or damages suffered by any prospective tenant of all or any part of the Premises, and (ii) Landlord's damages as a result of such prospective tenant rescinding or refusing to enter into the prospective lease of all or any portion of the Premises by reason of such failure of Tenant to timely surrender the Premises. 11 15. SUBORDINATION. (a) Without the necessity of any additional document being executed by Tenant for the purpose of effecting a subordination, this Lease shall be subject and subordinate at all times to: (i) the Encumbrances and all ground leases or underlying leases which may now exist or hereafter be executed affecting the Building or the land upon which the Building is situated or both; (ii) any CC&R's, currently in effect or that Landlord may enter into in the future, that affect the Building or the Common Areas; and (iii) the lien of any mortgage or deed of trust which may now exist or hereafter be executed in any amount for which the Building, land, ground leases or underlying leases, or Landlord's interest or estate in any of said items, is specified as security. Notwithstanding the foregoing, Landlord shall have the right to subordinate or cause to be subordinated any such ground leases or underlying leases or any such liens to this Lease. In the event that any ground lease or underlying lease terminates for any reason or any mortgage or deed of trust is foreclosed or a conveyance in lieu of foreclosure is made for any reason, Tenant shall, notwithstanding any subordination, attorn to and become the Tenant of the successor in interest to Landlord at the option of such successor in interest. Notwithstanding anything to the contrary contained herein (but subject to subparagraph 15(b) below), this Lease shall not be subject or subordinate to any ground or underlying lease or to any lien, mortgage, deed of trust or other security interest affecting the Premises, unless the ground lessor, lender or other holder of the interest to which this lease would be subordinated executes a reasonable recognition and non-disturbance agreement which provides that Tenant shall be entitled to continue in possession of the Premises on the terms and conditions of this Lease if and for so long as Tenant fully performs all of its obligations hereunder. Tenant covenants and agrees to execute and deliver upon demand by Landlord and in the form requested by Landlord and reasonably acceptable to Tenant (Tenant has approved the form of the subordination, non-disturbance and attornment agreement attached as EXHIBIT F), any customary additional documents evidencing the priority or subordination of this Lease with respect to any such ground leases or underlying leases or the lien of any such. mortgage or deed of trust. Tenant shall execute, deliver and record any such documents within twenty (20) days after Landlord's written request. (b) Notwithstanding the provisions of subparagraph 15(a) above to the contrary, specifically with regard to the Ground Lease (as defined in EXHIBIT E), this Lease shall be subject to and subordinate to the terms, covenants and conditions of the Ground Lease and the rights of the Lessor (as defined in the Ground Lease), without the requirement that the Lessor enter into a separate recognition and non-disturbance agreement as contemplated by subparagraph 15(a), provided that Landlord and Tenant agree to the following conditions as required by Article 25 of the Ground Lease: (1) Upon any termination or surrender of the Ground Lease, this Lease shall continue in full force and effect and the Tenant (defined as "sublessee" in the Ground Lease) shall attorn to, or, at the option of Lessor (as defined in the Ground Lease), enter into a direct lease on identical terms (i.e. the terms of this Lease) with, Lessor; (2) Lessor shall not be bound by any prepayment of rent hereunder; and (3) Tenant and Landlord agree that this Lease is an arm's length transaction between Landlord (defined as "Lessee" in the Ground Lease) and Tenant (defined as "the subtenant" in the Ground Lease), and that Tenant is not an Affiliate (as defined in the Ground Lease) of Landlord. 16. RULES AND REGULATIONS. Tenant shall faithfully observe and comply with the rules and regulations attached to this Lease as EXHIBIT "C" and all reasonable modifications thereof and additions thereto from time to time put into effect by Landlord. Landlord shall not be responsible for the nonperformance by any other Tenant or occupant of the Building or the Project of any said rules and regulations. In the event of an express and direct conflict between the terms, covenants, agreements and conditions of this Lease and those set forth in the rules and regulations, as modified and amended from time to time by Landlord, this Lease shall control. 17. RE-ENTRY BY LANDLORD. Landlord reserves and shall at all reasonable times, upon reasonable prior notice (except in the case of an emergency), and subject to Tenant's reasonable security precautions and the right of Tenant to accompany Landlord at all times, have the right to re-enter the Premises to inspect the same, to supply janitor service and any other service to be provided by Landlord to Tenant hereunder (unless Tenant is supplying such service), to show the Premises to prospective purchasers, Mortgagees or tenants (as to prospective tenants, only during the last twelve (12) months of the Lease Term), to post notices of nonresponsibility or as otherwise required or allowed by this Lease or by law, and to alter, improve or repair the Premises and any portion of the Building and may for that purpose erect, use, and maintain scaffolding, pipes, conduits, and other necessary structures in and through the Premises where reasonably required by the character of the work to be performed. Landlord shall not be liable in any manner for any inconvenience, disturbance, loss of business, nuisance or other damage arising from Landlord's entry and acts pursuant to this Paragraph and Tenant shall not be entitled to an abatement or reduction of Base Rent or Additional Charges if Landlord exercises any rights reserved in this paragraph. Tenant hereby waives any claim for damages for any injury or inconvenience to or interference with Tenant's business, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby, except for Landlord's negligence or willful misconduct. For each of the aforesaid purposes, Landlord shall at all times have and retain a key with which to un-lock all of the doors in, upon and about the Premises, excluding Tenant's vaults and safes, or special security areas (designated in advance), and Landlord shall have the right to use any and all means which Landlord may deem necessary or proper to open said doors in an emergency, in order to obtain entry to any portion of the Premises, and any entry to the Premises, or portion thereof obtained by Landlord by any of said means, or otherwise, shall not under any emergency circumstances be construed or deemed to be a 12 forcible or unlawful entry into, or a detainer of, the Premises, or an eviction, actual or constructive, of Tenant from the Premises or any portions thereof. Landlord shall use best efforts during re-entry to not unreasonably interfere with Tenant's use of the Premises or its business conducted therein. 18. INSOLVENCY OR BANKRUPTCY. The appointment of a receiver to take possession of all or substantially all of the assets of Tenant, or an assignment of Tenant for the benefit of creditors, or any action taken or suffered by Tenant under any insolvency, bankruptcy, reorganization or other debtor relief proceedings, whether now existing or hereafter amended or enacted, shall at Landlord's option constitute a breach of this Lease by Tenant unless a petition in bankruptcy, or receiver attachment, or other remedy pursued by a third party is discharged within sixty (60) days. Upon the happening of any such event or at any time thereafter, this Lease shall terminate five (5) days after written notice of termination from Landlord to Tenant. In no event shall this Lease be assigned or assignable by operation of law or by voluntary or involuntary bankruptcy proceedings or otherwise and in no event shall this Lease or any rights or privileges hereunder be an asset of Tenant under any bankruptcy, insolvency, reorganization or other debtor relief proceedings. 19. DEFAULT. (a) The failure to perform or honor any covenant, condition or representation made under this Lease shall constitute a "default" hereunder by Tenant upon expiration of the appropriate grace or cure period hereinafter provided. Tenant shall have a period of three (3) days from the date of written notice from Landlord (which notice shall be in lieu of and not in addition to the notice required by Section 1161 of the California Code of Civil Procedure) within which to cure any failure to pay Base Rent or Additional Charges; provided, however, that Landlord shall not be required to provide such notice more than four times during any two (2) year period during the Term with respect to non-payment of Base Rein or Additional Charges, the third such non-payment constituting default without requirement of notice. Tenant shall have/a period of thirty (30) days from the date of written notice from Landlord within which to cure any other curable failure to perform any obligation under this Lease; provided, however, that with respect to any curable failure to perform other than the payment of Base Rent or Additional Charges that cannot reasonably be cured within thirty (30) days, the cure period shall be extended if Tenant commences to cure within thirty (30) days from Landlord's notice and continues to prosecute diligently the curing thereof. Notwithstanding the foregoing, (i) if a different cure period is specified elsewhere in this Lease or the Work Letter with respect to any specific obligation of Tenant, such specific cure period shall apply with respect to a failure of such obligation; and (ii) the foregoing cure rights shall not extend the specified time for compliance with any required delivery, approval or performance obligation of Tenant under the Work Letter. Upon a default of this Lease by Tenant, Landlord shall have the following rights and remedies in addition to any other rights or remedies available to Landlord at law or in equity: (1) The rights and remedies provided by California Civil Code, Section 1951.2, including but not limited to, recovery of the worth at the time of award of the amount by which the unpaid Base Rent and Additional Charges for the balance of the Term after the time of award exceeds the amount of rental loss for the same period that the Tenant proves could be reasonably avoided, as computed pursuant to subsection (b) of said Section 1951.2; (2) The rights and remedies provided by, California Civil Code, Section 1951.4, that allows Landlord to continue this Lease in effect and to enforce all of its rights and remedies under this Lease, including the right to recover Base Rent and Additional Charges as they become due, for so long as Landlord does not terminate Tenant's right to possession; provided, however, if Landlord elects to exercise its remedies described in this Paragraph 19(a)(ii) and Landlord does not terminate this Lease, and if Tenant requests Landlord's consent to an assignment of this Lease or a sublease of the Premises at such time as Tenant is in default, Landlord shall not unreasonably withhold its consent to such assignment or sublease. Acts of maintenance or preservation, efforts to relet the Premises or the appointment of a receiver upon Landlord's initiative to protect its interest under this Lease shall not constitute a termination of Tenant's rights to possession; (3) The right to terminate this Lease by giving notice to Tenant in accordance with applicable law; (4) If Landlord elects to terminate this Lease, the right and power to enter the Premises and remove therefrom all persons and property and, to store such property in a public warehouse or elsewhere at the cost of and for the account of Tenant, and to sell such property and apply such proceeds therefrom pursuant to applicable California law. (b) Landlord shall have a period of thirty (30) days from the date of written notice from Tenant within which to cure any default by Landlord under this Lease; provided, however, that with respect to any default that cannot reasonably be cured within thirty (30) days, the default shall not be deemed to be uncured if Landlord commences to cure within thirty'(30) days from Tenant's notice and continues to prosecute diligently the curing thereof. Tenant agrees to give any Mortgagee, by registered or certified mail, a copy of any Notice of Default served upon the Landlord, provided that prior to such notice Tenant has been notified in writing, (by way of Notice of Assignment of Rents and Leases, or otherwise) of the address of such Mortgagee. Tenant further agrees that if Landlord shall have failed to cure such default within the time provided for in this Lease, then the Mortgagee shall have an additional thirty (30) days (provided that Tenant notifies Mortgagee concurrently with Tenant's notice to Landlord at the beginning of Landlord's thirty (30) day period; otherwise Mortgagee shall have sixty days from the date on which it is noticed) within which to cure such default or if such default cannot be cured within that time, then the cure period shall be extended for such additional time as 13 may be necessary to cure such default shall be granted if within such applicable period Mortgagee has commenced and continues to prosecute diligently the cure of such default (including, but not limited to, commencement of foreclosure proceedings, if necessary to effect such cure). 20. DAMAGE BY FIRE, ETC. If the Premises or the Building are damaged by fire or other casualty, Landlord shall forthwith repair the same, provided that such repairs can be made within one hundred eighty (180) days after the date of such damage under the laws and regulations of the federal, state and local governmental authorities having jurisdiction thereof. In such event, this Lease shall remain in full force and effect except that Tenant shall be entitled to a proportionate reduction of Base Rent and Additional Charges while such repairs to be made hereunder by Landlord are being made. Such reduction of rent, if any, shall be based upon the greater of (i) the proportion that the area of the Premises rendered untenantable by such damage bears to the total area of the Premises; or (ii) the extent to which such damage and the making of such repairs by Landlord shall interfere with the business carried on by Tenant in the Premises, where clause (ii) is limited to the extent of rental abatement insurance allowed by Landlord's casualty insurance policy. Within twenty (20) days after the date of such damage, Landlord shall notify Tenant whether or not in Landlord's reasonable opinion such repairs can be made within one hundred eighty (180) days after the date of such damage and Landlord's determination thereof shall be binding on Tenant. If such repairs cannot be made within one hundred eighty (180) days from the date of such damage, Landlord shall have the option within thirty (30) days after the date of such damage either to: (i) notify Tenant of Landlord's intention to repair such damage and diligently prosecute such repairs, in which event this Lease shall continue in full force and effect and the Base Rent and Additional Charges shall be reduced as provided herein; or (ii) notify Tenant of Landlord's election to terminate this Lease as of a date specified in such notice, which date shall not be less than thirty (30) days nor more than sixty (60) days after notice is given. In the event that such notice to terminate is given by Landlord,this Lease shall terminate on the date specified in such notice. In the event that Landlord notifies Tenant that restoration or repair of the Premises will take more than one hundred and eighty days (180) days, Tenant shall have a right to terminate the Lease within fifteen (15) days following receipt of Landlord's notice, by providing Landlord with written notice of its election to do so in such event (and also in the event Landlord terminates the lease pursuant to the immediately preceding sentence), Tenant shall have no liability for payment of the deductible under Landlord's insurance relating to such damage. In case of termination by either event, the Base Rent and Additional Charges shall be reduced by a proportionate amount based upon the extent to which such damage interfered with the business carried on by Tenant in the Premises, and Tenant shall pay such reduced Base Rent and Additional Charges up to the date of termination. Landlord agrees to refund to Tenant any Base Rent and Additional Charges previously paid for any period of time subsequent to such date of termination. The repairs to be made hereunder by Landlord shall not include, and Landlord shall not be required to repair, any damage by fire or other cause to the property of Tenant or any repairs or replacements of any paneling, decorations, railings, floor coverings or any alterations, additions, fixtures or improvements installed on the Premises by or at the expense of Tenant (excluding the initial Tenant Improvements constructed by Landlord). Tenant hereby waives the provisions of Section 1932.2, and Section 1933.4, of the Civil Code of California. Notwithstanding anything contained herein to the contrary, if a Major Casualty occurs with respect to any portion of the Building, and the net insurance proceeds obtained as a result of such casualty are ninety percent (90%) or a lesser percentage of the cost of restoration, rebuilding or replacement, then Landlord shall not be obligated to undertake such restoration, rebuilding or replacement unlss Landlord elects to do so in writing. For the purpose of this Lease, a "Major Casualty" shall mean a casualty that renders unusable twenty percent (20%) or more of the Net Rentable Area of the Building or which materially adversely affects the use of such Building. 21. EMINENT DOMAIN. If any part over 15 % of the Premises shall be taken or appropriated under the power of eminent domain or conveyed in lieu thereof, Tenant shall have the right to terminate this Lease at its option. If any part of the Building shall be taken or appropriated under power of eminent domain or conveyed in lieu thereof and such taking is so extensive that it renders the remaining portion of the Building unsuitable for the use being made of the Building on the date immediately preceding such taking, Landlord may terminate this Lease at its option. In either of such events, Landlord shall receive (and Tenant shall assign to Landlord upon demand from Landlord) any income, rent, award or any interest therein which may be paid in connection with the exercise of such power of eminent domain, and Tenant shall have no claim against Landlord for any part of sum paid by virtue of such proceedings, whether or not attributable to the value of the unexpired term of this Lease except that Tenant shall be entitled to petition the condemning authority for the following - - (i) the then unamortized cost of any Alterations or tenant improvements paid for by Tenant from its own funds (as opposed to any allowance provided by Landlord); (ii) the value of Tenant's trade fixtures; (iii) Tenant's relocation costs; (iv) Tenant's goodwill, loss of business and business interruption; and (v) one-half of the amount which is the lesser of (a) the bonus value of this lease, or (b) the amount of the award in excess of the sum of amounts payable to Landlord's ground lessor (if any) and any holder of a mortgage or other third party lien encumbering Landlord's ground lease estate or fee simple ownership in the Property. If a part of the Premises shall be so taken or appropriated or conveyed and neither party hereto shall elect to terminate this Lease and the Premises have been damaged as a consequence of such partial taking or appropriation or conveyance, Landlord shall restore the Premises continuing under this Lease at Landlord's cost and expense; provided, however, that Landlord shall not be required to repair or restore any injury or damage to the property of Tenant or to make any repairs or restoration of any Alterations installed on the Premises by or at the expense of Tenant. Thereafter, the Base Rent and Additional Charges to be paid under this Lease for the remainder of the Term shall be proportionately reduced, such that thereafter the amounts to be paid by Tenant shall be in the ratio that they are of the portion of the Premises not so taken bears to the total area of the Premises prior to such taking. Notwithstanding anything to the contrary contained in this Paragraph 21, if the temporary use or occupancy of any part of the Premises shall be taken or appropriated under power of eminent domain during the Term, this Lease shall be and remain unaffected by such taking or appropriation and Tenant shall continue to pay in full all Base Rent and Additional Charges payable hereunder by Tenant during the Term; in the event of 14 any such temporary appropriation or taking, Tenant shall be entitled to receive that portion of any award which represents compensation for the use of or occupancy of the Premises during the Term, and Landlord shall be entitled to receive that portion of any award which represents the cost of restoration of the Premises and the use and occupancy of the Premises after the end of the Tenn. If such temporary taking is for a period longer than two hundred and seventy (270) days and unreasonably interferes with Tenant's use of the Premises or the Project Common Areas, then, Tenant shall have the right to terminate the Lease. Landlord and Tenant understand and agree that the provisions of this Paragraph 21 are intended to govern fully the rights and obligations of the parties in the event of a Taking of all or any portion of the Premises. Accordingly, the parties each hereby waives any right to terminate this Lease in whole or in part under Sections 1265.120 and 1265.130 of the California Code of Civil Procedure or under any similar Law now or hereafter in effect. 22. SALE BY LANDLORD. If Landlord sells or otherwise conveys its interest in the Premises, Landlord shall be relieved of its obligations under the Lease from and after the date of sale or conveyance (including the obligations of Landlord under Section 39), only when Landlord transfers any security deposit of Tenant to its successor and the successor assumes in writing the obligations to be performed by Landlord on and after the effective date of the transfer (including the obligations of Landlord under Section 39), whereupon Tenant shall attorn to such successor. 23. RIGHT OF LANDLORD TO PERFORM. All covenants and agreements to be performed by Tenant under any of the terms of this Lease shall be performed by Tenant at Tenant's sole cost and expense and without any abatement of Base Rent or Additional Charges. If Tenant shall default in the payment of any sum of money, other than Base Rent or Additional Charges, required to be paid by it hereunder or shall fail to perform any other act on its part to be performed hereunder, and such failure shall continue for the applicable cure period provided in Paragraph 19 (except in the event of emergency, when no cure period shall be required), Landlord may, but shall not be obligated so to do, and without waiving or releasing Tenant from any obligations of Tenant, make any such payment or perform any such act on Tenant's part to be made or performed as provided in this Lease. All sums so paid by Landlord and all necessary incidental costs together with interest thereon at the Default Rate, from the date of such payment by Landlord shall be payable as Additional Charges to Landlord on demand. 24. SURRENDER OF PREMISES. (a) At the end of the Term or any renewal thereof or other sooner termination of this Lease, Tenant will peaceably deliver to Landlord possession of the Premises, together with all improvements or additions upon or belonging to Landlord, by whomsoever made, in the same condition as received, or first installed, subject to the terms of Paragraphs 39 & 21 and the rights and obligation of Tenant concerning casualty damage pursuant to Paragraph 20, damage by fire, earthquake, Act of God, ordinary wear and tear, Hazardous Substances (other than those for which Tenant is indemnifying Landlord pursuant to Paragraph 39) or the elements alone excepted. Tenant may, upon the termination of this Lease, remove all movable furniture and equipment belonging to Tenant, at Tenant's sole cost, provided that Tenant repairs any damage caused by such removal. Property not so removed shall be deemed abandoned by Tenant, and title to the same shall thereupon pass to Landlord. Upon request by Landlord, and unless otherwise agreed to in writing by Landlord, Tenant shall remove, at Tenant's sole cost, any or all Alterations to the Premises installed by or at the expense of Tenant and all movable furniture and equipment belonging to Tenant which may be left by Tenant and repair any damage resulting from such removal. (b) The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation thereof, shall not work a merger, and shall, at the option of Landlord, terminate all or any existing subleases or subtenancies, or may, at the option of Landlord, operate as an assignment to it of any or all such subleases or subtenancies. 25. WAIVER. If either Landlord or Tenant waives the performance of any term, covenant or condition contained in this Lease, such waiver shall not be deemed to be a waiver of any subsequent breach of the same or any other term, covenant or condition contained herein. Furthermore, the acceptance of Base Rent or Additional Charges by Landlord shall not constitute a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, regardless of Landlord's knowledge of such preceding breach at the time Landlord accepted such Base Rent or Additional Charges. Failure by Landlord to enforce any of the terms, covenants or conditions of this Lease for any length of time shall not be deemed to waive or to decrease the right of Landlord to insist thereafter upon strict performance by Tenant. Waiver by Landlord of any term, covenant or condition contained in this Lease may only be made by a written document signed by Landlord. 26. NOTICES. Except as otherwise expressly provided in this Lease, any bills, statements, notices, demands, requests or other communications given or required to be given under this Lease shall be effective only if rendered or given in writing, sent by certified mail, return receipt requested, reputable overnight carrier, or delivered personally, (i) to Tenant (A) at Tenant's address set forth in the Basic Lease Information, if sent prior to Tenant's taking possession of the Premises, or (B) at the Premises if sent subsequent to Tenant's taking possession of the Premises, or (C) at any place where Tenant may be found if sent subsequent to Tenant's vacating, deserting, abandoning or surrendering the Premises; or (ii) to Landlord at Landlord's address set forth in the Basic Lease Information; or (iii) to such other address as either Landlord or Tenant may designate as its new address for such purpose by notice given to the other in accordance with the provisions of this Paragraph 26. Any such bill, statement, notice, demand, request or other communication shall be deemed to have been rendered or given on the date the return receipt indicates delivery of or refusal of delivery if sent by certified mail, the day upon which recipient accepts and signs for delivery from a reputable overnight carrier, or on the date a reputable overnight carrier indicates refusal of delivery, or upon the date 15 personal delivery is made. If Tenant is notified in writing of the identity and address of any Mortgagee or ground or underlying lessor, Tenant shall give to such Mortgagee or ground or underlying lessor notice of any default by Landlord under the terms of this Lease in writing sent by registered or certified mail, and such Mortgagee or ground or underlying lessor shall be given the opportunity to cure such default (as defined in Paragraph 19(b)) prior to Tenant exercising any remedy available to it. 27. TAXES PAYABLE BY TENANT. At least ten (10) days prior to delinquency Tenant shall pay all taxes levied or assessed upon Tenant's equipment, furniture, fixtures and other personal property located in or about the Premises. If the assessed value of Landlord's property is increased by the inclusion therein of a value placed upon Tenant's equipment, furniture, fixtures or other personal property, Tenant shall pay to Landlord, upon written demand, the taxes so levied against Landlord, or the proportion thereof resulting from said increase in assessment. 28. ABANDONMENT. Tenant shall not abandon the Premises and cease performing its financial and maintenance obligations under this Lease at any time during the Term, and if Tenant shall abandon and cease performing its financial and maintenance obligations under this Lease, or surrender the Premises or be dispossessed by process of law, or otherwise, any personal property belonging to Tenant and left on the Premises shall, at the option of Landlord, be deemed to be abandoned and title thereto shall thereupon pass to Landlord. Notwithstanding anything to contrary contained herein, Tenant shall not be allowed to vacate the Premises if such would result in a termination of Landlord's insurance. Upon Tenant's request, Landlord will ask its insurer if such vacation of the Premises would result in termination of its current insurance policy. For purposes of this Paragraph 28, the Tenant shall not be deemed to have abandoned the Premises solely because the Tenant is not occupying the Premises. 29. SUCCESSORS AND ASSIGNS. Subject to the provisions of Paragraph 9, the terms, covenants and conditions contained herein shall be binding upon and inure to the benefit of the parties hereto and their respective legal and personal representatives, successors and assigns. 30. ATTORNEY'S FEES. If Tenant or Landlord brings any action for any relief against the other, declaratory or otherwise, arising out of this Lease, including any suit by Landlord for the recovery of Base Rent or Additional Charges or possession of the Premises, the losing party shall pay to the prevailing party a reasonable sum for attorney's fees, which shall be deemed to have accrued on the commencement of such action and shall be paid whether or not the action is prosecuted to judgment. 31. LIGHT AND AIR. Tenant covenants and agrees that no diminution of light, air or view by any structure which may hereafter be erected (whether or not by Landlord) shall entitle Tenant to any reduction of rent under this Lease, result in any liability of Landlord to Tenant, or in any other way affect this Lease or Tenant's obligations hereunder. 32. SECURITY DEPOSIT. (a) LETTER OF CREDIT. Concurrently with Tenant's execution of this Lease, Tenant shall deliver to Landlord an unconditional, irrevocable, transferable letter of credit, in an amount equal to Six Hundred and Fifty Thousand Dollars ($650,000) issued by a financial institution acceptable to Landlord in the form attached hereto as Exhibit G", with an original term of no less than one year and automatic extensions through the end of the Term of this Lease and sixty (60) days thereafter (the "Letter of Credit"). The Letter of Credit shall be increased in an amount equal to fifty percent (50%) of any Additional Allowance utilized by Tenant within three (3) business days after [approval of the cost estimate for the Tenant Improvements pursuant to Paragraph 5 of the Work Letter]. Tenant shall keep the Letter of Credit, at its expense, in full force and effect until the sixtieth (60th) day after the Expiration Date or other termination of this Lease, to insure the faithful performance by Tenant of all of the covenants, terms and conditions of this Lease, including, without limitation, Tenant's obligations to repair, replace or maintain the Premises and Tenant's obligations under the Work Letter; provided, however, at any time during the term that Landlord holds cash as a security deposit hereunder in the amount of the Letter of Credit, Tenant shall not be in default hereunder for failing to maintain the Letter of Credit. The Letter of Credit shall provide sixty (60) days' prior written notice to Landlord of cancellation or material change thereof, and shall further provide that, in the event of any nonextension of the Letter of Credit at least thirty (30) days prior to its expiration, the entire face amount shall automatically be paid to Landlord, and Landlord shall hold the funds so obtained as the security deposit required under this Lease. If for any reason such automatic payment does not occur in the event of a nonextension at least thirty (30) days prior to expiration, Landlord shall be entitled to present its written demand for payment o the entire face amount of the Letter of Credit, and the funds paid to Landlord in respect of such demand shall be held as provided above. Any unused portion of the funds so obtained by Landlord shall be returned to Tenant upon replacement of the Letter of Credit or deposit of cash security in the full amount required as the face amount of the Letter of Credit hereunder. If Landlord uses any portion of the Letter of Credit, or the cash security deposit resulting from a draw on the Letter of Credit, to cure any default by Tenant hereunder, Tenant shall replenish the security deposit to the original amount within ten (10) days of notice from Landlord. Tenant's failure to do so shall become be a material breach of this Lease. Landlord shall keep any cash security funds separate from its general funds, and shall invest such cash security at Tenant's reasonable direction, and any interest actually earned by Landlord on such cash security shall be paid to Tenant quarterly. If an event of default occurs under this Lease or the Work Letter (including, without limitation, any default by Tenant with respect to its payment and performance obligations under the Work Letter), or if Tenant is the subject of an Insolvency Proceeding, Landlord may present its written demand for payment of the entire face amount of the Letter of Credit and the funds so obtained shall become due and payable to Landlord. Landlord may retain such funds to the extent required to compensate Landlord for damages incurred, or to reimburse Landlord as provided herein, in 16 connection with any such default, and any remaining funds shall be held as a cash security deposit. Without limiting the foregoing, in the event of a default in Tenant's obligations to complete or pay for the Tenant Improvements in accordance with the Work Letter, Landlord may use the security deposit to complete and/or pay for the Tenant Improvements to the extent of Tenant's obligations as contemplated by the Work Letter. Landlord shall pay the costs of such Letter of Credit to the extent that they do not exceed one percent (1%) of the face value of the Letter of Credit. (b) ANNUAL REDUCTION OF LETTER OF CREDIT. The face amount of the Letter of Credit may be reduced on the third through seventh anniversaries of the Rent Commencement Date in the amount of one-fourth (1/4th) of the initial balance, so long as (i) Tenant is not in default (and no event has occurred which, with the passage of time or giving of notice or both, would constitute a default under the Lease on such anniversary date, and (ii) Landlord has not delivered a notice of Tenant's failure to perform any of its monetary obligations hereunder during the previous six months, regardless of whether such failure was cured by Tenant within any applicable grace or cure period; provided, however, that any such notice of failure to perform relating to a non-monetary failure to perform which was disputed, in good faith, by Tenant and ultimately determined (by agreement of the parties, arbitration or judicial action) not to be a violation of this Lease shall not be considered for purposes of determining whether such condition has been met. (c) RETURN OF LETTER OF CREDIT. The Letter of Credit shall be returned to, at any time after the third anniversary of the Rent Commencement Date when Tenant can establish to Landlord's reasonable satisfaction that as of the end of any fiscal year of Tenant following the third anniversary of the Rent Commencement Date, Tenant has (i) annual net income in excess of Twenty Million Dollars ($20,000,000) for the previous two consecutive years, (ii) shareholder equity in excess of One Hundred Million Dollars ($100,000,000), and (iii) cash and cash equivalents in excess of Twenty-five Million Dollars ($25,000,000), all as determined in accordance with GAAP and as reflected on certified, audited financial statements. (d) CONVERSION OF DEPOSIT TO LOAN. Landlord and Tenant acknowledge and agree that, if Tenant defaults under this Lease and Landlord elects to pursue its remedies under California Civil Code Section 1951.2 or under this Lease to terminate this Lease (any such event, a "Landlord Action"), (i) Landlord will incur certain damages, costs and expenses, including, without limitation, marketing costs, commissions, relocation costs, tenant improvement costs, and carrying costs in connection with releasing the Premises, in addition to the other damages, costs and expenses Landlord may incur as a result of such default and/or other defaults under this Lease (all of the foregoing collectively, "Default Damages"); (ii) Landlord has no assurance of a source of funds to cover such Default Damages other than the proceeds of the Letter of Credit (or cash collateral); and (iii) the proceeds of the Letter of Credit (or cash collateral) should be available to Landlord to apply to Default Damages, even if the amount thereof exceeds that amount to which Landlord is ultimately determined to be entitled under this Lease and pursuant to applicable law. Accordingly, at Landlord's sole election, Landlord shall be entitled to draw the full amount of the Letter of Credit (or the full amount of cash collateral shall be released to Landlord) which is then existing (after any previous application of funds by Landlord and/or replenishment by Tenant pursuant to Paragraph 32(a) above), simultaneously with commencement of a Landlord Action or at any time thereafter. All proceeds thereof in excess of amounts applied (pursuant to Paragraph 32(a)) to Default Damages incurred by Landlord prior to commencement of the Landlord Action shall be deemed a loan from Tenant to Landlord (the *Default Loan"). The Default Loan shall be unsecured and shall not bear interest, and repayment thereof shall be limited to the terms and conditions set forth in this paragraph. Any sums to which Landlord from time to time becomes entitled hereunder and pursuant to law as a result of Tenant's default and any previous defaults of the Lease, to which the Letter of Credit (or cash collateral) has not previously been applied pursuant to Paragraph 32(a), shall be offset against the principal balance of the Loan. The amount of the Default Loan remaining, if any, after such offset shall be referred to herein as the "Excess Amount" The Excess Amount shall be payable by Landlord to Tenant from, and only from, first any proceeds from the Letter of Credit (or cash collateral) which have not been applied to Default Damages incurred by Landlord after the same are finally determined (the "Remaining Proceeds"), and then Excess Rent. The Remaining Proceeds shall be paid by Landlord to Tenant promptly upon final determination after the entire Premises are leased to a third party or parties. If Tenant disputes the amount of Remaining Proceeds paid by Landlord, Tenant may submit such dispute to arbitration in accordance with Paragraph 40 [Arbitration of Disputes] of this Lease. "Excess Rent" shall mean the amount by which (x) rent received by Landlord (from the tenant or tenants leasing all or any portion of the Premises after Tenant's default) in any month exceeds (y) the amount of rent that would have been payable under this Lease for such month if this Lease had not been terminated. Landlord shall pay Tenant one-half of the Excess Rent until the earlier of (A) the date the Excess Amount is fully repaid or (B) the date that would have been the Expiration Date (excluding any Renewal Term) of this Lease. Any remaining balance of the Default Loan on such date shall be deemed forgiven. If the Default Loan is insufficient to cover all Default Damages, Tenant shall pay Landlord any SUCH shortfall immediately upon demand by Landlord, and Landlord shall have all rights and remedies available at law or elsewhere in the Lease with respect to such shortfall. 33. CORPORATE AUTHORITY; FINANCIAL INFORMATION. If Tenant signs as a corporation each of the persons executing this Lease on behalf of Tenant does hereby covenant and warrant that Tenant is a duly authorized and existing corporation, that Tenant has and is qualified to do business in California, that the corporation has full right and authority to enter into this Lease, and that each and both of the persons signing on behalf of the corporation were authorized to do so. Upon Landlord's request, Tenant shall provide Landlord with evidence reasonably satisfactory to Landlord confirming the foregoing covenants and warranties. Tenant hereby further covenants and warrants to Landlord that all financial information and other descriptive information regarding Tenant's business, which has been or shall be furnished to Landlord, is to Tenant's best knowledge accurate and complete at the time of delivery to Landlord. 17 34. PARKING. Tenant shall have the right to use the Building's parking spaces in common with other tenants or occupants of the Building, if any, subject to the Encumbrances and the rules and regulations of Landlord for such parking facilities which may be established or altered by Landlord at any time or from time to time during the term. 35. MISCELLANEOUS. (a) The term "Premises" wherever it appears herein includes and shall be deemed or taken to include (except where such meaning would be clearly repugnant to the context) the office space demised and improvements now or at any time hereafter comprising or built in the space hereby demised. The paragraph headings herein are for convenience of reference and shall in no way define, increase, limit or describe the scope or intent of any provision of this Lease. The term "Landlord" shall include Landlord and its successors and assigns. In any case where this Lease is signed by more than one person, the obligations hereunder shall be joint and several. The term "Tenant" or any pronoun used in place thereof shall indicate and include the masculine or feminine, the singular or plural number, individuals, firms or corporations, and their and each of their respective successors, executors, administrators, and permitted assigns, according to the context hereof. (b) Time is of the essence of this Lease and all of its provisions. This Lease shall in all respects be governed by the laws of the State of California. This Lease, together with its exhibits, contains all the agreements of the parties hereto and supersedes any previous negotiations. There have been no representations made by the Landlord or understandings made between the parties other than those set forth in this Lease and its exhibits. This Lease may not be modified except by a written instrument by the parties hereto. (c) If for any reason whatsoever any of the provisions hereof shall be unenforceable or ineffective, all of the other provisions shall be and remain in full force and effect. (d) Upon Tenant paying the Base Rent and Additional Charges and performing all of Tenant's obligations under this Lease, Tenant may peacefully and quietly enjoy the Premises during the Term as against all persons or entities lawfully claiming by or through Landlord; subject, however, to the provisions of this Lease. 36. TENANT'S REMEDIES. If any default hereunder by Landlord is not cured within the applicable cure period provided in Subparagraph 19(b), Tenant's exclusive remedies shall be an action for specific performance or action for actual damages. Tenant hereby waives the benefit of any laws granting it (A) the right to perform Landlord's obligation, or (B) the right to terminate this Lease or withhold Rent on account of any Landlord default. Tenant shall look solely to Landlord's interest in the Project for the recovery of any judgment from Landlord. Landlord, or if Landlord is a partnership, its partners whether general or limited, or if Landlord is a corporation, its directors, officers or shareholders, shall never be personally liable for any such judgment. Any lien obtained to enforce such judgment and any levy of execution thereon shall be subject and subordinate to any mortgage or deed of trust (excluding any mortgage or deed of trust which was created as part of an effort to defraud creditors, i.e., a fraudulent conveyance); provided, however that any such judgement and any such levy of execution thereon shall not be subject or subordinated to any mortgage or deed of trust that shall have been created or recorded in the official records of Santa Clara County after the date of the judgement giving rise to such lien. Landlord's interest in the Project shall include any insurance proceeds received by Landlord which are not controlled by Landlord's lender and any proceeds of the Security Deposit under this Lease that are then held by Landlord. 37. REAL ESTATE BROKERS. Each party represents that it has not had dealings with any real estate broker, finder or other person with respect to this Lease in any manner, except for any broker named in the Basic Lease Information, whose fees or commission, if earned, shall be paid as provided in the Basic Lease Information. Each party shall hold harmless the other party from all damages resulting from any claims that may be asserted against the other party by any other broker, finder or other person with whom the other party has or purportedly has dealt. 38. LEASE EFFECTIVE DATE. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for lease, and it is not effective as a lease or otherwise until execution and delivery by both Landlord and Tenant. 39. HAZARDOUS SUBSTANCE LIABILITY. Tenant has received from Landlord a copy of the following reports (the "Environmental Reports"):" Phase I and II Environmental Assessment Report, Circle Star Theater Property, 1717 Industrial Way, San Carlos, California, January 31, 1997 prepared by McLaren/Hart Environmental Engineering Corporation. Except as noted in the Environmental Reports, Landlord represents and warrants that to the best of its knowledge, the Premises and Project are presently free of asbestos, toxic waste, underground storage tanks and other Hazardous Substances in amounts exceeding legally established maximum thresholds. Additionally, except as noted in the Environmental Reports, Landlord represents that it has received no written notice of any violation or claimed violation with respect to the presence of toxic or Hazardous Substances on, in or under the Project or of any pending or contemplated investigation or other action relating thereto. (a) Definition of Hazardous Substances. For the purpose of this Lease, "Hazardous Substances" shall be defined, collectively, as oil, flammable explosives, asbestos, radioactive materials, hazardous wastes, toxic or contaminated substances or similar materials, including, without limitation, any substances which are "hazardous substances," "hazardous wastes," "hazardous materials" or "toxic substances" 18 under applicable environmental laws, ordinance or regulation. (b) TENANT INDEMNITY. Tenant releases Landlord from any liability for, waives all claims against Landlord and shall indemnify, defend and hold harmless Landlord, its employees, partners,, agents,, subsidiaries and affiliate organizations against any and all claims, suits, loss, costs (including costs of investigation, clean up, monitoring, restoration and reasonably attorney fees), damage or liability, whether foreseeable or unforeseeable, by reason of property damage (including diminution in the value of the property of Landlord), personal injury or death directly arising from or related to Hazardous Substances released, manufactured, discharged, disposed, used or stored on, in, or under the Property or Premises during the initial Term and any extensions of this Lease by Tenant or its employees, agents, sublessees, assignees or contractors. The provisions of this Tenant Indemnity regarding Hazardous Substances shall survive the termination of the Lease. (c) LANDLORD INDEMNITY. Landlord releases Tenant from any liability for, waives all claims against Tenant and shall indemnify, defend and hold harmless Tenant, its officers, employees, and agents to the extent of Landlord's interest in the Project, against any and all actions by any governmental agency for clean up of Hazardous Substances on or under the Property, including costs of legal proceedings, investigation, clean up, monitoring, and restoration, including reasonable attorney fees, if, and to the extent, arising from the presence of Hazardous Substances on, in or under the Property or Premises, except to the extent caused by the release, disposal, use or storage of Hazardous Substances in, on or about the Premises by Tenant, its employees, agents, sublessees, assignees, or contractors. The provisions of this Landlord Indemnity regarding Hazardous Substances shall survive the termination of the Lease. Tenant has informed Landlord, that except for very immaterial amounts of toxic materials incidental to its office. use (e.g. copier toner), Tenant will not use and Hazardous Substances in material amounts within the Building and shall comply with any applicable laws to the extent that it does. 40. ARBITRATION OF DISPUTES. ANY CONTROVERSY OR CLAIM ARISING OUT OF THIS LEASE OR A BREACH OF THIS LEASE SOLELY BETWEEN LANDLORD AND TENANT RELATING TO A MONETARY DEFAULT IN AN AMOUNT OF LESS THAN TWENTY-FIVE THOUSAND DOLLARS ($25,000), BUT NOT INCLUDING A DEFAULT WITH RESPECT TO THE TIMELY PAYMENT OF BASE RENT AND ADDITIONAL CHARGES, SHALL BE SETTLED BY ARBITRATION BEFORE THE JUDICIAL ARBITRATION MEDIATION SERVICE (JAMS) IN ACCORDANCE WITH THE RULES OF THE AMERICAN ARBITRATION ASSOCIATION, AND JUDGMENT ON THE AWARD RENDERED BY THE ARBITRATOR(S) MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. NOTICE: BY INITIALLY IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY. WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION TO NEUTRAL ARBITRATION. Consent to neutral arbitration by: /s/ XXX (Landlord): /s/ Keith Teare (Tenant). 41. SIGNAGE. Tenant shall b lowed to use a proportional share (based on square footage) of the main lobby directory and the monument sign located at the Project's entry off of Industrial Road, as well as building standard signage at the lobby on Tenant's floor as well as Tenant's main entry door. Such signage shall be in conformity with standards provided by Landlord, and subject to approval by Landlord. All signage shall be at Tenant's expense. 42. OPTION TO RENEW. Upon condition that (i) no event of default is continuing under this Lease at the time of exercise or at the commencement of the option term, and (ii) Tenant or its affiliate continues to physically occupy at least fifty percent (50%) of the Premises, then Tenant shall have the right to extend the Term for one (1) period of five (5) years ("Extension Term(s)") following the initial Expiration Date, by giving written notice ("Exercise Notice") to Landlord at least eighteen (18) months prior to the Expiration of the Term. 43. RENT DURING EXTENSION TERM. The Monthly Base Rent during the five (5) year Extension Term shall be the greater of the Base Rent paid during the last month of the immediately preceding Term or the Fair Market Rental Value for the Premises as of the commencement of the option term, as determined below: (a) Within thirty (30) days after receipt of Tenant's Exercise Notice, Landlord shall notify Tenant of Landlord's estimate of the Fair Market Rental Value for the Premises, as determined below, for 19 determining Monthly Base Rent during the ensuing Extension Term; provided, however, if Tenant's Exercise Notice is given more than eighteen (I 8) months before the Expiration Date, Landlord's estimate of Fair Market Rental Value may, but need not be given more than eighteen (18) months before the Expiration Date. Within fifteen (15) days after receipt of such notice from Landlord, Tenant shall notify Landlord in writing that it (i) agrees with such rental rate or (ii) disagrees with such rental rate. No response shall constitute agreement. In the event that Tenant disagrees with Landlord's estimate of Fair Market Rental Value for the Premises, then the parties shall meet and endeavor to agree within fifteen (15) days after Landlord receives Tenant's notice described in the immediately preceding sentence. If the parties cannot agree upon the Fair Market Rental Value within said fifteen (15) day period, then the parties shall submit the matter to binding appraisal in accordance with the following procedure except that in any event neither party shall be obligated to start such procedure sooner than eighteen (18) months before the expiration of the Lease Term. Within fifteen (15) days of the conclusion of the period during which the two parties fail to agree (but not sooner than eighteen (18) months before the expiration of the Lease Term), the parties shall either (i) jointly appoint an appraiser for this purpose or (ii) failing this joint action, each separately designate a disinterested appraiser. No person shall be appointed or designated an appraiser unless such person has at least five (5) years experience in appraising major commercial property in San Marco County and is a member of a recognized society of real estate appraisers. If within thirty (30) days after the appointment, the two appraisers reach agreement on the Fair Market Rental Value for the Premises, that value shall be binding and conclusive upon the parties. If the two appraisers thus appointed cannot reach agreement on the Fair Market Rental Vaue for the Premises within thirty (30) days after their appointment, then the appraisers thus appointed shall appoint a third disinterested appraiser having like qualifications within five (5) days. If within thirty (30) days after the appointment of the third appraiser a majority of the appraisers agree on the Fair Market Rental Value of the Premises, that value shall be binding and conclusive upon the parties. If within thirty (30) days after the appointment of the third appraiser a majority of the appraisers cannot reach agreement on the Fair Market Rental Value for the Premises, then the three appraisers shall each simultaneously submit their independent appraisal to the parties, the appraisal farthest from the median of the three appraisals shall be disregarded, and the mean average of the remaining two appraisals shall be deemed to be the Fair Market Rental Value for the Premises and shall be binding and conclusive upon the parties. Each party shall pay the fees and expenses of the appraiser appointed by it and shall share equally the fees and expenses of the third appraiser. If the two appraisers appointed by the parties cannot agree on the appointment of the third appraiser, they or either of them shall give notice of such failure to agree to the parties and if the parties fail to agree upon the selection of such third appraiser within ten (10) clays after the appraisers appointed by the parties give such notice, then either of the parties, upon notice to the other party, may request such appointment by the American Arbitration Association or, on it failure, refusal or inability to act, may apply for such appointment to the presiding judge of the Superior Court of San Mateo County, California. (b) Wherever used throughout this Paragraph (Rent during Extension Term) the term "Fair Market Rental Value" shall mean the fair market rental value of the Premises, using as a guide the rate of monthly base rent which would be charged during the Extension Term (including periodic increases during the Extension Term, if any) in the Mid-Peninsula area for comparable high image, Class A office space in comparable condition, of comparable quality, as of the time that the Extension Term commences, with appropriate adjustments regarding taxes, insurance and operating expenses as necessary to insure comparability to this Lease, as the case may be, and also taking into consideration amount and type of parking, location, leasehold improvements, proposed term of lease, amount of space leased, extent of service provided or to be provided, and any other relevant terms or conditions (including consideration of whether or not the monthly base rent is fixed). (c) In the event of a failure, refusal or inability of any appraiser to act, his successor shall be appointed by the party who originally appointed him, but in the case of the third appraiser, his successor shall be appointed in the same manner as provided for appointment of the third appraiser. (d) The appraisers shall render their appraisals in writing with counterpart copies to Landlord and Tenant. The appraisers shall have no power to modify the provisions of this Lease. (e) To the extent that binding appraisal has not been completed prior to the expiration of any preceding period for which Monthly Base Rent has been determined, Tenant shall pay Monthly Base Rent at the rate estimated by Landlord, with an adjustment to be made once Fair Market Rental Value is ultimately determined by binding appraisal. In no event shall any such adjustment result in a decrease of the Monthly Base Rent for the Premises below the amount payable by Tenant as of the period immediately preceding the ensuing Extension Term. (f) From and after the commencement of the Extension Term, all of the other terms, covenants and conditions of the Lease shall also apply; provided, however, that Tenant shall have no further rights to extend the Term. 44. .SATELLITE ANTENNA. During the Term, Tenant shall have the right, subject to relevant regulatory approvals, availability of space within the roofscreen and Landlord's consent, such consent not to be unreasonably withheld or delayed, to install a satellite antenna ("Antenna") within the roofscreen on the roof of the Building in a location satisfactory to both Landlord and Tenant. Without otherwise limiting the criteria upon which Landlord may withhold its consent to any proposed Antenna, if Landlord withholds its consent due to concerns regarding the appearance of the Antenna or the impact on structural aspects of the Building, such withholding of consent shall be presumptively reasonable. Tenant shall not be charged any rent for roof space. Prior to submitting any plans to the City of San Carlos or proceeding with any installation of an Antenna, Tenant shall submit to Landlord elevations and specifications for the Antenna. Tenant shall install any approved 20 Antenna at its sole expense and shall be responsible for any damage caused by the installation of the Antenna or related to the Antenna. At the end of the Term, Tenant shall remove the Antenna from its location and repair any damage caused by such removal. 45. RIGHT TO RELOCATE TENANT. By written notice delivered to Tenant by Landlord on or before January 15, 1999, Landlord may elect to relocate Tenant to the third floor of the building in which the Premises is located. In the event Landlord makes such election the following provisions shall apply: (i) The Tenant's Plan Delivery Date, and Scheduled Commencement Date shall be extended by the number of days between the date this Lease is fully executed and the date of such notice; (ii) The Rentable Area of the Premises designated on the Basic Lease Information shall be 26,561; (iii) The Tenant Allowance of $579,800 designated on the Basic Lease Information shall be increased to $609,925 and the $15,000 glass allowance shall be available to Tenant for its actual out-of-pocket costs for architectural fees incurred in connection with the relocation of Tenant pursuant to this Paragraph 45; and (iv) At the request of either party, Landlord and Tenant shall execute a memorandum confirming the foregoing. IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the date first above written. LANDLORD: CIRCLE STAR CENTER ASSOCIATES, L.P. a California limited partnership By: M-D Ventures, Inc. Its: General Partner By: /s/ Steve Dostart --------------------------------- Steve Dostart Its: Vice President TENANT: CENTRAAL CORPORATION a California corporation By: /s/ Keith Teare --------------------------------- Keith W. Teare Its: President & CEO 21 EXHIBIT "B" - -------------------------------------------------------------------------------- WORK LETTER 1. BASE BUILDING: Landlord shall furnish and install the office building, as defined in the plans listed in the attached Exhibit B-l, "Landlord's Plans," at Landlord's expense ("Base Building"). 2. TENANT'S PLANS: On or before Tenant's Plan Delivery Date, as specified in the Basic Lease Information, Tenant shall submit plans and specifications for the tenant improvements which Tenant desires to construct within the Premises ("Tenant's Plans"). Tenant's Plans shall include all such information required by Landlord's contractor to bid and construct said improvements, including but not limited to those items in Exhibit B-2, "Minimum Information Required." Such plans shall be subject to Landlord's approval, which shall not be unreasonably withheld so long as the tenant improvements contemplated therein are (i) substantially in compliance with any preliminary space plan drawn by Bernhard Blauel and faxed to Gladys Gardiner on December 5, 1998, and (ii) such finishes are in compliance with typical Class A office building improvements and Landlord's building standard finishes (e.g. blinds, color of doors, etc.). Tenant shall engage Landlord's architect and/or engineers to prepare complete mechanical, electrical, plumbing, and other engineering plans for the installation of the heating, ventilating, air conditioning, electrical and plumbing to be installed in the Premises, and the costs charged by Landlord's architect and/or engineers for such services shall not exceed reasonable and competitive rates. The engineering fees for plumbing and fire sprinkler work shall be competitively bid as design/build with engineered drawings to be included in the successful contractor's scope of work. 3. TENANT IMPROVEMENTS: Landlord shall cause Landlord's contractor to construct, at Tenant's expense, subject to the Tenant Allowance as noted below, the additional work to complete the Premises ("Tenant Improvements") normally performed by the construction trades, required by the plans and specifications approved by Landlord and Tenant pursuant to this Work Letter. The quantities, character and manner of installation of all of the foregoing work shall be subject to the limitations imposed by any applicable regulations, laws, ordinance, codes and roles. 4. TENANT'S EXPENSE: The cost of the Tenant Improvements, as well as space planning and preparing the working drawings (including Tenant's Plans) for the Tenant Improvements or any change to the original instruction and/or plans and specifications shall be paid by Tenant. Upon Tenant's written request, Landlord shall make available to Tenant an allowance of the amount specified in the Basic Lease Information as the "Tenant Allowance". The Tenant Allowance may be applied toward the following items in respect of the Tenant Improvements: Architectural and engineering fees, space planning, building permits or other governmental fees, cost of labor materials and other charges included in the construction contract for construction of Tenant Improvements. The cost of the Tenant Improvements to be paid from the Tenant Allowance or by Tenant shall not include the following (which shall be Landlord's responsibility): (a) costs attributable to improvements installed outside the demising walls of the Premises; (b) costs for improvements which are not shown on or described in the Tenant's Plans as finally approved by Landlord, other than changes required by the City of San Carlos or other governmental authorities in connection with their review of Tenant's Plans or issuance of permits, changes necessitated by Tenant Delays (as defined below), or changes that are requested or approved by Tenant; (c) attorneys' fees incurred in connection with negotiation of construction contracts, and attorneys' fees, experts' fees and other costs in connection with disputes with third parties, except to the extend such disputes result from Tenant's acts or omissions; (d) unless interest and other costs incurred by Landlord to finance Landlord's construction costs; (e) costs incurred as a consequence of delay (other than Tenant Delays), construction defects or default by Landlord's contractor; (f) costs recoverable by Landlord upon account of warranties and insurance; (g) restoration costs in excess of insurance proceeds as a consequence of casualties; (h) penaltes and late charges attributable to Landlord's failure to pay construction costs; (i) costs to bring the Base Building into compliance with applicable laws and restrictions, including, without limitation, the Americans with Disabilities Act and environmental law, except to the extend such laws and restrictions are only triggered by Tenant's acts, improvements or particular use of the Premises; (j) wages, labor and overhead for overtime and premium time, unless required due to Tenant Delays; (k) offsite construction management or other general construction overhead costs incurred by Landlord; and (1) a General Contractor's fee in excess of that contemplated in Paragraph 5 below. Upon the approval by Landlord and Tenant of the Landlord's contractor's cost estimate in accordance with Paragraph 5 below, Tenant shall provide Landlord with a detailed breakdown of the final costs to be incurred or which have been incurred in connection with the design and construction of the Tenant Improvements (the "Final Costs"). Prior to the commencement of construction of the Tenant Improvements, Tenant shall supply Landlord with cash in an amount (the "Over-Allowance Amount") equal to the difference between the amount of the Final Costs and the Tenant Allowance (less any portion thereof already disbursed by Landlord, on or before the commencement of construction of the Tenant Improvements). The Over-Allowance Amount shall be disbursed by Landlord pro Exhibits - Page 2 of 17 rata with the Tenant Allowance as costs are incurred for Tenant Improvements. Any amounts payable by Tenant under this Work Letter which are in excess of the Tenant Allowance and Over-Allowance Amount deposited with Landlord shall be paid by Tenant to Landlord within twenty (20) days of receipt of an invoice from Landlord. In addition, the Tenant Improvements shall include widow shades meeting the following specifications: Hunter Dougals 8 Mil Atlantis Mini-Blinds; Color: 190 Bright Alluminum. 5. COST ESTIMATE: Upon receipt of Tenant's Plans, Landlord shall obtain a cost estimate for the Tenant Improvements from Landlord's contractor, the costs and quality of which are within industry standards. Landlord shall require that its general contractor secure three (3) approved independent sealed bids from three (3) subcontractors for each trade whose costs are in excess of five percent (5%) of the total cost estimate. Tenant shall have the right to add to the bid list one unionized subcontractor in each area where costs are in excess of such five percent (5 %) mount, subject to the general contractor's reasonable requirements. All bids shall be submitted to Landlord and Tenant; at Tenant's request, Landlord and Tenant shall open the bids together at the offices of the Landlord's general contractor. Landlord agrees to permit Tenant to designate that the lowest bidding subcontractor be selected. The General Contractor's fee shall be calculated on a "cost plus a fee" basis where the fee for overhead and profit is four percent (4 %) of cost and the amount charged for general conditions is reasonable and competitive for similar tenant improvement projects. Tenant shall not be charged any fee for Landlord's oversight of the construction of Tenant's Improvements. If the cost estimate exceeds the Tenant Allowance, the cost estimate shall be submitted to Tenant. Tenant shall approve or disapprove such estimate within seven (7) days. Failure to disapprove within such period shall constitute approval. If disapproved, Tenant shall provide new sufficient instruction within such seven (7) days for the revision of plans and cost estimates for approval by Landlord. Tenant shall be obligated to approve the cost estimate if the cost is within the Tenant Allowance or any greater budget approved by Tenant. If the cost estimate is in excess of the Tenant Allowance or such greater budget, Tenant shall provide new sufficient instruction which will reduce the cost estimate for the Tenant Improvements to a level acceptable to Tenant and within any alowance provided by Landlord within ten (10) days after receipt of the cost estimate. In the event that, after receiving Tenant's approval of the cost estimate, the cost of the Tenant Improvements shall increase due to the requirements of any governmental agency, such increased amount shall automatically approved so long as it does not exceed ten percent (10%) of the previously approved amount. 6. CONSTRUCTION OF TENANT IMPROVEMENTS: After Tenant's approval of the cost estimate for Tenant's Plans, Landlord shall administer and diligently prosecute the construction of Tenant Improvements in accordance with Tenant's Plans; provided, however, that Landlord shall not be required to install any Tenant Improvements which do not conform to the plans and specifications for the Base Building, or do not conform to any applicable regulations, laws, ordinances, codes and roles; such conformity shall be the obligation of Tenant. After the cost estimate has been approved by Landlord and Tenant as provided above, neither party shall have the right to require extra work or change orders with respect to the construction of the Tenant Improvements without the prior written consent of the other, which consent shall not be unreasonably withheld or delayed. All change orders shall specify any change in the cost estimate as a consequence of the change order. All Tenant Improvements shall be constructed by Landlord's contractor, which shall be a reputable, unionized general contractor, subject to approval by Tenant which approval shall not be unreasonably withheld, who will complete the work in a good and workmanlike manner and in accordance with relevant laws and codes. Subject to the limitation on the General Contractor's fee imposed by Paragraph 5, Tenant approves the use of Devcon Construction, the General Contractor for the Base Building, as the General Contractor for the Tenant Improvements. 7. TENANT'S CONTRACTORS: Cable TV connections, telephone equipment and wiring and office equipment wiring, shall be installed by Tenant's contractors and shall conform with Landlord's contractor's schedule and work of installation and shall be handled in such a manner as to maintain harmonious labor relations and as not to interfere with or delay the work of Landlord's contractors. All such improvements furnished and installed by Tenant's contractor shall not cause Landlord's contractor to be dependent upon the work of Tenant's contractors in order for Landlord's contractor to complete its work. Tenant's contractors, subcontractors and labor shall be subject to approval by Landlord which approval shall not be unreasonably withheld or delayed and shall be subject to the reasonable administrative supervision of Landlord's general contractor and reasonable roles of the site. Contractors and subcontractor engaged by Tenant shall employ laborers and means to insure, so far as may be possible, the progress of the work without interruption on account of strikes, work stoppage or similar causes for delay. Landlord shall give access and entry to the Leased Premises to Tenant's contractors at least three (3) weeks prior to the scheduled completion of the Tenant Improvements; provided, however, that if such entry is prior to the first day of the Term such entry shall be subject to all of the terms and conditions of this Lease except payment of Rent and Additional Charges and Tenant shall not be allowed to commence business in the Premises. 8. SUBSTANTIAL COMPLETION/PUNCH LIST: "Substantial Completion" shall be defined as when Landlord's contractor has substantially completed all work to be performed by Landlord in accordance with Tenant's Plans, Exhibits - Page 3 of 17 subject only to (i) the completion or correction of items on Landlord's architect's punch list, which shall be subject to approval by Tenant, such approval not to be unreasonably withheld, (ii) a certificate of occupancy for the Premises having been obtained, (iii) all utilities having been turned on and available for use, and (iv) all Building common areas having been completed. 9. TENANT DELAYS: "Tenant Delays" shall be defined as those delays caused in achieving Substantial Completion due to: (a) Tenant's failure to submit (i) Tenant's Plans, (ii) approval of the cost estimates, or (iii) sufficient instruction to change Tenant's Plans as a result of disapproval of a cost estimate on or before the dates or time periods called for; (b) Tenant's change(s) in plans and specifications after said dates that actually delay construction, but only to the extent that Tenant received prior written notice from the Landlord of the amount of delay associated with the changes before the changes were finally approved and authorized by Tenant; (c) Tenant's request for materials, finishes or installations which require longer than forty-five (45) days to complete; or (d) other delays caused by Tenant in construction. 10. COMMENCEMENT DATE: The Premises shall be deemed completed and possession delivered and Tenant shall accept the Premises upon Substantial Completion. Notwithstanding anything to the contrary in the Lease, effective upon delivery of the Premises to Tenant, Landlord does hereby warrant that, to Landlord best knowledge, (a) the construction of the Tenant Improvements was performed in accordance with all roles, regulations, codes, statutes, ordinances, and laws of all applicable governmental and quasi-governmental authorities and in a good and workman-like manner, (b) all materials and equipment installed therein was new and otherwise of good quality, (c) the electrical, plumbing, and mechanical systems servicing the Premises are in working order and in good condition, and (d) the roof is in good condition and water tight. The foregoing warranties shall automatically expire one year after Substantial Completion. Tenant's obligation under the Lease to pay Rent and Additional Charges shall commence upon the later of (i) the Scheduled Commencement Date, as specified in the Basic Lease Information, or (ii) Substantial Completion. If Landlord shall be delayed in substantial completion as a result of Tenant Delays, then the Commencement Date, and Tenant's obligation to begin paying Rent and Additional Charges, shall be adjusted to reflect what the Commencement Date would have been if there had been no Tenant Delays. Within seven (7) days after written request of Landlord, Tenant agrees to give Landlord a letter confirming the Commencement Date and certifying that Tenant has accepted delivery of the Premises and that the condition of the Premises complies with Landlord's obligations hereunder. Exhibits - Page 4 of 17 EXHIBIT "B-I" LANDLORD'S PLANS The plans and specifications related to Two Circle Star Way as drawn or assembled by Kenneth Rodrigues & Partners, Inc. as called out below: GENERAL A0.0 COVER SHEET 1/22/98 A0.1 GENERAL INFORMATION SHEET/ 1/22/98 TITLE 24 ENERGY COMPLIANCE CIVIL C0.2 STORM WATER POLLUTION PREVENTION PLAN C1.1 LAYOUT AND PAVING PLAN 11/14/97 C1.2 LAYOUT AND PAVING PLAN 12/19/97 C2.1 GRADING PLAN 11/14/97 C2.2 GRADING PLAN 11/14/97 C3.1 UTILITY PLAN 11/14/97 C3.2 UTILITY PLAN 11/14/97 C4.1 DETAILS 11/14/97 C4.2 DETAILS 11/14/97 C4.3 DETAILS 12/19/97 ARCHITECTURAL A2.1 BUILDING ONE FIRST FLOOR PLAN 2/26/98 A2.2 BUILDING ONE SECOND FLOOR PLAN 1/22/98 A2.3 BUILDING ONE THIRD FLOOR PLAN 1/22/98 A2.4 BUILDING ONE FOURTH FLOOR PLAN 1/22/98 A2.5 ENLARGED CORE PLAN 1/22/98 A2.6 ENLARGED BATHROOM PLANS 1/22/98 A3.1 BUILDING ONE ROOF PLAN 1/22/98 A4.1 BUILDING ONE ELEVATIONS 2/26/98 A4.2 BUILDING ONE ELEVATIONS 1/22/98 A5.1 BUILDING SECTION 1/22/98 A5.2 TYPICAL WALL SECTIONS 1/22/98 A7.1 REFLECTED CEILING PLANS 3/5/97 A7.2 ENLARGED STAIR PLANS AND SECTIONS 1/22/98 A7.3 ENLARGED ELEVATOR PLANS AND SECTIONS 1/22/98 A7.4 DOOR AND HARDWARE SCHEDULE/ROOM 3/11/98 FINISH SCHEDULE A8.1 EXTERIOR DETAILS 1/22/98 A8.2 DOOR/WINDOW DETAILS 1/22/98 A8.3 ROOF DETAILS 1/22/98 A9.1 WALL TYPES 1/22/98 A9.2 INTERIOR DETAILS 1/22/98 A9.3 UL ASSEMBLIES 11/14/97 STRUCTURAL S0.1 GENERAL NOTES 10/6/97 S2.1 BUILDING ONE FOUNDATION/FIRST 10/6/97 FLOOR FRAMING PLAN S2.2 BUILDING ONE 2ND FLR. FRAMING PLAN 10/6/97 S2.3 BUILDING ONE 3RD FLR. FRAMING PLAN 10/6/97 S2.4 BUILDING ONE 4TH FLR. FRAMING PLAN 10/6/97 S2.5 BUILDING ONE ROOF FRAMING PLAN 10/6/97 S2.5A BUILDING ONE ROOF SCREEN/SLAB 10/6/97 REINFORCING PLAN S3.1 TYPICAL CONCRETE DETAILS 7/23/97 S3.2 CONCRETE DETAILS NO. 1 10/6/97 S3.3 CONCRETE DETAILS NO. 2 10/6/97 S3.4 CONCRETE DETAILS NO. 3 I0/6/97 S5.1 TYPICAL METAL DECK DETAILS NO. 1 10/6/97 S5.2 TYPICAL METAL DECK DETAILS NO. 2 10/6/97 S5.3 TYPICAL STEEL DETAILS 10/6/97 S5.4 COLUMN SCHEDULE AND DETAILS 10/6/97 Exhibits - Page 5 of 17 S5.5 BRACED FRAME ELEVATIONS AND DETAILS 10/6/97 S5.6 STEEL DETAILS NO. 1 10/6/97 S5.7 STEEL DETAILS NO. 2 10/6/97 S9.1 PRECAST PANEL SUPPORT PLAN 10/6/97 S9.2 PRECAST PANEL SUPPORT PLAN 7/30/97 S9.3 PRECAST PANEL SUPPORT DETAILS 10/6/97 LANDSCAPE L-1 PHASE ONE NOTES AND LEGEND 2/6/98 L-2 PHASE ONE LAYOUT AND GRADING PLAN 2/6/98 L-3 PHASE ONE PLATING PLAN 2/6/98 L-4 PHASE ONE IRRIGATION 2/6/98 L-5 PHASE ONE DETAILS 7/28/97 L-6 PHASE ONE DETAILS 11/26/97 L-7 PHASE ONE DETAILS 2/6/98 MECHANICAL AC0.01 TITLE 24, DRAWING SCHEDULE, MANDATORY 3/10/98 MEASURES, AND GENERAL NOTES 3/10/98 AC0.02 EQUIPMENT SCHEDULE 3/10/98 AC1.01 FIRST FLOOR HVAC PLAN 3/10/98 AC1.02 SECOND FLOOR HVAC PLAN 3/10/98 AC1.03 THIRD FLOOR HVAC PLAN 3/10/98 AC1.04 FOURTH FLOOR HVAC PLAN 3/10/98 AC1.05 ROOF PLAN 3/10/98 AC1.06 ROOF COORDINATION PLAN 3/10/98 AC2.01 PIPING SCHEMATICS AND DETAILS 3/10/98 AC7.01 WIRING AND CONTROLS 3/10/98 ELECTRICAL CIR-E0 COVER SHEET 7/23/97 CIR-SE1 SITE LIGHTING PLAN 7/23/97 CIR-SE2 SITE LIGHTING PLAN 7/23/97 CIR-E1 FIRST FLOOR LIGHTING PLAN 7/23/97 CIR-E2 SECOND FLOOR LIGHTING PLAN 7/23/97 CIR-E3 THIRD FLOOR LIGHTING PLAN 7/23/97 CIR-E4 FOURTH FLOOR LIGHTING PLAN 7/23/97 CIR-E5 FIRST FLOOR POWER PLAN 7/23/97 CIR-E6 SECOND FLOOR POWER PLAN 7/23/97 CIR-E7 THIRD FLOOR POWER PLAN 7/23/97 CIR-E8 FOURTH FLOOR POWER PLAN 7/23/97 CIR-E9 FIRST FLOOR MECHANICAL PLAN - 7/23/97 CIR-E10 SECOND FLOOR MECHANICAL PLAN 7/23/97 CIR-E11 THIRD FLOOR MECHANICAL PLAN 7/23/97 CIR-E12 FOURTH FLOOR MECHANICAL PLAN 7/23/97 CIR-E13 ROOF MECHANICAL PLAN 7/23/97 CIR-E14 SINGLE LINE DIAGRAM 11/24/97 CIR-E 15 PANEL SCHEDULES 7/23/97 CIR-E 16 PANEL SCHEDULES 7/23/97 CIR-E17 TITLE 24 7/23/97 PLUMBING P1A 1ST FLOOR BELOW GRADE 12/18/97 P1B 1ST FLOOR ABOVE GRADE 12/18/97 P2 2ND FLOOR 12/18/97 P3 3RD FLOOR 12/18/97 P4 4TH FLOOR 12/18/97 P5 ROOF PLAN 12/18/97 FIRE ALARM SYSTEM FA-1 FIRST FLOOR BUILDING ONE 12/5/97 FA-2 SECOND FLOOR BUILDING ONE 12/5/97 FA-3 THIRD FLOOR BUILDING ONE 12/5/97 FA-4 FOURTH FLOOR BUILDING ONE 12/5/97 FA-5 ROOF PLAN BUILDING ONE 12/5/97 Exhibits - Page 6 of 17 EXHIBIT "B-2" - ---------------------------------------------------------------------------- MINIMUM INFORMATION REQUIRED FLOOR PLANS INDICATING: 1. Location and type of all partitions; 2. Location and type of all doors. Indicate hardware and provide keying schedule; 3. Location and type of glass partitions, windows and doors. Indicate framing if not Building Standard; 4. Location of telephone equipment room; 5. Indicate critical dimensions necessary for construction; 6. Location of all Building Standard electrical items (outlets, switches, telephone outlets). Building Standard lighting will be determined by Landlord's architect; 7. Location and type of all non-Building Standard electrical items, including lighting. 8. Location and type of equipment that will require special electrical requirements. Provide manufacturer's specifications for use and operation; 9. Location, weight per square foot, and description of any exceptionally heavy equipment or filing system exceeding 50 LBS. psf live load; 10. Requirements for special air conditioning or ventilation; 11. Type and color of floor covering; 12. Location, type, and color of wall covering; 13. Locations, type and color of Building Standard and non-Building Standard paint or finishes; 14. Location and type of plumbing; 15. Location and type of kitchen equipment. DETAILS SHOWING: 1. All millwork with verified dimensions and dimensions of all equipment to be built in; 2. Corridor entrance; 3. Bracing or support of special walls, glass partitions, etc., if desired. If not included with the space plan, the Landlord's architect will design all support or bracing required at Tenant's expense. Exhibits - Page 7 of 17 EXHIBIT "C" - ------------------------------------------------------------------------------- RULES AND REGULATIONS 1. Sidewalks, halls, passages, exits, entrances, elevators, escalators and stairways shall not be obstructed by Tenant or used by Tenant for any purpose other than for ingress to and egress from the Premises. The halls, passages, exits, entrances, elevators and stairways are not for the use of the general public and Landlord shall in all cases retain the right to control and prevent access thereto by all persons whose presence, in the judgment of Landlord, shall be prejudicial to the safety, character, reputation arid interests of the Building and its tenants, provided that nothing herein contained shall be construed to prevent such access to persons with whom Tenant normally deals in the ordinary course of Tenant's business unless such persons are engaged in illegal activities. Tenant, and Tenant's employees or invitees, shall not go upon the roof of the Building, except as authorized by Landlord. 2. No sign, placard, picture, name, advertisement or notice visible from the exterior of the Premises shall be inscribed, painted, affixed, installed or otherwise displayed by Tenant either on the Premises or any part of the Building without the prior written consent of Landlord, and Landlord shall have the right to remove any such sign, placard, picture, name, advertisement or notice without notice to and at the expense of Tenant. Tenant may place its name and logo on one wall in Reception Area of Premises. If Landlord shall have given such consent to Tenant at any time, whether before or after the execution of the Lease, such consent shall not in any way operate as a waiver or release of any of the provisions hereof or of the Lease, and shall be deemed to relate only to the particular sign, placard, picture, name, advertisement or notice so consented to by Landlord arid shall not be construed as dispensing with the necessity of obtaining the specific written consent of Landlord with respect to any other such sign, placard, picture, name, advertisement or notice. All approved signs or lettering on doors and walls shall be printed, painted, affixed or inscribed at the expense of Tenant by a person approved by Landlord. 3. The bulletin board or directory of the Building will be provided exclusively for the display of the name and location of tenants only and Landlord reserves the right to exclude any other names therefrom. 4. No curtains, draperies, blinds, shutters, shades, screens or other coverings, awnings, hangings or decorations shall be attached to, hung or placed in, or used in connection with, any window, door or patio on the Premises without the prior written consent of Landlord. In any event with the prior written consent of Landlord, all such items shall be installed inboard of Landlord's window coverings and shall not in any way be visible from the exterior of the Building. No articles shall be placed or kept on the window sills so as to be visible from the exterior of the Building. No articles shall be placed against glass partitions or doors which might appear unsightly from outside the Building. 5. Landlord reserves the right to exclude from the Building between the hours of 6:00 p.m. and 8:00 a.m. and at all hours on Saturdays, Sundays and holidays all persons who do not possess a building access card provided by Landlord or who are not accompanied by Tenant's employees. Landlord will furnish access cards to persons for whom Tenant requests the same in writing. Tenant shall be responsible for all persons from who it requests access cards and shall be liable to Landlord for all acts of such persons. Landlord shall in no case be liable for damages for error with regard to the admission to or exclusion from the Building of any person. During the continuance of any invasion, mob, riot, public excitement or other circumstance rendering such action advisable in Landlord's opinion, Landlord reserves the right to prevent access to the Building by closing the doors, or otherwise, for the safety of tenants and protection of the Building and property in the Building. 6. Tenant shall not employ any person or persons other than the janitor of Landlord for the purpose of cleaning the Premises unless otherwise agreed to by Landlord in writing. Except with the written consent of Landlord, no person or persons other than those approved by Landlord shall be permitted to enter the Building for the purpose of cleaning the same. Tenant shall not cause any unnecessary labor by reason of Tenant's carelessness or indifference in the preservation of good order and cleanliness of the Premises. Landlord shall not in any way be responsible to Tenant for any loss of property on the Premises, however occurring, or for any damage done to the effects of Tenant by the janitor or any other employee or any other person. 7. Tenant shall not obtain for use upon the Premises ice, drinking water, food, beverage, towel or other similar services except through facilities approved in writing by Landlord and under regulations fixed by Landlord, or accept barbering or bootblacking services in the Premises except from persons authorized by Landlord. Tenant may have a Lunchroom/Break room in the Premises that has a refrigerator and microwave. Exhibits - Page 8 of 17 8. Tenant shall see that the doors of the Premises are closed and securely locked and must observe strict care and caution that all water faucets or water apparatus are entirely shut off before Tenant or its employees leave such Premises, and that all utilities shall likewise be carefully shut off, so as to prevent waste or damage, and for any default or carelessness the Tenant shall make good all injuries sustained by other tenants or occupants of the Building or Landlord. On multiple-tenancy floors, all tenants shall keep the door or doors to the Building corridors closed at all times except for ingress and egress. 9. As more specifically provided in the Lease, Tenant shall not waste electricity, water or air conditioning and agrees to cooperate fully with Landlord to assure the most effective operation of the Building's heating and air conditioning, and shall refrain from attempting to adjust any controls other than room thermostats installed for Tenant's use. 10. Tenant shall leave the blinds in a down position so as to minimize excess heat load in the building from the sun. 11. Tenant shall not alter any lock or access device or install a new or additional lock or access device or any bolt on any door of the Premises without the prior written consent of Landlord. If Landlord shall give its consent, Tenant shall in each case furnish Landlord with a key for any such lock. 12. Tenant shall not make or have made additional copies of any keys or access devices provided by Landlord. Tenant, upon the termination of the tenancy, shall deliver to Landlord all the keys or access devices for the Building, offices, rooms and toilet rooms which shall have been furnished to Tenant or which Tenant shall have had made. In the event of the loss of any keys or access devices so furnished by Landlord, Tenant shall pay Landlord therefor. 13. The toilet rooms, toilets, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown therein, and the expense of any breakage, stoppage or damage resulting from the violation of this rule by Tenant or Tenant's employees or invitees shall be borne by Tenant. 14. Tenant shall not use or keep in the Premises or the Building any kerosene, gasoline or inflammable or combustible fluid or material other than limited quantities necessary for the operation or maintenance of office or office equipment. Tenant shall not use any method of heating or air conditioning other than supplied by Landlord. 15 Tenant shall not use, keep or permit to be used or kept in the Premises any foul or noxious gas or substance or permit or suffer the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Building by reason of noise, odors and/or vibrations or interfere in any way with other tenants or those having business therein, nor shall any animals or birds be brought or kept in or about the Premises or the Building. 16. No cooking shall be done or permitted by Tenant on the Premises (except that use by the Tenant of Underwriter's Laboratory approved equipment for the preparation of coffee, tea, hot chocolate and similar beverages for Tenant and its employees shall be permitted, provided that such equipment and use are in accordance with all applicable federal, state and city laws, codes, ordinances, rules and regulations), nor shall Premises be used for lodging. See Paragraph 7. 17. Except with the prior written consent of Landlord, Tenant shall not sell, or permit the sale, at retail, of newspapers, magazines, periodicals, theater tickets or any other goods or merchandise in or on the Premises, nor shall Tenant carry on, or permit or allow any employee or other person to carry on, the business of stenography, typewriting or any similar business in or from the Premises for the service or accommodation of occupants of any other portion of the Building, nor shall the Premises be used for the storage of merchandise or for manufacturing of any kind, or the business of a public barber shop or beauty parlor, nor shall the Premises be used for any improper, immoral or objectionable purpose, or any business or activity other than that specifically provided for in Tenant's Lease. 18. If Tenant requires telegraphic, telephonic, burglar alarm or similar services, it shall first obtain and comply with Landlord's reasonable instructions in their installation. 19. Landlord will direct electricians as to where and how telephone, telegraph and electrical wires are to be introduced or installed. No boring or cutting for wires will be allowed without the prior written consent of Landlord. The location of burglar alarms, telephones, call boxes and other office equipment affixed to the Premises shall be subject to the written approval of Landlord, which shall not be unreasonably withheld. Exhibits - Page 9 of 17 20. Tenant shall not install any radio or television antenna (not including the satellite antenna referred to in Paragraph 44 of the Lease), loudspeaker or any other device on the exterior walls or the roof of the Building. Tenant shall not interfere with radio or television broadcasting or reception from or in the Building or elsewhere. 21. Tenant shall not lay linoleum, tile, carpet or any other floor covering so that the same shall be affixed to the floor of the Premises in any manner except as approved in writing by Landlord. The expense of repairing any damage resulting from a violation of this role by Tenant or Tenant's contractors, employees or invitees or the removal of any floor covering shall be borne by Tenant. Tenant shall use chair pads if needed to avoid excess wear and tear to the floor coverings. 22. The freight elevator shall be available for use by all tenants in the Building, subject to such reasonable scheduling as Landlord in its discretion shall deem appropriate. No furniture, freight, equipment, materials, supplies, packages, merchandise or other property will be received in the Building or carried up or down the elevators except between such hours and in such elevators as shall be designed by Landlord. Landlord shall have the right to prescribe the weight, size, and position of all safes, furniture or other heavy equipment brought into the Building. Safes or other heavy objects shall, if considered necessary by Landlord, stand on wood strips of such thickness as determined by Landlord to be necessary to properly distribute the weight thereof. Landlord will not be responsible for loss of or damage to any such safe, equipment or property from any cause, and all damage done to the Building by moving or maintaining any such safe, equipment or other property shall be repaired at the expense of Tenant. Business machines and mechanical equipment belonging to Tenant which cause noise or vibration that may be transmitted to the structure of the Building or to any space therein to such a degree as to be objectionable to Landlord or to any tenants in the Building shall be placed and maintained by Tenant, at Tenant's expense, on vibration eliminators or other devices sufficient to eliminate noise or vibration. The persons employed to move such equipment in or out of the Building must be acceptable to Landlord. 23. Tenant shall not place a load upon any floor of the Premises which exceeds the load per square foot which such floor was designed to carry and which is allowed by law. Tenant shall not mark, use double-sided adhesive tape on, or drive nails, screw or drill into, the partitions, woodwork or plaster or in any way deface the Premises or any part thereof, without repairing any resulting damage. Tenant may hang pictures on walls in the Premises. Any damage to the walls caused by molley bolts, or like hanging materials, will be repaired by Tenant. 24. Tenant shall not install, maintain or operate upon the Premises any vending machine without the written consent of Landlord. 25. There shall not be used in any space, or in the public areas of the Building, either by Tenant or others, any hand trucks except those equipped with robber tires and side guards or such other material-handling equipment as Landlord may approve. No other vehicles of any kind shall be brought by Tenant into or kept in or about the Premises. 26. Tenant shall store all trash and garbage within the interior of the Premises. No material shall be placed in the trash boxes or receptacles if such material is of such nature that it may not be disposed of in the ordinary and customary manner of removing and disposing of trash and garbage in the jurisdiction in which the Premises is located, without violation of any law or ordinance governing such disposal. All trash, garbage and refuse disposal shall be made only through entryways and elevators provided for such purposes and at such times as Landlord shall designate. 27. Canvassing, soliciting, distribution of handbills or any other written material and peddling in the Building are prohibited, and Tenant shall cooperate to prevent the same. Tenant shall not make room-to-room solicitation of business from other tenants in the Building. 28. Landlord shall have the right, exercisable without notice and without liability to Tenant, to change the name and address of the Building. 29. Landlord reserves the right to exclude or expel from the Building any person who, in Landlord's judgment, is intoxicated or under the influence of liquor or drugs or who is in violation of any of the roles or regulations of the Building. 30. Without the prior written consent of Landlord, Tenant shall not use the name of the Building in connection with or in promoting or advertising the business of Tenant except as Tenant's address. Tenant may use Project's name on its stationery and business cards. Exhibits - Page 10 of 17 31. Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency. 32. Tenant assumes any and all responsibility for protecting the Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed, unless caused by the gross negligence or willful misconduct of Landlord, its agents, servants, or employees ("Landlord Parties"). 33. The requirements of Tenant will be attended to only upon application at the office of the Building by an authorized individual. Employees of Landlord shall not perform any work or do anything outside of their regular duties unless under special instructions from Landlord, and no employees will admit any person (Tenant or otherwise) to any office without specific instructions from Landlord. 34. Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenant or tenants, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of any other tenant or tenants, nor prevent Landlord from thereafter enforcing any such Rules and Regulations against any or all tenants of the Building. 35. Landlord reserves the right to make such other and reasonable rules and regulations as in its judgment may from time to time be needed for safety and security, for care and cleanliness of the Building and for the preservation of good order therein. Tenant agrees to abide by all such Rules and Regulations hereinafter stated and any additional rules and regulations which are adopted. No new Rule or Regulation shall be designed to discriminate solely against Tenant. 36. Tenant shall be responsible for the observance of all of the foregoing Rules and Regulations by Tenant's employees, agents, clients, customers, invitees and guests. 37. Unless otherwise defined, terms used in these Rules and Regulations shall have the same meaning as in the Lease. Exhibits - Page 11 of 17 EXHIBIT "D" - ------------------------------------------------------------------------------- FORM OF TENANT ESTOPPEL CERTIFICATE TO: ________________, or Assignee ("Lender"), and/or whom else it may concern: THIS IS TO CERTIFY THAT: 1. The undersigned is the lessee ("Tenant") under that certain lease dated _____________ 19__, ("Lease"), by and between _________________________ _________________ as lessor ("Landlord") and __________________________ __________________________ as Tenant, covering those certain premises commonly known and designated as ___________________ ("Premises"). 2. The Lease has not been modified, changed, altered, assigned, supplemented or amended in any respect (except as indicated below; if none, state "none"). The Lease is not in default and is valid and in full force and effect on the date hereof. The Lease is the only Lease or agreement between the Tenant and the Landlord affecting or relating to the Premises. The Lease represents the entire agreement between the Landlord and the Tenant with respect to the Premises. __________________. 3. The Tenant is not entitled to, and has made no agreement(s) with the Landlord or its agents or employees concerning free rent, partial rent, rebate of rent payments, credit or offset or deduction in rent, or any other type of rental concession, including, without limitation, lease support payments or lease buy-outs (except as indicated below; if none, state "none"). _______________________________________________________ ______________________________________________________________________. 4. The Tenant has accepted and now occupies the Premises, and is and has been open for business since ____________ 19__. The Lease term began ______________,19___. The termination date of the present term of the Lease, excluding unexercised renewals, is _____________, 19___. 5. The Tenant has paid rent for the Premises for the period up to and including ______________, 19___. The fixed minimum rent and any additional rent (including the Tenant's share of tax increases and cost of living increases) payable by the Tenant presently is $____________ per month. No such rent has been paid more than two (2) months in advance of its due date, except as indicated below (if none, state "none"). The Tenant's security deposit is $____________. 6. No event has occurred and no condition exists which, with the giving notice or the lapse of time or both, will constitute a default under the Lease. The Tenant has no existing defenses or offsets against the enforcement of this Lease by the Landlord, except ____________________. 7. The Tenant has received or will receive payment or credit for tenant improvement work in the total amount of $_________________ (or if other than cash, describe below; if none, state "none"). All conditions under this Lease to be performed to date by the Landlord have been satisfied. All required contributions by the Landlord to the Tenant on account of the Tenant's tenant improvements have been received by the Tenant, except ________________________________________________________________________ ________________________________________________________________________. 8. The Lease contains, and the Tenant has, no outstanding options or rights of first refusal to purchase the Premises or any part thereof or all or any part of the real property of which the Premises are a part. 9. No actions, whether voluntary or otherwise, are pending against the Tenant or any general partner of the Tenant under the bankruptcy laws of the United States or any state thereof. 10. The Tenant has not sublet the Premises to any sublessee and has not assigned any of its rights under the Lease, except as indicated below (if none, state "none"). No one except the Tenant and its employees occupies the Premises. ___________________________________________________. 11. The address for notices to be sent to the Tenant is as set forth in the Lease. 12. To the best of Tenant's knowledge, the use, maintenance or operation of the Premises complies with, and will at all times comply with, all applicable federal, state, county or local statutes, laws, rules and regulations of any governmental authorities relating to environmental, health or safety matters (being Exhibits - Page 12 of 17 hereinafter collectively referred to as the Environmental Laws). Exhibits - Page 13 of 17 13. The Premises have not been used and the Tenant does not plan to use the Premises for any activities which, directly or indirectly, involve the use, generation, treatment, storage, transportation or disposal of any petroleum product or any toxic or hazardous chemical, material, substance, pollutant or waste. 14. Tenant has not received any notices, written or oral, of violation of any Environmental Law or of any allegation which, if tree, would contradict anything contained herein and there are not writs, injunctions, decrees, orders or judgements outstanding, no lawsuits, claims, proceedings or investigations pending or threatened, relating to the use, maintenance or operation of the Premises, nor is Tenant aware of a basis for any such proceeding. 15. (INCLUDE THIS PARAGRAPH FOR LOAN TRANSACTIONS.) The Tenant acknowledges that all the interest of the Landlord in and to the Lease is being duly assigned to Lender, and that pursuant to the terms thereof, all rent payments under the Lease shall continue to be paid to the Landlord in accordance with the terms of the Lease unless and until the Tenant is notified otherwise in writing by Lender or its successors or assigns. It is particularly noted that: (a) Under the provisions of this assignment, the Lease cannot be terminated (either directly or by the exercise of any option which could lead to termination) or modified in any of its terms, or consent be given to the release of any party having liability thereon, without the prior written consent of Lender or it successors or assigns, and without such consent, no rent may be collected or accepted more than two (2) months in advance. (b) The interest of the Landlord in the Lease has been assigned to Lender for the purposes specified in the assignment. Lender, or its successors or assigns, assumes no duty, liability or obligation whatsoever under the Lease or any extension or renewal thereof. (c) Any notices sent to Lender or its affiliates should be sent by registered mail and addressed as follows: ______. 16. Tenant agrees to give any Mortgagee and/or Trust Deed Holders ("Mortgagee"), by registered mail, a copy of any notice of default served upon the Landlord, provided that prior to such notice Tenant has been notified in writing (by way of Notice of Assignment of Rents and Leases, or otherwise), of the address of such Mortgagee. Tenant further agrees that if Landlord shall have failed to cure such default within the time provided for in this Lease, then the Mortgagee shall have an additional sixty (60) days within which to cure such default of it such default cannot be cured within that time, then such additional time as may be necessary to cure such default shall be granted if within such sixty (60) days Mortgagee has commenced and is diligently pursuing the remedies necessary to cure such default (including, but not limited to, commencement of foreclosure proceedings, if necessary to effect such cure), in which event the Lease shall not be terminated while such remedies are being so diligently pursued. 17. This certification is made to induce Lender to make certain fundings, knowing that Lender relies upon the troth of this certification in disbursing said funds. 18. The undersigned is authorized to execute this Tenant Estoppel Certificate on behalf of the Tenant. DATED THIS ____________________ DAY OF _______________, 19___. ------------------------------------------------ (TENANT) BY: ------------------------------------------- ITS: -------------------------------------- DATE: -------------------------------------- THE UNDERSIGNED HEREBY CERTIFIES THAT THE CERTIFICATIONS SET FORTH ABOVE ARE TRUE AS OF THE DATE HEREOF. ------------------------------------------------ (OWNER/LANDLORD) By: ------------------------------------------- Its: -------------------------------------- Date: -------------------------------------- Exhibits - Page 14 of 17 EXHIBIT "E" - ------------------------------------------------------------------------------ ENCUMBRANCES 1. Ground Lease: That certain Lease between Mozad, L.P., as Lessor and Circle Star Center Associates, L.P., as Lessee, dated October 15, 1997. 2. C,C&R's: "Declaration of Covenants, Conditions and Restrictions" dated June 24, 1997 by and between Mozad, L.P. and Homestead Village Incorporated. 3. Other: "Approved Conditional Use Permit - Office Complex, 1717 Industrial Road, San Carlos, CA 94070," effective date June 12, 1997. Exhibits - Page 15 of 17 Cecile Sharp - ------------------------------------------------------------------------------- FROM: blauel@easynet.co.uk SENT: Monday, December 21, 1998 8:19 AM TO: Cecile Sharp CC: keith@centraal.com; gladys@centraal.com; cindy@devcon-const.com; gminolli@cruzers.com SUBJECT: Circle Star Second Floor Project Notes The following is an outline of installations and finishes for the proposed offices on the second floor of Circle Star Centre, Circle Star Way, San Carlos, CA (to be read in conjunction with layout document). The second floor is open plan for 150 work stations with fully exposed services in the ceiling void. 5'9 high semi transparent metal mesh screens along two sides of core, demarkating corridor from open plan area. Rubber floor finish in corridor area, carpet in open plan area. Fresh and return air to be contained in zinc finished circular ducting. Sprinkler system in painted proprietary mild steel pipes. Fluorescent lighting suspended from ceiling running above and along with linear desk configuration. Power, voice and data to be run in zinc coated trays in ceiling with drops into linear desk configuration. 2 no.s fully glazed server rooms, enclosed with fresh air supply and extended sprinkler heads, approximately 24x36 each, attached to core end walls adjacent to exit stairs. Reception counter with mail room section, kitchenette with plumbing point, coffee bar, copy corner Kitchen with plumbing point in scharp angled corner of perimeter with open meeting area. 1 no. 18 seater free standing board room in translucent light weight construction, enclosed with fresh air supply. 7 no.s small free standing 6-8 seater meeting rooms in light weight construction, enclosed with fresh air supply. Blauel Architects 37 Claylands Road London SW8 1NX England tel. +44 (0) 171 587 5100 fax. +44 (0) 171 735 6793 1 Exhibit A - Premises (IMAGE) 2 EXHIBIT F RECORDING REQUESTED BY UNION BANK OF CALIFORNIA, N.A. AND WHEN RECORDED MAIL TO: UNION BANK OF CALIFORNIA, N.A. Attn.: __________________________________ _________________________________________ _________________________________________ _________________________________________ - ------------------------------------------------------------------------------- SPACE BEFORE THIS LINE FOR RECORDER'S USE SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT (the "Agreement") is made as of ____________ by and between Union Bank of California, N.A. ("Bank") and _____________________________________________________ ("Tenant"). RECITAL: A. Bank has made, or has agreed to make, a loan (the "Loan") to _____ ______________________________________________________ ("Borrower") evidenced by, among other things, a promissory note executed, or to be executed, by Borrower in favor of Bank in the principal amount of the Loan (as amended from time to time, the "Note"). B. The Note and certain other obligations of Borrower under the Loan are, or will be, secured by, among other things, a Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing (as amended from time to time, the "Deed of Trust"). The Deed of Trust, executed or to be executed by Borrower in favor of Bank, and previously recorded or recorded concurrently herewith, encumbers the estate of Borrower in certain real property and improvements commonly known as ___________________________________________________________ ___________, and more particularly described on Exhibit A attached hereto (the "Property"). C. Borrower has leased a portion of the Property to Tenant subject to the terms and condition of a lease dated ________ (together with any amendments executed prior to the date hereof, the "Lease"). D. As a condition to making the Loan, Bank requires that Tenant subordinate the Lease to the Deed of Trust and the lien thereof and to attorn to Bank as provided below. Tenant is willing to provide such subordination and attornment provided Bank agrees not to disturb Tenant's right to possession under the Lease as provided below. 1 AGREEMENT For good and valuable consideration, Tenant and Bank agree as follows: 1. SUBORDINATION. Tenant hereby subordinates the Lease and all rights, remedies and options of Tenant thereunder, including without limitation any option to purchase or right of first refusal to purchase the Property or any part thereof or interest therein, to the Deed of Trust and to the lien thereof and to all sums thereby and advances made thereunder with the same force and effect as if the Deed of Trust had been executed, delivered and recorded prior to the execution and delivery of the Lease. 2. NON DISTURBANCE. Bank will not join Tenant as party in any Foreclosure (defined below) unless the joinder is necessary or desirable to pursue its remedies under the Deed of Trust, and provided that such joinder shall not result in the termination of the Lease or disturb interest of Tenant under the Lease shall not be terminated by reason of the Foreclosure, but rather the Lease shall continue in full force and effect and Bank shall recognize and accept Tenant as tenant under the Lease subject to the provisions of the Lease except as otherwise provided below; provided that, if Tenant shall then be in default under the Lease beyond any notice, grace or cure period, at Bank's option the Lease shall be terminated by reason of the Foreclosure and Bank shall have no obligation to Tenant under the Lease. As used in this Agreement, "Foreclosure" means any non-judicial or judicial foreclosure or other enforcement of the remedies of the Deed of Trust, or any deed or other transfer in lieu thereof. 3. ATTORNMENT. In the event of a transfer of Borrower's interest in the Property to Purchaser (defined below), Tenant agrees that the Lease shall continue in full force and effect and Tenant agrees to attorn to the Purchaser as its landlord under the Lease and to be bound by all of the provisions of the Lease for the balance of the thereof; provided that, the Purchaser shall not be: (a) Liable for any act or omission of any Prior Landlord (defined below) or subject to any offsets or defenses which Tenant might have against any Prior Landlord; (b) Liable for the return of any rental security deposit, or bound by any payment of rents, additional rents or other sums which Tenant may have paid more than one month in advance to any Prior Landlord, except to the extent such sums are actually received by Purchaser; (c) Bound by any amendment to the Lease, made without Bank's prior written consent; (d) Liable for obligation under the Lease the cost of which exceed the value of its interest in the Property or for obligations which accrue after Purchaser has sold or otherwise transferred its interest in the Property; (e) *Bound to restore the Property after a casualty for a cost in excess of proceeds recovered under any insurance required to be carried under the Lease, or bound to restore the Property after a taking for a cost in excess of any condemnation award; (f) Bound by any restriction on competition beyond the Property; * Notwithstanding anything to the contrary in this Lease, the terms of this Section 3(e) of this Subordination, Non-Disturbance and Attornment Agreement ("SNDA") shall only be binding upon the Tenant in connection with the existing financing by Union Bank of California. The Tenant has not approved this Section 3(e) in connection with any subsequent SNDA nor shall the refusal by Centraal to incorporate this Section 3(e) into any subsequent SNDA be unreasonable under Section 15 of the Lease. 2 (g) Bound by any notice of termination, cancellation or surrender of the Lease made without Bank's prior written consent; (h) Bound by any environmental representation, warranty, covenant or indemnity contained in the Lease. (i) Bound by any option to purchase or right of first refusal with respect to the Property or any portion thereof; and (j) Bound by any representation or warranty contained in the Lease. This attornment shall be immediately effective and self operative, without the execution of any further instrument, upon Purchaser's acquisition of Borrower's interest in the Property. As used in this Agreement, "Purchaser" means any transferee, including Bank, of Borrower's interest in the Property pursuant to a Foreclosure, and "Prior Landlord" means any landlord, including Borrower, under the Lease prior in time to Purchaser. 4. NOTICE TO TENANT. After written notice is given to Tenant by Bank that Borrower is in default under the Loan and that the rentals under the Lease should be paid to Bank pursuant to the terms of the Deed of Trust, Tenant shall thereafter pay to Bank all rent and all other sums due Borrower under the Lease. 5. NOTICE TO LENDER AND RIGHT TO CURE. Tenant shall provide written notice to Bank of any default by Borrower under the Lease and Tenant agrees that no notice of termination of the Lease or of an abatement of rent shall be effective unless Bank shall have received written notice of default giving rise to such termination or abatement and shall have failed within 60 days after receipt of such notice to cure such default, or if such default cannot be cured within 60 days, shall have failed within 60 days after receipt of such notice to commence and thereafter diligently pursue any action necessary to cure such default, including without limitation any action to obtain possession of the Property. Notwithstanding the foregoing, Bank shall have no obligation to cure any such default. 6. MISCELLANEOUS. This Agreement shall be binding upon and inure to the benefit of Bank and Tenant and their respective successors and assigns. This Agreement shall be governed and interpreted under the laws of the state where the Property is located. This Agreement is the entire agreement of the parties and supersedes any prior agreement with respect to its subject matter, and no provision of this Agreement may be waived or modified except in a writing signed by all parties. If any lawsuit, arbitration or other proceeding is brought under this Agreement, the prevailing party shall be entitled to recover the reasonable fees and costs of its attorneys in such proceeding. If any provision of this Agreement is held to be invalid or unenforceable in any respect, this Agreement shall be construed without such provision. This Agreement may be executed in two or morn counterparts, each of which shall be deemed an original but all of which taken together shall constitute one and the same document. Tenant represents and warrants to Bank that this Agreement is a valid and binding agreement of Tenant and the person(s) executing this Agreement on behalf of Tenant have the authority to do so. 3 DRAFT IN WITNESS WHEREOF, Bank and Tenant have duly executed this Agreement as of the date first above written. BANK: TENANT: Union Bank of California, N.A. --------------------------------------- a ------------------------------------- By: --------------------------------- Name: ------------------------------- Title: ------------------------------ By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- By: ------------------------------------ Name: ---------------------------------- Title: ------------------------------------------------------------------------- 4 SILICON VALLEY BANK 3003 TASMAN DRIVE SANTA CLARA, CA 95054, U.S.A. INTERNATIONAL DIVISION SWIFT ADDRESS: SVBKUS6S TELEX NO. 6732567 ANSWERBACK: SVB TF EXHIBIT "A" TO: SILICON VALLEY BANK DATE: 3003 TASMAN DRIVE RE: LETTER OF CREDIT ISSUED BY: SANTA CLARA, CA 94054 SILICON VALLEY BANK ATTN: INTERNATIONAL DIVISION LETTER OF CREDIT NO. SVB98IS1124 STANDBY LETTER OF CREDITS AVAILABLE AMOUNT: Gentlemen: For value received, the undersigned Beneficiary hereby irrevocably transfers to: (Name of Transferee) (Address) All rights of the undersigned Beneficiary to draw under the above Letter of Credit up to its Available Amount as shown above as of the date of this transfer. By this transfer, all rights of the undersigned Beneficiary in such Letter of Credit are transferred to the transferee. Transferee shall have the sole rights as beneficiary thereof, including sole rights relating to any amendments, whether increases or extensions or other amendments, and whether now existing or hereafter made. All amendments are to be advised direct to the Transferee without necessity of any consent of or notice to the undersigned Beneficiary. The original of such Letter of Credit is returned herewith, and we ask you to endorse the transfer on the reverse thereof, and forward it direct to the Transferee with your customary notice of transfer. Yours Very Truly Signature Authenticated 650 East Fairchild Associates, L.P. - ------------------------------ ----------------------------------- (Bank) Signature of Beneficiary - ------------------------------ Authorized Signature Fax No: (408) 496-2419 Phone No: (408) 654-7400 main line (408) 654-7736 (Member FDIC) SILICON VALLEY BANK 3003 TASMAN DRIVE SANTA CLARA, CA 95054, U.S.A. INTERNATIONAL DIVISION SWIFT ADDRESS: SVBKUS6S TELEX NO. 6732567 ANSWERBACK: SVB TF IRREVOCABLE STANDBY LETTER OF CREDIT NO. SVB XXX DATED OCTOBER 23, 1998 SPECIAL CONDITION: IT IS A CONDITION OF THIS LETTER OF CREDIT THAT IT WILL BE DEEMED AUTOMATICALLY RENEWED WITHOUT AN AMENDMENT OF A PERIOD OF OWE YEAR FROM THE CURRENT OR EACH FUTURE EXPIRATION DATE UNLESS AT LEAST THIRTY (30) DAYS PRIOR TO THE THEN CURRENT EXPIRATION DATE WE NOTIFY THE BENEFICIARY IN WRITING BY OVERNIGHT COURIER THAT THIS LETTER OF CREDIT WILL NOT BE RENEWED. FOLLOWING SUCH NOTIFICATION AND PRIOR TO THE EXPIRATION DATE OF THIS LETTER OF CREDIT, YOU MAY DRAW UPON THIS LETTER OF CREDIT BY PRESENTATION OF THIS ORIGINAL LETTER OF CREDIT AND ITS AMENDMENTS IF ANY TOGETHER WITH THE SIGHT DRAFT(S) MENTIONED ABOVE AND BENEFICIARY'S SIGNED AND DATED STATEMENT STATING THAT APPLICANT HAS FAILED TO PROVIDE A SUBSTITUTE LETTER OF CREDIT IN THE SAME PRINCIPAL AMOUNT, OR SUCH REDUCED PRINCIPAL AMOUNT AS MAY BE PERMITTED BY THE LEASE, AND ON THE SAME TERMS AS THIS LETTER OF CREDIT, FROM AN ISSUER REASONABLY SATISFACTORY TO YOU. IN NO EVENT SHALL THIS LETTER OF CREDIT BE AUTOMATICALLY EXTENDED BEYOND JANUARY 31, 2009. ALL DOCUMENTS MUST BE SENT TO US VIA OVERNIGHT COURIER (I.E. FEDERAL EXPRESS, UPS, DHL OR ANY OTHER EXPRESS COURIER) AT OUR ADDRESS: SILICON VALLEY BANK, 3003 TASMAN DRIVE, SANTA CLARA, CA 95054 ATTN: INTERNATIONAL DIVISION. WE HEREBY ENGAGE WITH DRAWERS AND /OR BONAFIDE HOLDERS THAT DRAFT(S) DRAWN UNDER AND NEGOTIATED IN CONFORMANCE WITH THE TERMS AND CONDITIONS OF THE SUBJECT CREDIT WILL BE DULY HONORED ON PRESENTATION. THIS CREDIT IS SUBJECT TO THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS (1993 REVISION), INTERNATIONAL CHAMBER OF COMMERCE PUBLICATION 500. /s/ XXX /s/ XXX - ---------------------------------- ---------------------------------- AUTHORIZED SIGNATURE AUTHORIZED SIGNATURE Fax No: (408) 496-2419 Phone No: (408) 654-7400 main line (408) 654-7736 (Member FDIC) SILICON VALLEY BANK 300 TASMAN DRIVE SANTA CLARA, CA 95054, U.S.A. INTERNATIONAL DIVISION SWIFT ADDRESS: SVBKUS6S TELEX NO. 6732567 ANSWERBACK: SVB TF IRREVOCABLE STANDBY LETTER OF CREDIT NO. SVB XXX DATED OCTOBER 23, 1998 Beneficiary: 605 EAST FAIRCHILD ASSOCIATES, L.P. 1068 EAST MEADOW CIRCLE PALO ALTO, CA 94303 AS "LANDLORD" APPLICANT: CALIPER TECHNOLOGIES CORPORATION 1275 CALIFORNIA AVENUE PALO ALTO, CA 94304 AMOUNT: USD 1,000,000.00 (ONE MILLION AND 00/100 USDOLLARS) EXPIRY DATE: OCTOBER 23, 1999 LOCATION: AT OUR COUNTER IN SANTA CLARA DEAR SIR/MAM: WE HEREBY ESTABLISH OUR IRREVOCABLE STANDBY LETTER OF CREDIT NO. SVB98I81124 IN YOUR FAVOR. AVAILABLE BY PAYMENT WITH SILICON VALLEY BANK, 3003 TASMAN DRIVE, SANTA CLARA, CA 95054, ATTN: INT'L DEPT. OF BENEFICIARY'S DRAFT AT SIGHT DRAWN ON US, AND ACCOMPANIED BY THE FOLLOWING DOCUMENTS: 1. THE ORIGINAL OF THIS LETTER OF CREDIT AND AMENDMENT IF ANY. 2. A LETTER SIGNED AND DATED BY AN AUTHORIZED REPRESENTATIVE OF THE BENEFICIARY AS "LANDLORD" FOLLOWED BY ITS DESIGNATED TITLE STATING THE FOLLOWING: "THE TERMS AND CONDITIONS OF THE LEASE AUTHORIZE LANDLORD TO DRAW DOWN ON THE LETTER OF CREDIT." ADDITIONAL CONDITION: 1- PARTIAL DRAWINGS ARE ALLOWED. 2- THIS LETTER OF CREDIT IS TRANSFERABLE IN WHOLE BUT NOT IN PART ONLY UPON OUR RECEIPT OF THE ATTACHED EXHIBIT "A" (TRANSFER FORM" DULY COMPLETED AND EXECUTED BY THE BENEFICIARY TOGETHER WITH ORIGINAL LETTER OF CREDIT AND AMENDMENTS IF ANY AND OUR CHARGE PAID (1/4% OF THE AMOUNT). Page 1 of 2 Fax No: (408) 496-2419 Phone No: (408) 654-7400 main line (408) 654-7736 (Member FDIC) EX-10.7 11 EXHIBIT 10.7 Exhibit 10.7 SUBLEASE THIS SUBLEASE ("Sublease"), dated September 1, 1999 for reference purposes only, is entered into by and between BROADVISION, INC., a Delaware corporation ("Broadvision") and REALNAMES CORPORATION, a Delaware corporation ("Subtenant"). RECITALS A. Broadvision leases certain premises consisting of an industrial building containing approximately 55,282 square feet, located at 405 Broadway, Redwood City, California, pursuant to that certain Lease dated February 10, 1999, between Martin/Campus Associates No. 4, L.P., a Delaware limited partnership, as landlord (the "Master Landlord") and Broadvision, as tenant (the "Master Lease"), as more particularly described therein (the "Master Premises"). Capitalized terms used but not defined herein have the same meanings as they have in the Master Lease. A copy of the Master Lease is attached hereto as EXHIBIT A. B. Broadvision desires to sublease a portion of the Premises to Subtenant, and Subtenant desires to sublease a portion of the Premises from Broadvision on the terms and provisions hereof. NOW, THEREFORE, in consideration of the mutual covenants and conditions contained herein, Broadvision and Subtenant covenant and agree as follows: AGREEMENT 1. PREMISES. On and subject to the terms and conditions below, Broadvision hereby leases to Subtenant, and Subtenant hereby leases from Broadvision, the entire second floor of the Master Premises which contains approximately 25,891 rentable square feet, and as more particularly described in Exhibit B. 2. TERM. This Sublease shall commence on Broadvision's delivery of possession (the "Commencement Date"), provided Broadvision has theretofore obtained the consent of Master Landlord, and shall expire May 31, 2000, unless sooner terminated pursuant to any provision hereof. 3. POSSESSION. (a) Broadvision shall use commercially reasonable efforts to deliver possession of the Premises to Subtenant by October 1, 1999. If for any reason Broadvision cannot deliver possession of the Premises to Subtenant by October 1, 1999, Broadvision shall not be subject to any liability therefor, nor shall such failure affect the validity of this Sublease or the obligations of Subtenant hereunder or extend the term hereof, provided that no rent shall be due hereunder until possession of the Premises has been delivered to Subtenant. (b) In addition to the foregoing, Broadvision shall use commercially reasonable efforts to deliver the "Office" portion of the Premises to Subtenant by September 15, 1999. If such portion of the Premises shall be delivered to Subtenant prior to delivery of the entire Premises, then Subtenant's occupancy shall be subject to all of the terms and conditions of -1- this Sublease except that Subtenant shall pay rent to Broadvision for such space in the amount of $1,531.88 per day (representing one half of the Rent as pro-rated on a daily basis). 4. Rent. (a) Commencing on the Commencement Date and continuing throughout the term of this Sublease, Subtenant shall pay monthly rent ("Rent") to Broadvision in the amount of ninety-one thousand nine-hundred thirteen and 05/100 Dollars ($91,913.05). Such Rent is "full-service" which shall include without limitation, all operating expenses for the premises, Building and the Project, and all costs for a commercially reasonable amount of utilities, building security and janitorial services provided to Subtenant as more particularly described in Exhibit E; However, to the extent that there are any increases in Additional Rent (as such term is defined in the Master Lease) due to any acts or omissions of Subtenant hereunder, then Subtenant shall be liable to Broadvision for such increases and shall pay such increases to Broadvision upon request. (b) If the Commencement Date does not fall on the first day of a calendar month, Rent for the first month shall be prorated on a daily basis based upon a calendar month. Rent shall be payable to Broadvision in lawful money of the United States, in advance, without prior notice, demand, or offset, on or before the first day of each calendar month during the term hereof. All Rent shall be paid to Broadvision at the address specified for notices to Broadvision in SECTION 14, below. (c) Subtenant recognizes that late payment of any Rent will result in administrative expenses to Broadvision, the extent of which additional expenses are extremely difficult and economically impractical to ascertain. Subtenant therefore agrees that if any Rent shall remain unpaid five (5) days after such amounts are due, the amount of such Rent shall be increased by a late charge to be paid to Broadvision by Subtenant in an amount equal to ten percent (10%) of the amount of the delinquent Rent. (d) Upon execution of this Sublease, Subtenant shall deliver to Broadvision the sum of ninety-one thousand nine hundred thirteen and 05/100 Dollars ($91,913.05), representing the first month's Base Rent. (e) In the event of any casualty, or condemnation affecting the Premises, Rent payable by Subtenant shall be abated hereunder, but only to the extent that Rent under the Master Lease is abated Furthermore, Subtenant shall have the right to terminate this Sublease, in connection with a casualty or condemnation, in the event that Subtenant's ability to utilize the Premises is materially interfered with for a period of more than 30 days. 5. SECURITY DEPOSIT. Upon execution of this Sublease, Subtenant shall deposit with Broadvision the sum of ninety-one thousand nine-hundred thirteen and 05/100 Dollars ($91,913.05) as a security deposit ("Security Deposit"). If Subtenant fails to pay Rent or other charges when due under this Sublease, or fails to perform any of its other obligations hereunder, Broadvision may use or apply all or any portion of the Security Deposit for the payment of any Rent or other amount then due hereunder and unpaid, for the payment of any other sum for which Broadvision may become obligated by reason of Subtenant's default or breach, or for any -2- loss or damage sustained by Broadvision as a result of Subtenant's default or breach. If Broadvision so uses any portion of the Security Deposit, Subtenant shall restore the Security Deposit to the full amount originally deposited within ten (10) days after Broadvision's written demand. Broadvision shall not be required to keep the Security Deposit separate from its general accounts, and shall have no obligation or liability for payment of interest on the Security Deposit. The Security Deposit, or so much thereof as had not theretofore been applied by Broadvision, shall be returned to Subtenant within thirty (30) days of the expiration or earlier termination of this Sublease, provided Subtenant has vacated the Premises. 6. CONDITION OF PREMISES. Subtenant has used due diligence in inspecting the Premises and agrees to accept the Premises in "as-is" condition and with all faults as of the date of Subtenant's execution of this Sublease, without any representation or warranty of any kind or nature whatsoever, or any obligation on the part of Broadvision to modify, improve or otherwise prepare the Premises for Subtenant's occupancy, except as otherwise provided in Exhibit C and SECTION 7 hereof. By entry hereunder, Subtenant accepts the Premises in their present condition and without representation or warranty of any kind by Broadvision. Subtenant hereby expressly waives the provisions of subsection 1 of Section 1932 and Sections 1941 and 1942 of the California Civil Code and all rights to make repairs at the expense of Broadvision as provided in Section 1942 of said Civil Code. 7. CONDITION OF THE PREMISES UPON COMMENCEMENT. (a) Broadvision, at its sole cost and expense shall build out the Premises according to the attached floor plan, and install partitioned furniture systems, general office furniture, and Enhanced Cat-5 computer network wiring all as more particularly described in Exhibits C and D hereto. Broadvision shall use commercially reasonable efforts to complete such work by October 1, 1999. (b) The Premises shall be delivered by Broadvision secured by electronic key card access locks and in full compliance with the Americans with Disabilities Act respecting Subtenants permitted use. Broadvision shall provide Subtenant with up to ___ ( ) card keys at a cost of $15.00 per key. (c) Subtenant shall install at its sole cost and expense their own independent phone switch. 8. USE. Subtenant may use the Premises only for the purposes as allowed in the Master Lease, and for no other purpose. Subtenant shall promptly comply with all applicable statutes, ordinances, roles, regulations, orders, restrictions of record, and requirements in effect during the term of this Sublease governing, affecting and regulating the Premises, including but not limited to the use thereof. Subtenant shall not use or permit the use of the Premises in a manner that will create waste or a nuisance, interfere with or disturb other tenants in the Building or violate the provisions of the Master Lease. 9. PARKING. Subtenant shall have its proportionate share of such parking rights as Broadvision may have in connection with the Premises pursuant to the Master Lease. -3- 10. INCORPORATION OF SUBLEASE. (a) All of the terms and provisions of the Master Lease, except as provided in subsection (b) below, are incorporated into and made a part of this Sublease and the rights and obligations of the parties under the Master Lease are hereby imposed upon the parties hereto with respect to the Premises, Broadvision being substituted for the "Lessor" in the Master Lease, and Subtenant being substituted for the "Lessee" in the Master Lease. It is further understood that where reference is made in the Master Lease to the "Premises," the same shall mean the Premises as defined herein; where reference is made to the "Commencement Date," the same shall mean the Commencement Date as defined herein; and where reference is made to the "Lease," the same shall mean this Sublease. (b) The following Paragraphs of the Master Lease are not incorporated herein: Lease Summary; Sections: 1, 2, 3.F., 3.Q., 3.T., 3.W., 3.Y., 3.DD, 3.HH., 4, 5, 6, 7, 9, 10, 11.C, 12, the last paragraph of 13.A., 14, 15.A, 15.C., 16, 17.A., 20, 21.C., 23, 24, 27, 28, the first sentence of 33, 34, 35, 36, and 40; and all Exhibits. (c) Subtenant hereby assumes and agrees to perform for Broadvision's benefit, during the term of this Sublease, all of Broadvision's obligations with respect to the Premises under the Master Lease, except as otherwise provided herein. Subtenant shall not commit or permit to be committed any act or omission which violates any term or condition of the Master Lease. Except as otherwise provided herein, this Sublease shall be subject and subordinate to all of the terms of the Master Lease. 11. INSURANCE. Subtenant shall be responsible for compliance with the insurance provisions of the Master Lease. Such insurance shall insure the performance by Subtenant of its indemnification obligations hereunder and shall name Master Landlord and Broadvision as additional insureds. All insurance required under this Sublease shall contain an endorsement requiring thirty (30) days written notice from the insurance company to Subtenant and Broadvision before cancellation or change in the coverage, insureds or amount of any policy. Subtenant shall provide Broadvision with certificates of insurance evidencing such coverage prior to the commencement of this Sublease. 12. UTILITIES. The Rent payable pursuant to SECTION 4(a) hereunder is inclusive of a commercially reasonable amount of utilities. If Broadvision reasonably determines that Subtenant has used in excess of a commercially reasonable amount, then Subtenant shall be liable for any costs incurred by Broadvision and shall pay such costs upon demand therefore as additional Rent hereunder. 13. DEFAULT. In addition to defaults contained in the Master Lease, failure of Subtenant to make any payment of any sums when due hereunder, shall constitute an event of default hereunder. -4- 14. NOTICES. The addresses specified in the Master Lease for receipt of notices to each of the parties are deleted and replaced with the following: TO BROADVISION AT: BROADVISION, INC. 585 Broadway Redwood City, California 94063 Attn: Sharon Paul WITH COPY TO: COOLEY GODWARD LLP 5 Palo Alto Square 3000 El Camino Real Palo Alto, CA 94306 Attn: J. Derek Boswell TO SUBTENANT AT: At the Premises
15. SIGNAGE. Signage shall be as mutually agreed upon between Master Landlord, Broadvision and Subtenant. All signage shall be subject to the Master Lease and all applicable laws, codes and ordinances and shall be installed at the sole cost and expense of Subtenant. 16. ACCESS. Following no less that five (5) business days advance prior notice (except in the case of emergency) Broadvision agrees to provide Subtenant reasonable periodic access to the Master Premises for the installation and repair of wiring to the Premises. Subtenant shall use its best efforts during any such access not to interfere with Broadvision's use of the Master Premises 17. BROADVISION'S OBLIGATIONS. (a) To the extent that the provision of any services or the performance of any maintenance or any other act respecting the Premises or Building is the responsibility of Master Landlord (collectively "Master Landlord Obligations"), upon Subtenant's request, Broadvision shall make reasonable efforts to cause Master Landlord to perform such Master Landlord Obligations, provided, however, that in no event shall Broadvision be liable to Subtenant for any liability, loss or damage whatsoever in the event that Master Landlord should fail to perform the same, nor shall Subtenant be entitled to withhold the payment of Rent or terminate this Sublease. It is expressly understood that the services and repairs which are incorporated herein by reference, including but not limited to the maintenance of exterior walls, structural portions of the roof, and foundations will in fact be furnished by Master Landlord and not by Broadvision, except to the extent otherwise provided in the Master Lease. In addition, Broadvision shall not be liable for any maintenance, restoration (following casualty or destruction) or repairs in or to the Building or Premises, other than its obligation hereunder to use reasonable efforts to cause Master Landlord to perform its obligations under the Master Lease. -5- (b) Except as otherwise provided herein, Broadvision shall have no other obligations to Subtenant with respect to the Premises or the performance of the Master Landlord Obligations. 18. EARLY TERMINATION OF SUBLEASE. If, without the fault of Broadvision, the Master Lease should terminate prior to the expiration of this Sublease, Broadvision shall have no liability to Subtenant on account of such termination. To the extent that the Master Lease grants Broadvision any discretionary right to terminate the Master Lease, whether due to casualty, condemnation, or otherwise, Broadvision shall be entitled to exercise or not exercise such right in its complete and absolute discretion. 19. CONSENT OF MASTER LANDLORD AND BROADVISION. If Subtenant desires to take any action which requires the consent or approval of the Master Landlord pursuant to the terms of the Master Lease, prior to taking such action, including, without limitation, making any alterations, then, notwithstanding anything to the contrary herein, (a) Broadvision shall have the same rights of approval or disapproval as Master Landlord has under the Master Lease, and (b)Subtenant shall not take any such action until it obtains the consent of Broadvision and Master Landlord, as may be required under this Sublease or the Master Lease. This Sublease shall not be effective unless and until any required written consent of the Master Landlord, respecting this Sublease and the improvements contemplated by section 7 hereof, shall have been obtained. 20. BROKERS. Each party hereto represents and warrants that it has dealt with no broker in connection with this Sublease and the transactions contemplated herein, except Cornish & Carey Commercial/ONCOR International. Each party shall indemnify, protect, defend and hold the other party harmless from all costs and expenses (including reasonable attorneys' fees) arising from or relating to a breach of the foregoing representation and warranty. 21. SURRENDER OF PREMISES. Upon the expiration or earlier termination of this Sublease, Subtenant shall surrender the Premises (including all improvements, furniture systems, general office furniture and anything installed or made available pursuant to Section 7 hereof at the expense of Broadvision) in good operating condition, except for ordinary wear and tear, with all wiring in place and functioning properly. 22. NO THIRD PARTY RIGHTS. The benefit of the provisions of this Sublease is expressly limited to Broadvision and Subtenant and their respective permitted successors and assigns. Under no circumstances will any third party be construed to have any rights as a third party beneficiary with respect to any of said provisions. 23. COUNTERPARTS. This Sublease may be signed in two or more counterparts, each of which shall be deemed an original and all of which shall constitute one agreement. -6- IN WITNESS WHEREOF, the parties have executed this Sublease as of the date first written above. BROADVISION REALNAMES CORPORATION By: /s/ By: /s/ ------------------------- ------------------------ Its: CFO Its: Controller ------------------------ ----------------------- Date: 9/24/99 Date: 9/20/99 ----------------------- ---------------------- By: By: /s/ ------------------------- ------------------------ Its: Its: VP Human Resources ------------------------ ----------------------- Date: Date: 9/20/99 ----------------------- ---------------------- -7- LEASE 1. PARTIES. THIS LEASE (the "LEASE"), dated as of January ______ , 1999, is entered into by and between MARTIN/CAMPUS ASSOCIATES NO. 4, L.P., a Delaware limited partnership ("LANDLORD"), whose address is 100 Bush Street, San Francisco, California 94104, and BROADVISION, INC., a Delaware corporation ("TENANT"), whose address is 585 Broadway, Redwood City, California 94063. 2. PREMISES. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord those certain premises consisting of a total area of approximately Fifty-Five Thousand Two Hundred Eighty-Two (55,282) square feet, which comprises all of the Rentable Area (as defined below) of that certain building commonly known as 405 Broadway (the "BUILDING"), in the City of Redwood City, County of San Mateo, State of California, as more particularly shown on EXHIBITS A-1 AND A-2 (the "PREMISES"). On or before the Commencement Date, Landlord shall measure the Rentable Area of the Premises to the outside of all exterior walls, and to the middle of the interior demising wall, that form the boundaries of the Premises, and Landlord and Tenant shall amend this Lease if necessary to reflect any discrepancy in the size of the Premises disclosed by Landlord's measurement of the Premises by Landlord's architect. The Premises also includes the appurtenant right to use in common with other tenants of the Project (as defined below) the Common Area (as defined below) of the Project owned by Landlord. 3. DEFINITIONS. The following terms shall have the following meanings in this Lease: A. AFFILIATE. Any Person that controls, or is controlled by or is under common control with, Landlord or Tenant. No Person shall be deemed in control of another simply by virtue of being a partner, director, officer or holder of voting securities of any Person. For purposes of this PARAGRAPH 3.A, "control" shall mean the ownership of, and/or the right vote, stock, partnership interests, membership interests, or 1 other indicia of ownership possessing at least fifty-one percent (51%) of either the total combined interests in a Person, or the voting power of all classes of a Person's capital stock, partnership interests, membership interests, or other indicia of ownership, that have been issued, outstanding, and (if applicable) are entitled to vote. B. ALTERATIONS. Any alterations, additions or improvements made in, on or about the Premises after the substantial completion of the Improvements, including, but not limited to, lighting, heating, ventilating, air conditioning, electrical, partitioning, drapery and carpentry installations. C. BUILDING. The term "Building" shall have the meaning set forth in PARAGRAPH 2.A above. D. CAPITAL IMPROVEMENT. Those certain improvements to the Building to be constructed by Landlord pursuant to PARAGRAPH 10.A and the Work Letter Agreement attached to this Lease as EXHIBIT B (the "WORK LETTER"). E. CC&RS. Any declaration of conditions, covenants and/or restrictions, or similar instrument, that now encumbers, or may in the future encumber the Project or the Premises, as adopted by Landlord or its successors in interest from time to time, and any modifications or amendments thereto. F. COMMENCEMENT DATE. The Commencement Date of this Lease shall be the first day of the Term determined in accordance with PARAGRAPH 4.A. G. COMMON AREA. All areas and facilities within the Project not appropriated to the exclusive occupancy of tenants, including the Parking Area, the sidewalks, pedestrian ways, driveways, signs, pools, ponds, service delivery facilities, common storage areas, common utility facilities and all other areas in the Project established by Landlord and/or its successors for non-exclusive use. Landlord may, by written notice to Tenant, elect in its sole discretion to increase and/or decrease the Common Area from time to time during the Term for any reason whatsoever (including without limitation an election by Landlord and/or it's successors in their sole discretion to make changes to the buildings situated in the Project, and/or to subdivide, sell, exchange, dispose of, transfer, or change the configuration of all or any portion of the Common Area from time 2 to time), so long as Landlord neither unreasonably interferes with ingress to or egress from the Building, nor reduces the number of parking spaces available for Tenant's use below the minimum requirements set forth in PARAGRAPH 37 for a period of sixty (60) consecutive days or more. No such subdivision, sale, exchange, disposition, transfer, or change to the configuration of all or any portion of the Common Area shall cause the Common Area to be increased or decreased unless and until Landlord has given Tenant written notice of such increase or decrease. However, Landlord shall make no changes which have a material adverse effect upon Tenant's use and enjoyment of the Premises or the accessibility of parking thereto. H. COMMON AREA MAINTENANCE COSTS. The total of all costs and expenses paid or incurred by Landlord in connection with the operation, maintenance, ownership and repair of the Common Area, and the performance of Landlord's obligations under PARAGRAPHS 17.A, and the exercise of Landlord's rights under PARAGRAPH 17.D. Without limiting the generality of the foregoing, Common Area Maintenance Costs include all costs of and expense for: (i) maintenance and repairs of the Common Area; (ii) resurfacing, resealing, remarking, painting, repainting, striping or restriping the Parking Area; (iii) maintenance and repair of all public or common facilities; (iv) maintenance, repair and replacement of sidewalks, curbs, paving, walkways, Parking Area, Project signs, landscaping, planting and irrigation systems, trash facilities, loading and delivery areas, lighting, drainage and common utility facilities, directional or other signs, markers and bumpers, and any fixtures, equipment and personal property located on the Common Area; (v) wages, salaries, benefits, payroll burden fees and charges of personnel employed by Landlord and the charges of all independent contractors retained by Landlord (to the extent that such personnel and contractors are utilized by Landlord) for the maintenance, repair, management and/or supervision of the Project, and of any security personnel retained by Landlord in connection with the operation and maintenance of the Common Area (although Landlord shall not be required to obtain security services); (vi) maintenance, repair and replacement of security systems and alarms installed by Landlord (if any); (vii) depreciation or amortization (or in lieu thereof, rental payments) on all tools, equipment and machinery used in the operation and maintenance of the Common Area; (viii) premiums for Comprehensive General Liability Insurance or Commercial General Liability Insurance, casualty insurance, workers' compensation 3 insurance or other insurance on the Common Area, or any portion thereof or interest therein, and any deductibles payable with respect to such insurance policies; (ix) all personal property or real property taxes and assessments levied or assessed on the Project, or any portion thereof or interest therein, including without limitation the Real Property Taxes for the Project, if applicable under PARAGRAPH 15 A; (x) cleaning, collection, storage and removal of trash, rubbish, dirt and debris, and sweeping and cleaning the Common Area; (xi) legal, accounting and other professional services for the Project, including costs, fees and expenses of contesting the validity or applicability of any law, ordinance, rule, regulation or order relating Co the Building, and of contesting, appealing or otherwise attempting to reduce any Real Property Taxes assessed against the Project; (xii) any alterations, additions or improvements required to be made to the Common Area in order to reduce Common Area Maintenance Costs or to protect the health or safety of occupants of the Project, but only to the extent of any actual cost savings realized thereby (provided that if the cost of any such alterations, additions or improvements during any year exceeds the amount of cost savings realized thereby for that year, Landlord may in its sole discretion elect to include such excess amounts in Common Area Maintenance Costs for the following year, but only to the extent of any actual cost savings realized during such year by reason of such alterations, additions or improvements); (xiii) all costs and expenses of providing, creating, maintaining, repairing, managing, operating, and supervising an amenity center for the Project, which may include without limitation a dining facility (provided, however, that Landlord shall not be required to provide or create such an amenity center), which costs and expenses may include without limitation rent charged by Landlord for the space occupied by such amenity center; (xiv) all costs and expenses incurred by Landlord in performing its obligations under PARAGRAPHS 17 A or exercising its rights under PARAGRAPH 17 D, including without limitation all costs and expenses incurred in performing any alterations, additions or improvements required to be made to the Building in order to comply with applicable laws, ordinances, rules, regulations and orders (to the extent that such laws, ordinances, rules, regulations and orders are either enacted after, or become applicable to the Building due to an amendment thereto that becomes effective after, the Commencement Date) and all capital improvements required to made in connection with the operation, maintenance and repair of the Building, provided that the cost of any such alterations, additions, improvements or 4 capital improvements, together with interest at the Interest Rate, shall be amortized over the useful life of the alteration, addition, improvement or capital improvement in question and included in Common Area Maintenance Costs for each year over which such costs are amortized; (xv) all costs and expenses incurred in performing any alterations, additions or improvements required to be made to the Common Area in order to comply with applicable laws, ordinances, rules, regulations and orders and all capital improvements required to made in connection with the operation, maintenance and repair of the Common Area, provided that the cost of any such alterations, additions, improvements or capital improvements, together with interest at the Interest Rate, shall be amortized over the useful life of the alteration, addition, improvement or capital improvement in question and included in Common Area Maintenance Costs for each year over which such costs are amortized; and (xvi) any and all payments due and owing on behalf of the Project or any portion thereof with respect to any CC&Rs, including without limitation any and all assessments and association dues. However, notwithstanding the foregoing or anything to the contrary in this Lease, Common Area Maintenance Costs shall not include the cost of or expenses for the following. (A) leasing commissions, attorneys' fees or other costs or expenses incurred in connection with negotiations or disputes with other tenants of the Project; (B) depreciation of buildings in the Project; (C) payments of principal, interest, late fees, prepayment fees or other charges on any debt secured by a mortgage covering the Project, or rental payments under any ground lease or underlying lease; (D) any penalties incurred due to Landlord's violation of any governmental rule or authority (but not excluding the cost of compliance therewith, if such cost is chargeable to Tenant pursuant to this Lease); (E) any Real Property Taxes or costs for which Landlord is separately and directly reimbursed by Tenant or any other tenant of the Project which are assessed against the Premises or the premises leased by such other tenant(s); (F) items for which Landlord is reimbursed by insurance; (G) all costs associated with the operation of the business of the entity which constitutes "Landlord" (as distinguished from the costs of operations, the costs described in clause (v) of this PARAGRAPH 3.H, and the property management fee described in PARAGRAPH 5.C below), including, but not limited to, costs of partnership accounting and legal matters, costs of defending any lawsuits with any mortgagee (except as the actions of Tenant may be in issue), costs of selling, syndicating, financing, mortgaging, or hypothecating any of the Landlord's interest in the Project and/or Common Area, or any portion 5 thereof, costs of any disputes between Landlord and its employees, costs of disputes of Landlord with Building management or costs paid in connection with disputes with Tenant or any other tenants; (H) all costs (including permit, license and inspection fees) incurred in renovating or otherwise improving or decorating, painting or redecorating space for other tenants in the Project; (I) the creation of any reserves for equipment or capital replacement (but not the expenditure of any funds from such reserves); (J) all costs arising from monitoring, cleaning up and otherwise remediating any release of Hazardous Materials at the Premises to the extent that either (1) Landlord (who shall use reasonable efforts to obtain reimbursement) is actually reimbursed by third parties for such costs (but not the costs of collection incurred by Landlord, unless such costs of collection are also reimbursed by third parties), or (2) such release of Hazardous Materials occurred prior to the Commencement Date and did not arise from Tenant's early occupancy of the Premises pursuant to PARAGRAPH 40 below; (K) all costs and expenses incurred in performing any alterations, additions or improvements required to be made to the Building in order to comply with applicable laws, ordinances, rules, regulations and orders, to the extent that such laws, ordinances, rules, regulations and orders are enacted before the Commencement Date (unless any such law, ordinance, rule, regulation or order becomes applicable to the Building due to an amendment that becomes effective after the Commencement Date, in which event such costs and expenses shall be includable in Common Area Maintenance Costs); and (L) all costs and expenses incurred in removing asbestos-containing materials from, or encapsulating asbestos-containing materials within, the Premises. Notwithstanding anything to the contrary in the definition of Common Area Maintenance Costs set forth in this Lease, Common Area Maintenance Costs shall not include the following: 1. any depreciation on the Building and Project; 2. interest, principal, points and fees on debt or amortization on any mortgages and deeds of trust or other debt instruments secured by the Building or the Project or any underlying ground lease; 6 3. costs of repairs and general maintenance paid from insurance proceeds but excluding the amount of any deductibles paid by Landlord; 4. repairs and replacements covered by warranties or guaranties (to the extent actually collected by Landlord); 5. costs of special services rendered to individual tenants (including Tenant) for which a special charge is made; 6. costs of improvements for other tenants in the Building or Project; 7. costs of the Landlord for which a tenant is obligated to reimburse Landlord, including, for example, taxes and property insurance premiums on improvements for tenants of the Building and Project that are above the building standard; 8. costs incurred by Landlord due to violations of any of the terms and conditions of any lease in the Building: or Project (other than this Lease); 9. Marketing costs including without limitation, leasing commissions, attorneys' fees, space planning costs and other costs and expenses incurred in connection with the leasing of the Building; and 10. Overhead and profit increment paid to Landlord and Landlord's subsidiaries for goods and/or services in or to the Building or Project to the extent the same exceeds the costs of such goods and/or services rendered by unaffiliated third parties on a competitive basis. I. EXISTING BUILDINGS. Those buildings currently situated within the Project and commonly known as 405 Broadway, 425 Broadway, 475 Broadway, 555 Broadway, and 575-585 Broadway, provided, however, that if at any time Landlord sells, exchanges, disposes of, or otherwise transfers its interest in any such building, then effective upon the date of such sale, exchange, disposition, or other transfer, the building shall cease to be an Existing Building for the purposes of this Lease; and provided further, that if at any time Landlord demolishes any Existing Building, neither the demolished building nor any new building constructed on or about the location of the demolished building 7 (even if such new building uses the same address as the demolished building) shall be considered to be an Existing Building for the purposes of this Lease. J. EXISTING PROJECT SPACE. All Rentable Area located within the Existing Buildings. K. FINAL PLANS. As defined in the Work Letter. L. HVAC. Heating, ventilating and air conditioning. M. IMPOSITIONS. Taxes, assessments, charges, excises and levies, business taxes, license, permit, inspection and other authorization fees, transit development fees, assessments or charges for housing funds, service payments in lieu of taxes and any other fees or charges of any kind at any time levied, assessed, charged or imposed by any federal, state or local entity, (i) upon, measured by or reasonably attributable to the cost or value of Tenant's equipment, furniture, fixtures or other personal property located in the Premises, or the cost or value of any Alterations; (ii) upon, or measured by, any Rent payable hereunder, including any gross receipts tax; (iii) upon, with respect to or by reason of the development, possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or any portion thereof; or (iv) upon this Lease transaction, or any document to which Tenant is a party creating or transferring any interest or estate in the Premises. Impositions do not include franchise, transfer, inheritance or capital stock taxes, or income taxes measured by the net income of Landlord from all sources, except to the extent any such taxes are levied or assessed against Landlord as a substitute for, in whole or in part, any item that would otherwise be deemed an Imposition under this PARAGRAPH 3.M. Impositions also do not include any increases in the taxes, assessments, charges, excises and levies assessed against the Project due solely to the construction or installation of tenant improvements or other alterations by tenants of the Project other than Tenant and any other tenants or occupants of the Building; provided, however, that if any Impositions are imposed or increased due to the construction or installation of tenant improvements or other alterations in the Building, such Impositions shall be equitably prorated in Landlord's reasonable judgment between Tenant and any other tenants of the Building. 8 N. IMPROVEMENTS. Collectively, the Tenant Improvements and the Capital Improvements. O. INTEREST RATE. Either (i) the greater of (a) eleven percent (11%) per annum, or (b) the reference rate, or succeeding similar index, announced from time to time by the Bank of America's main San Francisco office, plus two percent (2%) per annum; or (ii) the maximum rate of interest permitted by law, whichever is less. P. LANDLORD'S AGENTS. Landlord's authorized agents, partners, subsidiaries, directors, officers, and employees. Q. MONTHLY RENT. The rent payable pursuant to PARAGRAPHS 4.D AND 5.A., as adjusted from time to time pursuant to the terms of this Lease. R. PARKING AREA. All Common Area (except sidewalks and service delivery facilities) now or hereafter designated by Landlord for the parking or access of motor vehicles, including roads, traffic lanes, vehicular parking spaces, landscaped areas and walkways, and including any parking structure constructed during the Term. Landlord and/or its successors may, by written notice to Tenant, elect in their sole discretion to increase and/or decrease the Parking Area from time to time during the Term for any reason whatsoever (including without limitation an election by Landlord and/or its successors in their sole discretion to make changes to the buildings situated in the Project, and/or to subdivide, sell, exchange, dispose of, transfer, or change the configuration of all or any portion of the Parking Area from time to time), so long as such changes to the Parking Area do not reduce the number of parking spaces available for Tenant's use below the minimum requirements set forth in PARAGRAPH 37 for a period of sixty (60) consecutive days or more. No such subdivision, sale, exchange, disposition, transfer, or change to the configuration of all or any portion of the Parking Area shall cause the Parking Area to be increased or decreased unless and until Landlord has given Tenant written notice of such increase or decrease. S. PERSON. Any individual, partnership, firm, association, corporation, limited liability company, trust, or other form of business or legal entity. 9 T. PREMISES The term "Premises" shall have the meaning set forth in PARAGRAPH 2 above. U. PROJECT. That certain real property shown on EXHIBIT C, upon which are currently located the Building and four (4) other buildings, currently consisting of a total building square footage of approximately Four Hundred Eleven Thousand Three Hundred Five and 00/100 (411,305) square feet of Rentable Area. Landlord and/or its successors may, by written notice to Tenant, elect in their sole discretion to increase and/or decrease the number of buildings and/or the amount of Rentable Area situated in the Project from time to time during the Term for any reason whatsoever. V. REAL PROPERTY TAXES. Taxes, assessments and charges now or hereafter levied or assessed upon, or with respect to, the Project, or any personal property of Landlord used in the operation thereof or located therein, or Landlord's interest in the Project or such personal property, by any federal, state or local entity, including: (i) all real property taxes and general and special assessments; (ii) charges, fees or assessments for transit, housing, day care, open space, art, police, fire or other governmental services or benefits to the Project, including assessments, taxes, fees, levies and charges imposed by governmental agencies for such purposes as street, sidewalk, road, utility construction and maintenance, refuse removal and for other governmental services; (iii) service payments in lieu of taxes; (iv) any tax, fee or excise on the use or occupancy of any part of the Project, or on rent for space in the Project; (v) any other tax, fee or excise, however described, that may be levied or assessed as a substitute for, or as an addition to, in whole or in part, any other Real Property Taxes; and (vi) reasonable consultants' and attorneys' fees and expenses incurred in connection with proceedings to contest, determine or reduce Real Property Taxes. Real Property Taxes do not include: (A) franchise, transfer, inheritance or capital stock taxes, or income taxes measured by the net income of Landlord from all sources, unless any such taxes are levied or assessed against Landlord as a substitute for, in whole or in part, any Real Property Tax; (B) Impositions and all similar amounts payable by tenants of the Project under their leases; and (C) penalties, fines, interest or charges due for late payment of Real Property Taxes by Landlord. If any Real Property Taxes are payable, or may at the option of the taxpayer be paid, in installments, such Real Property Taxes shall, together with any interest that would 10 otherwise be payable with such installment, be deemed to have been paid in installments, amortized over the maximum time period allowed by applicable law. If the tax statement from a taxing authority does not allocate Real Property Taxes to the Building, Landlord shall make the determination of the proper allocation of such Real Property Taxes based, to the extent possible, upon records of the taxing authority and, if not so available, then on an equitable basis. Real Property Taxes also do not include any increases in the taxes, assessments, charges, excises and levies assessed against the Project due solely to the construction or installation of tenant improvements or other alterations by tenants of the Project other than Tenant and any other tenants or occupants of the Building; provided, however, that if any Real Property Taxes are imposed or increased due to the construction or installation of tenant improvements or other alterations in the Building, such Real Property Taxes shall be equitably prorated in Landlord's reasonable judgment between Tenant and any other tenants of the Building. W. RENT. Monthly Rent plus the Additional Rent as defined in PARAGRAPH 5.E. X. RENTABLE AREA. The aggregate square footage in any one or more buildings in the Project, as appropriate, as reasonably determined by Landlord's architect from time to time. Y. SECURITY DEPOSIT. That amount paid by Tenant pursuant to PARAGRAPH 7. Z. SUBLET. Any transfer, sublet, assignment, license or concession agreement, change of ownership, mortgage, or hypothecation of this Lease or the Tenant's interest in the Lease or in and to all or a portion of the Premises. As used herein, a Sublet includes the following: (i) if Tenant is a partnership or a limited liability company, a transfer, voluntary or involuntary, of all or any part of any interest in such partnership or limited liability company, or the dissolution of the partnership or limited liability company, whether voluntary or involuntary; (ii) if Tenant is a corporation, any dissolution, merger, consolidation or other reorganization of Tenant, or the transfer, either by a single transaction or in a series of transactions, of a controlling percentage of the stock of Tenant (except that a Sublet shall not include any such transfer of a controlling percentage of the stock of Tenant occurring at a time when the stock of Tenant is publicly traded on a nationally 11 recognized stock exchange or over the counter), or the sale, by a single transaction of or series of transaction, within any one (1) year period, of corporate assets equaling or exceeding twenty percent (20%) of the total value of Tenant's assets (except in connection with an initial public offering of the stock of Tenant on a nationally recognized stock exchange or over the counter); (iii) if Tenant is a trust, the transfer, voluntarily or involuntarily, of all or any part of the controlling interest in such trust; and (iv) if Tenant is any other form of entity, a transfer, voluntary or involuntary, of all or any part of any interest in such entity. As used herein, the phrases "controlling percentage" and "controlling interest" means the ownership of, and/or the right to vote, stock, partnership interests, membership interests, or other indicia of ownership possessing at least fifty-one percent (51%) of either the total combined interests in Tenant, or the voting power of all classes of Tenant's capital stock, partnership interests, membership interests, or other indicia of ownership, that have been issued, outstanding, and (if applicable) are entitled to vote. AA. SUBRENT. Any consideration of any kind received or to be received, by Tenant from a subtenant if such sums are related to Tenant's interest in this Lease or in the Premises. BB. SUBTENANT. The person or entity with whom a Sublet agreement is proposed to be or is made. CC. TENANT DELAY. Any delay that Landlord may encounter in the performance of Landlord's obligations under the Lease because of any act or omission of any nature by Tenant or its agents or contractors, including without limitation any (i) delay attributable to the postponement of any Improvements at the request of Tenant; (ii) delay by Tenant in the submission of information or the giving of authorizations or approvals within the time limits set forth in the Lease or the Work Letter; (iii) delay attributable to the failure of Tenant to pay, when due, any amounts required to be paid by Tenant pursuant to the Lease or the Work Letter; and (iv) delay resulting from any change order request initiated or requested by Tenant. DD. TENANT IMPROVEMENTS. Those certain improvements to the Premises to be constructed by Landlord pursuant to EXHIBIT B, other than the Capital Improvements. The Tenant Improvements shall at all times be the property of Landlord and shall not be deemed Tenant's Personal Property. 12 EE. TENANT'S BUILDING SHARE. The ratio (expressed as a percentage) of the total Rentable Area of the Premises to the total Rentable Area of the Building as determined by Landlord from time to time, which as of the Commencement Date shall equal one hundred percent (100%). Tenant's Building Share shall be recalculated any time that the amount of Rentable Area contained in Premises is adjusted, or there is a change in the total Rentable Area of the Building. FF. TENANT'S PERCENTAGE SHARE. The ratio (expressed as a percentage) of the total Rentable Area of the Premises to the total Rentable Area of all of the buildings at the Project owned by Landlord from time to time, which as of the Commencement Date shall equal Thirteen and 44/100ths percent (13.44%) (i.e., the Rentable Area of the Premises divided by the Rentable Area of the buildings at the Project owned by Landlord as of the date of this Lease). Tenant's Percentage Share shall be recalculated any time that the amount of Rentable Area contained in Premises is adjusted, or there is a change in the total Rentable Area of those buildings in the Project owned by Landlord, or Landlord sells, exchanges, or otherwise transfers any or all of the buildings situated in the Project (including without limitation the Building). The parties acknowledge and agree that the total Rentable Area of all of the buildings in the Project owned by Landlord may increase and/or decrease from time to time during the Term, since Landlord may elect in its sole discretion to sell a building or buildings or to make changes to the buildings it owns in the Project. GG. TENANT'S PERSONAL PROPERTY. Tenant's trade fixtures, furniture, equipment and other personal property in the Premises. HH. TERM. The Term of this Lease set forth in PARAGRAPH 4.A., as it may be extended hereunder pursuant to any options to extend granted herein. 4. LEASE TERM. A. TERM. The Term shall commence on the date that Landlord has substantially completed the Improvements (the "COMMENCEMENT DATE"), and shall terminate December 4, 2007. For the purposes of this Lease, Landlord shall be deemed to have substantially completed the Improvements at such time as the 13 building inspector and fire marshall or the City of Redwood City has granted temporary occupancy of the Improvements. B. DELAYS IN COMPLETION. Landlord shall diligently prosecute the completion of the Improvements in accordance with the schedule attached to EXHIBIT B-3. Tenant agrees that if Landlord, for any reason whatsoever, is unable to substantially complete the Improvements on or before the Estimated Commencement Date (as defined below), Landlord shall not be liable to Tenant for any loss or damage therefrom, nor shall this Lease be void or voidable. Landlord and Tenant estimate that the Commencement Date shall be August 26, 1999 (the "Estimated COMMENCEMENT DATE"). Upon the establishment of the actual Commencement Date, Landlord and Tenant shall execute a Commencement Date Memorandum in the form set forth in EXHIBIT D. No delay in Landlord's completion of the Improvements caused by any Tenant Delay shall delay the commencement of Monthly Rent or the commencement of the Term hereunder. In the event of a delay caused by any Tenant Delay, Landlord shall set the "Commencement Date" by written notice to Tenant as the date the Improvements would have been substantially completed without such delay as reasonably determined by Landlord. Landlord shall then subsequently deliver the Premises to Tenant upon substantial completion as hereinabove defined. Such right of Landlord to reset the Commencement Date shall not be determined if the delay in Landlord's completion of the Improvements is due to any delay caused by Landlord or by the City of Redwood City provided a Tenant has timely submitted its plans in accordance with the schedule attached to EXHIBIT B-3 Tenant shall pay any and all costs and expenses incurred by Landlord which result from any Tenant Delay, including, without limitation, any and all costs and expenses attributable to increases in the cost of labor or materials. Notwithstanding the foregoing, if Landlord is delayed in the performance of the Improvements because of acts of any other party, actions of the elements, acts of nature, war, riots, strikes, lockouts, labor disputes, inability to procure or general shortage of labor or materials in the normal channels of trade, or delay in governmental action or inaction where action is required (collectively, "Force Majuere Delays") then the Commencement Date shall be extended by the period of the delay, and the period for Landlord's performance of the Improvements shall be extended for a period equivalent, to the period of such delay. Notwithstanding anything to the contrary contained herein, if (i) Landlord has not delivered the Premises substantially completed to Tenet on or before the date that is sixty (60) day's after the 14 Estimated Commencement Date for any reason other than Tenant Delay or Force Majeure Delays, or (ii) Landlord has not delivered the Premises substantially completed to Tenant on or before the date that is ninety (90) days after the Estimated Commencement Date for any reason, including but not limited to Force Majeure Delays, then in either such event Tenant shall have the right thereafter to cancel this Lease, and upon such cancellation, Landlord shall return all sums theretofore deposited by Tenant with Landlord, and neither party shall have any further liability to the other; provided, however, in the event of cancellation pursuant to clause (ii) above, Landlord shall not be required to return to Tenant the expended portion of the Set Aside Funds as defined in EXHIBIT B. C. OPTION TO EXTEND. (i) GRANT OF OPTION. Landlord hereby grants to Tenant one (1) option ("OPTION TO EXTEND") to extend the Term of this Lease for an additional term of five (5) years. The five-year option term (the "EXTENDED TERM") shall commence upon the expiration of the initial Term. The Option to Extend is expressly conditioned upon Tenant's not being in default under any term or condition of this Lease after notice from Landlord and the expiration of any applicable cure period granted by this Lease, either at the time the Option to Extend is exercised or at the time the Extended Term would commence. The Option to Extend shall be personal to the Tenant originally named in this Lease, and shall not be assigned, sold, conveyed or otherwise transferred to any other party, except to an Affiliate or a Permitted Transferee in accordance with PARAGRAPH 25.G below (including without limitation any assignee or sublessee of such Tenant) without the prior written consent of Landlord, which consent may be Withheld in Landlord's sole discretion. The Option to Extend shall be exercisable only so long as the Lease remains in full force and effect and shall be an interest appurtenant to and not separable from Tenant's estate under the Lease. Under no circumstances shall Landlord be required to pay any real estate commission to any party with respect to Tenant's exercise of the Option to Extend. (ii) MANNER OF EXERCISE. Tenant may exercise the Option to Extend only by giving Landlord written notice not less than one (1) year prior to the expiration of the Term. If Tenant fails to exercise the Option to Extend, then the Option to Extend 15 automatically shall lapse and thereafter Tenant shall have no right to exercise the Option to Extend. (iii) TERMS AND RENT. The initial Monthly Rent for the Premises for the Extended Term shall be equal to the greater of (x) one hundred percent (100%) of the fair market rent, as determined below, for the Premises as of the commencement of the Extended Term, or (x) an amount equal to the Monthly Rent payable during the last year of the Term, multiplied by one hundred three and one fourth percent (103.25%). All other terms and conditions of the Lease, as amended from time to time by the parties in accordance with the provisions of the Lease, shall remain in full force and effect and shall apply during the Extended Term; provided, however, that neither the Option to Extend nor Landlord's obligations under the Work Letter shall be of any force or effect during the Extended Term. (iv) DETERMINATION OF RENT. For the purposes of calculating the Monthly Rent for the Extended Term, the fair market rent shall be equal to the net effective rent per rentable square foot being charged for leases executed within the preceding twelve (12) months for comparable space at either the Project (if any), or if there are none, for comparable space in office and research and development complexes located in the Redwood Shores area or the Menlo Oaks Business Park (located in Menlo Park, California), with terms comparable to the terms contained in this Lease, taking into consideration relevant factors such as the presence or absence of tenant improvement contributions by the lessor (but excluding the value of any tenant improvements paid for by Tenant), and incorporating increases in the Rent during the Extended Term, if appropriate. Any value added to the Premises by the Tenant Improvements and any Alterations paid for by Tenant shall not be considered or included in the determination of the fair market rent. The fair market rent shall be determined by mutual agreement of the parties or, if the parties are unable to agree within forty-five (45) days after Tenant's exercise of the Option to Extend, then fair market rent shall be determined pursuant to the procedure set forth in PARAGRAPHS 4.C. (v) and 4.C. (vi). The determination of the Monthly Rent for the Extended Term for the Premises shall take into account the fact that the Premises shall be leased in its shell condition with a tenant improvement allowance of Ten and 00/100 Dollars ($10.00)per square foot. 16 (v) LANDLORD'S INITIAL DETERMINATION. If the parties are unable mutually to agree upon the fair market rent pursuant to PARAGRAPH 4.C. (iv), then the fair market rent initially shall be determined by Landlord by written notice ("LANDLORD'S NOTICE") given to Tenant promptly following the expiration of the 45-day period set forth in PARAGRAPH 4.C. (iv). If Tenant disputes the amount of fair market rent set forth in Landlord's Notice, then, within thirty (30) days after the date of Landlord's Notice, Tenant shall send Landlord a written notice ("TENANT'S NOTICE") which specifically (a) disputes the fair market rent set forth in Landlord's Notice, (b) demands arbitration pursuant to PARAGRAPH 4.C. (vi), and (c) states the name and address of the person who shall act as arbitrator on Tenant's behalf. Tenant's Notice shall be deemed defective, and not given to Landlord, if it fails to substantially comply with the requirements or fails to strictly comply with the time period set forth above. If Tenant does not send Tenant's Notice within thirty (30) days after the date of Landlord's Notice, or if Tenant's Notice fails to contain all of the required information, then Tenant shall be deemed to have rejected Landlord's Notice. If Tenant is deemed to have rejected Landlord's Notice, and Landlord thereafter gives Tenant a written notice ("LANDLORD'S SECOND NOTICE") demanding that Tenant respond to Landlord's Notice, and Tenant does not send Tenant's Notice within five (5) days of the date of Landlord's Second Notice, then the Monthly Rent for the Extended Term shall equal one hundred percent (100%) of the fair market rent specified in Landlord's Notice. If Tenant sends Tenant's Notice in the proper form within thirty (30) days after the date of Landlord's Notice, then the Monthly Rent for the Extended Term shall be determined by arbitration pursuant to PARAGRAPH 4.C(vi) below. If the arbitration is not concluded prior to the commencement of the Extended Term, then Tenant shall pay Monthly Rent equal to one hundred twenty-five percent (125%) of the Monthly Rent payable immediately prior to the commencement of the Extended Term. If the fair market rent determined by arbitration differs from that paid by Tenant pending the results of arbitration, then any adjustment required to adjust the amount previously paid shall be made by payment by the appropriate party within ten (10) days after the determination of fair market rent. (vi) ARBITRATION. The arbitration shall be conducted in the City of San Francisco in accordance with the then prevailing rules of the American Arbitration Association (or its successor) for the arbitration of commercial disputes, except 17 that the procedures mandated by such rules shall be modified as follows: (a) Each arbitrator must be a real estate appraiser with at least five (5) years of full-time commercial appraisal experience who is familiar with the fair market rent of office and research and development complexes located in the vicinity of the Premises. Within ten (10) business days after receipt of Tenant's Notice, Landlord shall notify Tenant of the name and address of the person designated by Landlord to act as arbitrator on Landlord's behalf. (b) The two arbitrators chosen pursuant to PARAGRAPH 4.C. (vi)(a) shall meet within ten (10) business days after the second arbitrator is appointed and shall either agree upon the fair market rent or appoint a third arbitrator possessing the qualifications set forth in PARAGRAPH 4.C. (vi)(a). If the two arbitrators agree upon the fair market rent within such ten (10) business day period, the Monthly Rent for the Extended Term shall equal one hundred percent (100%) of such fair-market rent. If the two arbitrators are unable to agree upon the fair market rent and are unable to agree upon the third arbitrator within five (5) business days after the expiration of such ten (10) business day period, the third arbitrator shall be selected by the parties themselves. If the parties do not agree on the third arbitrator within five (5) business days after the expiration of such five (5) business day period, then either party, on behalf of both, may request appointment of the third arbitrator by the Association of South Bay Brokers. The three arbitrators shall decide the dispute, if it has not been previously resolved, by following the procedures set forth in PARAGRAPH 4.C. (vi)(c). Each party shall pay the fees and expenses of its respective arbitrator and both shall share the fees and expenses of the third arbitrator. Each party shall pay its own attorneys' fees and costs of witnesses. (c) The three arbitrators shall determine the fair market rent in accordance with the following procedures. Each of Landlord's arbitrator and Tenant's arbitrator shall state, in writing, his or her determination of the fair market rent, supported by the reasons therefor, and shall make counterpart copies for the other arbitrators. All of the arbitrators shall arrange for a simultaneous exchange of the proposed resolutions within ten (10) business days after appointment of the third arbitrator. If any arbitrator fails to 18 deliver his or her own determination to the other arbitrators within such ten (10) business day period, then the fair market rent shall equal the average of the resolutions submitted by the other arbitrators. If all three (3) arbitrators deliver their determinations to the other arbitrators within such ten (10) business day period, then the two (2) closest determinations of the arbitrators shall be averaged, and the resulting quotient shall be the fair market rent, and the Monthly Rent for the Extended Term shall equal one hundred percent (100%) of such fair market rent; provided, however, that if the determination of one (1) of the arbitrators (the "AVERAGE DETERMINATION") is equal to the average of the determinations of the other two (2) arbitrators, then the Average Determination shall be the fair market rent. However, the arbitrators shall not attempt to reach a mutual agreement of the fair market rent; each arbitrator shall independently arrive at his or her proposed resolution. (d) The arbitrators shall have the right to consult experts and competent authorities for factual information or evidence pertaining to a determination of fair market rent, but any such consultation shall be made in the presence of both parties with full right on their part to cross-examine. The arbitrators shall render the decision and award in writing with counterpart copies to each party. The arbitrators shall have no power to modify the provisions of this Lease. In the event of a failure, refusal or inability of any arbitrator to act, his or her successor shall be appointed by him or her, but in the case of the third arbitrator, his or her successor shall be appointed in the same manner as that set forth herein with respect to the appointment of the original third arbitrator. 5. RENT AND ADDITIONAL CHARGES. A. MONTHLY RENT. Tenant shall pay to Landlord, in lawful money of the United States, Monthly Rent as follows. commencing on the Commencement Date, and continuing throughout the balance of the Term (subject to adjustment pursuant to PARAGRAPH 5.B), the Monthly Rent shall equal Two and 25/100ths Dollars ($2.25) multiplied by the number of square feet of Rentable Area situated within the Premises, as determined by Landlord under PARAGRAPH 2. Monthly Rent shall be paid in advance, on the first day of each calendar month during the Term, without abatement, deduction, claim, offset, prior notice or demand. The sum of One 19 [page missing] 20 before the first day of each month during the ensuing calendar year, Tenant shall pay to Landlord one-twelfth (1/12th) of such estimated amounts, provided that if such notice is not given in December, Tenant shall continue to pay on the basis of the prior year's estimate until the month after such notice is given. If at any time or times it appears to Landlord, in its reasonable judgment, that the amounts payable under this PARAGRAPH 5.D. (i) for the current calendar year will vary from its then current estimate by more than five percent (5%), Landlord may, in its sole discretion, by notice to Tenant, showing in reasonable detail the basis for such variance, revise its estimate for such year, in which case subsequent payments by Tenant for such year shall be based upon such revised estimate. Landlord's election not to give the notice described in the foregoing sentence shall not affect Landlord's ability to charge Tenant for, nor Tenant's liability to pay for, any shortfall in the estimated payments for such calendar year previously made by Tenant, as set forth in PARAGRAPH 5.D. (ii). (ii) ADJUSTMENT. Within one hundred twenty (120) days after the close of each calendar year or as soon after such 120-day period as reasonably practicable, Landlord shall deliver to Tenant a reasonably detailed statement of Common Area Maintenance Costs for such calendar year, certified by Landlord or its property manager, subject to Tenant's right to audit as hereinafter provided. At that time, Landlord shall also deliver to Tenant a statement, certified as correct by Landlord, of the adjustments to be made pursuant to PARAGRAPH 5.D. (i) above. If Landlord's statement shows that Tenant owes an amount that is less than the estimated payments for such calendar year previously made by Tenant, Landlord shall refund such excess to Tenant within thirty (30) days after delivery of the statement. If such statement shows that Tenant owes an amount that is more than the estimated payments for such calendar year previously made by Tenant, Tenant shall pay the deficiency to Landlord within thirty (30) days after delivery of the statement. (iii) LAST YEAR. If this Lease shall terminate on a day other than the last day of a calendar year, the adjustment in Rent applicable to the calendar year in which such termination shall occur shall be prorated on the basis which the number of days from the commencement of such calendar year to and including such termination date bears to three hundred sixty (360). The termination of this Lease shall not affect the 21 obligations of Landlord and Tenant pursuant to PARAGRAPH 5.D. (ii) to be performed after such termination. (iv) AUDIT. Within one hundred eighty (180) days after receipt of Landlord's statement of Common Area Maintenance Costs as provided in PARAGRAPH 5.D. (ii), Tenant or its designee, on not less than five (5) days' prior written notice to Landlord, shall have the right to, at Tenant's sole cost and expense, audit, examine and copy Landlord's books and records with respect to the Common Area Maintenance Costs for the year for which the Landlord's statement pertains. If Tenant fails to give such written notice to Landlord within such 180-day period, Tenant shall be deemed to have forever waived its right to audit the Common Area Maintenance Costs for the year for which the Landlord's statement pertains. Landlord shall cooperate with Tenant in any such examination of its books and records. Tenant shall have the right to audit at Landlord's local offices, at Tenant's expense, Landlord's accounts and records relating to Common Area Maintenance Costs and Impositions. If such audit reveals to the reasonable satisfaction of Landlord and Tenant that Landlord has overcharged Tenant, the amount overcharged shall be paid to Tenant within thirty (30) days after the audit: is concluded. If such audit reveals to the reasonable satisfaction of Landlord and Tenant that Landlord has undercharged Tenant, the amount undercharged shall be paid to Landlord within thirty (30) days after the audit is concluded. In addition, if the audit reveals to the reasonable satisfaction of Landlord and Tenant that Landlord's statement exceeds the actual Common Area Maintenance Costs and Impositions which should have been charged to Tenant by more than seven percent (7%), the cost of the audit shall be paid by Landlord. If Tenant retains or utilizes a third party to perform such an audit of the Common Area Maintenance Costs and Impositions, Tenant shall not compensate such third party on anything other than an hourly basis. E. ADDITIONAL RENT. All monies required to be paid by Tenant under this Lease, including, without limitation, the Tenant Improvement costs pursuant to EXHIBIT B, the management fee described in PARAGRAPH 5.D, Tenant's share of Common Area Maintenance Costs pursuant to PARAGRAPH 5.D, Real Property Taxes and Impositions pursuant to PARAGRAPH 15, and the monthly cost of insurance premiums required pursuant to PARAGRAPH 21.C, shall be deemed Additional Rent. 22 F. PRORATIONS. If the Commencement Date is not the first (1st) day of a month, or if the termination date of this Lease is not the last day of a month, a prorated installment of Monthly Rent based on a 30-day month shall be paid for the fractional month during which such date occurs or the Lease terminates. G. INTEREST. Any amount of Rent or other charges provided for under this Lease due and payable to Landlord which is not paid within five (5) days after written notice from Landlord shall bear interest at the Interest Rate from (i) the date such Rent is due until such Rent is paid, or (ii) the date that is ten (10) days after Tenant receives written notice from Landlord that any other charge provided for under this Lease (other than Rent) is due and payable, until such other charge is paid. 6. LATE PAYMENT CHARGES. Tenant acknowledges that late payment by Tenant to Landlord of Rent and other charges provided for under this Lease will cause Landlord to incur costs not contemplated by this Lease, the exact amount of such costs being extremely difficult or impracticable to fix. Therefore, if any installment of Rent or any other charge due from Tenant is not received by Landlord within five (5) days after Landlord gives Tenant notice that such Rent or other charge is due, Tenant shall pay to Landlord an additional sum equal to seven percent (7%) of the amount overdue as a late charge for every month or portion thereof that the Rent or other charges remain unpaid. The parties agree that this late charge represents a fair and reasonable estimate of the costs that Landlord will incur by reason of the late payment by Tenant. INITIALS: ______________________________ ______________________________ Landlord Tenant 7. SECURITY DEPOSIT. A. DEPOSIT REQUIRED. Tenant shall deposit with Landlord upon the execution of this Lease by Landlord and Tenant, the sum of Four Hundred Ninety-Seven Thousand Five Hundred 23 Thirty-Eight and 00/100 Dollars ($497,538.00) (i.e., an amount equal to four (4) installments of Monthly Rent) as the "SECURITY DEPOSIT" for the full and faithful performance of every provision of this Lease to be performed by Tenant. At Tenant's option, the Security Deposit may be in the form of an irrevocable standby letter of credit ("L-C") Landlord shall not be required to segregate the Security Deposit from Landlord's general funds; Landlord's obligations with respect to the Security Deposit shall be those of a debtor and not a trustee, and Tenant shall not be entitled to any interest on the Security Deposit. Invocation by Landlord of its rights hereunder shall not constitute a waiver of nor relieve Tenant from any liability or obligation for any default by Tenant under this Lease. (i) REDUCTION OR REPLACEMENT. So long as Tenant has not committed any default under this Lease, which default is continuing after notice from Landlord and the expiration of any applicable grace period provided for in this Lease, (a) as of each of the second (2nd) anniversary of the Lease Commencement Date and the fourth (4th) anniversary of the Lease Commencement Date, Tenant may reduce the Security Deposit in the amount of One Hundred Twenty-Four Thousand Three Hundred Eighty-Four and 50/100 Dollars ($124,384.50) on each such anniversary date; or (b) if Tenant is profitable for a period of eight (8) consecutive quarters commencing after the Commencement Date, then Tenant may elect to reduce the Security Deposit to the sum equal to two (2) installments of the initial Monthly Rent. For the purposes of this PARAGRAPH 7, in order for Tenant to demonstrate that it has been profitable for the calendar quarter in question, Tenant must at a minimum deliver to Landlord an audited financial statement of Tenant, showing that Tenant has earned a net profit for each calendar quarter in question. In no event shall Tenant be entitled to reduce the Security Deposit below an amount equal to two (2) installments of the initial Monthly Rent If Tenant is entitled to and does elect to reduce the amount of the Security Deposit pursuant to this PARAGRAPH 7.A. (i), and Tenant delivers to Landlord written notice of its election to so reduce the amount of the Security Deposit and the financial statements described in the foregoing paragraph, then if the Security Deposit is in the form of cash, Landlord shall pay to Tenant the excess amount of the Security Deposit, without interest, within thirty (30) days after Landlord's receipt of such notice and statements; or if the Security Deposit is in the form of an L-C, then Tenant may, not less than ten (10) days 24 after Landlord's receipt of such notice and statement, replace the L-C with an L-C in an amount equal to the reduced amount of the Security Deposit. (ii) CONSEQUENCES OF DEFAULT. If Tenant defaults with respect to any provision of this Lease, after notice from Landlord and the expiration of any applicable cure or grace periods expressly provided for in this Lease, Landlord may apply all or any part of the Security Deposit for the payment of any Rent or other sum in default, the repair of such damage to the Premises or the payment of any other amount which Landlord may spend or become obligated to spend by reason of Tenant's default or to compensate Landlord for any other loss or damage which Landlord may suffer by reason of Tenant's default to the full extent permitted by law. If any portion of a cash Security Deposit is so applied, or any portion of an L-C posted as the Security Deposit, if applicable, is drawn upon, by Landlord for such purposes, Tenant shall either, within ten (10) days after written demand therefor, deposit cash with Landlord in an amount sufficient to restore the Security Deposit to its original amount or deposit a replacement L-C with Landlord in the amount of the original L-C. The Security Deposit or any balance thereof remaining after Landlord cures any default of Tenant hereunder shall be returned to Tenant within thirty (30) days of termination of the Lease. (iii) FORM OF L-C. If at any time Tenant elects to deposit an L-C as the Security Deposit, the L-C shall be issued by a bank reasonably acceptable to Landlord, shall be issued for a term of at least twelve (12) months and shall be in a form and with such content acceptable to Landlord in its sole discretion. Tenant shall either replace the expiring L-C with an L-C in an amount equal to the original L-C or renew the expiring L-C, in any event no later than thirty (30) days prior to the expiration of the term of the L-C then in effect. If Tenant fails to deposit a replacement L-C or renew the expiring L-C, Landlord shall have the right to draw upon the expiring L-C for the full amount thereof and hold the same as the Security Deposit; provided, however, that if Tenant provides a replacement L-C that meets the requirements of this PARAGRAPH 7,A, then Landlord shall return to Tenant promptly in cash that amount of the L-C that had been drawn upon by Landlord. Drawing upon the L-C shall be conditioned upon notice to Tenant of Landlord's intention to draw upon the L-C and the presentation to the issuer of the L-C of a certified statement executed by a general partner of Landlord 25 that (i) Tenant is in default under the Lease, which default is continuing after notice to Tenant and the expiration of any applicable grace period provided for herein, and Landlord is exercising its right to draw upon so much of the L-C as is necessary to cure Tenant's default, or (ii) Tenant has not renewed or replaced an expiring L-C as required by this Lease and Landlord is authorized to draw upon the L-C prior to its expiration. The L-C shall not be mortgaged, assigned or encumbered in any manner whatsoever by Tenant without the prior written consent of Landlord. The use, application or retention of the L-C, or any portion thereof, by Landlord shall not prevent Landlord from exercising any other right or remedy provided by this Lease or by law, it being intended that Landlord shall not first be required to proceed against the L-C, and such use, application or retention shall not operate as a limitation on any recovery to which Landlord may otherwise be entitled. 8. HOLDING OVER. If Tenant remains in possession of all or any part of the Premises after the expiration of the Term, with the express or implied consent of Landlord, such tenancy shall be at sufferance only, and shall not constitute a renewal or extension for any further term. If Tenant remains in possession after the expiration of the Term, without Landlord's consent, Rent shall be payable at a rental equal to one hundred fifty percent (150%) of the Monthly Rent payable during the last month of the Term (which rental shall be due and payable at the same time as Monthly Rent is due under this Lease), and any other sums due under this Lease shall be payable in the amount and at the times specified in this Lease. If Tenant remains in possession after the expiration of the Term with Landlord's consent, Rent shall be payable at a rental equal to one hundred percent (100%) of the Monthly Rent payable during the last month of the Term (which rental shall be due and payable at the same time as Monthly Rent is due under this Lease), and any other sums due under this Lease shall be payable in the amount and at the times specified in this Lease. Any such holdover tenancy (with or without Landlord's consent) shall be subject to every other term, condition, and covenant contained herein; provided, however, that Landlord's obligations under the Work Letter shall not be of any force or effect during any such holdover tenancy. 26 9. TENANT IMPROVEMENTS. Landlord agrees to construct the Tenant Improvements pursuant to the terms of EXHIBIT B. 10. CONDITION. OF PREMISES. A. CAPITAL IMPROVEMENTS. Prior to the Commencement Date, Landlord shall complete the Capital Improvements to the Premises in accordance with the terms of EXHIBIT B. Except for its obligation to perform the Capital Improvements and the Tenant Improvements as set forth in this Lease and the Work Letter, Landlord shall have no obligation whatsoever to do any work or perform any improvements whatsoever to any portion of the Premises or the Building. B. ACCEPTANCE OF PREMISES. Within ten (10) days after completion of the Tenant Improvements, Tenant shall conduct a walk-through inspection of the Premises with Landlord and complete a punch list of items needing additional work. Other than the items specified in the punch list, if any, and latent defects in the Capital Improvements that could not have been discovered by a reasonably thorough visual inspection of the Capital Improvements, and subject to Landlord's representations and warranties described below, by taking possession of the Premises, Tenant shall be deemed to have accepted the Premises in good, clean and completed condition and repair, subject to all applicable laws, codes and ordinances. Any damage to the Premises caused by Tenant's move-in shall be repaired or corrected by Tenant, at its sole cost and expense. Tenant acknowledges that neither Landlord nor Landlord's Agents have made any representations or warranties as to the suitability or fitness of the Premises for the conduct of Tenant's business or for any other purpose, nor has Landlord or Landlord's Agents agreed to undertake any Alterations or construct any Improvements to the Premises except as expressly provided in this Lease. If Tenant fails to submit a punch list to Landlord within such 10-day period, it shall be deemed that there are no Improvement items needing additional work or repair. Landlord's contractor shall complete all reasonable punch-list items within thirty (30) days after the walk-through inspection; provided, however, that if such punch-list items cannot reasonably be completed within the 30-day period, Landlord's contractor shall commence such performance within the 30-day period and diligently thereafter prosecute the same to completion. Upon completion of such 27 punch-list items, Tenant shall approve such completed items in writing to Landlord. If Tenant fails to approve such items within fourteen (14) days of completion, such items shall be deemed approved by Tenant. C. LANDLORD'S REPRESENTATIONS AND WARRANTIES. Landlord represents and warrants (the "Condition Warranties") to Tenant that as of the Commencement Date the following portions of the Building shall be in good condition (i.e. in an operable (but not new) state of repair, free of defects that would adversely affect Tenant's operation of its business in the Premises). (i) the HVAC system serving the Premises, (ii) the roof of the Building, (iii) the main electrical supply to a main distribution point in the Building, (iv) the working sanitary sewer lines to the Building, and (v) water service to the Building. The Condition Warranties shall terminate on a date one hundred eighty (180) days after the Commencement Date, except to the extent that Tenant has delivered to Landlord within such 180-day period a written notice specifying in detail any defaults by Landlord under the Condition Warranties (a "Violation Notice"), and Landlord shall thereafter have absolutely no liability to Tenant for the inaccuracy of any Condition Warranty, except to the extent set forth in a Violation Notice. Landlord's liability for the correction of any defects described in a Violation Notice shall be subject to Landlord's reasonable right to dispute the claims set forth in any Violation Notice. Landlord's sole liability with respect to any breach of any Condition Warranty that is properly set forth in a timely delivered Violation Notice shall be to promptly correct such defect; Landlord shall have no liability for any other loss, cost, damage, expense or lost profit in connection with such breach, and Tenant shall have no right to any abatement or offset of Rent in connection with such breach. D. LANDLORD'S ADDITIONAL REPRESENTATION AND WARRANTY. Landlord represents and warrants (the "Environmental Warranty") to Tenant that to the best of Landlord's knowledge, as of the Commencement Date, no asbestos-containing materials (other than asbestos-containing materials that are fully encapsulated or that are within the transite panels of the curtain wall of the Building) shall be present in the Premises. Landlord's sole liability with respect to any breach of the Environmental Warranty shall be to promptly correct such defect; Landlord shall have no liability for any other loss, cost, damage, expense or lose profit in connection with such breach, and Tenant shall have 28 no right to any abatement or offset of Rent in connection with such breach. 11. USE OF THE PREMISES AND COMMON AREA. A. TENANT'S USE. Tenant shall use the Premises only for general office, administration, research and development, manufacturing, warehousing and any other legal use related to such activities and consistent with any CC&Rs. Tenant shall not use the Premises or suffer or permit anything to be done in or about the Premises which will in any way conflict with any law, statute, zoning restriction, ordinance or governmental law, rule, regulation or requirement of public authorities now in force or which may hereafter be in force, relating to or affecting the condition, use or occupancy of the Premises. Tenant shall not commit any public or private nuisance or any other act or thing which might or would disturb the quiet enjoyment of any other tenant of Landlord or any occupant of nearby property. Tenant shall place no loads upon the floors, walls or ceilings in excess of the maximum designed load determined by a licensed structural engineer or which endanger the structure; nor place any harmful liquids in the drainage systems; nor dump or store waste materials or refuse or allow waste materials or refuse to remain outside the Building proper, except in the enclosed trash areas provided. Tenant shall not store or permit to be stored or otherwise placed any other material of any nature whatsoever outside the Building, except on a temporary basis. B. HAZARDOUS MATERIALS. (i) HAZARDOUS MATERIALS DEFINED. As used herein, the term "HAZARDOUS MATERIALS" shall mean any wastes, materials or substances (whether in the form of liquids, solids or gases, and whether or not air-borne), which are or are deemed to be (a) pollutants or contaminants, or which are or are deemed to be hazardous, toxic, ignitable, reactive, corrosive, dangerous, harmful or injurious, or which present a risk to public health or to the environment, or which are or may become regulated by or under the authority of any applicable local, state or federal laws, judgments, ordinances, orders, rules, regulations, codes or other governmental restrictions, guidelines or requirements, any amendments or successor(s) thereto, replacements thereof or publications promulgated pursuant thereto, including, without limitation, any such items or substances which are or may become regulated by any of the Environmental Laws (as hereinafter 29 defined); (b) listed as a chemical known to the State of California to cause cancer or reproductive toxicity pursuant to Section 25249.8 of the California Health and Safety Code, Division 20, Chapter 6.6 (Safe Drinking Water and Toxic Enforcement Act of 1986); or (c) a pesticide, petroleum, including crude oil or any fraction thereof, asbestos or any asbestos-containing material, a polychlorinated biphenyl, radioactive material, or urea formaldehyde. (ii) ENVIRONMENTAL LAWS DEFINED. In addition to the laws referred to in PARAGRAPH 11.B. (i) above, the term "ENVIRONMENTAL LAWS" shall be deemed to include, without limitation, 33 U.S.C. Section 1251 ET SEQ., 42 U.S.C. Section 6901 ET SEQ., 42 U.S.C. Section 7401 ET SEQ., 42 U.S.C. Section 9601 ET SEQ., and California Health and Safety Code Section 25100 ET SEQ., and 25300 ET SEQ., California Water Code, Section 13020 ET SEQ., or any successor(s) thereto, all local, state and federal laws, judgments, ordinances, orders, rules, regulations, codes and other governmental restrictions, guidelines and requirements, any amendments and successors thereto, replacements thereof and publications promulgated pursuant thereto, which deal with or otherwise in any manner relate to, air or water quality, air emissions, soil or ground conditions or other environmental matters of any kind. (iii) USE OF HAZARDOUS MATERIALS. Tenant agrees that during the Term of this Lease, Tenant shall not use, or permit the use of, nor store, generate, treat, manufacture or dispose of Hazardous Materials on, from or under the Premises (individually and collectively, "HAZARDOUS USE") except to the extent that, and in accordance with such conditions as, Landlord may have previously approved in writing in its sole and absolute discretion. Notwithstanding the foregoing, Tenant shall be entitled to use and store only those Hazardous Materials which are (a) set forth in a list prepared by Tenant and approved in writing by Landlord, which shall be deemed given with respect to the Approved Hazardous Materials (hereinafter defined), (b) necessary for Tenant's business, but then only in the amounts and for the purposes previously disclosed in writing to and approved in writing by Landlord, and (c) in full compliance with Environmental Laws, and all judicial and administrative decisions pertaining thereto. All Hazardous Materials approved in writing by Landlord as provided in the preceding sentence shall collectively be referred to as the "APPROVED HAZARDOUS MATERIALS". Within thirty (30) days after request by Landlord, 30 Tenant shall deliver to Landlord a list of the Approved Hazardous Materials. Tenant shall nor. be entitled to install any tanks under, on or about the Premises for the storage of Hazardous Materials without the express written consent of Landlord, which may be given or withheld in Landlord's sole discretion. For the purposes of this PARAGRAPH 11.B. (iii), the term Hazardous Use shall include Hazardous Use(s) on, from or under the Premises by Tenant, any Subtenant occupying all or any portion of the Premises during the Term, or any of their directors, officers, employees, shareholders, partners, invitees, agents, contractors or occupants (collectively, "Tenant's Parties"), whether known or unknown to Tenant, occurring during the Term of this Lease. The term "TENANT'S PARTIES" shall not include any tenants of the Project other than Tenant, except that the term "TENANT'S PARTIES" shall include any Subtenant occupying all or any portion of the Premises during the Term. Notwithstanding anything herein to the contrary, Tenant may use normal amounts of cleaning supplies and office products customarily used by office tenants without Landlord's prior consent thereto. (iv) HAZARDOUS MATERIALS REPORT; WHEN REQUIRED. Tenant shall submit to Landlord a written report with respect to Hazardous Materials ("REPORT") in the form prescribed in PARAGRAPH 11.B. (v) below on the following dates: (a) At any time within ten (10) days after written request by Landlord, and (b) At any time when there has been a violation of any Environmental Law, or in connection with any proposed request for Landlord's consent to any change in the list of Approved Hazardous Materials or for an increase in the intensity of usage or storage of such Approved Hazardous Materials. (v) HAZARDOUS MATERIALS REPORT; CONTENTS. The Report shall contain, without limitation, the following information: (a) Whether on the date of the Report and (if applicable) during the period since the last Report there has been any Hazardous Use on, from or under the Premises, other than the use of Approved Hazardous Materials. 31 (b) If there was. such Hazardous Use, the exact identity of the Hazardous Materials (other than the Approved Hazardous Materials), the dates upon which such materials were brought upon the Premises, the dates upon which such Hazardous Materials were removed therefrom, and the quantity, location, use and purpose thereof. (c) If there was such Hazardous Use, any governmental permits maintained by Tenant with respect to such Hazardous Materials, the issuing agency, original date of issue, renewal dates (if any) and expiration date. Copies of any such permits and applications therefor shall be attached. (d) If there was such Hazardous Use, any governmental reporting or inspection requirements with respect to such Hazardous Materials, the governmental agency to which reports are made and/or which conducts inspections, and the dates of all such reports and/or inspections (if applicable) since the last Report. Copies of any such Reports shall be attached. (e) If there was such Hazardous Use, identification of any operation or business plan prepared for any government agency with respect to Hazardous Use. (f) Any liability insurance carried by Tenant with respect to Hazardous Materials, if any, the insurer, policy number, date of issue, coverage amounts, and date of expiration. Copies of any such policies or certificates of coverage shall be attached. (g) Any notices of violation of Environmental Laws, written or oral, received by Tenant from any governmental agency since the last Report, the date, name of agency, and description of violation. Copies of any such written notices shall be attached. (h) Any knowledge, information or communication which Tenant has acquired or received relating to (x) any enforcement, cleanup, removal or other governmental or regulatory action threatened or commenced against Tenant or with respect to the Premises pursuant to any Environmental Laws; (y) any claim made or threatened by any person or entity against Tenant or the Premises on account of any alleged loss or injury claimed to result from any alleged Hazardous Use on or about the Premises; or (z) any report, notice or complaint made to or filed 32 with any governmental agency concerning any Hazardous Use on or about the Premises. The Report shall be accompanied by copies of any such claim, report, complaint, notice, warning or other communication that is in the possession of or is available to Tenant. (i) Such other pertinent information or documents as are reasonably requested by Landlord in writing. (vi) RELEASE OF HAZARDOUS MATERIALS; NOTIFICATION AND CLEANUP. (a) At any time during the Term, if Tenant knows or believes that any release of any Hazardous Materials has come or will come to be located upon, about or beneath the Premises, then Tenant shall immediately, either prior to the release or following the discovery thereof by Tenant, give verbal and follow-up written notice of that condition to Landlord. (b) At its sole cost and expense, Tenant covenants to investigate, clean up and otherwise remediate any release of Hazardous Materials which were caused or created by Tenant or any of Tenant's Parties. Such investigation, clean-up and remediation shall be performed only after Tenant has obtained, if practicable, Landlord's written consent, which shall not be unreasonably withheld; provided, however, that Tenant shall be entitled to respond immediately to an emergency without first obtaining Landlord's written consent. All clean-up and remediation shall be done in compliance with Environmental Laws and to the reasonable satisfaction of Landlord; provided, however, that Landlord shall not require Tenant to perform any clean-up or remediation work in excess of that work required to return the property affected by such release of Hazardous Materials to the condition it was in prior to the date of such release. (c) Notwithstanding the foregoing, Landlord shall have the right, but not the obligation, in Landlord's sole and absolute discretion, exercisable by written notice to Tenant, to undertake within or outside the Premises all or any portion of any reasonable investigation, clean-up or remediation with respect to any Hazardous Use of such Hazardous Materials by Tenant or any of Tenant's Parties (or, once having undertaken any of such work, to cease same, in which case Tenant shall perform the work), all at Tenant's sole cost and expense, which shall be 33 paid by Tenant as Additional Rent within ten (10) days after receipt of written request therefor by Landlord (and which Landlord may require to be paid prior to commencement of any work by Landlord; provided, however, that Tenant's obligation to pay for such work shall only be applicable if Tenant fails to perform its obligations under this PARAGRAPH 11 (including without limitation the obligations described in PARAGRAPH 11.B. (vi)(b)). No such work by Landlord shall create any liability on the part of Landlord to Tenant or any other party in connection with such Hazardous Materials by Tenant or any of Tenant's Parties or constitute an admission by Landlord of any responsibility with respect to such Hazardous Materials. (d) It is the express intention of the parties hereto that Tenant shall be liable under this PARAGRAPH 11.B, (vi) for any and all conditions covered hereby which were or are caused or created by Tenant or any of Tenant's Parties, whether occurring (x) on or after the Commencement Date, or (y) prior to the Commencement Date (to the extent that such condition or conditions occurring prior to the Commencement Date arise from Tenant's early occupancy of the Premises pursuant to PARAGRAPH 40 below). Tenant shall not enter into any settlement agreement, consent decree or other compromise with respect to any claims relating to any Hazardous Materials in any way connected to the Premises without first (A) notifying Landlord of Tenant's intention to do so and affording Landlord the opportunity to participate in any such proceedings, and (B) obtaining Landlord's written consent, which shall not be unreasonably withheld. (vii) INSPECTION AND TESTING BY LANDLORD. Landlord shall have the right at all times during the Term of this Lease to (a) inspect the Premises, as well as such of Tenant's books and records pertaining to the Premises and the conduct of Tenant's business therein, and to (b) conduct tests and investigations to determine whether Tenant is in compliance with the provisions of this PARAGRAPH 11.B. Except in case of emergency, Landlord shall give reasonable notice to Tenant before conducting any inspections, tests, or investigations in accordance with PARAGRAPH 19, shall provide Tenant with a work plan describing any testing that shall be performed at the Premises, and shall use reasonable efforts to minimize interference with the conduct of Tenant's business at the Premises caused by any such inspections, tests, or investigations. The cost of all such inspections, tests and investigations shall be borne by Tenant if Landlord reasonably 34 concludes on the basis of such investigation that Tenant has failed to comply with its obligations under this PARAGRAPH 11.B. Neither any action nor inaction on the part of Landlord pursuant to this PARAGRAPH 11.B. (vii) shall be deemed in any way to release Tenant from, or in any way modify or alter, Tenant's responsibilities, obligations, and liabilities incurred pursuant to PARAGRAPH 11.B hereof. (viii) INDEMNITY. Tenant shall indemnify, defend, protect, hold harmless, and, at Landlord's option (with such attorneys as Landlord may approve in advance and in writing), defend Landlord, Landlord's Agents, and Landlord's officers, directors, shareholders, partners, employees, contractors, property managers, agents and mortgagees and other lien holders, from and against any and all Losses (as defined below), whenever such Losses arise, arising from or related to:(a) any violation or alleged violation by Tenant or any of Tenant's Parties of any of the requirements, ordinances, statutes, regulations or other laws referred to in this PARAGRAPH 11.B, including, without limitation, the Environmental Laws, whether such violation or alleged violation occurred prior to (but only to the extent that such violation or alleged violation arises from Tenant's early occupancy of the Premises pursuant to PARAGRAPH 40 below), on, or after the Commencement Date, (b) any breach of the provisions of this PARAGRAPH 11.B by Tenant or any of Tenant's Parties, or (c) any Hazardous Use on, about or from the Premises by Tenant or any of Tenant's Parties of any Hazardous Materials (whether or not approved by Landlord under this Lease), whether such Hazardous Use occurred prior to, on, or after the Commencement Date. The term "LOSSES" shall mean all claims, demands, expenses, actions, judgments, damages (whether consequential, direct or indirect, known or unknown, foreseen or unforeseen), penalties, fines, liabilities, losses of every kind and nature (including, without limitation, property damage, diminution in value of Landlord's interest in the Premises, damages for the loss of restriction on use of any space or amenity within the Premises, damages arising from any adverse impact on marketing space in the Premises, sums paid in settlement of claims and any costs and expenses associated with injury, illness or death to or of any person), suits, administrative proceedings, costs and fees, including, but not limited to, reasonable attorneys' and consultants' fees and expenses, and the costs of cleanup, remediation, removal and restoration, that are in any way related to any matter covered by the foregoing indemnity. 35 (ix) SURVIVAL. The provisions of this PARAGRAPH 11.B shall survive the expiration or earlier termination of this Lease. C. SPECIAL PROVISIONS RELATING TO THE AMERICANS WITH DISABILITIES ACT OF 1990. (i) ALLOCATION OF RESPONSIBILITY TO LANDLORD. As between Landlord and Tenant, Landlord shall be responsible for assuring that the Common Area owned by Landlord and the exterior of the Building comply with the requirements of Title III of the Americans with Disabilities Act of 1990 (42 U.S.C. 12181, et seq., The Provisions Governing Public Accommodations and Services Operated by Private Entities), and all regulations promulgated thereunder, and all amendments, revisions or modifications thereto now or hereafter adopted or in effect in connection therewith (hereinafter collectively referred to as the "ADA"), and to take such actions and make such alterations and improvements as are necessary for such compliance; provided, however, that to the extent such requirements arise from the construction of any Alterations to the Premises made by or on behalf of Tenant, then as between Landlord and Tenant, Tenant shall be responsible that the Common Area complies with the requirements of the ADA, and to take such actions and make such alterations and improvements as are necessary for such compliance. (ii) ALLOCATION OF RESPONSIBILITY TO TENANT. Except as expressly provided in the Work Letter, as between Landlord and Tenant, Tenant, at its sole cost and expense, shall be responsible for assuring that the Premises (and all modifications made by Tenant of access to the Premises from the street), and all alterations and improvements in the Premises (including without limitation the Tenant Improvements), and Tenant's use and occupancy of the Premises, and Tenant's performance of its obligations under this Lease, comply with the requirements of the ADA, and to take such actions and make such alterations and improvements as are necessary for such compliance; provided, however, that Tenant shall not make any such alterations or improvements except upon Landlord's prior written consent (which shall not be unreasonably withheld) pursuant to the terms and conditions of this Lease. If Tenant fails diligently to take such actions or make such alterations or improvements as are necessary for such compliance, Landlord may, but shall not be obligated to, take such actions and make such 36 alterations and improvements and may recover all of the costs and expenses of such actions, alterations and improvements from Tenant as Additional Rent. Tenant shall be entitled to utilize the Tenant Improvements Allowance to pay for the cost of any improvements required by ADA that are triggered by the construction of the Tenant Improvements. (iii) GENERAL. Notwithstanding anything in this Lease contained to the contrary, no act or omission of either party, including any approval, consent or acceptance by it or its agents, employees or other representatives, shall be deemed an agreement, acknowledgment, warranty, or other representation by it that the other party has complied with the ADA as provided under PARAGRAPHS 11.C. (i) or 11.C. (ii) or that any action, alteration or improvement by it complies or will comply with the ADA as provided under PARAGRAPHS 11.C. (i) or 11.C. (ii) or constitutes a waiver by it of the other party's obligations to comply with the ADA under PARAGRAPHS 11.C. (i) or 11.C. (ii) of this Lease or otherwise. Any failure of either party to comply with its obligations of the ADA under PARAGRAPHS 11.C, (i) or 11.C. (ii) shall not relieve such party from any obligations under this Lease or in the case of Landlord's failure to comply under PARAGRAPH 11.C. (i), constitute or be construed as a constructive or other eviction of Tenant or disturbance of Tenant's use and possession of the Premises. D. USE AND MAINTENANCE OF COMMON AREA. Tenant and its employees and invitees shall have the non-exclusive right to use the Common Area in common with other persons during the Term of this Lease, subject to the CC&Rs and such reasonable rules and regulations as may from time to time be deemed necessary or advisable in Landlord's reasonable discretion for the proper and efficient operation and maintenance of the Common Area. Such rules and regulations may include, among other things, the hours during which the Common Area shall be open for use. Landlord shall maintain and operate the Common Area from time to time owned by Landlord in good condition, provided that any damage thereto, other than normal wear and tear, occasioned by the negligence of Tenant or its employees or invitees shall be paid by Tenant upon demand by Landlord. 12. QUIET ENJOYMENT. Landlord covenants that Tenant, upon performing the terms, conditions and covenants of this Lease, shall have quiet 37 and peaceful possession of the Premises as against any person claiming the same by, through or Under Landlord. 13. ALTERATIONS. A. ALTERATION RIGHTS. After the Commencement Date, Tenant shall not make or permit any Alterations in, on or about the Premises, without the prior written consent of Landlord, and according to plans and specifications approved in writing by Landlord, which consent shall not be unreasonably withheld. Notwithstanding the foregoing Tenant shall not, without the prior written consent of Landlord, make any. (i) Alterations to the exterior of the Building; (ii) Alterations to the roof of the Building; and (iii) Alterations visible from outside the Building, to which Landlord may withhold Landlord's consent on wholly aesthetic grounds. Notwithstanding anything to the contrary herein, Tenant may make alterations to the Premises without Landlord's prior consent (but with notice to Landlord) provided the same do not cost in excess of Twenty-Five Thousand Dollars ($25,000) in each instance (and that Tenant has not performed alterations to the Premises during any period of twelve (12) consecutive months that in the aggregate cost in excess of Seventy-Five Thousand Dollars ($75,000)), are not structural in nature, do not affect Building systems or the exterior of or the roof of the Building, and are not visible from the outside of the Building. B. PERFORMANCE OF ALTERATIONS. All Alterations shall be installed at Tenant's sole expense, in compliance with all applicable laws, by a licensed contractor, shall be done in a good and workmanlike manner conforming in quality and design with the Premises existing as of the Commencement Date, and shall not diminish the value of either the Building or the Premises. All Alterations made by Tenant shall be and become the property of Landlord upon installation and shall not be deemed Tenant's Personal Property, and Tenant shall not remove any Alterations from the Premises unless Tenant has first obtained Landlord's written consent to such removal. Landlord may require Tenant to remove, at Tenant's expense, any Alterations from the Premises au the expiration or earlier termination of this Lease; provided, 38 however, that at the time any Alterations are constructed, Tenant shall have the right to request Landlord's written approval (which shall not be unreasonably withheld or delayed) that Landlord will not require the removal of such Alterations at the expiration or earlier termination of this Lease. Notwithstanding any other provision of this Lease, Tenant shall be solely responsible for the maintenance and repair of any and all Alterations made by it to the Premises. Tenant shall give Landlord written notice of Tenant's intention to perform work on the Premises at least ten (10) days prior to the commencement of such work to enable Landlord to post and record a Notice of Nonresponsibility or other notice deemed proper before the commencement of any such work. Notwithstanding anything to the contrary contained herein, Tenant shall not be required to remove (i) any of the initial Tenant Improvements constructed by or on behalf of Tenant, and (ii) any alterations, additions or improvements for which Tenant has obtained Landlord's consent, but only if at the time Tenant requested Landlord's consent thereto, Tenant gave Landlord a written request that Landlord identify in writing which, if any, of Tenant's alterations, additions or improvements must in Landlord's sole discretion be removed upon the expiration of the Term, and Landlord did not notify Tenant within twenty (20) days after Landlord's receipt of such notice that such alterations, additions or improvements must be removed upon the expiration of the Term. 14. SURRENDER OF THE PREMISES. Upon the expiration or earlier termination of the Term, Tenant shall surrender the Premises to Landlord in its condition existing as of the date of substantial completion of the Improvements, normal wear and tear and fire or other casualty excepted, with all interior walls repaired if damaged, all broken, marred or nonconforming acoustical ceiling tiles replaced, all windows washed, the plumbing and electrical systems and lighting in good order and repair, including replacement of any burned out or broken light bulbs or ballasts, the HVAC equipment serviced and repaired by a reputable and licensed service firm, and all floors cleaned, all to the reasonable satisfaction of Landlord. Tenant shall remove from the Premises all of Tenant's Alterations required to be removed pursuant to PARAGRAPH 13, and all of Tenant's Personal Property, and repair any damage and perform any restoration work caused by such removal. If Tenant fails to remove such Alterations and Tenant's Personal Property, and such failure continues after the 39 expiration or earlier termination of this Lease, Landlord may, to the extent permitted by law, retain such Alterations and Tenant's Property and all rights of Tenant with respect to it shall cease, or Landlord may place all or any portion of such Alterations and Tenant's Property in public storage for Tenant's account. Tenant shall be liable to Landlord for costs of removal of any such Alterations and Tenant's Personal Property and storage and transportation costs of same, and the cost of repairing and restoring the Premises, together with interest at the Interest Rate from the date of expenditure by Landlord. If the Premises are not so surrendered at the expiration or earlier termination of this Lease, Tenant shall indemnify Landlord and Landlord's Agents against all loss or liability, including reasonable attorneys' fees and costs, resulting from delay by Tenant in so surrendering the Premises. Normal wear and tear, for the purposes of this Lease, shall be construed to mean wear and tear caused to the Premises by a natural aging process which occurs in spite of prudent application of good standards for maintenance, repair and janitorial practices. It is not intended, nor shall it be construed, to include items of neglected or deferred maintenance which would have or should have been attended to during the Term of the Lease if good standards had been applied to properly maintain and keep the Premises at all times in good condition and repair. 15. IMPOSITIONS AND REAL PROPERTY TAXES. A. PAYMENT BY TENANT. Tenant shall pay all Impositions prior to delinquency. If billed directly, Tenant shall pay such Impositions and concurrently present to Landlord satisfactory evidence of such payments. If any Impositions are billed to Landlord or included in bills to Landlord for Real Property Taxes, then Tenant shall pay to Landlord all such amounts not less than five (5) days prior to the date such Imposition would be delinquent. If applicable law prohibits Tenant from reimbursing Landlord for an Imposition, but Landlord may lawfully increased the Monthly Rent to account for Landlord's payment of such Imposition, the Monthly Rent payable to Landlord shall be increased so that the amount of such increased Monthly Rent, together with any accompanying increases in the Real Property Taxes payable by Tenant with respect to such Imposition, are sufficient to net to Landlord the same return without reimbursement of such Imposition as would have been received by 40 Landlord with reimbursement of such Imposition. In addition, on or before April 10 and December 10 of each year of the Term, Tenant shall pay directly to the San Mateo County assessor the Real Property Taxes for the Premises as set forth on the assessor's tax bill for the Premises. If, however, the Premises are not a separate parcel for tax purposes but constitute a portion of a larger tax parcel or parcels, the Real Property Taxes payable by Tenant under this Lease shall be a percentage of the Real Property Taxes payable for such parcel or parcels, which percentage shall be determined by dividing the Rentable Area of the Premises by the total Rentable Area of all buildings on such parcel or parcels and multiplying the result by 100, which Real Property Taxes shall be payable by Tenant to Landlord monthly as part of the Common Area Maintenance Costs. Tenant, at its cost, shall have the right at any time to seek a reduction in or otherwise contest any Real Property Taxes for which it is obligated to reimburse Landlord pursuant to this PARAGRAPH 15, by action or proceeding against the entity with authority to assess or impose the same. Landlord shall not be required to join in any proceeding or action brought by Tenant unless the provisions of applicable regulations require that such proceeding or action be brought by or in the name of Landlord, in which event Landlord shall join in such proceeding or action or permit it to be brought in Landlord's name, provided that Tenant shall protect, indemnify, defend, and hold Landlord free and harmless from and against any and all loss, liability, cost, damage, claim or expense in connection with such proceeding or contest. Tenant shall continue, during the pendency of such proceeding or action, to pay the Real Property Taxes due as determined by landlord pursuant to this PARAGRAPH 15. If Tenant is successful in such action or proceeding, Landlord shall reimburse to Tenant its prorata share of the reduction in Real Property Taxes realized by Tenant in such Contest or proceeding within ten (10) days after the amount of such reduction has been determined. (i) TAX PARCELS. If Landlord determines in its reasonable discretion that the configuration of tax parcels within the Project (including without limitation the tax parcel on which the Premises is situated) causes the allocation of Real Property Taxes between the affected tax parcels to be unfair or inequitable, Landlord reserves the right to internally reallocate the Real Property Taxes assessed against such affected tax parcels in a manner that reasonably addresses such unfairness or inequity. If Landlord effects any such reallocation, then the 41 Real Property Taxes payable by Tenant under this Lease shall be those Real Property Taxes allocated to the Premises pursuant to this PARAGRAPH 15 A. (i). (ii) PAYMENT. Promptly following payment of the Real Property Taxes, Tenant shall provide Landlord with copies of paid receipts or other documentary evidence that the Real Property Taxes have been paid by Tenant. If Tenant fails to pay the Real Property Taxes on or before April 10 and December 10, respectively, or if Tenant fails to pay its share of Real Property Taxes as part of the Common Area Maintenance Costs, Tenant shall pay to Landlord any penalty incurred by such late payment. In addition, Tenant shall pay any Real Property Tax not included within the county tax assessor's tax bill within ten (10) days after being billed for same by Landlord. The foregoing dates are based on the dates established by the county as the dates on which Real Property Taxes become delinquent if not paid. If such delinquency dates change, the dates on which Tenant must pay the Real Property Taxes for the Premises shall be at least ten (10) days prior to the new delinquency dates. Assessments, taxes, fees, levies and charges may be imposed by governmental agencies for such purposes as fire protection, street, sidewalk, road, utility construction and maintenance, refuse removal and for other governmental services which may formerly have been provided without charge to property owners or occupants. It is the intention of the parties that all new and increased assessments, taxes, fees, levies and charges are to be included within the definition of Real Property Taxes for the purposes of this Lease. B. TAXES ON TENANT IMPROVEMENTS AND PERSONAL PROPERTY. Tenant shall pay any increase in Real Property Taxes resulting from any and all Alterations and Tenant Improvements of any kind whatsoever placed in, on or about the Premises for the benefit of, at the request of, or by Tenant. Tenant shall pay prior to delinquency all taxes assessed or levied against Tenant's Personal Property in, on or about the Premises or elsewhere. When possible, Tenant shall cause its Personal Property to be assessed and billed separately from the Premises and the real property or Personal Property of Landlord. C. PRORATION. Tenant's liability to pay Real Property Taxes shall be prorated on the basis of a 360-day year to account for any fractional portion of a fiscal tax year included at the commencement or expiration of the Term. With 42 respect to any assessments which may be levied against or upon the Premises or all or any portion of the Project, or which under the laws then in force may be evidenced by improvements or other bonds or may be paid in annual installments, only the amount of such annual installment (with appropriate proration for any partial year) and interest due thereon shall be included within the computation of the annual Real Property Taxes levied against the Premises or such portion of the Project, as applicable. 16. UTILITIES AND SERVICES. Tenant shall be responsible for and shall pay promptly all charges for water, gas, electricity, telephone, refuse pick-up, janitorial service and all other utilities, materials and services furnished directly to or used by Tenant in, on or about the Premises during the Term, together with any taxes thereon. If any utility, material or service is not separately charged or metered to any portion of the Premises, Tenant shall pay to Landlord, within ten (10) days after written demand therefor, Tenant's pro rata share of the total cost thereof as may be determined by Landlord. Landlord shall not be liable in damages or otherwise for any failure or interruption of any utility service or other service furnished to the Premises, except that resulting from the gross negligence or willful misconduct of Landlord. Tenant shall have the right to contract directly with vendors for janitorial and maintenance services, provided such vendors must be approved in advance by Landlord, which approval shall not be unreasonably withheld; and provided further, that Tenant shall have no right to contract with any vendor to maintain the Building's HVAC system, which shall be the sole responsibility of Landlord as set forth in PARAGRAPH 17.A. 17. REPAIR AND MAINTENANCE. A. LANDLORD'S OBLIGATIONS. Landlord shall keep in good order, condition and repair the structural parts of the Building, which structural parts consist only of the foundation, subflooring, exterior walls (excluding the interior of all walls and the exterior and interior of all windows, doors, ceilings, and plate glass), and roof of the Building, and all plumbing and electrical facilities leading up to (but not situated within) the Building, except for any damage thereto caused by the negligence or willful acts or omissions of Tenant or of Tenant's agents, employees or invitees, or by reason of the failure of Tenant to perform or comply with any terms of this Lease, or caused by 43 Alterations made by Tenant or by Tenant's agents, employees or contractors. It is an express condition precedent to all obligations of Landlord to repair and maintain that Tenant shall have notified Landlord of the need for such repairs or maintenance. Tenant waives the provisions of Sections 1941 and 1942 of the California Civil Code and any similar or successor law regarding Tenant's right to make repairs and deduct the expenses of such repairs from the Rent due under this Lease. Landlord shall keep in good order, condition, repair and maintenance the Building's HVAC system and roof, and shall maintain an HVAC system preventive maintenance service contract from a qualified vendor at a competitive price for the purpose of maintaining the Building's HVAC system, and a roof maintenance service contract from a qualified vendor for the purpose Of maintaining the Building's roof. Landlord shall determine in its sole discretion whether any such vender is qualified. Any and all costs of any maintenance or repair of the HVAC system or the roof (including without limitation the cost of maintaining HVAC system preventative maintenance contracts and roof maintenance service contracts) shall be included in the Common Area Maintenance Costs payable by Tenant for the year in which such cost is incurred. Landlord may elect, in its sole discretion, to paint the exterior of the Building and/or to replace or perform capital improvements to any area or aspect of the Building which Landlord is required keep in good order, condition and repair. Subject to the provisions of PARAGRAPH 17.A(i) below, if Landlord decides, in its sole discretion, to replace the roof of the Building or make other capital improvements or replacements to the Building or its systems during the Term, then the cost of so replacing the roof or performing such replacement, together with interest at the Interest Rate, shall be amortized on a straight-line basis over the useful life of the roof or capital improvement or replacement (as determined by Landlord in its sole discretion) (the "USEFUL LIFE"), and the entire amount of such amortized costs and interest allocable to each month, multiplied by Tenant's Building Share, shall be included in the monthly Common Area Maintenance Costs payable by Tenant during the entire period over which such costs are amortized, until Tenant has paid to Landlord that proportion of the total amount of such amortized costs equal to (a) the number of months remaining during the Term as of the date such roof replacement was completed, divided by (b) the number of months of the Useful Life, multiplied by (c) Tenant's Building Share. For. the purposes of example only and not by way of limitation, if the Building's roof is replaced twenty-four (24) months before the end of the Term, at a cost of 44 Fifty Thousand Dollars ($50,000.00), and the Useful Life is one hundred twenty (120) months, then (a) the cost of such replacement shall be amortized at the rate of Four Hundred Sixteen and 67/100ths Dollars ($416.67) per month, with interest at the Interest Rate, and (b) the amount to be included in the monthly Common Area Maintenance Costs payable solely by Tenant for the balance of the Term shall equal Two Hundred Ninety-One and 67/100ths Dollars ($291.67), with interest at the Interest Rate, until Tenant has paid to Landlord a total aggregate amount of Seven Thousand Dollars ($7,000.00), together with interest at the Interest Rate, towards such amortized costs (i.e., Fifty Thousand Dollars ($50,000.00) multiplied by [Twenty-Four (24) months divided by One Hundred Twenty (120) months]) multiplied by Tenant's Building Share. If Tenant exercises the Option to Extend, the total length of the Term (i.e., the initial Term and the Extended Term) shall be utilized to calculate the maximum amount of such amortized costs that shall be includable in the monthly Common Area Maintenance Costs payable solely by Tenant pursuant to this PARAGRAPH 17.A. It is the express intent of the parties that except as specifically set forth in this PARAGRAPH 17.A, Landlord shall have no obligation whatsoever to repair or maintain the Premises or the Building, and that Tenant shall be responsible for performing all repair, operation, and maintenance of the Premises except for those tasks specifically described in this PARAGRAPH 17.A. If Tenant gives Landlord written notice ("DEFECT NOTICE") that there is a defect or other problem with the Capital Improvements that may be covered by a warranty issued by Contractor (as defined in EXHIBIT B) or any subcontractor that performed any of the Capital Improvements, Landlord shall (i) assign to Tenant the benefit of those warranties (if any) held by Landlord that are applicable to the defects described in the Defect Notice, (ii) at no cost or expense to Landlord, take such actions as may be reasonably requested by Tenant to assist Tenant's efforts to enforce any such warranties. It is also, the express intent of the parties that if Landlord for any reason fails to complete all of the Capital Improvements before the Commencement Date, Landlord shall complete the construction of the Capital Improvements at its sole cost and expense, and shall have no right to include the cost of completing the Capital Improvements in Common Area Maintenance Costs or otherwise seek reimbursement from Tenant for the cost of completing the Capital Improvements. 45 (i) The parties acknowledge and agree that as part of the Capital Improvements, Landlord will install a new roof on the Building, that the roof will be covered by one or more warranties (collectively, the "Roof Warranties"), and that the roof has an estimated useful life of ten (10) years. Notwithstanding anything to the contrary set forth above in this PARAGRAPH 17.A, if Landlord elects to replace the roof of the Building within ten (10) years from the date such roof was originally installed, and the cost of so replacing the roof exceeds any amounts covered or paid for under the Roof Warranties, then (i) the amount of any such excess shall be collectively called the "Excess Roof Replacement Costs"; (ii) the cost of the initial roof installation (as reasonably determined by Landlord) shall be amortized on a straight-line basis,t over the ten (10) year useful life of such roof, determined as of the date the roof replacement commences, and the unamortized portion of such costs shall hereafter be called the "Unamortized Roof Costs"; and (iii) only those Excess Roof Replacement Costs that exceed the Unamortized Roof Costs (if any) shall be includable in Common Area Maintenance Costs in the manner set forth above in this PARAGRAPH 17.A. B. TENANT'S OBLIGATIONS. Tenant shall at all times and at its sole cost and expense clean, keep and maintain in good order, condition and repair (and replace, if necessary) every part of the Premises which is not within Landlord's obligation pursuant to PARAGRAPH 17.A. Tenant's repair and maintenance obligations shall include without limitation all plumbing and electrical facilities situated within the Premises, fixtures, interior walls and ceiling, floors, windows, window frames, doors, entrances, plate glass, showcases, skylights, all lighting fixtures, lamps, fans and any exhaust equipment and systems, all mechanical systems (but not the HVAC system), any automatic fire extinguisher equipment within the Premises, all security systems and alarms, all electrical motors and all other appliances and equipment of every kind and nature located in, upon or about the Premises. Tenant shall also be responsible for all pest control within the Premises. C. CONDITIONS APPLICABLE TO REPAIRS. All repairs, replacements and reconstruction made by or on behalf of Tenant or any person claiming through or under Tenant shall be made and performed (i) at Tenant's sole cost and expense, in a good and workmanlike manner and at such time and in such manner as Landlord may reasonably designate, (ii) by contractors approved 46 in advance by Landlord, (iii) so that the repairs, replacements or reconstruction shall be at least equal in quality, value and utility to the original work or installation, (iv) in accordance with such reasonable requirements as Landlord may impose with respect to insurance and bonds to be obtained by Tenant in connection with the proposed work (provided that Tenant shall not be required to post a bond if the total cost of any such repair, replacement or reconstruction work is equal to or less than Twenty-Five Thousand Dollars ($25,000.00)), and (v) in accordance with any rules and regulations for the Building as may be. adopted by Landlord from time to time and in accordance with all applicable laws and regulations of governmental authorities having jurisdiction over the Premises. D. LANDLORD'S RIGHTS. If Tenant fails to perform Tenant's obligations under PARAGRAPH 17.B, Landlord may in its sole discretion give Tenant notice of such work as is reasonably required to fulfill such obligations. If Tenant fails to commence the work within thirty (30) days after receipt of such notice and diligently prosecute the work to completion, then Landlord shall have the right (but not the obligation) to do such acts or expend such funds at the expense of Tenant as are reasonably required to perform such work. Any amount so expended by Landlord shall be paid by Tenant to Landlord promptly after demand with interest at the Interest Rate. Landlord shall have no liability to Tenant for any damage to, or interference with Tenant's use of, the Premises, or inconvenience to Tenant as a result of performing any such work. E. COMPLIANCE WITH GOVERNMENTAL REGULATIONS. Tenant shall, at its sole cost and expense, comply with, including the making by Tenant of any Alteration to the Premises, all present and future regulations, rules, laws, ordinances, and requirements of all governmental authorities (including, without limitation state, municipal, county and federal governments and their departments, bureaus, boards and officials) applicable to the Premises. Notwithstanding the foregoing or anything to the contrary contained in this Lease, Tenant shall not be responsible for compliance with any regulations, rules, laws, ordinances, or requirements of all governmental authorities where such compliance is not related specifically to Tenant's use and occupancy of the Premises. For example, if any governmental authority should require the Building or the Premises to be structurally strengthened against earthquake, or should require the removal of asbestos from the Premises and such measures are 47 imposed as a general requirement applicable to all tenants rather than as a condition to Tenant's specific use or occupancy of the Premises, such work shall be performed by and at the sole cost of Landlord, subject to contribution by Tenant to the extent included in Common Area Maintenance Costs. 18. LIENS. Tenant shall keep the Building and the Premises free from any liens arising out of any work performed, materials furnished, or obligations incurred by or on behalf of Tenant, and free from any liens arising out of any effort by Tenant to reduce or contest Impositions, or Tenant's exercise of its rights under Paragraph 39 below, and Tenant hereby agrees to indemnify, defend, protect and hold Landlord and Landlord's Agents harmless from and against any and all loss, claim, damage, liability, cost and expense, including attorneys' fees and costs, in connection with or arising out of any such lien or claim of lien. Tenant shall cause any such lien imposed to be released of record by payment or posting of a proper bond acceptable to Landlord within ten (10) days after written request by Landlord. Tenant shall give Landlord written notice of Tenant's intention to perform work on the Premises which might result in any claim of lien at least ten (10) days prior to the commencement of such work to enable Landlord to post and record a Notice of Nonresponsibility or any such other notice(s) as Landlord may deem appropriate. If Tenant fails to so remove any such lien within the prescribed ten 10-day period, then Landlord may do so at Tenant's expense and Tenant shall reimburse Landlord for such amounts upon demand. Such reimbursement shall include all costs incurred by Landlord including Landlord's reasonable attorneys' fees with interest thereon at the Interest Rate. 19. LANDLORD'S RIGHT TO ENTER THE PREMISES. Tenant shall permit Landlord and Landlord's Agents to enter the Premises at all reasonable times with reasonable notice, except for emergencies in which case no notice shall be required, to inspect the same, to post Notices of Nonresponsibility and similar notices, and real estate "For Sale" signs, to show the Premises to interested parties such as prospective lenders and purchasers, to make necessary repairs, to discharge Landlord's obligations under this Lease, to discharge Tenant's obligations under this Lease when Tenant has failed to do so within a reasonable time after written notice from 48 Landlord, and to place upon the Building ordinary "For Lease" signs and to show the Premises to prospective tenants (provided that so long as Tenant is not in default under any term or condition of this Lease after notice from Landlord and the expiration of any applicable cure period granted by this Lease, Landlord shall only be permitted to show the Premises to prospective tenants during the last twelve (12) months of the Term). 20. SIGNS. Subject to Tenant obtaining all necessary approvals from the City of Redwood City and subject to Landlord's review and approval of plans and specifications for any proposed signage, which approval may be withheld only in Landlord's commercially reasonable judgment, Tenant shall have the exclusive right to install identification signage with its name and logo near the north entry on the exterior of the Building in the location depicted on EXHIBIT B-1 so long as such signage complies with Landlord's project sign program. Tenant shall have no right to maintain any Tenant identification sign in any other location in, on or about the Building or the Premises and shall not display or erect any other Tenant identification sign, display or other advertising material that is visible from the exterior of the Building. Any changes to the size, design, color or other physical aspects of Tenant's identification sign(s) shall be subject to the Landlord's prior written approval, which shall not be unreasonably withheld, and any appropriate municipal or other governmental approvals. The cost of Tenant's sign(s) and their installation, maintenance and removal shall be Tenant's sole cost and expense. If Tenant fails to maintain its sign(s), or, if Tenant fails to remove its sign(s) upon termination of this Lease, Landlord may do so at Tenant's expense and the amounts expended by Landlord in doing so shall be immediately payable by Tenant to Landlord as Additional Rent. 21. INSURANCE. A. Indemnification. Tenant shall indemnify, defend, protect and hold Landlord harmless of and from any and all loss, liens, liability, claims, causes of action, damage, injury, cost or expense arising out of or in connection with, or related to (i) the negligent making of Alterations, or (ii) injury to or death of persons or damage to property occurring or resulting directly or indirectly from: (A) the use or occupancy of, or the 49 conduct of business in, the Premises; (B) any other occurrence or condition in or on the Premises; and (C) acts or omissions of Tenant, its officers, directors, agents, employees, invitees or licensees in or about any portion of the Project. Tenant's indemnity obligation includes reasonable attorneys' fees and costs, investigation costs and all other reasonable costs and expenses incurred by Landlord. If Landlord reasonably disapproves the legal counsel proposed by Tenant for the defense of any claim indemnified against hereunder, Landlord shall have the right to appoint its own legal counsel, the reasonable fees, costs and expenses of which shall be included as part of Tenant's indemnify obligation hereunder. The indemnification contained in this PARAGRAPH 21.A shall extend to the officers, directors, shareholders, partners, employees, agents and representatives of Landlord. The obligations assumed by Tenant herein shall survive this Lease. Notwithstanding the foregoing, Landlord shall have the right, in its sole discretion, but without being required to do so, to defend, adjust, settle or compromise any claim, obligation, debt, demand, suit or judgment against Landlord arising out of or in connection with the matters covered by the foregoing indemnity and, in such event, Tenant shall reimburse Landlord for all reasonable charges and expenses incurred by Landlord in connection therewith, including reasonable attorneys' fees; provided, however, that Landlord shall not undertake any unilateral action or settlement so long as Tenant or an insurance company, at its or their sole expense, is contesting in good faith, diligently and with continuity such claim, action, obligation, demand or suit, and so long as such claim, action, obligation, demand or suit does not have or threaten to have a material adverse impact on Landlord's assets, reputation or business affairs. Notwithstanding anything to the contrary in this PARAGRAPH 21.A: (i) Tenant shall not be required to indemnify, defend or hold Landlord harmless from or against loss, liens, liability, claims, causes of action, damage, injury, cost or expense to the extent arising out of: (a) the breach by Landlord or Landlord's Agents of any covenant, representation or warranty under this Lease, or (b) any negligence or willful misconduct of Landlord or Landlord's Agents. (ii) Landlord shall indemnify, defend, protect and hold Tenant harmless of and from any and all loss, liens, 50 liability, claims, causes of action, damage, injury, cost or expense arising out of or in connection with, or related to the acts or omissions of Landlord or Landlord's Agents, except to the extent arising out of: (a) the breach by Tenant or Tenant's officers, directors, agents, employees, invitees, licensees or contractors of any covenant, representation or warranty under this Lease, or (b) any negligence or willful misconduct of Tenant or Tenant's officers, directors, agents, employees, invitees, licensees or contractors. Landlord's indemnification shall extend to the officers, directors, shareholders, partners, employees, agents and representatives of Tenant. B. TENANT'S INSURANCE. Tenant agrees to maintain in full force and effect at all times during the Term, at its sole cost and expense, for the protection of Tenant and Landlord, as their interests may appear, policies of insurance issued by a responsible carrier or carriers acceptable to Landlord which afford the following coverages. (i) Commercial general liability insurance in an amount not less than Three Million Dollars ($3,000,000) combined single limit for both bodily injury and property damage, with a limit of not less than One Million Dollars ($1,000,000) per occurrence and not less than Two Million Dollars ($2,000,000) in excess liability coverage, which includes blanket contractual liability broad form property damage, personal injury, completed operations, and products liability, which policy shall name Landlord and Landlord's Agents as additional insureds and shall contain a provision that "the insurance provided Landlord hereunder shall be primary and non-contributing with any other insurance available to Landlord with respect to any damage, loss, liability or expense covered by Tenant's indemnity obligations under PARAGRAPH 21.A of the Lease." (ii) Causes of loss-special form property insurance (including, without limitation, vandalism, malicious mischief, inflation endorsement, and sprinkler leakage endorsement) on Tenant's Personal Property located on or in the Premises. Such insurance shall be in the full amount of the replacement cost, as the same may from time to time increase as a result of inflation or otherwise. As long as this Lease is in effect, the proceeds of such policy shall be used for the repair and replacement of such items so insured. Landlord shall have no interest in the insurance proceeds on Tenant's Personal Property. Notwithstanding the foregoing, Tenant shall have the right, at 51 its election, to self-insure with respect to any loss or damage to Tenant's Personal Property. (iii) Boiler and machinery insurance, including steam pipes, pressure pipes, condensation return pipes and other pressure vessels and HVAC equipment, including miscellaneous electrical apparatus, in an amount satisfactory to Landlord. (iv) Workers compensation insurance in the manner and to the extent required by applicable law and with limits of liability not less than the minimum required under applicable law, covering all employees of Tenant having any duties or responsibilities in or about the Premises. Any policy required to be maintained by Tenant under this Lease may be maintained under a so-called "blanket policy" insuring other parties and/or other locations, so long as the amount of insurance and type of coverage required to be provided hereunder is not thereby diminished, changed or adversely affected. C. BUILDING INSURANCE. During the Term Landlord shall maintain causes of loss-special form property insurance (including inflation endorsement, sprinkler leakage endorsement, and, at Landlord's option, earthquake and flood coverage; provided, however, that Landlord shall not be entitled to pass through to Tenant the cost of earthquake insurance unless such insurance is obtained at commercially reasonable rates) on the Building, excluding coverage of all Tenant's Personal Property located on or in the Premises, but including the Tenant Improvements; such insurance shall be for the full replacement value of the Building, if such full replacement coverage is available from insurers, and at commercially reasonable rates, reasonably acceptable to Landlord. Such insurance shall also include insurance against loss of rents, including, at Landlord's option, coverage for earthquake and flood, in an amount equal to the Monthly Rent and Additional Rent, and any other sums payable under the Lease, for a period of at least twelve (12) months commencing on the date of loss. Such insurance shall name Landlord and Landlord's Agents as named insureds and include a lender's loss payable endorsement in favor of Landlord's lender (Form 438 BFU Endorsement). Tenant shall reimburse Landlord monthly, as Additional Rent, for Tenant's Building Share of one-twelfth (12th) of the annual cost of such insurance on the first day of each calendar month of the Term, prorated for any partial month, or on such other periodic basis as Landlord shall 52 elect. If the insurance premiums are increased after the Commencement Date for any reason, including without limitation due to an increase in the value of the Building or its replacement cost, Tenant shall pay Tenant's Building Share of such increase within ten (10) days of notice of such increase; provided, however, that if any increase in such insurance premiums is due to any action or failure to act of Tenant, including without limitation Tenant's use of the Premises or any improvements installed by Tenant at the Premises, Tenant shall pay the entire amount of such increase within ten (10) days of notice of such increase. Landlord may, in its sole discretion, maintain the insurance coverage described in this PARAGRAPH 21.C as part of an umbrella insurance policy covering other properties owned by Landlord. D. INCREASED COVERAGE. Upon demand, Tenant shall provide Landlord, at Tenant's expense, with such increased amount of existing insurance, and such other insurance as Landlord or Landlord's lender may reasonably require, consistent with prudent industry practice, to afford Landlord and Landlord's lender adequate protection. E. FAILURE TO MAINTAIN. If Tenant fails to maintain any insurance coverage that Tenant is required to maintain under this PARAGRAPH 21, and Landlord incurs any liability to its insurance carrier arising out of Tenant's failure to so maintain such insurance coverage, then any and all loss or damage Landlord shall sustain by reason thereof, including attorneys' fees and costs, shall be borne by Tenant and shall be immediately paid by Tenant upon its receipt of a bill therefor and evidence of such loss. Nothing contained in this PARAGRAPH 21.E shall be deemed to limit or affect any other remedies or rights available to Landlord under this Lease that arise from Tenant's failure to so maintain such insurance coverage. F. INSURANCE REQUIREMENTS. All insurance shall be in a form satisfactory to Landlord and shall be carried in companies that have a general policy holder's rating of not less than "A" and a financial rating of not less than Class "X" in the most current edition of BEST'S INSURANCE REPORTS; and shall provide that such policies shall not be subject to material alteration or cancellation except after at least thirty (30) days' prior written notice to Landlord. The policy or policies, or duly executed certificates for them, together with satisfactory evidence of payment of the premiums thereon shall be deposited 53 with Landlord prior to the Commencement Date, and upon renewal of such policies, not less than thirty (30) days prior to the expiration of the term of such coverage. If Tenant fails to procure and maintain the insurance it is required to maintain under this PARAGRAPH 21, Landlord may, but shall not be required to, order such insurance at Tenant's expense and Tenant shall reimburse Landlord therefor. Such reimbursement shall include all costs incurred by Landlord in obtaining such insurance including Landlord's reasonable attorneys' fees, with interest thereon at the Interest Rate. G. WAIVER AND RELEASE. Except to the extent due to the negligence or willful misconduct of Landlord, Landlord shall not be liable to Tenant or Tenant's employees, agents, contractors, licenses or invitees for, and Tenant waives as against and releases Landlord and Landlord's Agents from, all claims for loss or damage to any property or injury, illness or death of any person in, upon or about the Premises and/or any other portion of the Project, arising at any time and from any cause whatsoever (including without limitation any claim cause in whole or in part by the act, omission, or neglect of other tenants, contractors, licensees, invitees or other occupants of the Project or their agents or employees; and any claim arising from any construction activities taking place in, upon or about the Premises and/or any other portion of the Project). Landlord and Landlord's Agents shall not be liable for any latent defect in the Premises. 22. WAIVER OF SUBROGATION. Landlord and Tenant each hereby waive all rights of recovery against the other on account of loss or damage occasioned by such waiving party to its property or the property of others under its control, to the extent that such loss or damage would be covered by any causes of loss-special form policy of insurance or its equivalent required to be or actually carried under Paragraph 21. Tenant and Landlord shall, upon obtaining policies of insurance required hereunder, give notice to the insurance carrier that the foregoing mutual waiver of subrogation is contained in this Lease and Tenant and Landlord shall cause each insurance policy obtained by such party to provide that the insurance company waives all right of recovery by way of subrogation against either Landlord or Tenant in connection with any damage covered by such policy. 54 23. DAMAGE OR DESTRUCTION. A. LANDLORD'S OBLIGATION TO REBUILD. If all or any part of the Premises or the Building is damaged or destroyed, Landlord shall promptly and diligently repair the same unless it has the right to terminate this Lease as provided herein and it elects to so terminate. B. RIGHT TO TERMINATE. Landlord shall have the right to terminate this Lease in the event any of the following events occur: (i) insurance proceeds from the insurance Landlord is required to carry pursuant to PARAGRAPH 21.C, or that Landlord actually carries, are not available to pay one hundred percent (100%) of the cost of such repair, excluding any applicable deductibles, for which Tenant shall be responsible; provided, however, that if Tenant pays to Landlord, in immediately available funds, within thirty (30) days after such casualty, any shortfall in such insurance proceeds, as reasonably determined by Landlord, then Landlord shall have no right to terminate the Lease pursuant to this item (i); provided further, that if insurance proceeds are not available to pay one hundred percent (100%) of the cost of such repair due solely to the fact that Landlord has failed to carry the insurance described in PARAGRAPH 21.C, then Landlord shall not have the right to terminate this Lease pursuant to this PARAGRAPH 23.B(i). Notwithstanding anything to the contrary set forth above, if (a) all or any part of the Premises or the Building is damaged or destroyed by a casualty event that is covered by the insurance Landlord is required to carry pursuant to PARAGRAPH 21.C, or that Landlord actually carries, (b) proceeds from such insurance are not available to pay one hundred percent (100%) of the cost of such repair, excluding any applicable deductibles, (c) Landlord terminates the Lease pursuant to its rights under this PARAGRAPH 23.B(i), (d) Landlord eventually receives proceeds from such insurance due to such casualty event, and (e) a subsequent tenant of the Premises that occupies the Premises prior to the tenth (10th) anniversary of the Commencement Date elects to utilize the Tenant Improvements, then Landlord shall pay to Tenant an amount equal to the present value of the lesser of (x) the cost savings enjoyed by Landlord during the originally-scheduled ten (10) year term of this Lease due to the use of the Tenant Improvement by such subsequent tenant (with the amount of such savings to be reasonably determined by Landlord), and (y) the unamortized 55 Tenant Improvement Costs (as defined in EXHIBIT B) for the initial Tenant Improvements, as of the date such subsequent tenant opens for business in the Premises, with the Tenant Improvement Costs being amortized on a straight-line basis over a period of ten (10) years, commencing on the Commencement Date and ending as of the date that is the mid-way point between the date this Lease is terminated and the date on which such subsequent tenant opens for business in the Premises; (ii) either the Premises or the Building cannot, with reasonable diligence, be fully repaired by Landlord within three hundred sixty (360) days after the date of the damage or destruction; or (iii) either the Premises or the Building cannot be safely repaired because of the presence of hazardous factors, including, but not limited to, earthquake faults, radiation, Hazardous Materials and other similar dangers. If Landlord elects to terminate this Lease, Landlord may tie Tenant written notice of its election to terminate within thirty (30) days after such damage or destruction, and this Lease shall terminate fifteen (15) days after the date Tenant receives such notice and both Landlord and Tenant shall be released of all further liability under this Lease (except to the extent any provision of this Lease expressly survives termination). If Landlord elects not to terminate the Lease, subject to Tenant's termination right set forth below, Landlord shall promptly commence the process of obtaining necessary permits and approvals and repair of the Premises or Building as soon as practicable, and this Lease will continue in full force and affect. All insurance proceeds from insurance under PARAGRAPH 21, excluding proceeds for Tenant's Personal Property, shall be disbursed and paid to Landlord. Tenant shall be required to pay to Landlord an amount equal to that portion of any deductibles payable in connection with any insured casualties that is allocable to the Premises, unless the casualty was caused by the sole negligence or willful misconduct of Landlord. Tenant shall have the right to terminate this Lease if the Premises cannot, with reasonable diligence, be fully repaired within two hundred seventy (270) days from the date of damage or destruction. The determination of the estimated repair periods in this PARAGRAPH 23 shall be made by an independent, licensed contractor or engineer within thirty (30) days after such damage 56 or destruction. Landlord shall deliver written notice of the repair period to Tenant after such determination has been made and Tenant shall exercise its right to terminate this Lease, if at all, within ten (10) days of receipt of such notice from Landlord. Upon such termination both Landlord and Tenant shall be released of all further liability under this Lease (except to the extent any provision of this Lease expressly survives termination). C. LIMITED OBLIGATION TO REPAIR. Landlord's obligation, should it elect or be obligated to repair or rebuild, shall be limited to the basic portion of the Building in which the Premises are situated and the Tenant Improvements, and shall not include any Alterations made by Tenant. D. ABATEMENT OF RENT. Rent shall be temporarily abated proportionately, during any period when, by reason of such damage or destruction, Tenant's use of the Premises is impaired. Such abatement of Rent shall be proportional to the extent of such impairment (with the extent of such impairment to be reasonably determined by Landlord), and shall commence upon such damage or destruction and end upon substantial completion by Landlord of the repair or reconstruction which Landlord is obligated or undertakes to perform. Tenant shall not be entitled to any compensation or damages from Landlord for loss of the use of the Premises, damage to Tenant's Personal Property or any inconvenience occasioned by such damage, repair or restoration. Tenant hereby waives the provisions of Section 1932, Subdivision 2, and Section 1933, Subdivision 4, of the California Civil Code, and the provisions of any similar law hereinafter enacted. E. DAMAGE NEAR END OF TERM. Anything herein to the contrary notwithstanding, if the Premises is destroyed or materially damaged during the last twelve (12) months of the Term (unless Tenant has properly exercised the option to Extend), then either Landlord or Tenant may, at its option, cancel and terminate this Lease as of the date of the occurrence of such damage, by delivery of written notice to the other party and, in such event, upon such termination both Landlord and Tenant shall be released of all further liability under this Lease (except to the extent any provision of this Lease expressly survives termination). If neither Landlord nor Tenant elects to terminate this Lease, the repair of such damage shall be governed by PARAGRAPHS 23.A and 23.B. 57 24. CONDEMNATION. If title to all of the Premises is taken for any public or quasi-public use under any statute or by right of eminent domain, or so much thereof is so taken so that reconstruction of the Premises will not, in Landlord's sole discretion, result in the Premises being reasonably suitable for Tenant's continued occupancy for the uses and purposes permitted by this Lease, this Lease shall terminate as of the date that possession of the Premises or part thereof is taken, and upon such termination both Landlord and Tenant shall be released of all further liability under this Lease (except to the extent any provision of this Lease expressly survives termination). A sale by Landlord to any authority having the power of eminent domain, either under threat of condemnation or while condemnation proceedings are pending, shall be deemed a taking under the power of eminent domain for all purposes of this PARAGRAPH 24. If any part of the Premises is taken and the remaining part is reasonably suitable for Tenant's continued occupancy for the purposes and uses permitted by this Lease, this Lease shall, as to the part so taken, terminate as of the date that possession of such part of the Premises is taken, and upon such termination both Landlord and Tenant shall be released of all further liability under this Lease with respect to that portion of the Premises that is taken (except to the extent any provision of this Lease expressly survives termination). The Rent and other sums payable hereunder shall be reduced in the same proportion that Tenant's use and occupancy of the Premises is reduced. If any portion of the Common Area is taken, Tenant's Rent shall be reduced only if such taking materially interferes with Tenant's use of the Common Area and then only to the extent that the fair market rental value of the Premises is diminished by such partial taking. If the parties disagree as to the amount of Rent reduction, the matter shall be resolved by arbitration and such arbitration shall comply with and be governed by the California Arbitration Act, Sections 1280 through 1294.2 of the California Code of Civil Procedure. Each party hereby waives the provisions of Section 1265.130 of the California Code of Civil Procedure allowing either party to petition the Superior Court to terminate this Lease in the event of a partial taking of the Premises. All compensation or damages awarded or paid for any taking hereunder shall belong to and be the property of Landlord, whether such compensation or damages are awarded or paid as 58 compensation for diminution in value of the leasehold, the fee or otherwise, except that Tenant shall be entitled to any award allowed to Tenant for the taking of Tenant's Personal Property, for the interruption of Tenant's business, for its moving costs, or for the loss of its good will, and for that portion of the unamortized cost of any tenant improvements to the Premises paid for by Tenant, including but not limited to the initial Tenant Improvements, that is allocable to the remainder of the Term as of the date of such taking. Except for the foregoing allocation, no award for any partial or entire taking of the Premises shall be apportioned between Landlord and Tenant, and Tenant assigns to Landlord its interest in the balance of any award which may be made for the taking or condemnation of the Premises, together with any and all rights of Tenant arising in or to the same or any part thereof. 25. ASSIGNMENT AND SUBLETTING. A. LANDLORD'S CONSENT. Subject to the provisions of PARAGRAPH 25.G below, Tenant shall not enter into a Sublet without Landlord's prior written consent, which consent shall not be unreasonably withheld. Any attempted or purported Sublet without Landlord's prior written consent shall be void and confer no rights upon any third person and, at Landlord's election, shall terminate this Lease. Each Subtenant shall agree in writing, for the benefit of Landlord, to assume, to be bound by, and to perform the terms, conditions and covenants of this Lease to be performed by Tenant, as such terms, conditions and covenants apply to the Sublet premises. Notwithstanding anything contained herein, Tenant shall not be released from liability for the performance of each term, condition and covenant of this Lease by reason of Landlord's consent to a Sublet unless Landlord specifically grants such release in writing. B. TENANT'S NOTICE. If Tenant desires at any time to Sublet all or any portion of the Premises, Tenant shall first notify Landlord in writing of its desire to do so. C. INFORMATION TO BE FURNISHED. If Tenant desires at any time to Sublet all or any portion of the Premises, then Tenant shall submit in writing to Landlord. (i) the name of the proposed Subtenant; (ii) the nature of the proposed Subtenant's business to be carried on in the Premises; (iii) the terms and provisions of the proposed Sublet and a copy of the proposed form of Sublet agreement containing a description of the subject 59 premises; and (iv) such financial information, including financial statements, as Landlord may reasonably request concerning the proposed Subtenant. D. LANDLORD'S ALTERNATIVES. At any rime Within ten (10) days after Landlord's receipt of the information specified in PARAGRAPH 25.C., Landlord may, by written notice to Tenant, elect. (i) to consent to the Sublet by Tenant; or (ii) to refuse its consent to the Sublet. If Landlord consents to the Sublet, Tenant may thereafter enter into a valid Sublet of the Premises or applicable portion thereof, upon the terms and conditions and with the proposed Subtenant set forth in the information furnished by Tenant to Landlord, subject, however, at Landlord's election, to the condition that fifty percent (50%) of any excess of the Subrent (the "Excess Subrent") over the Rent required to be paid by Tenant under this Lease (or, if only a portion of the Premises is Sublet, the pro rata share of the Rent attributable to the portion of the Premises being Sublet) less (v) reasonable attorneys' fees, (w) leasing commissions (which shall not include the cost of any trade fixtures, equipment or personal property, (x) that portion of the unamortized Tenant Improvement Costs (as defined in EXHIBIT B) for the initial Tenant Improvements allocable to the portion of the Premises being Sublet (for the purposes of this clause (x), the Tenant Improvement Costs shall be amortized over a period of ten (10) years, at a per annum interest rate equal to the reference rate, or succeeding similar index, announced from time to time by the Bank of America's main San Francisco office, plus one percent (1%), (y) the cost of any tenant improvements (other than the initial Tenant Improvements) paid for by Tenant and installed in the portion of the Premises being Sublet for the specific purpose of carrying out such Sublet, and (z) other reasonable subletting costs paid by Tenant on the Sublet, shall be paid to Landlord. E. PRORATION. If a portion of the Premises is Sublet, the pro rata share of the Rent attributable to such partial area of the Premises shall be determined by Landlord by dividing the Rent payable by Tenant hereunder by the total square footage of the Premises and multiplying the resulting quotient (the per square foot rent) by the number of square feet of the Premises which are Sublet. F. PARAMETERS OF LANDLORD'S CONSENT. Except as otherwise provided herein, Landlord shall have the right to base its consent to any Sublet hereunder upon such factors and 60 considerations as Landlord reasonably deems relevant or material to the proposed Sublet and the best interests of the Project's operations. Without limiting the generality of the foregoing, Tenant acknowledges that it shall be reasonable for Landlord to withhold its consent to any Sublet hereunder if Tenant has not demonstrated that: (i) the proposed Subtenant is financially responsible, with sufficient net worth and net current assets, properly and successfully to operate its business in the Premises and meet the financial and other obligations of this Lease; (ii) the proposed Subtenant possesses sound and good business judgment, reputation and experience, and proven management skills in the operation of a business or businesses substantially similar to the uses permitted in the Premises under PARAGRAPH 11.A, and (iii) the use of the Premises proposed by such Subtenant conforms to the permitted uses specified under PARAGRAPH 11.A, and involves either no Hazardous Use or only such Hazardous Use as shall be acceptable to Landlord in its sole discretion. G. PERMITTED TRANSFERS. Notwithstanding the provisions of PARAGRAPH 25.A above, Tenant shall have the right to enter into a Sublet, and Landlord shall not withhold its consent thereto (provided that all of the conditions set forth in clauses (A), (B) and (C) below shall be met), if such Sublet is one of the following "Permitted Transfers". (i) a Sublet to the surviving entity of a merger or consolidation involving the corporate entity constituting the Tenant under this Lease; or (ii) a Sublet to any subsidiary or Affiliate of the Tenant originally named in this Lease. However, the foregoing Permitted Transfers shall be exempt from the requirement of Landlord's consent only if all of the following conditions shall be met. (A) there shall be no change in the use or operation of the Premises; (B) Tenant shall have provided to Landlord all information to allow Landlord to determine, and Landlord shall have determined, that the proposed transfer is a Permitted Transfer which is exempt from the requirement of Landlord's consent; and (C) as of the effective date of such Sublet, the proposed Subtenant has a net worth and net current assets equal to or greater than those of the original Tenant under this Lease as of the date of this Lease. No Sublet of the type described in this PARAGRAPH 25.G, nor any other transfer of all or any portion of Tenant's interest in the Lease or the Premises, shall release Tenant of its obligations under this Lease. In addition, any sale or transfer of the capital stock of Tenant shall be deemed a Permitted Transfer if (1) such sale or transfer occurs in connection with 61 any bona fide financing or capitalization for the benefit of Tenant, or (2) Tenant becomes a publicly traded corporation, or (3) such sale or transfer is made to any publicly traded corporation. Notwithstanding the provisions of PARAGRAPH 25.D, Landlord shall not be entitled to any Excess Subrent in connection with any Permitted Transfer. In addition, Tenant shall have the right to sublease to one or more subtenants one entire floor of the Premises with Landlord's prior written consent, which shall not be unreasonably withheld, and without payment of any Excess Subrent to Landlord as provided in PARAGRAPH 25.D in connection with such sublease, provided (w) there shall be no change in the use or operation of the Premises, (x) Tenant is not in default of its obligations hereunder, which default is continuing after notice and the expiration of any applicable grace period, at the time of entering into any such sublease, (y) Tenant is in possession of the remainder of the Premises and remains primarily liable for all of its obligations hereunder, and (z) no such sublease shall have a term that expires beyond the thirty-sixth (36th)month following the Commencement Date. Landlord acknowledges that the foregoing right is a material inducement for Tenant to enter into this Lease. Tenant acknowledges that this grammatical paragraph shall not apply to any assignment or attempted assignment of all or any portion of its interest in this Lease, nor to any sublease of all or any portion of the Premises by Tenant for a term that expires beyond the thirty-sixth (36th) month following the Commencement Date. The rights described in this grammatical paragraph are personal to the Tenant originally named in this Lease, and shall not be exercised by any assignee or successor of such Tenant. 26. DEFAULT. A. TENANT'S DEFAULT. A default under this Lease by Tenant shall exist if any of the following occurs. (i) If Tenant fails to pay, within five (5) days after written notice from Landlord, any Rent or any other sum required to be paid hereunder when due, including, without limitation, any Tenant Improvement Costs payable by Tenant under EXHIBIT B; or (ii) If Tenant fails to perform any term, covenant or condition of this Lease except those requiring the 62 payment of money, and Tenant fails to cure such breach withint thirty (30) days after written notice from Landlord where such breach could reasonably be cured within such 30-day period; provided, however, that where such failure could not reasonably be cured within the 30-day period, that Tenant shall not be in default if it commences such performance within the 30-day period and diligently thereafter prosecutes the same to completion; or (iii) If Tenant assigns its assets for the benefit of its creditors; or (iv) If the sequestration or attachment of or execution on any material part of Tenant's Personal Property essential to the conduct of Tenant's business occurs, and Tenant fails to obtain a return or release of such Tenant's Personal Property within thirty (30) days thereafter, or prior to sale pursuant to such sequestration, attachment or levy, whichever is earlier; or (v) If Tenant abandons the Premises; or (vi) If a court makes or enters any decree or order other than under the bankruptcy laws of the United States adjudging Tenant to be insolvent; or approving as properly filed a petition seeking reorganization of Tenant; or directing the winding up or liquidation of Tenant and such decree or order shall have continued for a period of sixty (60) days. (vii) If, at any time that Landlord or its Affiliate is also the owner of the premises leased by Tenant under that certain Lease between Martin/Campus Associates No. 2, L.P. and Tenant dated February 5, 1997, as amended by that certain First Amendment to Lease dated December 3, 1997 (the "575-595 Broadway Lease"), Tenant is in default under the 575-595 Broadway Lease beyond any applicable notice and cure period. B. REMEDIES. Upon a default, Landlord shall have the following remedies, in addition to all other rights and remedies provided by law or Otherwise provided in this Lease, to which Landlord may resort cumulatively or in the alternative. (i) Landlord may continue this Lease in full force and effect, and this Lease shall continue in full force and effect as long as Landlord does not terminate this Lease, and Landlord shall have the right to collect Rent when due. Without 63 limiting the foregoing, Landlord has the remedy set forth in Section 1951.4 of the California Civil Code. (ii) Landlord may terminate Tenant's right to possession of the Premises at any time by giving written notice to that effect, and relet the Premises or any part thereof. Tenant shall be liable immediately to Landlord for all costs Landlord incurs in reletting the Premises or any part thereof, including, without limitation, broker's commissions, expenses of cleaning and redecorating the Premises required by the reletting and like costs. Reletting may be for a period shorter or longer than the remaining Term of this Lease. No act by Landlord other than giving written notice of termination to Tenant shall terminate this Lease. Neither acts of maintenance, nor efforts to relet the Premises, nor the appointment of a receiver on Landlord's initiative to protect Landlord's interest under this Lease shall not constitute a termination of Tenant's right to possession. On termination, Landlord has the right to remove all Tenant's Personal Property and store the same at Tenant's sole cost and expense and to recover from Tenant as damages. (a) The worth at the time of award of the unpaid Rent and other sums due and payable which had been earned at the time of termination; plus (b) The worth at the time of award of the amount by which the unpaid Rent and other sums due and payable which would have been payable after termination until the time of award exceeds the amount of such Rent loss that Tenant proves could have been reasonably avoided; plus (c) The worth at the time of award of the amount by which the unpaid rent and other sums due and payable for the balance of the Term after the time of award exceeds the amount of such Rent loss that Tenant proves could be reasonably avoided; plus (d) Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform Tenant's obligations under this Lease, or which, in the ordinary course of things, would be likely to result therefrom, including, without limitation, any costs or expenses incurred by Landlord. (i) in retaking possession of the Premises; (ii) in maintaining, repairing, preserving, restoring, replacing, cleaning, altering or rehabilitating the Premises or 64 any portion thereof, including such acts for reletting to a new tenant or tenants; (iii) for leasing commissions; or (iv) for any other costs necessary or appropriate to relet the Premises; plus (e) At Landlord's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by the laws of the State of California. The "worth at the time of award" of the amounts referred to in PARAGRAPHS 26.B (ii) (a) and 26.B.(ii)(b) is computed by allowing interest at the Interest Rate on the unpaid rent and other sums due and payable from the termination date through the date of award. The "worth at the time of award" of the amount referred to in PARAGRAPH 26.B(ii)(c) is computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). Tenant waives redemption or relief from forfeiture under California Code of Civil Procedure Sections 1174 and 1179, or under any other present or future law, in the event Tenant is. evicted or Landlord takes possession of the Premises by reason of any default of Tenant hereunder. (iii) Landlord may, with or without terminating this Lease, re-enter the Premises and remove all persons and property from the Premises; such property may be removed and stored in a public warehouse or elsewhere at the cost of and for the account of Tenant. No reentry or taking possession of the Premises by Landlord pursuant to this PARAGRAPH 26.B. (iii) shall be construed as an election to terminate this Lease unless a written notice of such intention is given to Tenant. C. LANDLORD'S DEFAULT. Landlord shall not be deemed to be in default in the performance of any obligation required to be performed by it hereunder unless and until it has failed to perform such obligation within thirty (30) days after receipt of written notice by Tenant to Landlord specifying the nature of such default; provided, however, that if the nature of Landlord's obligation is such that more than thirty (30) days are required for its performance, then Landlord shall not be deemed to be in default if it shall commence such performance within such 30-day period and thereafter diligently prosecute the same to completion. 65 27. SUBORDINATION. A. SUBORDINATION. This Lease is or may become subject and subordinate to underlying leases, mortgages, deeds of trust, easements, and CC&Rs (collectively, "ENCUMBRANCES") which may now or hereafter affect the Premises, and to all renewals, amendments, modifications, consolidations, replacements and extensions thereof; provided, however, if the holder or holders of any such Encumbrance (collectively, "HOLDER") shall require that this Lease be prior and superior thereto, within fifteen (15) days of written request of Landlord to Tenant, Tenant shall execute, have acknowledged and deliver any and all documents or instruments, in the form presented to Tenant, which Landlord or Holder deems reasonably necessary or desirable for such purposes. Subject to PARAGRAPH 27.C below, Landlord shall have the right to cause this Lease to be and become and remain subject and subordinate to any and all Encumbrances which are now or may hereafter be executed covering the Premises or any renewals, modifications, consolidations, replacements or extensions thereof, for the full amount of all advances made or to be made thereunder and without regard to the time or character of such advances, together with interest thereon and subject to all the terms and provisions thereof; provided only, that in the event of termination of any such lease or upon the foreclosure of any such mortgage or deed of trust, so long as Tenant is not in default, Holder agrees to recognize Tenant's rights under this Lease as long as Tenant shall pay the Rent and observe and perform all the provisions of this Lease to be observed and performed by Tenant. Within fifteen (15) days after Landlord's written request, Tenant shall execute any and all documents reasonably required by Landlord or the Holder to make this Lease subordinate to any lien of the Encumbrance (including, without limitation, subordination to all CC&Rs), including without limitation a Subordination, Non-Disturbance and Attornment Agreement in the fore attached hereto as EXHIBIT E ("SNDA"). Subject to PARAGRAPH 27.C below, if Tenant fails to do so, such failure shall constitute a default under this Lease, and it shall be deemed that this Lease is subordinated to such Encumbrance. B. ATTORNMENT. Notwithstanding anything to the contrary set forth in this PARAGRAPH 27, Tenant hereby attorns and agrees to attorn to any entity purchasing or otherwise acquiring the Premises at any sale or other proceeding or pursuant to the exercise of any other rights, powers or remedies under such Encumbrance. 66 C. NON-DISTURBANCE. Notwithstanding anything to the contrary in this Lease, if an Encumbrance, other than any CC&R's, is created after the execution of this Lease, as a condition to the subordination of this Lease thereto under PARAGRAPH 27.A above, Landlord shall obtain from the Holder of such Encumbrance, other than CC&R's, a SNDA in a commercially reasonable form or in a form reasonably acceptable to Tenant. Without in any way limiting the type or form of SNDA that may be required by such Holder, Tenant hereby agrees that a SNDA in the form attached to this Lease as EXHIBIT E shall be reasonable. Only upon Landlord's delivery of a SNDA in the form of EXHIBIT E or in a commercially reasonable form or in a form reasonably acceptable to Tenant, shall this Lease be automatically subject and subordinate to such Encumbrance, other than CC&R's. Within fifteen (15) business days after full execution of this Lease, Landlord shall use reasonable efforts to provide Tenant with a SNDA in the form attached to this Lease as EXHIBIT E from each Holder of any Encumbrance in effect as of the date of this Lease, confirming that the existence of the "automatic subordination" language contained in PARAGRAPH 27.A above shall not (without the occurrence of some other act or event that constitutes a default by Tenant under the Lease constitute a default by Tenant under this Lease). If Landlord fails to deliver the required SNDA(s) within the 15-day period, then, as Tenant's sole and exclusive remedy, Tenant shall have the right to terminate this Lease by giving Landlord a written notice of termination within five (5) business days after expiration of such 15-day period, upon which Landlord shall promptly return to Tenant any Rent paid in advance and the Security Deposit. If Tenant does not exercise such termination right within such 5-business day period, then Tenant shall have no further right to terminate this Lease pursuant to this PARAGRAPH 27.C and Tenant shall have no other rights or remedies with respect to Landlord's failure to deliver such SNDA(s). 28. NOTICES. Any notice or demand required or desired to be given under this Lease shall be in writing and shall be personally served or in lieu of personal service may be given by certified mail, facsimile, or overnight courier service. All notices or demands under this Lease shall be deemed given, received, made or communicated on the date personal delivery is effected; or, if sent by certified mail, on the delivery date or attempted delivery date shown on the return receipt; or, if sent by 67 facsimile, on the date sent by the sender; or, if sent by overnight courier service, on the delivery date or attempted delivery date shown on such service's records. At the date of execution of this Lease, the addresses of Landlord and Tenant are as set forth in PARAGRAPH 1. After the Commencement Date, the address of Tenant shall be the address of the Premises. Either party may change its address by giving notice of same in accordance with this PARAGRAPH 28. 29. ATTORNEYS' FEES. If either party brings any action or legal proceeding for damages for an alleged breach of any provision of this Lease, to recover Rent, or other sums due, to terminate the tenancy of the Premises or to enforce, protect or establish any term, condition or covenant of this Lease or right of either party, the prevailing party shall be entitled to recover as a part of such action or proceedings, or in a separate action brought for that purpose, reasonable attorneys' fees and costs, including without limitation any and all costs and expenses arising from (i) collection efforts, (ii) any appellate proceedings, and (iii) any bankruptcy, insolvency or arbitration proceedings. 30. ESTOPPEL CERTIFICATES. A. TENANT ESTOPPEL. Tenant shall within fifteen (15) days following written request by Landlord. (i) Execute and deliver to Landlord any documents, including estoppel certificates, in the form prepared by Landlord (a) certifying that this Lease is unmodified and in full force and effect or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect and the date to which the Rent and other charges are paid in advance, if any, and (b) acknowledging that there are not, to Tenant's knowledge, any uncured defaults on the part of Landlord, or, if there are uncured defaults on the part of the Landlord, stating the nature of such uncured defaults, (c) evidencing the status of the Lease as may be required either by a lender making a loan to Landlord to be secured by deed of trust or mortgage covering the Premises or a purchaser of the Premises from Landlord, and (d) such other matters as may be reasonably requested by Landlord. Tenant's failure to deliver an estoppel certificate within fifteen (15) days after delivery of Landlord's written request therefor shall be conclusive upon Tenant (a) that 68 this Lease is in full force and effect, without modification except as may be represented by Landlord, (b) that there are now no uncured defaults in Landlord's performance, and (c) that no Rent has been paid in advance. If Tenant fails to so deliver a requested estoppel certificate within the prescribed time it shall be conclusively presumed that this Lease is unmodified and in full force and effect except as represented by Landlord. (ii) Deliver to Landlord the current financial statements of Tenant, and financial statements of the two (2) years prior to the current financial statements year, with an opinion of a certified public accountant, including a balance sheet and profit and loss statement for the most recent prior year, all prepared in accordance with generally accepted accounting principles consistently applied. B. LANDLORD ESTOPPEL. Landlord shall, within fifteen (15) days following written request by Tenant, execute and deliver to Tenant an estoppel certificate, in the form prepared by Tenant, (a) certifying that this Lease is unmodified and in full force and effect or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect and the date to which the Rent and other charges are paid in advance, if any, and (b) acknowledging that there are not, to Landlord's knowledge, any uncured defaults on the part of Tenant, or, if there are uncured defaults on the part of the Tenant, stating the nature of such uncured defaults, and (c) such other matters as may be reasonably requested by Tenant. Landlord's failure to deliver an estoppel certificate within fifteen (15) days after delivery of Tenant's written request therefor shall be conclusive upon Landlord (a) that this Lease is in full force and effect, without modification except as may be represented by Tenant, (b) that there are now no uncured defaults in Tenant's performance, and (c) that no Rent has been paid in advance. If Landlord fails to so deliver a requested estoppel certificate within the prescribed time it shall be conclusively presumed that this Lease is unmodified and in full force and effect except as represented, by Tenant. 31. TRANSFER OF THE PREMISES BY LANDLORD. In the event of any conveyance of the Premises and assignment by Landlord of this Lease, Landlord shall be and is hereby entirely released from all liability under any and all of its covenants and obligations contained in or derived from this 69 Lease occurring after the date of such conveyance and assignment, and Tenant agrees to attorn to such transferee provided such transferee assumes Landlord's obligations under this Lease. 32. LANDLORD'S RIGHT TO PERFORM TENANT'S COVENANTS. If Tenant shall at any time fail to make any payment or perform any other act on its part to be made or performed under this Lease, and such failure shall continue after the expiration of any applicable grace or cure periods provided in this Lease, Landlord may, but shall not be obligated to (and without waiving or releasing Tenant from any obligation of Tenant under this Lease), make such payment or perform such other act to the extent Landlord may deem desirable, and in connection therewith, pay expenses and employ counsel. All sums so paid by Landlord and all penalties, interest, expenses and costs in connection therewith shall be due and payable by Tenant on the next day after any such payment by Landlord, together with interest thereon at the Interest Rate from such date to the date of payment by Tenant to Landlord, plus collection costs and attorneys' fees. Landlord shall have the same rights and remedies for the nonpayment thereof as in the case of default in the payment of Rent. 33. TENANT'S REMEDY. Landlord shall never be personally liable under this Lease, and Tenant shall look solely to the net cash flow received by Landlord from its ownership of the Building, for recovery of any damages for breach of this Lease by Landlord or on any judgment in connection therewith. None of the persons or entities comprising or representing Landlord (whether partners, shareholders, officers, directors, trustees, employees, beneficiaries, agents or otherwise) shall ever be personally liable under this Lease or for any such damages or judgment, and Tenant shall have no right to effect any levy of execution against any assets of such persons or entities on account of any such liability or judgment. Any lien obtained by Tenant to enforce any such judgment, and any levy of execution thereon, shall be subject and subordinate to all Encumbrances as specified in PARAGRAPH 27 above. 70 34. MORTGAGEE PROTECTION. If Landlord defaults under this Lease, Tenant shall give written notice of such default to any beneficiary of a deed of trust or mortgagee of a mortgage covering the Premises, and offer such beneficiary or mortgagee a reasonable opportunity to cure the default, including time to obtain possession of the Premises by power of sale or a judicial foreclosure, if such should prove necessary to effect a cure. 35. BROKERS. Landlord and Tenant acknowledge and agree that they have utilized the services of real estate brokers (with Cornish and Carey Commercial representing Tenant, and BT Commercial representing Landlord) with respect to the transactions between Landlord and Tenant that are represented by this Lease. Tenant warrants and represents that it has had no dealings with any other real estate broker or agent in connection with the negotiation of this Lease, and that it knows of no other real estate broker or agent who is or might be entitled to a commission in connection with this Lease. 36. ACCEPTANCE. This Lease shall only become effective and binding upon full execution hereof by Landlord and delivery of a signed copy to Tenant. This Lease shall not be recorded. Upon execution of this Lease, the parties shall execute and acknowledge a Memorandum of Lease in the fore attached hereto as EXHIBIT F, which may be recorded by either Landlord or Tenant at such party's sole expense. Upon the expiration or earlier termination of this Lease, Tenant shall upon Landlord's request execute and acknowledge any and all documents that in Landlord's discretion may be required in order to terminate the Memorandum of Lease or otherwise remove the lien of the Memorandum of Lease from the Building. 37. PARKING. Tenant shall have the non-exclusive right, in common with any other tenants or occupants of the Project, to use up to 3.33 unassigned parking spaces per each one thousand (1,000) square feet of Rentable Area in the Premises, upon terms and conditions, as may from time to time be reasonably established by 71 Landlord. Should parking charges or surcharges of any kind be imposed on the parking facilities by a governmental agency, Tenant shall reimburse Landlord for such charges and/or surcharges or, if possible, shall pay such charges and/or surcharges directly to the governmental agency and, in such event, Tenant shall provide Landlord with proof that such charges and/or surcharges have been paid by Tenant. 38. GENERAL. A. CAPTIONS. The captions and headings used in this Lease are for the purpose of convenience only and shall not be construed to limit or extend the meaning of any part of this Lease. B. EXECUTED COPY. Any fully executed copy of this Lease shall be deemed an original for all purposes. C. TIME. Time is of the essence for the performance of each term, condition and covenant of this Lease. D. SEPARABILITY. If one or more of the provisions contained herein, except for the payment of Rent, is for any reason held invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision of this Lease, but this Lease shall be construed as if such invalid, illegal or unenforceable provision had not been contained herein. E. CHOICE OF LAW. This Lease shall be construed and enforced in accordance with the laws of the State of California. The language in all parts of this Lease shall in all cases be construed as a whole according to its fair meaning and not strictly for or against either Landlord or Tenant. F. GENDER; SINGULAR, PLURAL. When the context of this Lease requires, the neuter gender includes the masculine, the feminine, a partnership or corporation or joint venture, and the singular includes the plural. G. BINDING EFFECT. The covenants and agreement contained in this Lease shall be binding on the parties hereto and on their respective successors and assigns to the extent this Lease is assignable. 72 H. WAIVER. The waiver by Landlord of any breach of any term, condition or covenant, of this Lease shall not be deemed to be a waiver of such provision or any subsequent breach of the same or any other term, condition or covenant of this Lease. The subsequent acceptance of Rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach at the time of acceptance of such payment. No covenant, term or condition of this Lease shall be deemed to have been waived by Landlord unless such waiver is in writing and signed by Landlord. The waiver by Tenant of any breach of any term, condition or covenant, of this Lease shall not be deemed to be a waiver of such provision or any subsequent breach of the same or any other term, condition or covenant of this Lease. No covenant, term or condition of this Lease shall be deemed to have been waived by Tenant unless such waiver is in writing and signed by Tenant. I. ENTIRE AGREEMENT. This Lease is the entire agreement between the parties, and there are no agreements or representations between the parties except as expressed herein. Except as otherwise provided herein, no subsequent change or addition to this Lease shall be binding unless in writing and signed by the parties hereto. J. AUTHORITY. If Tenant is a corporation or a partnership, each individual executing this Lease on behalf of said corporation or partnership, as the case may be, represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of said entity in accordance with its corporate bylaws, statement of partnership or certificate of limited partnership, as the case may be. Landlord, at its option, may require a copy of such written authorization to enter into this Lease. K. EXHIBITS. All exhibits, amendments, riders and addenda attached hereto are hereby incorporated herein and made a part hereof. L. LEASE SUMMARY. The Lease Summary attached to this Lease is intended to provide general information only. In the event of any inconsistency between the Lease Summary and the specific provisions of this Lease, the specific provisions of this Lease shall prevail. 73 39. EQUIPMENT LEASING/LANDLORD'S LIEN. Notwithstanding anything herein to the contrary, Landlord waives any and all rights, title and interest Landlord now has, or hereafter may have, whether statutory or otherwise, to Tenant's inventory, equipment, furnishings, trade fixtures, books and records, and personal property paid for by Tenant located at the Premises (singly and/or collectively, the "COLLATERAL"). Landlord acknowledges that Landlord has no lien, right, claim, interest or title in or to the Collateral. Landlord further agrees that Tenant shall have the right, at its discretion, to mortgage, pledge, hypothecate or grant a security interest in the Collateral as security for its obligations under any equipment lease or other financing arrangement related to the conduct of Tenant's business at the Premises. Landlord further agrees to execute and deliver within three (3) business days any UCC filing statement or other documentation required to be executed by Landlord in connection with any such lease or financing arrangement, including but not limited to a Landlord's Waiver and Consent form. 40. RIGHT OF EARLY ENTRY. Tenant shall have the right to enter the Premises prior to the commencement of the Term to take reasonable preparatory measures for its occupancy of the Premises including, without limitation, the installation of its trade fixtures, furnishings, and telephone, telecommunications and computer equipment, so long as Tenant does not materially interfere with the construction of the Improvements by Landlord and Landlord's contractor. Such entry shall be subject to all of the terms and conditions of this Lease, except that Tenant shall not be required to pay any Rent on account thereof. Tenant shall indemnify, defend, protect, and hold harmless Landlord from and against any and all losses, costs, damages, liability, claims and expenses arising from any such entry onto the Premises by Tenant. THIS LEASE is effective as of the date the last signatory necessary to execute the Lease shall have executed this Lease. [SIGNATURES FOLLOW ON NEXT PAGE] 74 TENANT: BROADVISION, INC., a Delaware corporation By: ---------------------------------------- Its: --------------------------------------- Date: -------------------------------------- By: ---------------------------------------- Its: --------------------------------------- Date: -------------------------------------- LANDLORD: MARTIN/CAMPUS ASSOCIATES NO. 4, L.P., a Delaware limited partnership By: Martin/Redwood Associates, L.P., a California limited partnership Its General Partner By: TMG Redwood LLC, a California limited liability company Its General Partner By: The Martin Group of Companies, Inc. a California corporation Its General Partner By: ---------------------------------------- Its: -------------------------------------- Date: ------------------------------------- By: ---------------------------------------- Its: -------------------------------------- Date: ------------------------------------- 75 Exhibit A-1 Floor Plan Of Premises Exhibit A-2 Floor Plan of Premises EXHIBIT B WORK LETTER AGREEMENT THIS WORK LETTER ("Agreement") is made and entered into by and between Landlord and Tenant as of the date of the Lease. This Agreement shall be deemed a part of the Lease to which it is attached. Capitalized terms which are used herein and defined in the Lease shall have the meanings given in the Lease. 1. GENERAL. 1.1. CAPITAL IMPROVEMENTS. Prior to the Commencement Date, at Landlord's sole cost and expense, Landlord shall do the following (collectively, the "CAPITAL IMPROVEMENTS"). - Remove all existing interior improvements in the Premises with the exception of two (2) existing elevators, but including all existing restrooms. - Remove all existing HVAC equipment currently located on roof. - Remove all existing fire sprinkler improvements back to the fire riser except the main line which penetrates the steel beams. Landlord covenants that the fire riser shall be in working condition. Any repairs to the main line shall be a Tenant improvement Cost. tenant shall pay for fire monitoring equipment and connection costs. - Provide 150 tons of new HVAC equipment to be located on the roof of the Building. As part of the Capital Improvements, the supply and return ducting shall be run from the HVAC equipment onto each floor of the Premises. All other ducting, distribution, and controls shall be part of the Tenant Improvements. - Provide 2000 amp, 480 volt electrical service to the Building. The Capital Improvements will include a transformer to be located on a pad on the exterior of the Building with the PG&E pull section into the main electric room. All conduit, wiring devices and controls downstream of the main 1 panel and any walls or ceiling needed for the electric room shall be part of the Tenant Improvements. Electrical conduit and wiring to the main HVAC equipment will be a Capital Improvement. - Remove the existing roof and replace it with a three-ply built-up roof with a mineral-surfaced cap sheet. - Perform any exterior ADA and exterior code-related work required by the City of Redwood City in connection with the initial construction of the Premises per the site plan as shown in EXHIBIT B-2 attached hereto. - Remove all interior friable and non-friable asbestos within the Building and basement areas (excluding transite panels on curtain wall of the Building). - Remove the security screen around the perimeter of the Building and change the existing vision glass as shown on EXHIBIT B-1. Repaint the exterior of the Building. - Provide two (2), four-inch (4") empty telephone conduits from an area on the street designated by the utility company to the electric room in the Building. - Modify the area adjacent to the Building in substantial conformity with the site plan as shown in EXHIBIT B-2. - On the north elevation of the Building, construct a new canopy at the Building's main entry and install slate on the existing sheer wall element as shown on the attached EXHIBIT B-1. Any and all Tenant signage shall be a part of the Tenant Improvements. - Any insulation required for Title 24 compliance shall be part of the Tenant Improvements. 2 - Install one hydraulic passenger elevator 2,500 pound capacity (may be holeless or not holeless) in the approximate location as shown on the floor plans attached hereto as EXHIBIT A, in accordance with all applicable laws, including but not limited to the ADA (as defined in the Lease). - Landlord intends to abandon in place the electrical and mechanical equipment currently housed in the basement of the Building. - Tenant will be permitted to install a back-up generator on the exterior of the Building in a mutually agreed-upon location. All of the costs associated with the generator, including screening will be part of the Tenant Improvements. - Leave the slab, walls and roof deck in good, clean condition. Notwithstanding Landlord's agreement to construct the Capital Improvements at its sole cost, Landlord and Tenant agree to share equally the cost of any necessary filling in or leveling of the interior concrete floor deck provided that the cost thereof does not exceed Fifty Thousand and 00/100 Dollars ($50,000.00). If the cost does exceed Fifty Thousand and 00/100 Dollars ($50,000.00), Landlord shall pay such excess cost. Tenant shall pay its proportionate share of such costs within thirty (30) days after receipt of Landlord's statement therefor. Landlord shall exercise commercially reasonable judgment pursuant to industry building standards in determining the amount of leveling to be done in the Premises. Except for its obligation to perform the Capital Improvements and the Tenant Improvements as set forth in this Lease and the Work Letter, Landlord shall have no obligation whatsoever to do any work or perform any improvements whatsoever to any portion of the Premises or the Building; provided, however, that the Tenant Improvements shall be performed at the sole cost and expense of Tenant. Landlord shall cause Contractor (as defined below) to perform all initial leasehold improvements, in accordance with the approved Final Plans and as otherwise may be required to comply with applicable law (collectively, the "TENANT IMPROVEMENTS"). The parties acknowledge and agree that the Capital Improvements and the Tenant Improvements constitute all 3 of the work required to enable Tenant to occupy, and operate its business in, the Premises. If Landlord materially alters the current landscape, parking and lighting plans for the Project before the Commencement Date, then Landlord shall consult with Tenant's regarding such modification, but Tenant shall have no approval rights regarding such modification. Landlord shall (i) cause, through Contractor, the Capital Improvements to be performed in a good and workmanlike manner using new materials and in accordance with all applicable legal requirements, and (ii) use its best efforts to cause, through Contractor, the Improvements to be performed in accordance with the schedule attached hereto as EXHIBIT B-3 the ("Schedule"); provided, however, that Landlord's obligation to use reasonable efforts to cause the Tenant Improvements to be performed in accordance with the Schedule shall be subject to and dependent upon Tenant's compliance with the Schedule and the terms of this Agreement and to Force Majeure Delays as defined in PARAGRAPH 4.B of the Lease. Landlord, at its sole cost, shall obtain all premises, licenses and authorizations required in connection with the Capital Improvements. All Landlord design work for the shell condition shall be designed and submitted to the City of Redwood City for permit prior to Tenant submitting its plans for the Tenant Improvements to the City for permit. 1.2. TENANT IMPROVEMENT COSTS. The cost of performing the Tenant Improvements, including without limitation the costs described in PARAGRAPH 6 below (collectively, the "TENANT'S IMPROVEMENT COSTS") shall be paid by Tenant in the manner set forth in PARAGRAPH 5 below. 2. APPROVAL OF PLANS FOR TENANT IMPROVEMENTS. 2.1. ARCHITECT. Tenant has selected HPC Architecture ("ARCHITECT") for the design and preparation of plans for the Tenant Improvements. Tenant shall retain Architect's administrative services throughout the performance of the Tenant Improvements. 2.2. SUBMITTAL OF PLANS. 2.2.1. PRELIMINARY Plans. Tenant shall cause Architect to prepare preliminary plans (the "PRELIMINARY PLANS") for the Tenant Improvements to be performed at the Premises. Tenant shall cause Architect to deliver the Preliminary Plans to Landlord in accordance with the Schedule attached as EXHIBIT B-3. 4 Within five (5) days after Landlord's receipt of the Preliminary Plans, Landlord shall either approve or disapprove the Preliminary Plans, which approval shall not be unreasonably withheld. Failure of Landlord to approve or disapprove the Preliminary Plans within such five-day period shall be deemed to constitute Landlord's approval of the Preliminary Plans. If Landlord disapproves the Preliminary Plans, then Landlord shall state in reasonable detail the changes which Landlord requires to be made thereto. Tenant shall submit to Landlord revised Preliminary Plans within five (5) days after Tenant's receipt of Landlord's disapproval notice. Following Landlord's receipt of the revised Preliminary Plans from Tenant, Landlord shall have the right to review and approve the revised Preliminary Plans pursuant to this PARAGRAPH 2.2.1. Landlord shall give Tenant written notice of its approval or disapproval of the revised Preliminary Plans within five (5) days after the date of Landlord's receipt thereof. Failure of Landlord to approve or disapprove the Preliminary Plans within such five-day period shall be deemed to constitute Landlord's approval of the revised Preliminary Plans. If Landlord disapproves the revised Preliminary Plans, then Landlord and Tenant shall continue to follow the procedures set forth in this PARAGRAPH 2.2.1 until Landlord and Tenant approve the Preliminary Plans in accordance with this PARAGRAPH 2.2.1. 2.2.2. PRELIMINARY BUDGET. Landlord intends to retain Devcon Construction ("CONTRACTOR") as the general contractor for the construction of the Tenant Improvements, Air Systems for the mechanical design-build work and Frank Electric for the electrical design-build work. Within the time period provided in the Schedule attached as EXHIBIT B-3, Contractor shall prepare a preliminary budget for the Tenant Improvements based upon the approved Preliminary Plans, which Contractor shall submit to Tenant for its review and approval. Within the time period provided in the Schedule attached as EXHIBIT B-3, Tenant and Landlord shall review and approve or disapprove the Preliminary Plans and the preliminary budget. 2.2.3 FINAL PLANS. Within the time period provided in the Schedule attached as EXHIBIT B-3, Tenant shall cause Architect to commence preparing complete plans, specifications and working drawings which incorporate and are consistent with the approved Preliminary Plans and preliminary budget, and which show in detail the intended design, construction and finishing of all portions of the Tenant 5 Improvements described in the Preliminary Plans (collectively, the "FINAL PLANS"). Tenant shall cause Architect to deliver the Final Plans to Landlord, for Landlord's review and approval within the time period provided in the Schedule attached as EXHIBIT B-3. Within five (5) days after Landlord's receipt of the Final Plans, Landlord shall either approve or disapprove the Final Plans, which approval shall not be unreasonably withheld. Landlord's failure to approve or disapprove the Final Plans within such five-day period shall be deemed to constitute Landlord's approval of the Final Plans. If Landlord disapproves the Final Plans, then Landlord shall state in reasonable detail the changes which Landlord requires to be made thereto. Tenant shall submit to Landlord revised Final Plans within five (5) days after Tenant's receipt of Landlord's disapproval notice. Following Landlord's receipt of the revised Final Plans from Tenant, Landlord shall have the right to review and approve the revised Final Plans pursuant to this PARAGRAPH 2.2.3. Landlord shall give Tenant written notice of its approval or disapproval of the revised Final Plans within five (5) days after the date of Landlord's receipt thereof. Landlord's failure to approve or disapprove the Final Plans within such five-day period shall be deemed to constitute Landlord's approval of the revised Final Plans. If Landlord disapproves the revised Final Plans, then Landlord and Tenant shall continue to follow the procedures set forth in this PARAGRAPH 2.2.3 until Landlord and Tenant reasonably approve such Final Plans in accordance with this PARAGRAPH 2.2.3. 3. CONSTRUCTION BUDGET. Upon approval by Landlord and Tenant of the Final Plans, Landlord shall instruct Contractor to obtain competitive bids for the Tenant Improvements from at least three (3) qualified subcontractors for each of the major subtrades (excluding the mechanical, electrical and fire sprinkler trades, which shall be on a design/build basis, unless Landlord elects to competitively bid these trades) and to submit the same to Tenant for its review and approval. Upon selection of the subcontractors and approval of the bids, Contractor shall prepare a cost estimate for the Tenant Improvements described in such Final Plans, based upon the bids submitted by the subcontractors selected. Within the time period provided in the Schedule attached as EXHIBIT B-3, Contractor shall submit such cost estimate to Tenant for its review and approval. Tenant may approve or reject such cost estimate in its reasonable sole discretion. If Tenant rejects such cost estimate, Tenant shall resolicit bids based on such Final Plans, in accordance with the 6 procedures specified above. Following any resolicitation of bids by Tenant pursuant to this PARAGRAPH 3, Tenant shall again follow the procedures set forth in this PARAGRAPH 3 with respect to the submission and reasonable approval of the cost estimate from Contractor; provided, however, that Tenant shall only be permitted to resolicit bids once following Tenant's rejection of the cost estimate and Tenant shall select from the bids received in the second solicitation of bids. 4. LANDLORD TO CONSTRUCT. Landlord shall cause Contractor to construct the Tenant Improvements in a good and workmanlike manner, in accordance with the approved Final Plans and in compliance with all applicable laws. Architect shall be responsible for obtaining all necessary building permits and approvals and other authorizations from governmental agencies required in connection with the Tenant Improvements. The cost of all such permits and approvals, including inspection and other building fees required to obtain the permits for the Tenant Improvements, shall be included as part of the Tenant Improvement Costs. Tenant shall have the benefit of any warranties provided by Contractor, the subcontractors and suppliers in connection with the Tenant Improvements. 5. PAYMENT FOR TENANT IMPROVEMENTS. The Tenant Improvement Costs shall be paid solely by Tenant as follows. 5.1. TENANT IMPROVEMENT ALLOWANCE. Landlord shall provide funds, to be used for the payment of Tenant Improvement Costs, in an amount not to exceed Ten and 00/100 Dollars per square foot of Rentable Area (the "Tenant Improvement Allowance"). Tenant shall pay all of the Tenant Improvement Costs in excess of the Tenant Improvement Allowance (the "Excess Costs") in accordance with PARAGRAPH 5.2. 5.2. SET-ASIDE FUNDS. Within five (5) days after Tenant has approved the cost estimate for the Tenant Improvements pursuant to PARAGRAPH 3 above, Tenant shall deposit into a separate account with any financial institution designated by Landlord, subject to restrictions in favor of such financial institution, an amount (the "SET-ASIDE FUNDS") equal to the Excess Costs, based on the assumption that the cost of the Tenant Improvements shall equal the Tenant Improvement Allowance and the Excess Cost estimate. Landlord shall instruct such financial institution to hold the Set-Aside Funds in a separate interest-bearing account with interest to accrue for Tenant's account, and 7 shall utilize the Set-Aside Funds to pay for the Tenant Improvement Costs in the manner set forth in this PARAGRAPH 5. 5.3. PAYMENT. As and when any Excess Costs become due and payable, and so long as Landlord has delivered to Tenant copies of unconditional lien releases from Contractor and the major subcontractors covering the work for which such Tenant Improvement Costs are payable, Landlord shall request such financial institution to utilize the remaining Set-Aside Funds to pay any amount of Excess Costs; provided, however, that if at any time there are insufficient Set-Aside Funds to pay any amount of the Excess Costs, Tenant shall pay any and all such Excess Costs to Landlord within ten (10) days after the date of Tenant's receipt of Landlord's written request therefor; and provided further, that Landlord shall use reasonable efforts to provide for commercially reasonable holdbacks, with respect to the payment of the Tenant Improvement Costs. Any failure by Tenant to pay any Excess Costs as and when required under this Agreement shall constitute a default by Tenant under the Lease. 5.4. PENALTIES. To the extent that any contractor or subcontractor working on the Tenant Improvements imposes upon Landlord any penalty or late charge due to Tenant's failure to pay to Landlord any amount due under this PARAGRAPH 5.4 as and when such amount is due, Tenant shall be solely responsible for paying such penalty or late charge. 6. TENANT IMPROVEMENT COSTS. The Tenant Improvement Costs shall include all reasonable costs incurred in connection with the Tenant Improvements (but not the Capital Improvements), as determined by Landlord in its reasonable discretion, including the following: (a) All costs of space plans and other architectural and engineering plans and specifications for the Tenant Improvements, including engineering costs associated with completion of the State of California energy utilization calculations under Title 24 legislation required in connection with the Tenant Improvements and the base Building mechanical; (b) All costs of obtaining building permits and other necessary authorizations from the City of Redwood City; 8 (c) All costs of interior design and finish schedule plans and specifications, including as-built drawings by Architect; (d) All direct and indirect costs of procuring, constructing and installing the Tenant Improvements in the Premises, including, but not limited to, the construction fee of four and one-half percent (4 1/2%) payable to the Contractor for overhead and profit, and the cost of all on-site supervisory and administrative staff, office, equipment and temporary services rendered by Contractor in connection with construction of the Tenant Improvements; (e) All fees payable to Architect and Landlord's engineering firm if they are required by Tenant to redesign any portion of the Tenant Improvements following Tenant's approval of the Final Plans; (f) Sewer connection fees (if any); (g) All direct and indirect construction costs associated with complying with Title 24 legislation and ADA compliance for all interior improvements; (h) All direct and indirect construction costs associated with complying with Title 24 legislation and ADA compliance resulting from changes to the exits from the Building; and (i) A construction management fee payable to Landlord equal to Forty Thousand and 00/100 Dollars ($40,000.00). In no event shall the Tenant Improvement Costs include any costs of procuring, constructing or installing in the Premises any of Tenant's Personal Property, trade fixtures, equipment, inventory, computer network, communications system, promotional materials, signage or related expenses. 7. CHANGE REQUESTS. No revisions to the approved Final Plans shall be made by either Landlord or Tenant unless approved in writing by both parties. Landlord agrees to make all changes (i) required by any public agency to conform with governmental regulations, or (ii) requested in writing by Tenant and approved in writing by Landlord, which approval shall not be unreasonably withheld. Any costs related to such changes shall be added to 9 the Tenant Improvement Costs and shall be paid for in accordance with PARAGRAPH 5. The billing for such additional costs shall be accompanied by evidence of the amounts billed as is customarily used in the business. Costs related to changes shall include, without limitation, any architectural, structural engineering, or design fees, and the Contractor's price for effecting the change. Any change order which may extend the date of substantial completion of the Tenant Improvements may be disapproved by Landlord unless Tenant agrees that for all purposes under this Lease, the Tenant Improvements shall be deemed to have been substantially completed on that date on which such Tenant Improvements would have been substantially completed without giving effect to the change order in question. [SIGNATURES FOLLOW ON NEXT PAGE] 10 Exhibit B-1 Midpoint Technology Park 405 Broadway, Redwood City [IMAGE] A project of THE MARTIN GROUP EXHIBIT B-2 Site Plan MidPoint Technology Park 405 Broadway [IMAGE] Exhibit C MidPoint Technology Park Master Plan [IMAGE] EXHIBIT D COMMENCEMENT DATE MOMENTUM LANDLORD: Martin/Campus Associates No. 4, L.P. TENANT: Broadvision, Inc. LEASE DATE: January , 1999 PREMISES: 405 Broadway, Redwood City, California Pursuant to PARAGRAPH 4.A. of the above referenced Lease, the commencement date is hereby established for 405 Broadway, Redwood City, CA 94063. The Commencement Date as defined in PARAGRAPH 4.A shall be ______________________, 1999. TENANT: BROADVISION, INC., a Delaware corporation By: -------------------------- Its: ------------------------- Date: ------------------------ By: -------------------------- Its: ------------------------- Date: ------------------------ [SIGNATURES FOLLOW ON NEXT PAGE] 1 LANDLORD: MARTIN/CAMPUS ASSOCIATES NO. 4, L.P., a Delaware limited partnership By: Martin/Redwood Associates, L.P., a California limited partnership Its General Partner By. TMG Redwood LLC, a California limited liability company Its General Partner By. The Mart: in Group of Companies, Inc. a California corporation Its General Partner By: --------------------------- Its: -------------------------- Date: ------------------------- By: --------------------------- Its: -------------------------- Date: ------------------------- 2 Exhibit E RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: Fremont Investment & Loan 175 N. Riverview Drive Anaheim, California 92808 Attention: Commercial Real Estate Loan No.: 950113100 - ------------------------------------------------------------------------------- NONDISTURBANCE AND ATTORNMENT AGREEMENT THIS NONDISTURBANCE AND ATTORNMENT AGREEMENT (the "Agreement") is made as of by and among MARTIN/CAMPUS ASSOCIATES NO. 4, L.P., a Delaware limited partnership (Landlord whose address is 100 Bush Street, 25th Floor, San Francisco, California 94104 whose address is and FREMONT INVESTMENT & LOAN, a California Industrial loan association ("Lender"), whose address is 175 N. Riverview Drive, Anaheim, California 92808, Attn: Commercial Real Estate Department, Loan No. 950113100, with respect to the following Recitals: RECITALS A. Landlord is the owner of the real property described on EXHIBIT A attached hereto, together with the improvements now or hereafter located thereon (collectively, the "Project"). B. Landlord and Lender are the parties to that certain Loan and Security Agreement of even date herewith (the "Loan Agreement"), pursuant to the terms of which Lender has agreed to make a loan of up to Sixteen Million Five Hundred Thousand Dollars ($16,500,000) (the "Loan") to Landlord. The Loan is evidenced by that certain Secured Promissory Note of even date herewith, in the original principal amount of the Loan, executed by Landlord in favor of Lender (the "Note"). The Note is secured, INTER ALIA by that certain Deed of Trust and Fixture Filing of even date herewith executed by Landlord, as trustor, to the trustee named therein, in favor of Lender, as beneficiary (the "Deed of Trust") encumbering the Project, recorded concurrently herewith in the Official Records of San Mated County, California 1 (the "Official Records"), and by that certain Assignment of Rents and Leases of even date herewith executed by Landlord in favor of Lender (the "Assignment of Rents") encumbering the Project, recorded concurrently herewith in the Official Records. The Loan Agreement, the Note, the Deed of Trust, the Assignment of Rents and all other documents securing, or executed in connection with the Loan, together with all renewals, substitutions, extensions, modifications or replacements thereof, are collectively referred to herein as the "Loan Documents." C. Tenant and Landlord are the current parties to that certain lease dated between Tenant and between Tenant and Martin/Campus (as amended, the "Lease"), pursuant to which Landlord is leasing to Tenant a portion of the Project more particularly described in the Lease (the Leased Premises"). 2 NOW, THEREFORE, in consideration of the foregoing recitals and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. LOAN DISBURSEMENTS. Tenant agrees and acknowledges that in making disbursements of the Loan, Lender is under no obligation or duty, nor has Lender represented that it will, see to the application of the Loan proceeds by the person or persons to whom Lender disburses the Loan proceeds, and any application or use of the Loan proceeds for purposes other than those provided for in the Loan Documents shall not defeat in whole or In part the agreements set forth herein. 2. NONDISTURBANCE AND ATTORNMENT. If the interest of Landlord under the Lease is transferred by reason of any foreclosure of the Deed of Trust or by deed in lieu or in aid thereof Purchaser (as hereinafter defined) shall be bound to Tenant, and Tenant shall be bound to Purchaser, under all or the terms, covenant and conditions or the Lease (except as provided in SECTION 5 hereof) for the balance of the term thereof, with the same force and effect as if Purchaser were the original landlord under the Lease, Tenant does hereby attorn to Purchase as the landlord under the Lease, which attornment shall be effective and self-operate (notwithstanding whether Tenant is then in default under the Lease) without the execution of any further instruments upon Purchaser's succeeding to the interest of the landlord under the Lease; provided, however, that nothing set forth herein shall (i) give or be construed to have given Tenant the right to asset that the foregoing nondisturbance and attornment agreements are not effective in the event Tenant is in default under the Lease, whether or not any applicable notice and cure periods specifically provided far under the Lease with respect to Tenant's default have expired, and/or (ii) waive or be deemed a waiver by Purchaser of its rights under the Lease upon Tenant's defaults thereunder beyond any applicable notice and cure periods, regardless of when such default occurred. Without limiting the generality of this SECTION 2, within fifteen (15) calendar days after the request of Landlord, Lender or any Purchaser, Tenant shall execute and deliver such documents as are reasonably requested by such party to reflect such attornment. Within twenty (20) calendar days after the request of any Purchaser or Tenant, such parties shall enter into a new lease of 3 the Leased Premises for the balance of the then remaining term of the Lease and upon the same terms and conditions as are then contained in the Lease. As used herein, "Purchaser" shall mean a transferee (including, without, limitation, Lender and its affiliates and subsidiaries) which acquires the Interest of Landlord in the Leased Premises through a foreclosure of the Deed of Trust or a deed In lieu or in aid thereof, and its successors and assigns. 3. TENANT AGREEMENTS. TENANT AGREES THAT: A. Pursuant to SECTION 34 of the Lease, Tenant shall send a copy of any notice of a default by Landlord under the Lease to Lender at the same time such notice is sent to Landlord; and B. without Lender's prior written consent, Tenant shall not (i) pay any rent (however denominated) or other charges under the Lease more than one (1) month in advance or (ii) cancel, terminate or surrender the Lease, except at the normal expiration of the Lease term or as expressly provided in the Lease or pursuant to applicable law. Any amendment or modification to the Lease entered into without Lender's prior written consent to the extent such consent is required under the Loan Document shall not be binding upon Lender or any Purchaser; and C. Upon the occurrence of any event of default by Landlord under the Loan Documents and the expiration of any applicable cure periods expressly provided For under the Loan Documents, Lender, at all 4 times, independent of Landlord, shall have the standing and right to enforce, by injunction or otherwise, all or any provisions in the Lease as though Lender originally was a party thereto. 4. ASSIGNMENT OF RENTS. Tenant agrees to recognize the assignment from Landlord to Lender of the Lease and the amounts payable thereunder pursuant to the Assignment of Rents and, in the event of any default by Landlord under the Loan Documents and the expiration of any applicable cure period expressly set forth therein, Tenant shall pay to Lender, as such assignee, the rents and other amounts which are or become due under the Lease from and after the date on which Lender gives Tenant notice that such rent and other amounts are to be paid to Lender pursuant to the Assignment or Rents. In complying with the Provisions of this SECTION 4. Tenant shall be entitled to rely solely upon the notices given by Lender pursuant to the Assignment of Rent and Landlord hereby indemnifies and agrees to defend and hold Tenant, harmless from and against any and all expenses, loss, claims, damage or liability arising out of Tenants compliance with such notice or performance of the obligations under the Lease by the Tenant made in good faith in reliance on and pursuant to such notice, Tenant shall be entitled to full credit under the Lease for any rents paid to Lender in accordance with the provisions hereof. Any dispute between Lender (or any other Purchaser) and Landlord as to the existence or nature of a default by Landlord under the terms or the Loan Documents or with respect to the foreclosure of the Deed of Trust, shall be dealt with and adjusted solely between Lender (or such other Purchaser) and Landlord, and Tenant shall be made a party thereto (unless joinder is required by law). 5. LENDER'S OBLIGATIONS. Nothing in this Agreement and no action taken by Lender to enforce any provision in the Lease shall be deemed or construed to constitute an agreement by Lender to perform or assume any covenant of Landlord as landlord under the Lease unless and until Lender obtains title to the Leased Premises by foreclosure of the Deed of Trust or a deed in lieu or in aid thereof. Without limiting any of Tenant's rights against Landlord under the Lease, in the event Lender acquires title to the Leased Premises, Lender shall: A. be liable only for any damages or other relief attributable to any act or omission during Lender's period of 5 ownership of the Leased Premises, regardless of whether such act or omissions commenced prior to such period or ownership. For example, if the Lease provides that the failure of the Landlord to repair a hole in the roof occurred 60 days prior to Lender's acquisition of title and was not repaired for another 30 days thereafter, Tenant would only be entitled to offset against its rental obligations owed to Lender 30 days rental and would retain a claim against Landlord for 60 days rental; B. only be responsible for representations, warranties and covenants of Landlord the extent that such representations, warranties and covenants apply to the Project and relate to the operation of the Project during Lender's period of ownership of the Leased Premises; C. be liable only for any security deposit actually delivered to Lender; and D. have its obligations and liabilities limited to the then interest, if any, of Lender in the Project, without consideration of any mortgage liens placed on the Project by Lender. Tenant's shall look exclusively to such interest of Lender, if any, in the Project (including any insurance proceeds thereof and the proceeds of the sale thereof) the payment and discharge of any obligations imposed upon Lender hereunder or under the Lease and Tenant releases Lender from any ether liability hereunder and under the Lease. 6 Nothing contained In this Section shall be deemed to limit or affect Tenant's claims against Landlord for any breaches of the Landlord's obligations under the Lease, or for any breaches of Landlord's representations, warranties and covenants under the Lease, or for return of any security deposit under the Lease, and no transfer of the Project to Lender shall release Landlord from any of its Lease obligations, notwithstanding anything to the contrary in the Lease. 6. ESTOPPEL CERTIFICATE. Pursuant to SECTION 30 of the Lease, Tenant agrees, from time to time, within fifteen (15) days after Lender's request, to execute and deliver to Lender or Lenders designee, any estoppel certificate reasonably requested by Lender, stating that the Lease is in full force and effect, to date to which rent has been paid, that Landlord is not in default under the Lease (or specifying in detail the nature at Landlord's default), and such other matters relating to the Lease as may be reasonably requested by Lender, 7. NO MERGER. The parties agree that, without Lenders prior written torment, Landlord's estate in and to the Project and the leasehold estate created by the Lease shall not merge but shall remain separated and distinct, notwithstanding the union of such estates in Landlord, Tenant or any third party by purchase, assignment or otherwise. 8. ENTIRE AGREEMENT. This Agreement shall be the whole and only agreement with regard to the matters set forth herein and shall supersede and cancel any prior agreements with respect thereto, including, without limitation, any provisions contained in the Lease relating thereto. 9. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which counterparts taken together shall constitute but one and the same instrument. Signature and acknowledgment pages may be detached from the counterparts and attached to a single copy of this Agreement to physically form one document, which may be recorded. 7 10. MODIFICATIONS, SUCCESSORS AND ASSIGNS. This Agreement may only be modified in writing signed by all of the parties hereto or their respective successors in interest. This Agreement, Including without limitation, the provisions of SECTION 5, shall inure to the benefit of, and be binding upon, the parties hereto and their respective successors and assigns. 11. ATTORNEYS' FEES. If any lawsuit or other proceeding Is commenced which arises out of, or which relates to this Agreement, including any alleged tort, action, the prevailing party shall be entitled to recover from each other party such sums as the court or other party presiding over such action or proceeding may adjudge to be reasonable attorneys' fees and cost in the action or proceeding, In addition to cost and expenses otherwise allowed by law. Any such attorneys' fees and case incurred by any party in enforcing a judgment in its favor under this Agreement shall be recoverable separately from and in addition to any other amount included in such judgement and shall survive and not be merged into any such judgment. 8 The obligation to pay such attorneys' fees and casts is intended to be severable from the other provisions of this Agreement. 12. GOVERNING LAW. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of California. 13. NOTICES. Any notice, or other document or demand required or permitted under this Agreement shall be in writing addressed to the appropriate address set forth above and shall be deemed delivered on the earliest of (a) actual receipt, (b) the next business day after the date when sent by recognized overnight courier, or (c) the second business day after the date when sent by registered or certified mail, postage prepaid. Any party may, from time to time, change the address at, which such written notices or other document or demands are to be sent, by giving the other parties written notice of such change in the manner hereinabove provided. 9 EXHIBIT F MEMORANDUM OF LEASE RECORDING REQUESTED BY, AND: WHEN RECORDED, RETURN TO: - ------------------------- - ------------------------- - ------------------------- - ------------------------- - ------------------------- MEMORANDUM OF LEASE THIS MEMORANDUM OF LEASE ("Memorandum"), dated as of the _____ day of ____, 1999, is made and entered into by and between MARTIN/CAMPUS ASSOCIATES NO. 4, L.P., a Delaware limited partnership ("Landlord"),and BROADVISION, INC., a Delaware corporation ("Tenant"). RECITALS This Memorandum is entered into on the basis of the following facts, understandings and intentions of the parties: A. Landlord and Tenant have entered into that certain Lease Agreement dated as of January _____, 1999 (collectively, together with any and all amendments and supplements thereto, hereinafter referred to as the "Lease"). Pursuant to the terms, covenants and conditions of the Lease, Tenant has leased from Landlord a portion of that certain real property (the "Real Property") and all improvements thereon, as more particularly described in EXHIBITS A-1 AND A-2 hereto. That portion of the Real Property being leased by Tenant is hereafter called the "Premises", and is more particularly described in EXHIBIT B hereto. A copy of the Lease is being held by Tenant at its office at the Premises. 1 B. Landlord and Tenant desire to enter into this Memorandum which is to be recorded in order that third parties may have notice of the estate of Tenant in the Premises. NOW THEREFORE, in consideration of the mutual covenants and promises of the parties, the parties hereto agree as follows. 1. LEASE OF PREMISES. Landlord leases the Premises to Tenant and Tenant hires the Premises from Landlord, on the terms, covenants and conditions set forth in the Lease, for the Term, defined in the Lease. 2. TERM. The term of the Lease shall commence on the Lease Commencement Date, as defined in the Lease, and shall terminate on December 4, 2007, subject to extension by Tenant for one (1) period of five (5) years, pursuant to PARAGRAPH 4 of the Lease (collectively, the "Term"). 3. COVENANTS RUN WITH THE LAND. All of the provisions, agreements, rights, powers, covenants, conditions and obligations contained in the Lease shall be binding upon and inure to the benefit of the parties hereto, their respective heirs, successors (by merger, consolidation or otherwise) and assigns, devisees, administrators, representatives, lessees, and all other persons acquiring the Premises, or any portion thereof, or any interest therein, whether by operation of law or in any manner whatsoever, unless and until modified as provided in the Lease. All of the provisions of the Lease, for the Term of the Lease, including any permitted hold-over period, shall be covenants running with the land pursuant to applicable law. It is expressly acknowledged that each covenant to do or refrain from doing some act on the Premises is for the benefit of the Premises and is a burden upon the Premises, runs with the Premises, and shall benefit or be binding upon each successive owner during its ownership of the Premises, or any portion thereof, and each person having an interest therein derived in any manner through any owner thereof, or any portion thereof. 4. LEASE TO CONTROL. All of the terms, conditions, provisions and covenants of the Lease are incorporated in this Memorandum by reference as though written out at length herein and both the Lease and this Memorandum shall be deemed to constitute a single instrument or document. If any inconsistency shall exist between the Lease and this Memorandum, the Lease shall control. This Memorandum and the Lease, and the covenants 2 and agreements herein and therein contained, shall bind and inure to the benefit of the parties hereto, their heirs, successors, executors, administrators and assigns. 5. SIGNATURE PAGE. For convenience, the signatures of the parties to this Memorandum may be executed on separate pages, which when attached to this Memorandum shall constitute this as one complete Memorandum. IN WITNESS WHEREOF, the parties hereto have executed this Memorandum as of the day and year first above written. "TENANT" BROADVISION, INC., a Delaware corporation By: -------------------------- Its: ------------------------- By: -------------------------- Its: ------------------------- [SIGNATURES CONTINUE ON NEXT PAGE] 3 "LANDLORD" MARTIN/CAMPUS ASSOCIATES NO. 4, L.P., a Delaware limited partnership By: Martin/Redwood Associates, L.P., a California limited partnership Its General Partner By: TMG Redwood LLC, a California limited liability company Its General Partner By: The Martin Group of Companies, Inc., a California corporation Its General Partner By: ---------------------- Its: --------------------- Date -------------------- By: ---------------------- Its: --------------------- Date: -------------------- attach notaries 4 Second Floor - Floor Plan EXHIBIT B [Image] EXHIBIT C - - BroadVision WILL supply the refrigerators on the second floor of the building. Microwaves will need to be provided by RealNames. - - SECURITY: The security guards that work for The Martin Group patrol the entire property. - - CARD KEYS FOR 405: Yes, BroadVision will provide them for RealNames. It will require a $15.00 deposit per key. The deposit will be returned when the keys are returned. If one is to get lost, there is a $15.00 charge to replace the key. The charge for lost keys is not refundable. This is for the main lobby entrance into the building, the second floor entrance and the second floor server room. There are also two other entrances with stairwells to the second floor which we will supply door keys to (same key fits both doors) at $5.00 deposit per key. If one is to be lost, there is a non-refundable $5.00 charge. - - ADDRESS TO BE USED BY REAL NAMES RealNames can use the 405 Broadway address as their main address. - - SIGNAGE: Small street signage base to be provided. Patsy, David Wright (landlord) needs a camera-ready disc with your art to complete the sign. Or, you can forward the disc directly to Jim Mag @ Arrow Signs @ 510.533.7693. This base sign will have both BroadVision and RealNames on it. There will also be signage on the glass doors (at the front of the building). All signage of RealNames is at RealName's expense. RealNames to obtain final approval from BroadVision for ALL signage. - - RealNames to provide signage in the lobby which directs those entrancing to the the stairwell that leads to the second floor. FURNITURE FOR 2ND FLOOR OF 405: - - BroadVision will supply furniture for 21 hardwall offices which includes a free standing desk, two pedestals and a bookcase. - - BroadVision will supply furniture for 99 8` x 8` cubicles complete w/overhead bins and organizers and pedestals. - - BroadVision will supply furniture for 7 conference rooms which will include seating. - - Note: Although BroadVision is quoting numbers above (as to how many hard-wall offices, cubicles and conference rooms that are in the building on the second floor), the buildout plan may change due to circumstances. We will supply furniture to complete AS BEST WE CAN, the available spaces on the second floor. However, if the number of cubicles change, for example, we are not bound by the numbers quoted above. Bottom line: We will adequately furnish the space. - - Chairs will be provided. - - MIS/TELEPHONY: Exhibit D: BroadVision will supply three 19" cabinets, wire managers, (NO PATCH CORDS), and power. BroadVision will provide phone blocks in the Server Room (voice will be terminated on BV side of the blocks). - - Real Names to provide tie to MPOE in Basement. PREMISES BUILDOUT - MIS/TELEPHONY EXHIBIT D 2ND FLOOR SERVER ROOM [IMAGE] JANITORIAL SPECIFICATIONS Areas to be serviced 5 days per week. 1. Lobbies and hallways . . . . . . . . . . . . . . . . . . . . . . . .Daily 2. Office areas . . . . . . . . . . . . . . . . . . . . . . . . . . . .Daily 3. Cafe and break areas ( appliances included) . . . . . . . . . . . . .Daily 4. Restrooms and lounges . . . . . . . . . . . . . . . . . . . . . . . .Daily 5. Computer rooms . . . . . . . . . . . . . . . . . . . . . . . . . . .Daily 6. Elevators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Daily Areas to be dusted: 1. Wall and partitions Weekly 2. Window sill . . . . . . . . . . . . . . . . . . . . . . . . . . . . Weekly 3. Picture frames . . . . . . . . . . . . . . . . . . . . . . . . . . Weekly 4. Chalk rails . . . . . . . . . . . . . . . . . . . . . . . . . . . . Daily 5. HVAC Vents . . . . . . . . . . . . . . . . . . . . . . . . . . . Annually 6. Chairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Weekly 7. Other equipment and furniture . . . . . . . . . . . . . . . . . . . Weekly 8. Detail clean . . . . . . . . . . . . . . . . . . . . . . . . . . . Weekly Restrooms: 1. Sanitize toilets and urinals . . . . . . . . . . . . . . . . . . . .Daily 2. Clean and sanitize sinks . . . . . . . . . . . . . . . . . . . . . .Daily 3. Clean mirrors . . . . . . . . . . . . . . . . . . . . . . . . . . . .Daily 4. Clean all chrome . . . . . . . . . . . . . . . . . . . . . . . . . .Daily 5. Damp mop and sanitize floors . . . . . . . . . . . . . . . . . . . .Daily 6. Clean partitions . . . . . . . . . . . . . . . . . . . . . . . . . .Daily 7. Fill all dispensers . . . . . . . . . . . . . . . . . . . . . . . . .Daily 8. Empty all receptacles . . . . . . . . . . . . . . . . . . . . . . . .Daily 9. Clean and sanitize showers . . . . . . . . . . . . . . . . . . . . .Daily Cleaning Tasks: 1. Trash receptacles . . . . . . . . . . . . . . . . . . . . . . . . .Daily 2. Drinking fountains . . . . . . . . . . . . . . . . . . . . . . . . .Daily 3. Sand urns . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Daily 4. Janitorial closets . . . . . . . . . . . . . . . . . . . . . . . . .Daily 5. Refrigerators(inside) . . . . . . . . . . . . . . . . . . . . . . . Weekly 6. Microwave (inside) . . . . . . . . . . . . . . . . . . . . . . . . Weekly Floor Service: 1. Sweep and / or mop. . . . . . . . . . . . . . . . . . . . . . . . . .Daily 2. Spot clean . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Daily 3. Spray buff . . . . . . . . . . . . . . . . . . . . . . . . . . .Quarterly 4. Refinish VCT tile . . . . . . . . . . . . . . . . . . . . . . . . Annually Carpets: 1. Vacuum, general cleaning. . . . . . . . . . . . . . . . . . . . . . .Daily 2. Vacuum, detail . . . . . . . . . . . . . . . . . . . . . . . . . . Weekly 3. Spot clean . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Daily 4. Complete carpet cleaning (dry clean method) . . . . . . . . . . . Annually Windows: 1. Interior glass office doors . . . . . . . . . . . . . . . . . . . . .Daily 2. Interior glass partitions . . . . . . . . . . . . . . . . . . . . . Weekly 3. Lobby side windows. . . . . . . . . . . . . . . . . . . . . . . . .Monthly 4. Exterior entry doors . . . . . . . . . . . . . . . . . . . . . . . .Daily
Special services 1. Secure building, lights, alarms and doors . . . . . . . . . . . . . .Daily 2. Janitors are to report all uncommon events (i.e. leaky faucets, non-closing doors, etc.). 3. MSDS sheets can be provided for all chemicals kept on sight. Owner liaison 1. Monthly meetings and or reports reviewing quality and performance. 2. Meetings upon request regarding problems and/or levels of service. Miscellaneous 1. All paper and cleaning Supplies will be provided and included in monthly pricing. MISCELLANEOUS MAINTENANCE Miscellaneous maintenance repairs will be covered in this contract under the following conditions: 1. PLUMBING REPAIRS a. All interior plumbing repairs are included in this contract. They will be responded to as emergencies 24 hours a day 7 days a week. b. The main water lines that service the building are not included in this contract. c. This only includes repairing and replacing the plumbing parts to their original state. This contract does not include repairing the damage that might have been caused to the building structure or the furnishings therein. 2. ELECTRICAL REPAIRS a. All interior electrical repairs will be included in this contract. The only exclusions are vandalism, fixture replacement, and modifications. b. This only includes repairing and replacing the electrical parts to their original state. This contract does not include repairing the damage that might have been caused due to the building structure or the furnishings therein. 3. MISCELLANEOUS REPAIRS a. Miscellaneous repairs will be Santa Clara Valley Corporation's responsibility. These repairs might include repairing or adjusting doors, repairing partitions, replacing molding, replacing damaged ceiling tiles, repairing bathroom problems, etc. b. The repairs that are covered under this contract are only genuine maintenance repairs, not tenant improvements. c. SCVC is willing to provide additional maintenance services at RealNames cost. SCVC will invoice RealNames directly. Any damages caused by Santa Clara Valley Corporation's negligence will be repaired at our expense. EXTERIOR INTERIOR LIGHT MAINTENANCE EXTERIOR Exterior light maintenance will be performed on a monthly basis. During this inspection replacement of all bulbs, tubes and ballasts will be performed as needed. Alternating months we will be monitoring the timers on the lights at sunrise and sunset to make sure they turn on and off at the proper times in order to not waste energy. Vandalism, fixture replacement and modifications are the only light maintenance expenses that are not included in this contract. INTERIOR Interior light maintenance will be performed on a weekly basis. This will include a complete inspection of the interior of the complex. During the inspection, replacement of all bulbs, tubes and ballasts will be performed as needed. Vandalism, fixture replacement and modifications are the only items that are not included in this contract. EX-10.8 12 EXHIBIT 10.8 Exhibit 10.8 CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. LICENSE & MARKETING AGREEMENT This LICENSE & MARKETING AGREEMENT (the "Agreement") is entered into and effective as of June 2, 1999 (the "Effective Date") by and between MICROSOFT CORPORATION, a Washington corporation located at One Microsoft Way, Redmond, Washington 98052 and CENTRAAL CORPORATION, a Delaware corporation located at Two Circle Star Way, San Carlos, California 94070, each a "Party" and collectively, the "Parties". RECITALS WHEREAS, Centraal (i) is the developer and operator of an Internet service known as the "REALNAMES SERVICE" (defined below), (ii) maintains associated databases of such relationships which include, without limitation, directories of the registered words and phrases (each a "REALNAME"), if appropriate, the URL of the unique Web page associated with each RealName and related content and/or commentary. Each and every RealName is assigned to the unique registered user either (i) with a subscription paid by the registrant to Centraal, whether such subscription is paid as a fixed annual subscription fee, as a "per resolution" royalty, or as any other form of payment (such a RealName being referred to herein as a "SUBSCRIBED REALNAME") or (ii) under certain circumstances, without any compensation paid to Centraal. The RealNames Service also includes RealNames Extensions (as defined below). WHEREAS, Microsoft desires to obtain from Centraal the below specified grant of certain license rights to the Namespace (as defined below) database solely as necessary to provide the RealNames Service on the Authorized Microsoft Products (as defined below), as it is updated and enhanced throughout the term of this Agreement, and Centraal is willing to grant such rights to Microsoft, on the terms and conditions set forth herein. NOW THEREFORE, the Parties agree as follows: AGREEMENT 1. DEFINITIONS. As used herein, the following terms shall have the following meanings: 1.1 "AFFILIATES" means, with respect to a party, a person or entity (i) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such party, or (ii) which beneficially owns or holds 20% or more of any class of the voting stock of such party or (iii) 20% or more of the voting stock (or in the case of a person or entity which is not a corporation, 20% or more of the equity interest) of which is beneficially owned or held by such party. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person or entity, whether through the ownership of voting securities, by contract or otherwise. 1.2 "AUTHORIZED MICROSOFT PRODUCTS" shall mean MSN Search and the AutoSearch feature of Microsoft Internet Explorer, as they may exist and/or evolve from time to time throughout the Term, and such other Microsoft owned or controlled online properties as the Parties may hereafter agree upon in writing. For the purposes hereof, "MSN Search" and "AutoSearch" shall mean the Web-based search engines currently available at http://search.msn.com and http://auto.search.msn.com, respectively, wherever and however such search engines may be accessed in whole or in part (including without limitation through Web sites other than those specifically referenced in this sentence). 1.3 "COMMAND LINE" shall mean the address line of Microsoft's Internet Explorer v5 (and all future versions thereof) ("IE5"), where a user may currently enter a unique URL and via AutoSearch be directed directly to the World Wide Web site associated with such unique URL. 1.4 "DOCUMENTATION" shall mean the materials listed in EXHIBIT A hereto and any updates thereto provided by Centraal. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. PAGE 1 OF 1 1.5 "MICROSOFT" shall mean Microsoft Corporation and any and all Affiliates of Microsoft. 1.6 "NAMESPACE" shall collectively refer to any and all RealNames and certain information associated with each of the RealNames such as whether the RealNames are subscribed or not, the description of the Web Site or Web page associated with the RealNames, the prefix and rules associated with RealNames Extensions (if applicable). Without limiting the generality of the foregoing, the following fields will be included in the Namespace: (1) Subscribed RealNames sold under various pricing models; (2) other unsubscribed RealNames incorporated into the database through editorial work designed to offer a comprehensive Namespace to users; (3) a description of the Web site or Web page associated with each subscribed and unsubscribed RealName; (4) the prefix and rules associated with RealNames Extensions; (5) the MSN ID; (6) subscription status; (7) type of subscription (e.g., free, flat fee or price-per-resolution ("PPR")); and (8) language. 1.7 "REALNAMES EXTENSION" shall mean a Centraal approved RealName prefix followed by a rules-based dynamic syntax query to be applied at the host (subscriber) Web site. The Centraal resolvers will recognize the format of a RealNames Extension from a user's query, transform the RealNames Extension into an appropriate query for the host Web site for the RealName Extension subscriber, and, following such host Web site query, redirect the World Wide Web user directly to the third party URL appropriate to such RealNames Extension. By way of example "SEC [Ticker]" would be a RealNames Extension with SEC serving as the RealName prefix and [Ticker] serving as the dynamic syntax query that would be processed by the server located at the URL associated with the SEC RealName. RealNames Extensions may either be with or without compensation to Centraal. Fees, if charged, may be on a PPR basis (a "PPR-based RealNames Extension"), on an annual subscription fee basis, or by another method. 1.8 "REALNAMES RESULT" shall mean the appearance of a particular RealName as a result of a search query on an Authorized Microsoft Product (or Command Line query on IE5). A RealNames Result will be a precise match to the search or Command Line query (a "PRECISE MATCH") or, in the event that there is no Precise Match, a match or matches which are close to such search or Command Line query (a "CLOSE MATCH"). 1.9 "REALNAMES SERVICE" means Centraal's proprietary Internet addressing and search service whereby Centraal (i) assigns a particular word or phrase, in any language, to a unique Web page to assist in and allow Web navigation to such page using such word or phrase, and (ii) reviews, approves, and includes such approved word or phrase in the name of the owner of such Web site in the Namespace, and (iii) resolves a RealName such that an Internet user's browser is directed to the unique Web page associated with such RealName. 1.10 "RESOLUTION" shall mean the process by which a search query or Command Line query that generates a RealNames Result may be used by a user of an Authorized Microsoft Product to direct such user to the URL associated with the RealName. A Resolution also occurs when a user inputs a Precise Match Command Line query and the user is directed to the URL associated with such RealName. The mere display of a RealNames Result shall not constitute a Resolution unless the user is directed to the URL associated with the RealName. 1.11 "TERM" shall mean the term of this Agreement, which shall commence on the Effective Date and continue thereafter for two years, subject to earlier termination pursuant to Section 11. Following the initial Term, this Agreement may be renewed for successive one year Terms upon the written consent of both Parties at least 90 days prior to the end of the then-current Term. 1.12 "URL" means a unique uniform resource locator address for a World Wide Web Site, e.g., www.msn.com and www.msn.com/news and www.carpoint.msn.com are each a URL. All other capitalized terms shall have the meanings herein assigned to them herein. 2. USE OF THE NAMESPACE AND SOFTWARE. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. PAGE 2 OF 254 2.1 DELIVERY. On the first business day after the Effective Date, Centraal agrees to deliver to Microsoft (i) one (1) copy of the Namespace, current as of the Effective Date, in the manner set forth in EXHIBIT A (which is attached hereto and incorporated herein by this reference) (ii) one copy of the software described on EXHIBIT A ("SOFTWARE") in object code form; and (iii) one copy of the Documentation. Each day thereafter, throughout the term of this Agreement, Centraal will deliver to Microsoft a version of the Namespace current through the immediately preceding day, in the manner set forth in EXHIBIT A. Notwithstanding anything to the contrary contained in this Agreement, Centraal will use reasonable commercial efforts to provide to Microsoft the Namespace such that it will be possible for Microsoft to compare search queries and command queries against the then-current Namespace so as to redirect such queries to Centraal's resolvers. 2.2 DISPLAY OF REALNAMES RESULTS IN SEARCH RESULTS. Microsoft, at its own expense (except for Centraal's reasonable technical assistance which shall be provided at Centraal's reasonable expense) may, but is not obligated to, integrate the RealNames Service with the Authorized Microsoft Products, such that the Authorized Microsoft Products will access and use the Namespace to provide and display RealNames Results, in connection with end user searches and Command Line queries undertaken through the Authorized Microsoft Products as follows: (a) the Authorized Microsoft Products may include an input mechanism to prompt the user for a key word or search term; (b) Microsoft may, but is not obligated to, cause the Authorized Microsoft Products to determine which key words are appropriate for RealNames Resolutions based upon the Namespace provided to Microsoft hereunder; (c) to the extent that Microsoft integrates the RealNames Services, Microsoft shall cause its computer servers processing such determination to communicate such key words to the computer servers of Centraal, at an address and according to specifications reasonably required by Centraal; (d) Centraal, upon receipt of such key word, will cause its computer servers to perform RealNames Resolutions, and will communicate to the applicable Authorized Microsoft Product a list of the RealNames Results that correspond with such key word or search term and corresponding URLs. Nothing contained in this Agreement will be deemed to obligate Microsoft to display or use any RealName or the RealNames Service or to process or present a search string in any particular manner, except that Microsoft agrees, that if it causes any RealName to be displayed in any search result using the RealNames Service, then such RealName will appear with an "RN" superscript. The Parties agree to use good faith efforts to provide for the reporting of tracking of impressions of RealNames on the Authorized Microsoft Products, and the provision of such data to Centraal under mutually acceptable terms. Subject to Section 7, to the degree that Microsoft elects to integrate the RealNames Service with the Authorized Microsoft Products, Microsoft will endeavor to implement the RealNames Service on MSN Search by September 1, 1999 and on AutoSearch by August 1, 1999. 2.3 PROVISION OF REALNAMES RESOLUTIONS. In the event a user of an Authorized Microsoft Product clicks on a RealNames Result, as displayed in Section 2.2 above, or if such user has entered a query that is a Precise Match on the Command Line and is to be sent to the unique URL associated with the applicable RealName, Microsoft will direct a query which includes the RealName associated with such RealNames Result to Centraal's resolvers in a manner more fully described in EXHIBIT B (or as otherwise agreed in writing by the parties), and the user of the Authorized Microsoft Product will be directed to the unique URL associated with such RealName. 2.4 LICENSE. In furtherance of the foregoing, and subject to the limitations expressly set forth herein, Centraal grants to Microsoft and its Affiliates (i) a non-exclusive, non transferable license (without the right to sub-license except as provided below) to access, display and transmit portions of the Namespace data (as updated periodically as set forth herein), solely as necessary to provide the RealNames Service on the Authorized Microsoft Products in accordance with this Agreement; (ii) a non-exclusive, non-transferable license (without the right to sub-license except as provided below) to use, display or perform the Software, in object code or binary code form only, only as part of providing the RealNames Service on the Authorized Microsoft Products; (iii) a non-exclusive, non-transferable license (without the right to sub-license except as provided below) to use the Software solely to provide technical support for the RealNames Service on the Authorized Microsoft Products; (iv) a non-exclusive, non-transferable license (without the right to sub-license except as provided below) to use and reproduce the Software, in object code or binary code form only, solely for Microsoft's own internal business purposes in providing the RealNames Service on the Authorized Microsoft Products and solely as necessary to exercise the rights granted in this Section 2; (v) a non-exclusive, non-transferable license (without the right to sub-license [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. PAGE 3 OF 254 except as provided below) to use and reproduce the Documentation, solely for Microsoft's own internal business purposes in providing the RealNames Service on the Authorized Microsoft Products and solely as necessary to exercise the rights granted in this Section 2; and (vi) a non-exclusive, non-transferable license (without the right to sub-license except as provided below) to use, reproduce, transmit, and distribute those portions of the Documentation applicable to the promotion and marketing of RealNames and the RealNames Service, solely in connection with Microsoft's promotion and marketing activities contemplated hereunder. Microsoft may sublicense the foregoing rights in connection with the distribution of the MSN portal or other services, products, or technologies that incorporate the Authorized Microsoft Products provided (i) any sublicenses shall be under terms and restrictions at least as protective of Centraal's interests as those set forth herein and (ii) Microsoft shall not be entitled to sublicense its rights to use Namespace database. 2.5 OWNERSHIP IN CENTRAAL MATERIALS. As between Centraal and Microsoft, Centraal will retain all right, title, and interest in the Namespace, the Software, the Documentation, other Confidential Information (as defined in Section 9 below) disclosed by Centraal (collectively, "CENTRAAL MATERIALS") and all intellectual property rights therein. Microsoft will not, and will not authorize any third party to translate, disable, decompile, disassemble, reverse compile, reverse engineer, or decode the Software or in any other manner reduce the Software to human perceivable form, except and only to the extent that such activity is expressly permitted by applicable law notwithstanding this limitation. Microsoft will not, and will not authorize any third party to (i) create derivative works of, or alter or ha any way modify the Centraal Materials without the prior written consent of Centraal, or (ii) use any proprietary Centraal Materials or other proprietary Namespace data to construct, reverse engineer or assemble any database or Internet addressing tool, including without limitation, a URL database, except and only to the extent that such activity is expressly permitted by applicable law notwithstanding this limitation. Microsoft shall not export the Namespace outside of the United States without Centraal's prior written permission, which permission shall not unreasonably be withheld or delayed, provided that the foregoing shall not be deemed to restrict or prohibit the ability of Microsoft to allow end users outside the United States to access or use the Namespace or the RealNames Service via Authorized Microsoft products. Centraal hereby reserves all rights not expressly granted to Microsoft in this Agreement. On each copy of the Centraal Materials reproduced or displayed, Microsoft shall reproduce all copyright or other proprietary notices contained on Centraal Materials. Microsoft will not remove, modify, or obscure any copyright or other proprietary notices on the Centraal Materials. 2.6 MICROSOFT REALNAMES RESOLVED VIA AUTHORIZED MICROSOFT PRODUCTS. Notwithstanding anything to the contrary contained in this Agreement or any other agreement between Microsoft and Centraal, during the term of this Agreement, Microsoft shall not be obligated to pay Centraal any compensation whatsoever (including without limitation PPR subscription royalties) in connection with any Resolution of any RealName subscribed by Microsoft, if such Resolution is generated through a search request submitted through an Authorized Microsoft Product. 3. MAINTENANCE AND GROWTH OF NAMESPACE. Centraal agrees to use all commercially reasonable efforts to expand, distribute, and manage and maintain the Namespace and the RealNames Service. Without limiting the generality of the foregoing, Centraal will use its commercially reasonable efforts to: (a) market and distribute the RealNames Service internationally through a wide variety of sales channels; (b) administer all RealNames subscriptions (and disputes relating thereto), and assign all RealNames in compliance with all applicable laws; (c) extend its intellectual property databases from other database sources (for example, Thomson & Thomson), as appropriate; (d) maintain at the state-of-the-art level its software and database tools; (e) expand its language services to localize adjudication processes; and (f) expand its resolution-based revenue model with major marketer accounts. 4. TECHNICAL SUPPORT. Throughout the term of this Agreement, Centraal shall provide, at its expense, reasonable technical and other assistance as requested by Microsoft to assist Microsoft to use the Namespace in accordance with this Agreement. Such assistance shall include without limitation a "walkthrough" of the data schema of the Namespace at Centraal's offices within thirty (30) clays after the Effective Date. Without limiting the generality of the foregoing, Centraal will provide reasonable advance warning of material changes to the Namespace schema and such reasonable technical support and other [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. PAGE 4 OF 254 reasonable assistance necessary to understand those changes such that Microsoft can continue to receive and use the Namespace throughout the term of this Agreement and in accordance with the terms and conditions of this Agreement. Throughout the term of this Agreement Centraal shall respond to and use commercially reasonable efforts to promptly correct any material errors in the Centraal Materials. 5. CROSS-MARKETING AND PROMOTION OBLIGATIONS. 5.1 PROMOTION OF THE REALNAMES SERVICE BY MICROSOFT. Throughout the term of this Agreement, Microsoft will include, or cause to be included, promotional links to Centraal's Web site for the RealNames Service (presently located at www.realnames.com) (the "RealNames Site") in various online and offline Microsoft products (including, by way of example only, MSN and channels therein (such as the Small Business Channel), Sidewalk, Hotmail and LinkExchange) in a manner that Microsoft may determine in its sole discretion. Notwithstanding the above, at a minimum, Microsoft will cause LinkExchange to promote the RealNames Service as follows: 5.1.1 Pursuant to the terms and conditions of Section 5.2 below, LinkExchange will include RealNames subscriptions in its Registration services so that LinkExchange customers looking up, reserving and/or registering and purchasing domain names will also have the opportunity to purchase RealNames subscriptions. Specifically, LinkExchange will promote the registration services with (a) persistent text links on the LinkExchange front page and all LinkExchange product account control pages, (b) LinkExchange site and network banner advertising totaling at least [*] impressions/month, (c) inserts in e-mail to LinkExchange customers totaling at least [*] million impressions/month. At least [*] of all LinkExchange registration services promotion will include promotional reference to the RealNames Service; 5.1.2 LinkExchange will include text links to RealNames subscriptions from the LinkExchange Premium product promotional, sign-up and purchase pages and/or confirmations; 5.1.3 LinkExchange will include a promotional reference to the RealNames Service in promotional email communications LinkExchange sends to substantial portions of its subscriber base once every six months, and in "welcome" email messages it sends to new owners of its Catapult product who are not subscribers to the RealNames Service; 5.1.4 LinkExchange will participate in an introductory trial promotion involving 60 free days of a subscription to the RealNames Service (subject to its approval of the details of such promotion, and subject to the participation of other third parties in such promotional offer); and 5.1.5 Notwithstanding anything contained in this Section 5.1 to the contrary, in no event shall LinkExchange be obligated to include any promotion of the RealNames Service in any Web sites having start pages co-branded with any third party, or in any LinkExchange products or services licensed to or distributed by third parties. Centraal will be solely responsible for creating any and all promotional materials used by Microsoft pursuant to this Section 5.1, provided that all aspects (including but not limited to the form, content and technical format thereof) of any and all such materials displayed or distributed by Microsoft shall be subject to Microsoft's prior approval, which shall not be unreasonably withheld. 5.2 REALNAMES SUBSCRIPTIONS. Attached as EXHIBIT C hereto is a copy of Centraal's current Subscription Agreement and registration subscription form. Centraal may alter, at will, and from time to time, the Subscription Agreement, prices, availability schedules, and other terms and conditions for the subscription and maintenance of RealNames upon written notice to Microsoft. Each order for the subscription of a RealName will be subject to and governed by the prices, Subscription Agreement, availability, schedules, and other terms and conditions in effect at the time the order is accepted by Centraal. Orders for RealNames subscriptions referred by Microsoft may take place through a co-branded HTML registration page(s) on a Microsoft World Wide Web site that is linked to Centraal's subscription service World Wide Web site via an XML application programming interface (API). All completed orders for RealNames subscriptions will be processed by Centraal or its designee, and Centraal or its designee will perform the subscription registration, collect the fees for the subscription, and send via electronic mail [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. PAGE 5 OF 254 Centraal's then-current acknowledgements, or other materials, to the RealNames subscriber. All orders solicited through such Web site are subject to acceptance by Centraal. Microsoft will have no authority to make any acceptance or commitments to customers on behalf of Centraal. Centraal specifically reserves the right to reject any order or any part thereof for any reason. 5.3 PROMOTION OF PPR REALNAMES AND PPR-BASED REALNAMES EXTENSION RESOLUTIONS BY MICROSOFT PERSONNEL. 5.3.1 PROMOTION. Microsoft may, but is not obligated to, directly promote the sales of PPR RealNames and PPR-based RealNames Extension Resolutions and may refer sales leads for the same to Centraal. To assist Microsoft's promotional efforts, Centraal will supply Microsoft with its standard sales materials in connection with Microsoft's sales efforts pursuant to this Section 5.3, and Centraal will use reasonable efforts to complete agreements with Microsoft Referrals subject to Centraal's standard sales terms and conditions. "MICROSOFT REFERRALS" means those persons or entities (i) actually contacted by Microsoft for the purpose of soliciting RealNames subscriptions, (ii) which do not appear on the PPR List (as defined below), (iii) which are not currently (i.e., as of the date that Microsoft provides the Microsoft Referral to Centraal) being processed by Centraal or its designee for RealNames subscriptions or otherwise have a RealName existing in the Namespace, and (iv) which subsequently sign a Centraal agreement providing for PPR RealNames or PPR-based RealNames Extension Resolutions. In the event of a dispute between the parties as to whether a customer qualifies as a Microsoft Referral the parties shall meet and make good faith efforts to determine whether such entity qualifies as a Microsoft Referral. An entity shall be considered a Microsoft Referral with respect to any additional RealNames acquired by such customer within ninety (90) days after the actual referral date. 5.3.2 RESTRICTIONS. Each order for the subscription of a RealNames referred by Microsoft shall be subject to and governed by the Centraal's then current Subscription Agreement, availability, schedules, and other terms and conditions in effect at the time the order is accepted by Centraal. In no event will Microsoft make any representations, guarantees or warranties concerning the RealNames Service except as expressly authorized by Centraal in writing. Centraal reserves the right to directly or indirectly solicit the subscription of RealNames and RealNames Service. In the event that Centraal provides a list of its PPR, its PPR RealNames and/or PPR based RealNames Extension Subscribers (the "PPR LIST"), Microsoft shall not use the PPR List or any information reflected therein for any purpose other than in furtherance of the activities contemplated in this Section 5.3. The PPR List shall be deemed the Confidential Information of Centraal pursuant to Section 9 of this Agreement, and in no event shall Microsoft provide the PPR List to a third party without Centraal's prior written approval 5.4 PROMOTION OF LINKEXCHANGE BY CENTRAAL. Centraal Will promote LinkExchange's Catapult and Banner Network products as follows: 5.4.1 Centraal will include Link Exchange logo links (subject to Microsoft's then-current standard link logo policies for such logos) and promotional text links to one or more LinkExchange Web page(s) (as designated by LinkExchange) above the fold on the following Web pages of its RealNames Site: "promotion", "description", "purchase" and "account control"; 5.4.2 Centraal will include a Link Exchange logo link (subject to Microsoft's then-current standard link logo policies for such logos) to a Web page designated by LinkExchange above the fold on the default start page of the RealNames Site; and 5.4.3 Centraal will include a promotional reference to LinkExchange in Centraal's broadcast email service at least once every six months, and in "welcome" email messages it sends to new owners of a RealName who it reasonably believes are not LinkExchange customers. LinkExchange will be solely responsible for creating any and all promotional materials used by Centraal pursuant to this Section 5.4, and for supplying to Centraal the LinkExchange logo to be used as the logo links referred to in subsections 5.4.1 and 5.4.2, provided that all aspects (including but not limited to the form, content and technical format thereof) of any and all such materials displayed or distributed by Centraal shall be subject to Centraal's prior approval, which shall not be unreasonably withheld. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. PAGE 6 OF 254 5.5 PROMOTION OF PASSPORT. Centraal agrees to test, evaluate, and use, take sign ups for and accept the IDs for Microsoft's proprietary authentication service ("Passport") on the Centraal web site, and all of Centraal's existing profiling and authentication mechanisms will also take sign ups for and accept the IDs for Passport. Centraal shall use Passport in accordance with the terms of the standard Microsoft Online ID Evaluation Program Agreement and such further standard terms and conditions that are offered in addition to or as a replacement for those currently contained in such agreement. 5.6 BANNER EXCHANGE NETWORK. Centraal shall become and remain a member of LinkExchange's Banner Exchange Network throughout the term of this Agreement, in accordance with the standard membership terms and conditions of the Banner Exchange Network as described at WWW.LINKEXCHANGE.COM. Throughout the term of this Agreement, Centraal will not participate in any other program which would reasonably be considered to be similar to or competitive with LinkExchange's Banner Exchange Network program. 5.7 CLICKTRADE AFFILIATE. Centraal shall become and remain a member of LinkExchange's ClickTrade Affiliate program throughout the term of this Agreement, in accordance with the standard membership terms and conditions of the ClickTrade Affiliate program as described at www.linkexchange.com. 6. REVENUE SHARING. 6.1 REVENUE SHARING ON MICROSOFT SUBSCRIPTIONS 6.1.1 During the term of this Agreement, Centraal will pay to Microsoft a sliding scale commission, ("COMMISSION") for each paid subscription for a RealName generated through the co-branded registration page(s) described in Section 5.2 above ("MICROSOFT SUBSCRIPTION"). The Commission for Microsoft Subscriptions shall be calculated as follows: [*] in the case of a first time Microsoft Subscription, by multiplying the initial Annual Net Subscription Fee (defined below) by the applicable percentage described in Section 6.1.3 [*] 6.1.3 COMMISSION RATES (a) During the first year of this Agreement, (i) in the event there are between [*] and [*] initial Microsoft Subscriptions paid in such first year, the Commission will be [*] of the Annual Net Subscription Fee (ii) in the event there are between [*] and [*] Microsoft Subscriptions paid in such first year, the Commission on those sales will increase for such Microsoft Subscriptions during such year to [*] of the Annual Net Subscription Fee (iii) in the event there are more than [*] Microsoft Subscriptions paid in such first year, the Commission will increase for such Microsoft Subscriptions during such first year to [*] of the Annual Net Subscription Fee. (b) During the second year (and any subsequent years) of this Agreement, (i) in the event there are between [*] and [*] initial Microsoft Subscriptions paid in such second or subsequent year, as the case may be, the Commission will be [*] of the Annual Net Subscription Fee (ii) in the event there are more between [*] and [*] initial Microsoft Subscriptions paid in such second or subsequent year, as the case may be, the Commission will increase for such Microsoft Subscriptions during such second year to [*] of the Annual Net Subscription Fee and (iii) in the event there are more than [*] initial Microsoft Subscriptions paid in such second or subsequent year, as the case may be, the Commission will increase for such Microsoft Subscriptions during such second year to [*] of the Annual Net Subscription Fee. 6.2 COMPENSATION FOR PPR REALNAMES AND PPR-BASED REALNAMES EXTENSIONS RESOLUTIONS. 6.2.1 During the term of this Agreement, for Resolutions generated by RealNames (other than RealNames Extensions) on the Authorized Microsoft Products, Centraal will pay to Microsoft a [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. PAGE 7 OF 254 commission which equals [*] of Net RealNames Resolution Fees and [*] of Net Additional Resolution Fees. 6.2.2 During the term of this Agreement, for Resolutions generated by PPR-based RealNames Extensions only, Centraal will pay to Microsoft a commission which equals [*] of Net RealNames Resolution Fees and [*] of Net Additional Resolution Fees. 6.2.3 "Net RealNames Resolution Fees" shall mean gross RealNames resolution fees actually generated from the Authorized Microsoft Products (but specifically excludes resolution fees generated from Microsoft Referrals pursuant to Section 5.3 above), less any payments actually paid or payable to third parties who provide services for the RealNames Service (including without limitation payments to Network Solutions, Inc.), taxes, discounts, allowances and adjustments, refunds, and bad debts. Centraal may set such discounts, or make such allowances and adjustments, or provide refunds to its customers, in a commercially reasonable manner. 6.2.4 "Net Additional Resolution Fees" shall mean gross RealNames resolution fees, if any, actually generated from the Authorized Microsoft Products due to Microsoft Referrals pursuant to Section 5.3 (over and above Net RealNames Resolution Fees), less any payments actually paid or payable to third parties who provide services for the RealNames Service (including without limitation payments to Network Solutions, Inc.), taxes, discounts, allowances and adjustments, refunds, and bad debts. Centraal may set such discounts, or make such allowances and adjustments, or provide refunds to its customers, in a commercially reasonable manner. 6.2.5 Microsoft acknowledges and understands that in certain instances Centraal establishes negotiated caps under its PPR RealNames and PPR-based RealNames Extension subscriptions, pursuant to which Centraal derives no additional revenue for the balance of the subscription term after resolutions for the applicable RealName or RealNames Extension reach the applicable cap. Any Net Additional Resolution Fees shall not be considered in determining whether a subscriber has reached a Centraal-negotiated, PPR based cap. 6.3 Accountings. Centraal shall develop, implement and maintain the technology required to track Resolutions. Within fifteen (15) days following the end of each month beginning with the Effective Date, Centraal will deliver to Microsoft a complete and accurate written report covering such month, including, the amount payable to Microsoft and sufficient detail to reasonably calculate the basis for such payment. Concurrently with the submission of each such written report by Centraal, Centraal shall pay to Microsoft all amounts then owed to Microsoft pursuant to Sections 6.1 and 6.2. Each party shall raise any questions or issues regarding the accuracy of such report (and payments in accordance therewith) within two years following the submission of such reports or payments. Failure to raise any question or issue within such two year period, shall be deemed acceptance of such report and payment. 6.4 Audits. During the period in which Centraal is required to account to Microsoft pursuant to Section 6.3, and for one year thereafter, Central agrees to keep all usual and proper entries relating to the calculation of amounts owed to Microsoft by Centraal hereunder. During the above-referenced period, Microsoft shall have the right to cause an audit and/or inspection to be made of the applicable records of Centraal in order to verify statements issued by Centraal (an "Audit"). Any such Audit shall be conducted by an independent certified public accountant (other than on a contingent fee basis) mutually acceptable to the parties (the "Auditor"). Except as specified herein, Microsoft shall be responsible for all costs and attorney fees related to such Audits. Centraal agrees to provide the Auditor reasonable access to the relevant records upon reasonable notice and during regular business hours. Such Audits shall be made no more often than once every twelve (12) months. If an audit reveals that reports provided by Centraal are inaccurate in the amount of by ten percent (10%) or more then the reasonable cost of such Audit shall be paid by Centraal. In the event that the Audit establishes that Centraal owes additional amounts to Microsoft, then Centraal shall promptly pay such amounts to Microsoft. In the event that the Audit establishes that Centraal has overcompensated Microsoft, then Centraal shall have the right to withhold such amounts from future payments to Microsoft. The results of such Audits shall be deemed to be Confidential Information under Section 9. 7. INDEPENDENT DEVELOPMENT [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. PAGE 8 OF 254 7.1 Nothing in this Agreement will be construed as restricting Microsoft's ability to acquire, license, develop, manufacture, or distribute for itself, or have others acquire, license, develop, manufacture, or distribute for Microsoft similar technology, information or data performing or having the same or similar functions, features or information, as the RealNames Service and Namespace in addition to, or in lieu of, the RealNames Service and Namespace, provided, however, that the foregoing shall not be deemed to constitute a license or authorization from Centraal for Microsoft to use or have others use any of the Centraal Materials, Namespace, or RealNames Service (exclusive of residuals relating to any of the foregoing, as the term residuals is used in the nondisclosure agreement referenced in Section 9 below) in connection with such independent licensing, development, manufacture or distribution under this Section 7. 7.2 Subject to any restrictions of confidentiality with third parties, Microsoft shall endeavor to provide Centraal with at least thirty days' notice prior to Microsoft's public distribution or availability of a service that provides substantially the same functions, features or information, as the RealNames Service and Namespace ("COMPETING SERVICE") and such notice shall include the then-current anticipated date of such public distribution or availability of the Competing Service. Upon the commercial public distribution or availability of the Competing Service but only for a period of ten (10) days thereafter, Centraal shall have the right to terminate this Agreement upon ten (10) days notice to Microsoft. 8. REPRESENTATIONS. WARRANTIES AND INDEMNITY. 8.1 REPRESENTATIONS AND WARRANTIES. Centraal warrants and represents as of the Effective Date of this Agreement, that: 8.1.1 It has sufficient authority to enter into this Agreement; 8.1.2 the Centraal Materials, RealNames Results, and any other materials supplied hereunder by Centraal to Microsoft and/or end users of the Microsoft Authorized Products do not infringe the copyrights, patents, trademarks, service marks or any other proprietary right of any third party; 8.1.3 the functionality of the RealNames Services and the Namespace, the methods used to collect data for and from the RealNames Service and the Namespace, and the structure, sequence and organization of the RealNames Service and the Namespace do not infringe the copyrights, trademarks, patents, service marks, or other proprietary rights of any third party; 8.1.4 the Centraal Materials and the RealNames Results do not contain any libelous, materially false, or materially misleading statements; 8.1.5 the Centraal Materials and the RealNames Service are in compliance with all applicable laws; 8.1.6 As of the Effective Date Centraal is not aware of any third party claims concerning the Centraal Materials, RealNames Results, or RealNames Service which if true, would constitute of violation of the representations and warranties set forth in subsections 8.1.1 through 8.1.5 above; and 8.1.7 the Centraal Logos (as defined in Section 12 below) do not infringe or otherwise violate the rights of any third party. EXCEPT AS SET FORTH IN THIS SECTION 8.1, CENTRAAL MAKES NO ADDITIONAL WARRANTIES REGARDING THE CENTRAAL MATERIALS OR THE REALNAMES SERVICE, AND CENTRAAL SPECIFICALLY DISCLAIMS ANY AND ALL WARRANTIES OTHER THAN THOSE SET FORTH IN SECTION 8.1, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. 8.2. INDEMNITY. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. PAGE 9 OF 254 8.2.1 INDEMNITY BY CENTRAAL. Centraal will defend, hold harmless and indemnify Microsoft from and against any loss, claim, liability, damage, action or cause of action (including, without limitation, reasonable attorneys' fees) brought against Microsoft by a third party and arising from or related to any breach by Centraal of any of the warranties set forth in Section 8.1 above, and any third-party claim which if proven would constitute such a breach of Section 8.1, provided that Microsoft provides Centraal with: (i) prompt written notice of such claim, (ii) exclusive control over the defense and settlement of such claim with counsel acceptable to Microsoft which acceptance shall not unreasonably be withheld or delayed, and (iii) proper and full information and assistance to settle or defend any such claim with counsel acceptable to Microsoft provided that Centraal shall not settle any claim without Microsoft's prior written approval which approval shall not be unreasonably withheld or delayed. Microsoft may also engage its own counsel, at its sole cost and expense, in connection with such claim. Centraal shall not be responsible for any settlements by Microsoft without Centraal's prior written approval which approval shall not be unreasonably withheld or delayed. Notwithstanding the above, Centraal assumes no liability for infringement claims arising from (i) combination of the RealNames Service with products or services not provided by Centraal, and not arising from the RealNames Service standing alone or (ii) using the Centraal Materials in a manner apart from the implementation or marketing of the RealNames Service as contemplated herein. 8.2.2 INJUNCTIONS. If Centraal reasonably believes that it is likely that Microsoft will be enjoined from exercising its right to use the RealNames Service, Centraal Materials, or Centraal Logos as provided under this Agreement, then Centraal may, at its sole option and expense: (i) procure the right to use the RealNames Service, Centraal Materials, or Centraal Logos as provided under this Agreement, (ii) replace the RealNames Service, Centraal Materials, or Centraal Logos (subject to Microsoft's prior-review and approval with such approval not to be unreasonably withheld or delayed) with other non-infringing services with equivalent functionality or logos, (iii) suitably modify the RealNames Service, Centraal Materials, or Centraal Logos so that it does not infringe, or (iv) terminate this Agreement upon reasonable notice to Microsoft. Centraal shall have no obligation to indemnify Microsoft for liability incurred by Microsoft for use of the RealNames Service, Centraal Materials, or Centraal Logos after a reasonable period of time (at least ten (10) days) following Centraal's notice of termination pursuant to (iv) above. 8.2.3 THE FOREGOING PROVISIONS OF THIS SECTION 8.2 STATE THE ENTIRE LIABILITY AND OBLIGATIONS OF CENTRAAL AND THE EXCLUSIVE REMEDY OF MICROSOFT, WITH RESPECT TO ANY ACTUAL OR ALLEGED INFRINGEMENT OF ANY INTELLECTUAL PROPERTY RIGHTS RELATING TO THE REALNAMES SERVICES OF CENTRAAL MATERIALS. 9. CONFIDENTIALITY. 9.1 Microsoft and Centraal acknowledge and agree that the terms and conditions of the Microsoft Corporation Non-Disclosure Agreement dated as of even date herewith ("NDA"), attached hereto as EXHIBIT E, are incorporated into this Agreement and that all of the terms of this Agreement and all discussions and negotiations related thereto are considered Confidential Information as defined in the NDA. In the event that any of the incorporated terms of the NDA are inconsistent with or conflict with this Agreement, then the terms of this Agreement shall control. The terms and conditions of this Agreement shall be deemed to be Confidential Information under the NDA. In addition, the PPR list, the Namespace, and any source code provided by Centraal hereunder shall be deemed to be Confidential Information of Centraal provided that Microsoft's obligation to maintain the confidentiality of such materials shall last until such materials (i) are or subsequently become publicly available without Microsoft's breach of any obligation owed Centraal; (ii) became known to Microsoft from a source other than Centraal other than by the breach of an obligation of confidentiality owed to Centraal; or (iii) are independently developed by Microsoft. 10. LIMITATION OF LIABILITIES. NEITHER PARTY SHALL BE LIABLE FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, OR SPECIAL DAMAGES, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. PAGE 10 OF 254 11. TERMINATION. 11.1 TERMINATION FOR CAUSE. In addition to any other rights and/or remedies that either Party may have under the circumstances, all of which are expressly reserved, either Party may terminate this Agreement immediately upon written notice at any time if: 11.1.1 The other Party is in material breach of any material warranty, representation, term, condition or covenant of this Agreement, other than those in Sections 9 or 13.4, and fails to cure that breach within thirty (30) days after written notice thereof; or 11.1.2 The other Party is in material breach of Section 9 or is entitled to terminate as provided in Section 13.4 or 13.8; or 11.1.3 Either Party becomes insolvent or makes any assignment for the benefit of creditors or similar transfer evidencing insolvency; or suffers or permits the commencement of any form of insolvency or receivership proceeding; or has any petition under any bankruptcy law filed against it, which petition is not dismissed within sixty (60) days of such filing; or has a trustee or receiver appointed for its business or assets or any part thereof. 11.2 TERMINATION AT WILL. Notwithstanding anything to the contrary contained herein, either Party will have the right at any point during the term of this Agreement, in such Party's sole and absolute discretion, to terminate this Agreement upon ninety (90) days written notice to the other Party. 11.3 EFFECT OF TERMINATION. In the event of termination or expiration of this Agreement for any reason, each and every clause which by its nature is intended to survive the termination of this Agreement, including without limitation, Sections 1, 2.5, 6.1 (only with respect to Microsoft Subscriptions sold during the Term), 6.2 (only with respect to RealNames Resolutions generated during the Term), 6.3, 6.4, 7-10, 11.3, 11.4, and 13, shall survive such termination or expiration. Neither Party shall be liable to the other for damages of any sort resulting solely from terminating this Agreement in accordance with its terms. Upon expiration or termination of this Agreement, all of Microsoft's rights and licenses with respect to the Centraal Materials will automatically and immediately terminate. 11.4 RETURN OF CENTRAAL MATERIALS. In the event of termination or expiration of this Agreement, all information and materials provided or delivered to Microsoft under this Agreement, including without limitation the Centraal Materials, and all copies or portions of copies and any summaries thereof, will be promptly returned to Centraal or, if requested by Centraal in writing, destroyed. Within thirty (30) days after the termination of this Agreement, Microsoft will certify in writing that all such materials have been either returned to Centraal's or destroyed per Centraal's request. 12. USE OF CENTRAAL LOGOS. 12.1 BRANDING. Microsoft will apply the "RealNames (sm) enabled" and/or "RealNames (sm)" logo (a copy of which is attached as EXHIBIT D-1) on the co-branded page(s) created pursuant to Section 5.2, in a manner mutually agreed upon by the parties. 12.2 USE OF CENTRAAL LOGOS. 12.2.1 Central hereby grants to Microsoft a non-exclusive, non-transferable, personal license to use the Centraal logos attached hereto as EXHIBIT D-1 (the "Centraal Logos") only in connection with (i) Microsoft's implementation of the RealNames Services on Authorized Microsoft Products and the co-branded page(s) referenced created pursuant to Section 5.2 above and (ii) Microsoft's promotion of the RealNames Service. Except as provided in this Section 12.2, this Agreement does not grant Microsoft any right, title, interest, or license in or to any of Centraal Logos names, logos, trade dress, designs, or other trademarks. Unless otherwise provided herein or agreed upon by the parties, Microsoft's use shall be mutually approved in advance. 12.2.2 Microsoft acknowledges, as between Microsoft and Centraal only, Centraal's sole ownership of the Centraal Logos and worldwide and all associated goodwill. Microsoft's use of the [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. PAGE 11 OF 254 Centraal Logos, as between the parties, shall inure solely to the benefit of Centraal. Microsoft hereby assign and shall assign in the future to Centraal all rights they may acquire during the term of this Agreement by operation of law or otherwise in the Centraal Logos, including all applications or registrations therefore, along with the goodwill associated therewith. 12.2.3 Microsoft, shall take commercially reasonable steps to fully correct and remedy any deficiencies in its use of the Centraal Logos and/or the quality of implementation of the RealNames Service on Authorized Microsoft Products, upon reasonable notice from Centraal. 12.2.4 Centraal shall have the sole right to and in its sole discretion may commence, prosecute or defend, and control any action concerning the Centraal Logos. During the term of this Agreement, Microsoft shall not contest the validity of, jeopardize, or take any action inconsistent with, Centraal's rights or goodwill in the Centraal Logos in any country, including attempted registration of the Centraal Logos or attempted registration of any mark confusingly similar thereto. 12.2.5 Notwithstanding anything to the contrary, nothing in this Section 12.2 requires Microsoft to use any of the CentraalLogos. 13. GENERAL 13.1 Notices. All notices and requests in connection with this Agreement shall be deemed given as of the day they are received either by messenger, delivery service, or IN the United States of America mails, postage prepaid, certified or registered, return receipt requested, and addressed as follows:
TO MICROSOFT TO CENTRAAL: ------------ ------------ Microsoft Corporation Centraal Corporation One Microsoft Way Two Circle Star Way, 2nd Floor Redmond, WA 98052-6399 San Carlos, CA 94070 Attention: Hyer Bercaw Attention: J. Michael Arrington, Esq. Telephone: (425) 882-8080 Telephone: (650) 298-5570 Facsimile: (425) 936-7329 Facsimile: (650) 298-8085 With a copy to: Law & Corporate Affairs With a copy to: James Strawbridge Esq. Wilson Sonsini Goodrich & Rosati 650 Page Mill Road Palo Alto, CA 94304 Telephone: (425) 882-8080 Telephone: (650) 493-9300 Facsimile: (425) 936-7409 Facsimile: (650)493-6811
or to such other address as a Party may designate pursuant to this notice provision. 13.2 NO AGENCY RELATIONSHIP. Nothing in this Agreement shall be construed as creating an employer-employee relationship, a partnership, or a joint venture between the Parties. 13.3 GOVERNING LAW. This Agreement shall be governed by the laws of the State of Washington as though entered into between Washington residents and to be performed entirely within the State of Washington, and Centraal consents to jurisdiction and venue in the state and federal courts sitting in King County, the State of Washington. In any action or suit to enforce any right or remedy under this Agreement or to interpret any provision of this Agreement, the prevailing Party shall be entitled to recover its costs, including reasonable attorneys' fees. 13.4 ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of each Party's respective successors and lawful assigns; provided, however, that (1) Centraal may not assign this [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. PAGE 12 OF 254 Agreement, in whole or in part, or any rights or obligations hereunder, whether by contract or by operation of law, except in the context of a material change in Centraal's capital structure, control or ownership (including by way of an initial public offering of stock), without the express written consent of Microsoft, and (2) Microsoft may not assign this Agreement in whole or part, or any rights or obligations hereunder, to any competitor of Centraal. Any attempted assignment by a party in violation of this Section 13.4 shall be void and shall allow the other party to immediately terminate this Agreement. 13.5 CONSTRUCTION. If for any reason a court of competent jurisdiction finds any provision of this Agreement, or portion thereof, to be unenforceable, that provision of the Agreement will be enforced to the maximum extent permissible so as to effect the intent of the Parties, and the remainder of this Agreement will continue in full force and effect. Failure by either Party to enforce any provision of this Agreement will not be deemed a waiver of future enforcement of that or any other provision. This Agreement has been negotiated by the Parties and their respective counsel and will be interpreted fairly in accordance with its terms and without any strict construction in favor of or against either Party. The section headings used in this Agreement are intended for convenience only and shall not be deemed to affect in any manner the meaning or intent of this Agreement or any provision hereof. 13.6 ENTIRE AGREEMENT. This Agreement does not constitute an offer by Microsoft and it shall not be effective until signed by both Parties. This Agreement and the NDA constitute the entire agreement between the Parties with respect to the subject matter hereof and merge all prior and contemporaneous communications. It shall not be modified except by a written agreement dated subsequent to the date of this Agreement and signed on behalf of Centraal and Microsoft by their respective duly authorized representatives. No waiver of any breach of any provision of this Agreement shall constitute a waiver of any prior, concurrent or subsequent breach of the same or any other provisions hereof, and no waiver shall be effective unless made in writing and signed by an authorized representative of the waiving Party. 13.7 LEGAL COMPLIANCE. Each party agrees to comply with applicable laws in the performance of its obligations hereunder. Microsoft understands and acknowledges that the Centraal is subject to regulation by agencies of the United States Government, including, but not limited to, the U.S. Department of Commerce, which prohibit export or diversion of certain technology to certain countries. Any obligations of Centraal to provide services are subject in all respects to such United States laws and regulations as from time to time govern the license and delivery of technology and services outside the United States. Microsoft will comply with all applicable laws, and will not export, reexport, transfer, divert or disclose, directly or indirectly, including via remote access, the Software, any confidential information contained or embodied in the Software, or any direct product thereof, except as authorized under the Export Administration Regulations or other United States laws and regulations governing exports in effect from time to time. 13.8 FORCE MAJEURE. If either Party is in material breach of a term of this Agreement as a result (wholly or in primary part) due to causes beyond reasonable control of the party charged with a default, including, but not limited to, causes such as strikes, lockouts or other labor disputes, riots, civil disturbances, actions or in actions of governmental authorities or suppliers, epidemics, war, embargoes, severe weather, fire, earthquakes, acts of God or the public enemy, nuclear disasters, or default of a common carrier and which it could not by reasonable diligence have avoided, then without limiting the other Party's rights in any such event, such other Party shall have the option, without liability, to suspend their performance for the duration of any such breach but in no event longer than twenty (20) consecutive days or thirty (30) days total ("Suspension Period") with respect to any single or proximately related cause(s), by giving the other Party written notice thereof detailing the reason and expected duration of such suspension; provided that during such Suspension Period the non-notifying Party's obligations (but not its rights) shall also be suspended; and further provided that if the notifying Party has not cured its material breach by end of the Suspension Period, the non-notifying Party may immediately upon notice to the notifying Party terminate this Agreement pursuant to 12.1.2. In Witness Whereof, the Parties have entered into this Agreement as of the Effective Date written above. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. PAGE 13 OF 254 CENTRAAL CORPORATION MICROSOFT CORPORATION BY: /s/Edward F. West BY: /s/Matt Kursh --------------------- ------------------------ Edward F. West MATT KURSH --------------------- ------------------------ (printed name) (printed name) Exec VP BUSINESS UNIT MANAGER --------------------- ------------------------ (title) (title) Date: June 2, 1999 Date: 6/4/99 ------------------- ----------------------- [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. PAGE 14 OF 254 EXHIBIT A DELIVERY REQUIREMENTS; DESCRIPTION OF SOFTWARE 1. DELIVERY PROCESS Real Names System Data Format and Delivery Process Real Names System Data Format The Real Names System will be presented in the format known to the parties as "Orbiter" or such other format which is subsequently mutually agreed upon by the parties. There will be five fields per record: cn = the common name in its presentation form (also known as a RealName) dsc = the Web page description lc = the locale (e.g. "en:US" the US English language) pm= pricing model ("flt" is flat rate, "ppr" is price per resolution) ns = namespace ("rn.0" is a paid RealName, "rn.1" is a editorialized RealName, "rn.2" is a crawled RealName) Example: < rn cn="Disney" dsc="The Web Site For Families." lc="en-US" pm="ppr" ns="rn.0"/ > Delivery Process A data file containing the entire RNS (Real Names System) will be delivered from Centraal Corporation to Microsoft. The data file will conform to the layout described in the above section called RNS Data Format. Centraal assumes responsibility for the delivery of this data file, and will manage the processes around its successful delivery. Centraal will build this data file every 24 hours, from its primary RNS database. After the successful completion of the build, Centraal will compress the file using PKZip. Centraal will FTP the file to a designated, Microsoft controlled FTP server. The file name inside of the pkzip will be rn.xml. The ZIP file will be named rn-mmddyy.zip (where mm=month, dd=day, yy=year is the date when the upload occurs). It is the responsibility of Microsoft to provide Centraal's primary technical contact with the hostname, user name and password to enable the upload. The account should have write capabilities at all times. The desired upload path should be set to the default login path of the user account supplied. The user account/machine should have sufficient disk space available to upload a file size of 150 Megabytes daily. It is also Microsoft's responsibility to designate a time of day for the file to be uploaded, and communicate such time to Centraal's primary technical contact. In the event that Centraal encounters a problem delivering the data file that is not surmountable within 1 hour of scheduled delivery time (e.g. insufficient disk space, machine unreachable, invalid account, etc.), it is the responsibility of Centraal to contact the Microsoft Technical Point of Contact within 24 hours of encountering the problem. In the event that Microsoft encounters a technical problem (e.g. file was not delivered at the mutually agreed upon time, data file incomplete, etc.), it is the responsibility of Microsoft to contact the Centraal Technical Point of Contact within 24 hours of encountering the problem. Microsoft Primary Technical Point of Contact: Name: Bill Bliss Title: General Manager [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. PAGE 15 OF 254 Phone: (425) 882-8080 Alternate: ----------------------- Email: billbl@microsoft.com Alternate Technical Point of Contact Name: Eric Berman Title: Group Program Manager Phone: (425) 882-8080 Alternate: ----------------------- Email: ericbe@microsoft.com Centraal Technical Point of Contact: Name: Dave Roletto Title: Global Operations Network Engineer Phone: 650-298-5532 Alternate: pager 650-590-8688 Email: dave@centraal.com Alternate Technical Point of Contact: Name: Edward Louie Title: Global Operations Network Engineer Phone: 650-298-5537 Alternate: pager 650-590-8696 Email: ed@centraal.com 2. DESCRIPTION OF SOFTWARE Such software subsequently and mutually agreed upon by the parties in writing for the implementation of the RealNames Service by Microsoft as contemplated herein. 3. DESCRIPTION OF DOCUMENTATION Materials useful and necessary to the marketing of RealNames and materials useful and necessary for technical implementation of the RealNames Services by Microsoft. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. PAGE 16 OF 254 EXHIBIT B PROCESS FOR GENERATING REALNAMES RESOLUTIONS EXPLANATION OF REALNAMES RESOLVERS To the extent that Microsoft implements the RealNames Services in accordance with the provisions of this Agreement, the provisions of this EXHIBIT B shall be applicable. If Microsoft does not implement the RealNames Service, none of the provisions of this Exhibit B shall be applicable. Microsoft will implement Centraal's resolution process methodology (the "Ternary Responder") for exact matches. Exact matches will be determined by comparing the user query to the static and rule based RealNames supplied by Centraal as part of the periodical RealNames database updates. Centraal will provide Microsoft with an initial electronic dump of the RealNames Database and then with an electronic update of the RealNames database. The RealNames database updates will be periodically propagated to Microsoft live implementation of the ternary responder. The RealNames database provided by Centraal will include the following fields: RealName: The RealName string (e.g. "Internet Explorer 5") Locale: The language of the Web page (e.g. "en-US") RealNames link: The resolver URL. This URL points to the RealNames resolver and embeds the RealName string, provider identifier and locale information. RealNames Pricing Model: The type of pricing model for the RealName. The possible values are PPR (priced per resolution) or FLT (flat maintenance fee). RealNames Namespace Code: A namespace identifier code (e.g. "rn.0.s" means paid for static RealNames "rn.0.r" rule based RealNames, rn.l" means editorialized RealNames, "rn.2" means crawled RealNames)
Microsoft will provide a schema specification for serializing and encoding the RealNames data. When a user performs a search, Microsoft's implementation of the Ternary Responder will assess whether there is an exact match in the RealNames database. If there is, two different cases need to be considered. The first case occurs in the context of an IE5 auto-search where Microsoft's implementation will immediately redirect the user to the RealNames URL. In turn, the RealNames resolver will redirect the user to the URL associated with the specified RealName. For example, a user types the query string "Internet Explorer 5" in IE5. "Internet Explorer 5" is an exact match. Microsoft will redirect the user to RealNames link for "Internet Explorer 5": http://navigation.realnames.com/Resolver.dll?action=navigation&providerID= 15&realname=internet+explorer+5+&locale=en-US The second case occurs in the context of a traditional search on MSN. When a user performs a search query on the search engine, if there is an exact match, Microsoft will display the RealNames text on the results page. The RealNames text is made of the RealNames string with the RN superscript, and a brief description of the RealName. The RealNames string is hyper-linked using the RealNames link URL. For example, a user types the query string "Internet Explorer 5" on MSN. "Internet Explorer 5" is an exact match. Thus, MSN displays the RealNames text that contains the RealNames link. The RealNames text at the MSN site can be displayed as agreed upon by both Microsoft and Centraal. INTERNET EXPLORER 5RN [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. PAGE 17 OF 254 The RealNames link takes you directly to Internet Explorer 5. The URL associated with the RealNames link "Internet Explorer 5" that identifies MSN as the source of the resolutions is: http://navagation.realnames.com/Resolver.dll?action=navigate&providerID= 101&realname=internet+explorer+5 When the user clicks on the RealNames link for "Internet Explorer 5", a resolution request is sent to the RealNames resolver located on Centraal servers. This request embeds the RealName "Internet Explorer 5" as well as a provider ID that uniquely identifies MSN as the originator for the resolution. The RealNames resolver located on Centraal server looks up the URL associated with the RealName address "Internet Explorer 5", logs the resolution parameters and redirects the user to that URL. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. PAGE 18 OF 254 EXHIBIT C FORM OF SUBSCRIPTION AGREEMENT REALNAMES SUBSCRIPTION AGREEMENT A. INTRODUCTION. This RealNames Subscription Agreement ("Agreement") is submitted to CENTRAAL CORPORATION ("CENTRAAL") for the purpose of subscribing to CENTRAAL's RealNames Service (SM) on the Internet through CENTRAAL's subscription system also known as the RealNames System (SM). If this Agreement is accepted by CENTRAAL, and a RealNames (SM) address is allocated in CENTRAAL's Web address system to the Subscriber ("Subscriber"), Subscriber agrees to be bound by the terms of this Agreement. B. FEES AND PAYMENTS. Subscriber agrees to pay a NON-REFUNDABLE fee of one hundred United States dollars (US $100) per year in consideration of each subscribed RealNames address. The payment may be made payable either directly to "CENTRAAL Corporation," or indirectly to CENTRAAL through a certified reseller. This NON-REFUNDABLE fee covers a period of one (1) year for each new subscription or reservation of a RealNames address. This NON-REFUNDABLE fee includes any permitted modification(s) to the RealNames address record during the subscription or reservation. It also covers up to ten thousand (10,000) uses of the RealNames address per calendar month; CENTRAAL reserves the right to stop processing uses of the RealNames address after ten thousand (10,000) uses in a calendar month. Subscribers will be notified by CENTRAAL when a RealNames address usage exceeds ten thousand (10,000) uses per calendar month. Subscribers of a RealNames address which usage exceeds ten thousand (10,000) uses per calendar month will be subject to additional usage fees, at a rate to be agreed upon by CENTRAAL and Subscriber in advance of such charges. In the event that CENTRAAL and Subscriber cannot agree on such fees, Subscriber understands and agrees that CENTRAAL may terminate this Agreement without liability, including Subscriber's use of any RealNames address. All payments will be due within thirty (30) days from the date of invoice. Subscriber understands and agrees that CENTRAAL may cancel Subscriber's subscription or reservation in the event that any payment is not made when due. On the date of expiration, RealNames address subscriptions will be automatically renewed for the period of one year, unless the Subscriber notifies CENTRAAL in writing of its intention not to renew the RealNames subscription. Notification to cancel automatic renewals must be communicated to CENTRAAL by fax (1-650-298-8085) or email (sales@centraal.com) at least ten days prior to the RealNames subscription expiration date. Automatic renewals will be billed at CENTRAAL's then-current annual subscription price. C. ALLOCATION OF REALNAMES ADDRESSES BY CENTRAAL. Subscriber agrees that allocation of RealNames addresses by CENTRAAL is subject to CENTRAAL's discretion. CENTRAAL may at any time, with notice to Subscriber that is reasonable in the circumstances (including immediate notice when that is appropriate) reallocate a RealNames address previously or currently used by Subscriber. Any notice provided to Subscriber will be at the last address furnished by Subscriber to CENTRAAL. Subscriber understands that all systems of address with respect to the Internet are subject to varied and occasionally inconsistent principles, jurisdictions, and claims of right. Subscriber understands and agrees that CENTRAAL requires absolute discretion over the allocation of RealNames addresses in light of the uncertain and often conflicting principles that are at work in the current state of the Internet. Subscriber understands and agrees that, because of CENTRAAL's discretion, CENTRAAL has the absolute right to allocate RealNames addresses, withdraw them, and reallocate them according to its own judgment as to what constitutes an optimal service and system. Subscriber further recognizes that CENTRAAL, with a view to optimizing its RealNames Service and RealNames Services, may apply standards of decision [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. PAGE 19 OF 254 regarding allocation, reallocation, or withdrawal of RealNames addresses that evolve or change over time. If CENTRAAL does not approve any RealNames address requested by Subscriber, or withdraws approval of, a RealNames address, CENTRAAL will attempt to provide an alternative RealNames address that is acceptable to both CENTRAAL and Subscriber. Subscriber accords to CENTRAAL the right to make decisions that it deems best in each context. Subscriber understands that CENTRAAL has no dispute resolution system. Subscriber also agrees that all goodwill in any RealNames address as an address in the RealNames Service, and all property rights in any RealNames address as an address in the RealNames Service, belong exclusively to CENTRAAL. Subscriber's use of the RealNames Service confers no property, business, or competition rights upon Subscriber. D. DISPUTES. In the event that Subscriber's subscription, reservation, RealNames address, or any other aspect of the RealNames Services, or any conduct by the Subscriber results in any challenge, claim, demand, or action to or against CENTRAAL, Subscriber agrees that CENTRAAL shall have the right to decide in its sole discretion what actions to take, including without limitation whether to continue to provide Subscriber's subscription, reservation, RealNames address, reservation or any other aspect of the RealNames Services affected by such claim. Subscriber understands and agrees that it has no vested interest or right in any procedures or rules of dispute resolution. E. INDEMNITY. Subscriber agrees to defend and indemnify CENTRAAL, as well as CENTRAAL's officers, employees, agents, resellers and representatives, against claims, demands, damages, costs, and liabilities arising from Subscriber's use, reference to, or advertising of a RealNames address; from the allocation by CENTRAAL of a RealNames address to Subscriber; and from the Subscriber's subscription, reservation or use of the RealNames Services or RealNames Service. Subscriber agrees that the financial obligation of Subscriber to CENTRAAL pursuant to this indemnity may be incorporated in CENTRAAL's invoices for services and are due when the invoices are due. F. BREACH. Subscriber understands and agrees that its failure to abide by any provision of this Agreement may be considered by CENTRAAL to be a basis for cancellation of the subscription or reservation, withdrawal of the assigned RealNames address, and/or cancellation of the subscription or reservation. G. AGENTS. Subscriber agrees that if this Agreement is completed by an agent for the Subscriber, such as an ISP or Administrative Contact/Agent, the Subscriber is nonetheless bound as a principal by all terms and conditions herein. H. USAGE STATISTICS. Subscriber understands and agrees that CENTRAAL has the right to compile usage statistics and other data regarding use of CENTRAAL's RealNames Services and to sell and provide any and all such data to third parties. I. LIMITATION OF LIABILITY. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. PAGE 20 OF 254 Subscriber agrees that CENTRAAL, its officers, employees, agents, resellers and representatives shall have no liability to the Subscriber for any loss Subscriber may incur in connection with CENTRAAL's processing of this Agreement, in connection with CENTRAAL's processing of any authorized modification to the RealNames Service (including without limitation the RealNames address) during the covered period, as a result of the Subscriber's ISP's failure to pay either the initial subscription or reservation fee or renewal fee. Subscriber agrees that in no event shall the maximum liability of CENTRAAL, officers, employees, agents, resellers and representatives under this Agreement for any matter exceed and aggregate of five hundred United States dollars (US $500). J. NO GUARANTY. Subscriber agrees that, by subscription or reservation of a RealNames address, such subscription or reservation does not confer immunity from objection to either the subscription, reservation or use of the RealNames address. CENTRAAL DOES NOT WARRANT THAT THE OPERATION OF THE REALNAMES SERVICE AND/OR ANY REALNAMES ADDRESS WILL BE WITHOUT INTERRUPTION OR ERROR FREE. CENTRAAL DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT WILL CENTRAAL BE LIABLE TO SUBSCRIBER OR ANY OTHER THIRD PARTY FOR ANY FAILURE, DISRUPTION, DOWNTIME, INCORRECT LINKAGE OR OTHER NON-PERFORMANCE OF THE REALNAMES SERVICE. K. RIGHT OF REFUSAL. CENTRAAL, in its sole discretion, reserves the right to refuse to enter into an agreement for any Subscriber. Subscriber agrees that the submission of this Agreement does not obligate CENTRAAL to accept this Agreement. Subscriber agrees that CENTRAAL shall not be liable for loss or damages that may result from CENTRAAL's refusal to accept this Agreement. L. ENTIRETY. Subscriber agrees that this Agreement comprises the complete and exclusive agreement between Subscriber and CENTRAAL regarding the subscription or reservation of Subscriber's RealNames address. This Agreement supersedes all prior agreements and understandings. M. GOVERNING LAW. Subscriber agrees that this Agreement shall be governed in all respects by and construed in accordance with the laws of the State of California, United States of America, without regard to conflicts-of-law principles, applicable to contracts formed in California for services rendered in California. By submitting this Agreement, Subscriber consents to the exclusive and personal jurisdiction and venue of the federal and state courts located in the Northern District of California. This Agreement shall be deemed accepted at the offices of CENTRAAL in Palo Alto, California, U.S.A. CENTRAAL CORPORATION REALNAMES SUBSCRIPTION AGREEMENT (0.3) - -C- 1998 Centraal Corporation 2 Circle Star Way, Second Floor PO Box 3500 San Carlos, CA 94303-0750 Tel: +1 650 298 8080 Fax: +1 650 298 8085 sales@centraal.com [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. PAGE 21 OF 254 EXHIBIT D-1 Centraal Trademarks [LOGO] RealNames Standardized Logo Font: OCRB [LOGO] RealNames Enabled Logo Font: OCRB [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. PAGE 22 OF 254 EXHIBIT E --------- NONDISCLOSURE AGREEMENT ----------------------- MICROSOFT CORPORATION NON-DISCLOSURE AGREEMENT (STANDARD RECIPROCAL) THIS AGREEMENT (the "Agreement") is made between MICROSOFT CORPORATION, a Washington corporation, and CENTRAAL CORPORATION ("COMPANY") and entered into this __________ day of ___________, 1999. In consideration of the mutual promises and covenants contained in this Agreement, the mutual disclosure of confidential information to each other, the parties hereto agree as follows: 1. CONFIDENTIAL INFORMATION AND CONFIDENTIAL MATERIALS (a) "Confidential Information" means nonpublic information that Disclosing Party designates as being confidential or which, under the circumstances surrounding disclosure ought to be treated as confidential. "Confidential Information" includes, without limitation, information relating to released or unreleased Disclosing Party software or hardware products, the marketing or promotion of any Disclosing Party product, Disclosing Party's business policies or practices, and information received from others that Disclosing Party is obligated to treat as confidential. Confidential Information disclosed to Receiving Party by any Disclosing Party Subsidiary and/or agents is covered by this Agreement. (b) Confidential Information shall not include any information that: (i) is or subsequently becomes publicly available without Receiving Party's breach of any obligation owed Disclosing Party; (ii) became known to Receiving Party prior to Disclosing Party's disclosure of such information to Receiving Party; (iii) became known to Receiving Party from a source other than Disclosing Party other than by the breach of an obligation of confidentiality owed to Disclosing Party; or (iv) is independently developed by Receiving Party. (c) "Confidential Materials" shall mean all tangible materials containing Confidential Information, including without limitation written or printed documents and computer disks or tapes, whether machine or user readable. 2. RESTRICTIONS (a) Receiving Party shall not disclose any Confidential Information to third parties for five (5) years following the date of its disclosure by Disclosing Party to Receiving Party, except to Receiving Party's consultants as provided below. However, Receiving Party may disclose Confidential Information in accordance with judicial or other governmental order, provided Receiving Party shall give Disclosing Party reasonable notice prior to such disclosure and shall comply with any applicable protective order or equivalent. (b) Receiving Party shall take reasonable security precautions, at least as great as the precautions it takes to protect its own confidential information, to keep confidential the Confidential Information. Receiving Party may disclose Confidential Information or Confidential Material only to Receiving Party's employees or consultants on a need-to-know basis. Receiving Party will have executed or shall execute appropriate written agreements with its employees and consultants sufficient to enable it to comply with all the provisions of this Agreement. (c) Confidential Information and Confidential Materials may be disclosed, reproduced, summarized or distributed only in pursuance of Receiving Party's business relationship with Disclosing Party, and only as otherwise provided hereunder. Receiving Party agrees to segregate all such Confidential Materials from the confidential materials of others in order to prevent commingling. (d) Receiving Party may not reverse engineer, decompile or disassemble any software disclosed to Receiving Party. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. PAGE 23 OF 254 3. RIGHTS AND REMEDIES (a) Receiving Party shall notify Disclosing Party immediately upon discovery of any unauthorized use or disclosure of Confidential Information and/or Confidential Materials, or any other breach of this Agreement by Receiving Party, and will cooperate with Disclosing Party in every reasonable way to help Disclosing Party regain possession of the Confidential Information and/or Confidential Materials and prevent its further unauthorized use. (b) Receiving Party shall return all originals, copies, reproductions and summaries of Confidential Information or Confidential Materials at Disclosing Party's request, or at Disclosing Party's option, certify destruction of the same. (c) Receiving Party acknowledges that monetary damages may not be a sufficient remedy for unauthorized disclosure of Confidential Information and that Disclosing Party shall be entitled, without waiving any other rights or remedies, to such injunctive or equitable relief as may be deemed proper by a court of competent jurisdiction. (d) Disclosing Party may visit Receiving Party's premises, with reasonable prior notice and during normal business hours, to review Receiving Party's compliance with the terms of this Agreement. 4. MISCELLANEOUS (a) All Confidential Information and Confidential Materials are and shall remain the property Of Disclosing Party. By disclosing information to Receiving Party, Disclosing Party does not grant any express or implied right to Receiving Party to or under Disclosing Party patents, copyrights, trademarks, or trade secret information. (b) If either party provides pre-release software as Confidential Information or Confidential Materials under this Agreement, such pre-release software is provided "as is" without warranty of any kind. Receiving Party agrees that neither Disclosing Party nor its suppliers shall be liable for any damages whatsoever relating to Receiving Party's use of such pre-release software. (c) Any software and documentation provided under this Agreement is provided with RESTRICTED RIGHTS. Use, duplication, or disclosure by the Government is subject to restrictions as set forth in subparagraph (c)(1)(ii) of The Rights in Technical Data and Computer Software clause at DFARS 252.227-7013 or subparagraphs (c)(1) and (2) of the Commercial Computer Software --Restricted Rights at 48 CFR 52.227-19, as applicable. Manufacturer is Microsoft Corporation/One Microsoft Way/Redmond, WA 98052-6399. (d) Both parties agree that they do not intend nor will they, directly or indirectly, export or re-export (i) any Confidential Information or Confidential Materials, or (ii) any product (or any part thereof), process or service that is the direct product of the Confidential Information or Materials to (A) any country that is subject to U.S. export restrictions (currently including, but not necessarily limited to, Iran, Iraq, Syria, Cuba, North Korea, Libya, and Sudan), or to any national of any such country, wherever located, who intends to transmit or transport the products back to such country; (B) to any end-user who either party knows or has reason to know will utilize them in the design, development or production of nuclear, chemical or biological weapons; or (C) to any end-user who has been prohibited from participating in U.S. export transactions by any federal agency of the U.S. government. (e) The terms of confidentiality under this Agreement shall not be construed to limit either party's right to independently develop or acquire products without use of the other party's Confidential Information. Further, either party shall be free to use for any purpose the residuals resulting from access to or work with such Confidential Information, provided that such party shall maintain the confidentiality of the Confidential Information as provided herein. The term "residuals" means information in non-tangible form, which may be retained by persons who have had access to the Confidential Information, including ideas, concepts, know-how or techniques contained therein. Neither party shall have any obligation to limit or restrict the assignment of such persons or to pay royalties for any work resulting from the use of residuals. However, the foregoing shall not be deemed to grant to either party a license under the other party's copyrights or patents. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. PAGE 24 OF 254 (f) This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof. It shall not be modified except by a written agreement dated subsequent to the date of this Agreement and signed by both parties. None of the provisions of this Agreement shall be deemed to have been waived by any act or acquiescence on the part of Disclosing Party, its agents, or employees, but only by an instrument in writing signed by an authorized officer of Disclosing Party. No waiver of any provision of this Agreement shall constitute a waiver of any other provision(s) or of the same provision on another occasion. (g) If either party employs attorneys to enforce any rights arising out of or relating to this Agreement, the prevailing party shall be entitled to recover reasonable attorneys' fees. This Agreement shall be construed and controlled by the laws of the State of Washington, and both parties further consent to jurisdiction by the state and federal courts sitting in the State of Washington. Process may be served on either party by U.S. Mail, postage prepaid, certified or registered, return receipt requested, or by such other method as is authorized by the Washington Long Arm Statute. (h) Subject to the limitations set forth in this Agreement, this Agreement will inure to the benefit of and be binding upon the parties, their successors and assigns. (i) If any provision of this Agreement shall be held by a court of competent jurisdiction to be illegal, invalid or unenforceable, the remaining provisions shall remain in full force and effect. (j) All obligations created by this Agreement shall survive change or termination of the parties' business relationship. 5. SUGGESTIONS AND FEEDBACK Either party may from time to time provide suggestions, comments or other feedback to the other party with respect to Confidential Information provided originally by the other party (hereinafter "Feedback"). Both parties agree that all Feedback is and shall be entirely voluntary and shall not, absent separate agreement, create any confidentiality obligation for the Receiving Party. However, the Receiving Party shall not disclose the source of any feedback without the providing party's consent. Feedback shall be clearly designated as such and, except as otherwise provided herein, each party shall be free to disclose and use such Feedback as it sees fit, entirely without obligation of any kind to the other party. The foregoing shall not, however, affect either party's obligations hereunder with respect to Confidential Information of the other party. IN WITNESS WHEREOF, the parties hereto have executed this Agreement. COMPANY: CENTRAAL CORP. MICROSOFT CORPORATION ---------------------------- Address: 2 Circle Star Way By: /s/ Matt Kursh ----------------------------- --------------------------- San Carlos, California 94070 Name: MATT KURSCH ----------------------------- ------------------------------ By: /s/ Edward F. West Title: BUSINESS UNIT MANAGER ---------------------------------- ------------------------------ Name: Edward F. West Date: 6/4/99 -------------------------------- ------------------------------- Title: EXEC VICE PRESIDENT MS Contact: ------------------------------- ------------------------- Date: June 2, 1999 -------------------------------- [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. PAGE 25 OF 254 EX-10.9 13 EXHIBIT 10.9 CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Exhibit 10.9 REALNAME SALES REPRESENTATIVE AGREEMENT BETWEEN CENTRAAL CORPORATION AND NETWORK SOLUTIONS, INC. This RealName Sales Representative Agreement ("AGREEMENT") is made as of DECEMBER 8, 1998 ("EFFECTIVE DATE") by and between Network Solutions, Inc. ("NSI") and Centraal Corporation ("CENTRAAL"). WHEREAS, NSI is the leading Internet domain name registration services provider worldwide, and also provides Internet consulting services to businesses that desire to establish or enhance their Internet presence; and WHEREAS, Centraal is in the business of providing "REALNAMES SERVICES," which allow users to access sites on the World Wide Web that are registered with Centraal's service by using an appropriate trademark, brand name, short word or phrase in lieu of a Uniform Resource Locator ("URL"); and WHEREAS, the parties wish to establish the terms and conditions for a relationship under which NSI will act as Centraal's sales representative to provide RealNames Services. NOW, THEREFORE, the parties agree as follows: 1. DEFINITIONS. For the purposes of this Agreement, the terms below have the following meanings: 1.1 "ACTIVE" means that a RealName Subscription (i) has been approved and adjudicated by Centraal for listing in the RealName database and (ii) fully paid for by the subscriber. For example, a RealName Subscription that was Sold by NSI prior to December 31, 1999, but which was not renewed prior to December 31, 2000, will be considered "Active" as of December 31, 1999, but not "Active" as of December 31, 2000. 1.2 "CHANGE OF CONTROL OF CENTRAAL" means any merger, consolidation or reorganization of Centraal with or into any other entity or entities, or any sales of all or substantially all of the assets of Centraal, or a series of related similar such transactions in which the holders of the Company's capital stock on the Effective Date will, as a result of such transaction, hold less than 50% of the voting power of the surviving entity after the consummation of the transaction. 1.3 "CUSTOMER INFORMATION" means the following customer contact information, to be collected in connection with RealName Subscriptions: contact name, address, email address, [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMMITED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. telephone and credit card number. "Customer Information" does not include customer contact information collected by NSI in connection with NSI's domain name registrations. 1.4 "IMPLEMENTATION DATE" means that date on which Centraal reasonably determines that NSI is capable of meeting the service requirements and quality criteria set forth in ATTACHMENT 1. 1.5 "MY REALNAME CUSTOMERS" means persons or entities who are provided a Web page through a community service such as Tripod or Geocities, and in connection therewith and subscribe to RealNames Services from Centraal free of charge. 1.6 "NSI AFFILIATE" means any third party that is (i) an Internet Service Provider or Web hosting company and (ii) has been identified to Centraal in the report described in Section 2.2 as currently participating in NSI's "Alliance," "Premier," or "Affiliate" programs. In no event will LookSmart, Compaq Computer Corporation ("COMPAQ"), Compaq's subsidiary, AltaVista Search Services, Inc., Infoseek, Bigfoot International, Inc., Neoplanet or ICQ, or any of such parties' affiliates, sublicensees or resellers be deemed "NSI Affiliates." 1.7 "NSI CUSTOMERS" means those customers to whom NSI has Sold RealNames Services. 1.8 "NON-NSI SOLD CUSTOMERS" means all customers of RealNames Services, other than NSI Customers, Key Accounts, and My RealName Customers. 1.9 "REALNAME INFORMATION" means the following information comprising the RealName object, to be collected in connection with RealName Subscriptions: RealName, URL, organization, Geocode/region code, description, language, RealName category, trademarks and suitability. 1.10 "SOLD" means that a subscription to a RealName was (i) solicited by NSI on Centraal's behalf, (ii) approved and adjudicated by Centraal for listing in the RealName database, and (iii) fully paid for by the subscriber. 2. SALE OF THE REALNAMES SERVICES. 2.1 APPOINTMENT. Subject to Section 2.5, Centraal hereby appoints NSI as Centraal's [*] sales representative to solicit subscriptions for RealNames Services ("REALNAME SUBSCRIPTIONS"). NSI will have the right to appoint NSI Affiliates as sub-representatives, provided that NSI remains primarily responsible for the performance of such NSI Affiliates, and appoints such sub-representatives according to a written agreement as protective of Centraal as this Agreement. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMMITED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 2.2 [*] 2.3 GOVERNMENT APPROVALS. In the event that, subsequent to the Effective Date, any governmental approval is required in order for NSI to offer RealNames with domain names, and such approval is not obtained within 90 days after a party first receives notice of such necessary approval, Centraal's obligations under Section 2.2 will cease. [*] 2.4 SALES. NSI and the NSI Affiliates (a) shall use reasonable efforts to promote the sale of RealName Subscriptions, and shall solicit sales for RealName Subscriptions only according to the terms of Centraal's then-current subscription agreement; (b) shall not make any representations or warranties regarding the RealNames Services, other than with the prior written approval of Centraal. Notwithstanding the foregoing, NSI may represent that the RealNames Services allow users to access sites on the World Wide Web that are registered with Centraal's service by using an appropriate trademark, brand name, short word or phrase in lieu of a Uniform Resource Locator without the prior written consent of Centraal. Without limiting the foregoing, NSI, at its sole discretion, may solicit sales of RealName Subscriptions customers through its current inbound telesales operation. 2.5 KEY ACCOUNTS. NSI acknowledges that Centraal markets RealNames Services directly to certain key customers who pay for such services on a per resolution basis ("KEY ACCOUNTS"). Centraal shall report quarterly in writing to NSI its Key Accounts. NSI shall not solicit sales of RealName Subscriptions from Key Accounts who have been identified in advance to NSI by Centraal, and Centraal will not be obligated to (a) accept RealName Subscriptions Sold to such previously identified Key Accounts by NSI, or (b) pay NSI any Commission for any RealName Subscriptions Sold to such previously identified Key Accounts by NSI. 2.6 ORDERS. Orders for RealNames Services by customers solicited by NSI and NSI Affiliates will take place through a series of HTML registration pages to be developed according to specifications agreed upon by the parties, or as otherwise agreed by the parties. These pages will be co-branded (e.g., "RealNames from Network Solutions") as agreed by the parties in advance in writing. Notwithstanding the foregoing, NSI will have complete control over all design and functional aspects of all NSI Web sites. All completed orders for the RealNames Services will be processed by Centraal within the time period set forth in Attachment 2. Centraal shall perform the registration and send via electronic mail Centraal's then-current acknowledgments, software browser plug-ins or other customer materials to the customer and [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMMITED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. will provide NSI with information regarding orders in process and processed orders in a timely manner to assist NSI to perform the customer support services set forth in Section 3 below. All RealName Subscriptions Sold by NSI and NSI Affiliates are subject to acceptance by Centraal. Centraal may accept or reject any RealName Subscription in its sole discretion. 2.7 FEES. Centraal shall set the subscription fees, if any, for the initial one-year term and all one-year renewal terms to be charged to customers for RealName Subscriptions Sold by NSI and NSI Affiliates (the "NSI CUSTOMER SUBSCRIPTION FEES"). NSI shall collect the NSI Customer Subscription Fees, if any, on Centraal's behalf, and shall pay to Centraal the full amount of all NSI Customer Subscription Fees, less any amounts for refunds, credit card chargebacks and bad debt, and less Commissions earned by NSI as set forth in Section 2.8 below, less fees earned by NSI as set forth in Section 3.2 below, no later than 10 days after the quarter in which the related RealName Subscriptions are first Sold and the NSI Customer Subscription Fees are collected. In no event will NSI withhold commissions under Section 2.8 for NSI Customer Subscription Fees that are refunded or uncollectible. 2.8 COMMISSIONS. NSI may retain (or, if the parties so agree, Central shall pay to NSI) a commission ("COMMISSION") for each RealName Subscription from which a NSI Customer Subscription Fee, if any, arose as follows: [*] for the initial one-year term of any RealName Subscription Sold by NSI or an NSI Affiliate, the greater of (i) [*], or (ii) [*] of each NSI Customer Subscription Fee[*] [*] For the purposes of this Section 2.8, a RealName Subscription that is not renewed upon its renewal date, but is renewed within 90 days from the date thereof, will be deemed a "renewal" subject to the Commission described in subsection (b). Notwithstanding the foregoing, in the event that Centraal changes the term of the RealName Subscription or any renewal thereof, the parties agree to modify the commissions due to NSI. 2.9 TERM; TERMINATION. The terms of this Section 2 will remain in effect from the Effective Date until the later of (a) December 31, 2000, if there is no Change of Control of Centraal before December 31, 2000; and (b) December 31,2001, if there is a Change of Control of Centraal before December 31, 2000; unless terminated as set forth in Section 8.2. This Agreement will automatically renew for an additional 2-year term if, at the end of the initial term described above, there are outstanding at least 150,000 RealName Subscriptions that (i) have been Sold by NSI and (ii) are Active. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMMITED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 2.10 [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] 2.11 ADDITIONAL FEES. Centraal shall pay to NSI, no later than 10 days after the end of each calendar quarter, [*] of any fee that is based upon resolution traffic and which is received by Centraal from customers with RealName Subscriptions who pay for RealNames Services on a "per-resolution" basis; provided, however, that Centraal shall pay no such fee for amounts collected by Centraal from customers with RealName Subscriptions due to resolution traffic from Compaq, LookSmart, Bigfoot International, Inc., Neoplanet, ICQ, or Infoseek pursuant to agreements between Centraal and such parties. 2.12 DATABASE ACCESS. NSI hereby grants to Centraal a non-exclusive, non-transferable license to allow Centraal reasonable access and use of the NSI registry "WHOIS" and "RWHOIS" databases, and any successor databases with similar capabilities, via FTP, such that Centraal shall have access to and use of information relating to all existing domain names and the ownership of such domain names, for the sole purpose of maintaining and resolving a comprehensive listing of Web companies in Centraal's "RealNames Index 1," an index editorially managed by Centraal and will not be used as a separate product or directory service or as an enhancement to the RealName Index 1 or for any other purpose. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMMITED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 2.13 REVIEW. NSI and Centraal will meet quarterly in a "Senior Management Review" meeting to discuss the development, planning, implementation and results of all joint marketing, sales and customer service activities under this Agreement. 2.14 DOMAIN NAME SALES. Centraal will generate leads for Domain Names sales from the RealNames subscription site at URL www.realnames.com by placing a hypertext link from such site to NSI's site at URL www.networksolutions.com. 2.15 TECHNICAL ADVISORY BOARD. Centraal shall appoint David Holtzman to the Centraal Corporation technical advisory board for a one-year term commencing on January 1, 1999, subject to Mr. Holtzman executing Centraal's standard form of technical advisory board agreement. The parties agree that no options or other consideration will be granted by Centraal to NSI or Mr. Holtzman in connection with such participation on the technical advisory board, notwithstanding any plan or program of Centraal to issue stock, options or other consideration to members of its technical advisory board. 3. CUSTOMER SERVICE. 3.1 SERVICES: QUALITY. (a) SUPPORT. Beginning no later than June 1, 1999, NSI shall provide customer support, help desk and related services according to the plan described in ATTACHMENT 1 ("FIRST LEVEL SUPPORT") in a timely manner, as required by customers of the RealNames Services. NSI may subcontract with a third party for the provision of such services with Centraal's prior written approval, not to be unreasonably withheld. As between the parties, Centraal is solely responsible for providing the necessary services to adjudicate and approve orders for RealName Subscriptions. In addition, Centraal will provide adjudication-related and other mutually agreed upon support as described in ATTACHMENT 2 ("SECOND LEVEL SUPPORT") for all customers of RealNames Services. Centraal shall provide such Second Level Support in a timely manner, as required by such customers. (b) QUALITY CRITERIA. The services to be provided by NSI pursuant to 3.1 (a) must meet the quality criteria set forth in ATTACHMENT 1. (c) QUARTERLY REVIEW. The description of services to be provided by NSI and the quality criteria that NSI must meet in the performance of such services will be subject to quarterly changes mutually agreed upon by Centraal and NSI, which agreement will not be unreasonably withheld by either party. (d) PHASE-IN PERIOD. For a period of 60 days commencing on the date NSI begins to provide services under Section 3.1 (a) ("PHASE-IN PERIOD"), NSI shall perform First Level Support only for NSI Customers. During the Phase-in Period, in the event Centraal [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMMITED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. reasonably determines that NSI is not capable of meeting the service requirements and quality criteria set forth in Attachment 1, then NSI will have a reasonable period, not to exceed 90 days, to meet such service requirements and quality criteria. If, after such 90 day period, NSI is not meeting the service requirements or quality criteria set forth in ATTACHMENT 1, then Centraal may immediately upon written notice terminate the right and obligations set forth in this Section 3. Commencing on the Implementation Date, NSI shall provide First Level Support for all RealName Subscription customers (excluding Key Accounts and My RealName Customers). (e) PARITY. After the Implementation Date, NSI will provide the services described in Section 3.1 to Non-NSI Sold Customers in the same manner and of the same quality as NSI will provide such services to customers to whom NSI has Sold RealName Subscriptions. 3.2 FEES. In consideration of the services to be provided by NSI under Section 3.1, NSI may withhold from the Subscription Fees, if any, to be paid to Centraal pursuant to Section 2.7 of this Agreement (or, if the parties so agree, Centraal shall pay to NSI): [*] for the initial one year period of each RealName Subscription approved and adjudicated by Centraal after the Effective Date, the greater of (i) [*] of the Subscription Fee or (ii) [*] [*] During the Phase-In Period, NSI may only withhold such amounts for RealName Subscriptions accepted by Centraal for NSI Customers. After the Phase-in Period, NSI may also withhold such amounts for RealName Subscriptions accepted by Centraal for Non-NSI Sold Customers. In no event will NSI withhold commissions under this Section 3.2 for Subscription Fees that are refunded or uncollectible. 3.3 TERM; TERMINATION. The terms of this Section 3 will remain in effect from the Effective Date until (a) December 31, 2002, if there is no Change of Control of Centraal before December 31, 2002; and (b) December 31, 2003, if there is a Change of Control of Centraal before December 31, 2002; unless earlier terminated under Section 3.1 (d), this Section 3.3, or Section 8.2. Notwithstanding the foregoing, if, at any time, Centraal is not reasonably satisfied that NSI has provided customer service in accordance with the standards set forth in ATTACHMENT 1, which lack of quality is not cured by NSI within 60 days after written notice thereof by Centraal, then Centraal, in its sole discretion, may upon 30 days' prior written notice to NSI, terminate all rights and obligations set forth in this Section 3. In the event that, subsequent to the dates set forth in Section 2.10, Centraal fails to maintain a quantity of total Active RealName Subscriptions equal to 2 times the lesser of (i) the target number of Active RealName Subscriptions Sold by NSI by the corresponding dates set forth in Section 2.10, or (ii) the actual [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMMITED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. number of Active RealName Subscriptions Sold by NSI as of such date, then NSI may terminate all right and obligations set forth in this Section 3 upon 30 days' prior written notice. 4. COMMON STOCK WARRANTS. 4.1 MILESTONES. Upon the achievement of each of the following milestones (each, a "MILESTONE NUMBER") by the dates set forth below (each, a "MILESTONE DATE"), Centraal will issue to NSI a non-transferable (other than by merger or consolidation or to a transferee of all or substantially all of the assets of NSI) warrant in the form set forth in ATTACHMENT 3 (a "WARRANT"), exercisable for 120 days (except as otherwise set forth herein), to purchase the number of shares ("WARRANT SHARES") of Centraal's Common Stock, par value $0.001 per share ("COMMON STOCK") set forth below; provided, however, that (i) in no event will NSI be issued Warrants hereunder to purchase an aggregate number of Warrant Shares greater than 4,196,726 (subject to adjustment for stock splits, stock dividends, recapitalizations, etc.); and (ii) no Warrant will be issued for any Milestone not achieved by its respective Milestone Date: (a) if, on or prior to December 31, 1999, at least 50,000 RealNames have been Sold by NSI, then Centraal shall issue to NSI a Warrant to purchase a number of Warrant Shares equal to 423,912 (subject to adjustment for stock splits, stock dividends, recapitalizations, etc.) promptly after such date; (b) if, on or prior to December 31, 2000, at least 150,000 RealNames have been Sold by NSI, then Centraal shall issue to NSI a Warrant to purchase a number of Warrant Shares equal to 847,824 (subject to adjustment for stock splits, stock dividends, recapitalizations, etc.) promptly after such date; (c) if, on or prior to December 31,2001, at least 375,000 RealNames have been Sold by NSI, then Centraal shall issue to NSI a Warrant to purchase a number of Warrant Shares equal to 1,271,735 (subject to adjustment for stock splits, stock dividends, recapitalizations, etc.) promptly after such date; and (d) if, on or prior to December 31, 2001, Centraal enters into an agreement providing for the distribution of RealNames through any of the following companies, then Centraal shall issue to NSI a Warrant to purchase a number of Warrant Shares equal to 1,271,735 (subject to adjustment for stock splits, stock dividends, recapitalizations, etc.) for each such agreement promptly after the closing date of each such transaction: Netscape, Microsoft, Yahoo, Excite, Lycos, or AOL. The parties agree that NSI and Centraal will make joint and separate presentations and proposals to such companies. To facilitate such and other transactions involving Centraal, NSI will commit one full time business development manager within 120 days from the date hereof, and one additional full time business development manager no later [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMMITED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. than January 1, 2000. NSI shall pay employment compensation and other costs associated with such business development managers. 4.2 EXERCISE PRICE. The exercise price for any Warrant issued pursuant to Section 4.1, subsections (a)-(d) above will be as follows (subject to adjustments for stock splits, stock dividends, recapitalizations, etc.): (a) Any Warrant issued on or prior to December 31, 1998, will be exercisable at a price of $1.65 per Warrant Share; (b) Any Warrant issued after December 31, 1998 and on or prior to March 31, 1999, will be exercisable at a price of $1.86 per Warrant Share; (c) Any Warrant issued after March 31, 1999 and on or prior to June 30, 1999, will be exercisable at a price of $2.09 per Warrant Share; (d) Any Warrant issued after June 30, 1999 and on or prior to September 30, 1999, will be exercisable at a price of $2.35 per Warrant Share; (e) Any Warrant issued after September 30, 1999 and on or prior to December 31, 1999, will be exercisable at a price of $2.64 per Warrant Share; (f) Any Warrant issued after December 31, 1999 and on or prior to March 31, 2000, will be exercisable at a price of $2.97 per Warrant Share; (g) Any Warrant issued after March 31, 2000 and on or prior to June 30, 2000, will be exercisable at a price of $3.35 per Warrant Share; (h) Any Warrant issued after June 30, 2000 and on or prior to September 30, 2000, will be exercisable at a price of $3.76 per Warrant Share; (i) Any Warrant issued after September 30, 2000 and on or prior to December 31, 2000, will be exercisable at a price of $4.23 per Warrant Share; (j) Any Warrant issued after December 31, 2000 and on or prior to March 31, 2001, will be exercisable at a price of $4.76 per Warrant Share; (k) Any Warrant issued after March 31,2001 and on or prior to June 30, 2001, will be exercisable at a price of $5.36 per Warrant Share; (l) Any Warrant issued after June 30, 2001 and on or prior to September 30, 2001, will be exercisable at a price of $6.03 per Warrant Share; and [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMMITED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. (m) Any Warrant issued after September 30, 2001 and on or prior to December 31,2001, will be exercisable at a price of $6.78 per Warrant Share. 4.3 IPO WARRANTS. In addition to the provisions above relating to the issuance of Warrants, if Centraal files a registration statement pursuant to the Securities Act of 1933, as amended, for an initial public offering of its Common Stock (an "IPO"), or an amendment thereto, which filing contains the initial price range per share for such offering (the "PRICE RANGE FILING"), and on such date of filing (the "PRICE RANGE FILING DATE"), at least the Pro Rata Number (as defined below) of RealNames have been Sold by NSI, then Centraal shall issue to NSI promptly after such date, a non-transferable (other than by merger or consolidation or to a transferee of all or substantially all of the assets of NSI) Warrant (the "IPO WARRANT") to purchase that number of Warrant Shares (subject to adjustment for stock splits, stock dividends, recapitalizations, etc.) which, when aggregated with all other Warrant Shares issued or issuable upon exercise of Warrants issued hereunder, will equal 4,196,726. Centraal shall provide NSI with notice of its intention to make a Price Range Filing as soon as practical prior to such filing. The IPO Warrant and any other outstanding unexercised Warrants issued hereunder must be exercised within 10 days after the Price Range Filing Date. For purposes of this paragraph, the "PRO RATA NUMBER" shall equal: A + [(B-A) x (C/365)] Where: A = the Milestone Number associated with the most recent previous Milestone Date, if any, that occurred prior to such Price Range Filing; B = the Milestone Number associated with the next occurring Milestone Date following the Price Range Filing Date; and C = the number of days that have elapsed or have partially elapsed since the previous Milestone Date. The exercise price for the IPO Warrant will be: (i) with respect to the following number of Warrant Shares, the then appropriate exercise price determined in accordance with Section 4.2 above: (C/365 x D); where, [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMMITED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. D = the number of Shares subject to a Warrant upon achievement of the next Milestone Number; and (ii) with respect to all remaining Warrant Shares under the IPO Warrant, 90% of the low end of the price range per share contained in the Price Range Filing. Notwithstanding anything herein to the contrary, no Warrant, including the IPO Warrant, shall be issued hereunder after December 31,2001. 5. OTHER ARRANGEMENTS. Centraal and NSI may, from time to time, each acting in its sole business discretion, negotiate the following business arrangements, which would be memorialized in a written agreement separate from this Agreement: (a) joint proposals to develop key strategic relationships in "smart browsing," or cascaded name navigation or search solutions, with Netscape, Microsoft, Yahoo and AOL, where appropriate; (b) joint marketing and sales of Domain Names, RealNames, and related traffic-building and tracking services, through direct sales to Key Accounts by Centraal; (c) joint marketing, sales and development of domain names, Centraal's "Personal Names" product, and related personal naming and identity services; or (d) joint development of business and personal directory services, using Domain Names and RealNames. 6. NON-DISCLOSURE. The parties agree to the provisions of this Section 6 and confirm their prior agreement that the terms set forth in this Section 6 also apply to any information disclosed by one party to another in the course of negotiating this Agreement or the Draft Memorandum of Understanding between the parties dated September 25, 1998. 6.1 "CONFIDENTIAL INFORMATION" means any information disclosed by either party to the other party, either directly or indirectly, in writing, orally or by inspection of tangible objects (including without limitation documents, prototypes, samples, plants and equipment), which is designated as "Confidential," "Proprietary" or some similar designation. Information communicated orally will be considered Confidential Information if such information is confirmed in writing as being Confidential Information within 30 days after the initial disclosure. Confidential Information may also include information disclosed to a disclosing party by third parties. Confidential Information will not, however, include any information which (i) was publicly known and made generally available in the public domain prior to the time of disclosure by the disclosing party; (ii) becomes publicly known and made generally available after disclosure by the disclosing party to the receiving party through no action or inaction of the [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMMITED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. receiving party; (iii) is already in the possession of the receiving party at the time of disclosure by the disclosing party as shown by the receiving party's files and records immediately prior to the time of disclosure; (iv) is obtained by the receiving party from a third party without a breach of such third party's obligations of confidentiality; (v) is independently developed by the receiving party without use of or reference to the disclosing party's Confidential Information, as shown by documents and other competent evidence in the receiving party's possession; or (vi) is required by law to be disclosed by the receiving party, provided that the receiving party gives the disclosing party prompt written notice of such requirement prior to such disclosure and assistance in obtaining an order protecting the information from public disclosure. NSI and Centraal further agree that all Customer Information and RealName Information is Confidential Information of Centraal, notwithstanding whether such Customer Information or RealName Information was collected by Centraal, NSI or other parties. 6.2 NON-USE AND NON-DISCLOSURE. Each party agrees not to use any Confidential Information of the other party for any purpose except to exercise its right and perform its obligations under this Agreement. Each party agrees not to disclose any Confidential Information of the other party to third parties or to such party's employees, except to those employees of the receiving party with a need to know. Neither party shall reverse engineer, disassemble or decompile any prototypes, software or other tangible objects which embody the other party's Confidential Information and which are provided to the party hereunder. 6.3 MAINTENANCE OF CONFIDENTIALITY. Each party shall take reasonable measures to protect the secrecy of and avoid disclosure and unauthorized use of the Confidential Information of the other party. Without limiting the foregoing, each party shall take at least those measures that it takes to protect its own most highly confidential information and shall ensure that its employees who have access to Confidential Information of the other party have signed a nonuse and non-disclosure agreement in content similar to the provisions hereof, prior to any disclosure of Confidential Information to such employees. Each party shall make copies of the Confidential Information of the other party only as necessary to fulfill its obligations hereunder, unless previously approved in writing by the other party. Each party shall reproduce the other party's proprietary rights notices on any such approved copies, in the same manner in which such notices were set forth in or on the original. 6.4 THIRD-PARTY INFORMATION. Each party shall not use in the course of its performance hereunder, and shall not disclose to the other party, any confidential information of any third party (including without limitation competitors of either party) unless the party using or disclosing such information is authorized in writing by such third party to do so. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMMITED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 7. TRADEMARKS AND TRADE NAMES 7.1 CENTRAAL TRADEMARKS. (a) USE. Centraal will provide NSI with a copy of the authorized "Real Name System" logos in JPEG, BMP and GIF format. During the term of this Agreement, NSI may indicate to the public that it is an authorized representative of the RealNames Services and advertise the RealNames Services under the trademarks, marks, and trade names that Centraal may adopt from time to time ("CENTRAAL MARKS"). NSI may sublicense such rights to NSI Affiliates in connection with the activities of such NSI Affiliates as sub-representatives of NSI, but only pursuant to a written agreement containing substantially the terms of this Section 7. (b) APPROVAL OF REPRESENTATIONS. All representations of the Centraal Marks that NSI intends to use must be exact copies of those used by Centraal or shall first be submitted to Centraal for approval of design, color, and other details. (c) ASSIGNMENT OF GOODWILL. If NSI or any NSI Affiliate, in the course of performing its services hereunder, acquires any goodwill or reputation in any of the Centraal Marks, all such goodwill or reputation will automatically vest in Centraal when and as, on an on-going basis, such acquisition of goodwill or reputation occurs, as well as at the expiration or termination of this Agreement, without any separate payment or other consideration of any kind to NSI or the NSI Affiliates, and NSI shall, and shall cause each NSI Affiliate to, take all such actions to effect such vesting. NSI shall not contest the validity of any of the Centraal Marks or Centraal's exclusive ownership of them. During the term of this Agreement, NSI shall not adopt, use, or register, whether as a corporate name, trademark, service mark or other indication of origin, any of the Centraal Marks, or any word or mark confusingly similar to them in any jurisdiction. 7.2 NSI TRADEMARKS. (a) USE. NSI will provide Centraal with a copy of NSI's logo in JPEG, BMP and GIF format. During the term of this Agreement, Centraal may display the hyperlink referenced in Section 2.14 using the trademarks, marks, and trade names that NSI may adopt from time to time ("NSI MARKS"). (b) APPROVAL OF REPRESENTATIONS. All representations of the NSI Marks that Centraal intends to use must be exact copies of those used by NSI or shall first be submitted to NSI for approval of design, color, and other details. (c) ASSIGNMENT OF GOODWILL. If Centraal, in the course of exercising the license in Section 7.2(a), acquires any goodwill or reputation in any of the NSI Marks, all such [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMMITED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. goodwill or reputation will automatically vest in NSI when and as, on an on-going basis, such acquisition of goodwill or reputation occurs, as well as at the expiration or termination of this Agreement, without any separate payment or other consideration of any kind to Centraal, and Centraal shall take all such actions to effect such vesting. Centraal shall not contest the validity of any of the NSI Marks or NSI's exclusive ownership of them. During the term of this Agreement, Centraal shall not adopt, use, or register, whether as a corporate name, trademark, service mark or other indication of origin, any of the NSI Marks, or any word or mark confusingly similar to them in any jurisdiction. 8. TERM AND TERMINATION 8.1 TERM. This Agreement will commence in effect on the Effective Date and terminate upon the later of the termination of the obligations set forth in Section 2, or the termination of the obligations set forth in Section 3, hereof; except Sections 6, 7.l(c), 7.2(c), 8.3, 9, 10, and 11, which will survive any expiration or termination of this Agreement. 8.2 TERMINATION. If either party defaults in the performance of any provision of this Agreement, then the non-defaulting party may give written notice to the defaulting party that if the default is not cured within 30 days the Agreement will be terminated. If the non-defaulting party gives such notice and the default is not cured during the 30 day period, then the Agreement will automatically terminate at the end of that period. This Section 8.2 will not be construed to limit any party's right to terminate Section 2 or Section 3 of this Agreement, as described under Sections 2.9 and 3.3. 8.3 RETURN OF MATERIALS. Each party shall return all information and materials embodying confidential information provided or delivered under this Agreement within 30 days after the termination of this Agreement. 9. INDEMNIFICATION: REMEDIES. 9.1 INDEMNIFICATION AND PAYMENT OF DAMAGES BY CENTRAAL. Centraal, at it own expense, will defend, indemnify and hold harmless NSI, its officers, directors, employees, stockholders, and NSI Affiliates (collectively, the "NSI INDEMNIFIED PERSONS") for, and will pay to the NSI Indemnified Persons the amount of, any liability, claims, damages, defense costs and reasonable attorneys' fees, resulting from third-party claims (collectively, "DAMAGES"), arising from Centraal's provision of RealNames Services under this Agreement, including without limitation Centraal's RealName application, ordering, assignment, and adjudication process, and including, without limitation, the infringement, or alleged infringement, of any copyright, patent, trade secret, trade name, trademark or service mark right of any third party in connection therewith. Centraal's obligations under this Section 9.1 will be NSI's sole remedy, and Centraal's sole liability, for any such third party claims. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMMITED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 9.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY NSI. NSI, at its own expense, will defend, indemnify and hold harmless Centraal, its officers, directors, employees, and stockholders (collectively, the "CENTRAAL INDEMNIFIED PERSONS"), and will pay to the Centraal Indemnified Persons the amount of, any Damages arising from the provision by NSI of the services described in Section 3 of this Agreement, and NSI's and the NSI Affiliates' solicitation of sales of RealNames Services under Section 2 of this Agreement, including, without limitation, claims of fraud, unfair business practices, misrepresentation, breach of warranty, or other violations of third party rights. NSI's obligations under this Section 9.2 will be Centraal's sole remedy and NSI's sole liability for any such third party claims. 9.3 PROCEDURES FOR INDEMNIFICATION - THIRD PARTY CLAIMS. (a) Promptly after receipt by an indemnified party of notice of the commencement of any proceeding against it, such indemnified party will, if a claim is to be made against an indemnifying party under this Section 9, give notice to the indemnifying party of the commencement of such claim, but the failure to notify the indemnifying party will not relieve the indemnifying party of any liability that it may have to any indemnified party, except to the extent that the indemnifying party demonstrates that the defense of such action is prejudiced by the indemnifying party's failure to give such notice. (b) If any proceeding in the previous paragraph is brought against an indemnified party and it gives notice to the indemnifying party of the commencement of such proceeding, the indemnifying party will be entitled to assume the defense of such proceeding with counsel of its choice and, after notice from the indemnifying party to the indemnified party of its intention to assume the defense of such proceeding, the indemnifying party will not, as long as it diligently conducts such defense, be liable to the indemnified party under this Section 9 for any fees of other counsel or any other expenses with respect to the defense of such proceeding, in each case subsequently incurred by the indemnified party in connection with the defense of such proceeding. The indemnified party may, at its sole expense, participate in such defense with counsel reasonably acceptable to the indemnifying party. Once the indemnifying party assumes the defense of a proceeding, (i) it will be conclusively established for purposes of this Agreement that the claims made in that proceeding are within the scope of and subject to indemnification; (ii) no compromise or settlement of such claims may be effected by the indemnifying party without the indemnified party's consent unless there is no finding or admission of any violation of law or any violation of the rights of any person and no effect on any other claims that may be made against the indemnified party, and the sole relief provided is monetary damages that are paid in full by the indemnifying party; and (iii) the indemnified party will have no liability with respect to any compromise or settlement of such claims effected without its consent. If notice is given to an indemnifying party of the commencement of any proceeding and the indemnifying party does not, within 30 days after the indemnified party's notice is given, give notice to the indemnified party of its intention to assume the defense of such [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMMITED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. proceeding, the indemnifying party will be bound by any determination made in such proceeding or any compromise or settlement effected by the indemnified party. 9.4 Notwithstanding the forgoing, if an indemnified party determines in good faith that there is a reasonable probability that a proceeding may adversely affect it other than as a result of monetary damages for which it would be entitled to indemnification under this Agreement, the indemnified party may, by notice of the indemnifying party, assume the exclusive right to defend, compromise, or settle such proceeding, but the indemnifying party will not be bound by any determination of a proceeding so defended or any compromise or settlement effected without its consent (which may not be unreasonably withheld). 10. LIMITATION OF LIABILITY. 10.1 LIABILITY ON TERMINATION. In the event of termination by either party in accordance with any of the provisions of this Agreement, neither party will be liable to the other, because of such termination, for compensation, reimbursement or damages on account of the loss of prospective profits or anticipated sales or on account of expenditures, investments, or commitments in connection with the business or goodwill of Centraal or NSI. 10.2 LIMITATION. EXCEPT FOR LIABILITY ARISING OUT OF SECTION 6 OR FROM THIRD PARTY CLAIMS UNDER SECTION 9, IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER PARTY OR ANY OTHER ENTITY FOR ANY LOST PROFITS OR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL, OR INDIRECT DAMAGES, HOWEVER CAUSED ON ANY THEORY OF LIABILITY (INCLUDING NEGLIGENCE). 11. MISCELLANEOUS 11.1 NONASSIGNMENT/BINDING AGREEMENT. Neither this Agreement nor any rights under this Agreement may be assigned or otherwise transferred by either party, in whole or in part, whether voluntary or by operation of law without the prior written consent of the other party, which consent will not be unreasonably withheld. Notwithstanding the above, either party may assign its rights and obligations under this Agreement to a successor in connection with a sale of all or substantially all of such party's assets, or pursuant to a merger, acquisition, or corporate reorganization; provided such successor agrees in writing to be bound by the terms and conditions of this Agreement, and provided that such successor is not a direct competitor of the other party. Subject to the foregoing, this Agreement will be binding upon and will inure to the benefit of the parties and their respective successors and assigns. 11.2 INDEPENDENT CONTRACTORS. The relationship of the parties under this Agreement is that of independent contractors. Neither party will be deemed to be an employee, [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMMITED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. agent, partner or legal representative of the other for any purpose and neither will have any right, power or authority to create any obligation or responsibility on behalf of the other. 11.3 NOTICES. Any notice required or permitted under the terms of this Agreement or required by law must be in writing and must be (a) delivered in person, (b) sent by first class registered mail, or air mail, as appropriate, or (c) sent by overnight air courier, in each case properly posted and fully prepaid to the appropriate address set forth below. Either party may change its address for notice by notice to the other party given in accordance with this Section 11.3. Notices will be considered to have been given at the time of actual delivery in person, 3 business days after deposit in the mail as set forth above, or one day after delivery to an overnight air courier service. NOTICE ADDRESS IF TO CENTRAAL: Ted West Executive Vice President of Sales and Marketing Centraal Corporation 811 Hansen Way P.O. box 50750 Palo Alto, CA 94303 - 0750 WITH A COPY TO: Susan Rotella Vice President of Subscription Sales and Marketing Centraal Corporation 811 Hansen Way P.O. box 50750 Palo Alto, CA 94303 - 0750 NOTICE ADDRESS IF TO NSI: Jon Emery General Counsel 505 Huntmar Park Drive Herndon, VA 20170 11.4 FORCE MAJEURE. Neither party will be liable to the other party on account of any loss or damage resulting from any delay or failure to perform all or any part of this [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMMITED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Agreement if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control and without negligence of the parties. Such events, occurrences, or causes will include, without limitation, acts of God, strikes, lockouts, riots, acts of war, earthquake, fire and explosions, but the inability to meet financial obligations is expressly excluded. 11.5 WAIVER. Any waiver of the provisions of this Agreement or of a party's rights or remedies under this Agreement must be in writing to be effective. Failure, neglect, or delay by a party to enforce the provisions of this Agreement or its rights or remedies at any time, will not be construed and will not be deemed to be a waiver of such party's rights under this Agreement and will not in any way affect the validity of the whole or any part of this Agreement or prejudice such party's right to take subsequent action. No exercise or enforcement by either party of any right or remedy under this Agreement will preclude the enforcement by such party of any other right or remedy under this Agreement or that such party is entitled by law to enforce. 11.6 SEVERABILITY. If any term, condition, or provision in this Agreement is found to be invalid, unlawful or unenforceable to any extent, the parties shall endeavor in good faith to agree to such amendments that will preserve, as far as possible, the intentions expressed in this Agreement. If the parties fail to agree on such an amendment, such invalid term, condition or provision will be severed from the remaining terms, conditions and provisions, which will continue to be valid and enforceable to the fullest extent permitted by law. 11.7 INTEGRATION. This Agreement (including the Attachments and any addenda hereto signed by both parties) contains the entire agreement of the parties with respect to the subject matter of this Agreement and supersedes all previous communications, representations, understandings and agreements, either oral or written, between the parties with respect to said subject matter, including without limitation the Draft Memorandum of Understanding between the parties dated the September 25, 1998. This Agreement may not be amended, except by a writing signed by both parties. 11.8 CONFIDENTIALITY AND PRESS RELEASE. Neither party shall disclose any terms of this Agreement to any third party without the consent of the other party, except as required by securities or other applicable laws or to prospective and other investors or such party's accountants, attorneys and other professional advisors, provided such parties are acting under a duty of confidentiality. The parties shall use reasonable efforts to agree upon and release a joint press release regarding this Agreement that is mutually acceptable in timing and content, as soon as reasonably possible after the Effective Date. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMMITED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 11.9 COUNTERPARTS. This Agreement may be executed in counterparts, each of which so executed will be deemed to be an original and such counterparts together will constitute one and the same agreement. 11.10 GOVERNING LAW. This Agreement will be interpreted and construed in accordance with the laws of the State of California and the United States of America, without regard to conflict of law principles. All disputes arising out of this Agreement will be subject to the exclusive jurisdiction of the state and federal courts located in Santa Clara County, California, and Fairfax County, Virginia, and each party hereby consents to the personal jurisdiction thereof. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMMITED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. CENTRAAL CORPORATION NETWORK SOLUTIONS, INC. By: /s/Keith Teare By: ----------------------------- ------------------------------- Title: President Title: ----------------------------- ------------------------------- Date: 12/8/98 Date: ----------------------------- ------------------------------- [SIGNATURE PAGE TO SALES REPRESENTATIVE AGREEMENT] [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMMITED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. CENTRAAL CORPORATION NETWORK SOLUTIONS, INC. By: By: /s/ Robert J. Korzeniewski -------------------------------- ------------------------------- Keith Teare President Title: Robert J. Korzeniewski,CFO ------------------------------- Date: Date: -------------------------------- ------------------------------- [SIGNATURE PAGE TO SALES REPRESENTATIVE AGREEMENT] [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMMITED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. ATTACHMENT 1 NSI SUPPORT OBLIGATIONS 1. NSI SUPPORT. NSI shall provide first level support through telephone, email and fax to customers of RealName Subscriptions. NSI will only be obligated to provide support in US English, but may provide support in other languages if NSI deems it appropriate to do so. 1.1 SCHEDULE. NSI shall make a Customer Service Representative available to customers 7-days per week, 24 hours per day. 1.2 SUPPORT FUNCTIONS. NSI shall perform the following support functions: (a) Resolve questions on the use of the Web-based interface for purchase of RealName Service subscriptions. (b) Resolve questions from customers on the status of RealName Service subscriptions. (c) Resolve questions from customers regarding the billing of RealName Service subscriptions. (d) Interface with RealName Second Level Support on behalf of the customer as required. (e) Forward customers with adjudication questions to the RealName Adjudication center. (f) Answer basic questions about installation of the RealName Service XML registration file on the customer's computer. (g) Answer questions about the statistics information provided through the RealName Web site. (h) Describe the RealName adjudication process to customers at a summary level. 1.3 SERVICE LEVEL. NSI shall provide support according to the following level of service requirements, for customer interaction that does not require Second Level Support from Centraal: (a) 8% maximum average abandon rate for ACD. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMMITED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. (b) 30 second maximum average speed of answer, to be measured from the time the customer begins to wait in an ACD queue. (c) 24-hour maximum average email response time; provided that adequate access is provided to Centraal's systems and information to facilitate a timely resolution. (d) 24-hour maximum average fax resolution time; provided that adequate access is provided to Centraal's systems and information to facilitate a timely resolution. (e) The parties will cooperate to ensure that NSI's staff is adequately trained so that the percentage of calls escalated to Second Level Support will be limited to an agreed-upon target percentage. 2. BILLING. NSI shall bill NSI Customers for Real Name Subscription fees, and collect RealName Subscription fees. NSI shall send renewal notices for RealName Subscriptions to NSI Customers and Non-NSI Sold Customers, according to a schedule to be determined by the parties. 3. NSI OPERATIONS SUPPORT. NSI shall provide operations support for all NSI-operated software, hardware, data communications equipment and telecommunications equipment. The definition of severity levels for operations support will be as agreed by the parties. 3.1 SCHEDULE. NSI shall make its operations support personnel available via telephone or pager 24 hours per day, 7 days per week. 3.2 SERVICE LEVEL. NSI shall provide operations support to address any problems reported by Centraal, in accordance with the following problem response objectives. For the purposes of this paragraph the following definitions and obligations are imposed: Severity 1 - A Critical function cannot be performed. NSI shall assign Severity 1 problems to a technician within 30 minutes and resolve such problems within 6 hours on average. Severity 2 - An important, but not critical function, cannot be performed. NSI shall assign Severity 2 problems to a technician within 2 hours and resolve such problems within 1 working day on average. Severity 3 - A non-critical function that does not meet the criteria for Severity 1 or Severity 2. NSI shall assign Severity 3 problems to a technician within 1 day and resolve such problems within 7 working days on average. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMMITED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. All time periods for responses to problems reported by Centraal will commence when Centraal initially reports a problem to NSI operations personnel. NSI shall notify Centraal immediately by telephone once any reported problem has been assigned, and again once the problem is resolved. 3.3 OUTAGES. NSI shall notify Centraal of any scheduled outage at least 48 hours in advance of the outage, via both telephone and email. NSI shall notify Centraal immediately in the event of an unscheduled outage, via telephone. 4. TRAINING. NSI shall train personnel performing First Level Support on the details of the RealName Service and Centraal billing system. NSI shall train personnel performing all NSI supplied telesales functions if these services are offered. Centraal and NSI will cooperate to develop training materials for such training. 5. SECURITY. NSI shall utilize industry-accepted methods for protecting information systems from sabotage, impersonation, or unauthorized access to data. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMMITED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. ATTACHMENT 2 Centraal Support Obligations 1. REALNAME SECOND LEVEL SUPPORT. Centraal shall provide Second Level Support for problems that cannot be resolved through NSI First Level Support or RealName First Level Support. Centraal shall provide status information to NSI on all unresolved second level problems on a regular basis. 1.1 SCHEDULE. Centraal shall provide Second Level Support 12 hours per day, Monday through Friday, excluding Centraal-observed holidays. 1.2 SERVICE LEVEL. Centraal shall adhere to the following service level requirements for calls received Monday through Friday, excluding Centraal-observed holidays: (a) 12-hour maximum average response to problems submitted by telephone. (b) 12-hour maximum average response to problems submitted by email. (c) 12-hour maximum average response to problems submitted by fax. 2. REALNAME ADJUDICATION. Centraal shall provide services to all customers of RealNames Services to adjudicate disputes regarding RealName Subscriptions, via telephone, email and fax. 2.1 SCHEDULE. Centraal shall provide RealName adjudication support 9 a.m. through 9 p.m. Eastern time, Monday through Friday, Centraal observed holidays excluded. 2.2 SERVICE LEVEL. Centraal shall provide RealName adjudication support according to the following service level requirements: (a) Centraal shall review and respond to 99% of all RealName Service subscriptions submitted in US English within an average of 24 hours after submission. (b) Centraal shall resolve 99% of all RealName Service subscriptions submitted in US English that are initially rejected, within 72 hours of submission, provided the customer is available and cooperates regarding such resolution. 3. CENTRAAL OPERATIONS SUPPORT. As between the parties, Centraal shall provide operations support for all Central-operated software, hardware, data communications equipment [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMMITED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. and telecommunications equipment that is used to provide RealNames Services. The definition of severity levels for operations support will be as agreed to by the parties. 3.1 SCHEDULE. Centraal shall make its operations support personnel available via telephone or pager 24 hours per day, 7 days per week. 3.2 SERVICE LEVEL. Centraal shall provide operations support to address any problems reported by NSI in accordance with the following problem response objectives. All time periods for responses to problems reported by NSI will commence when NSI initially reports a problem to Centraal operations personnel. For the purposes of this paragraph the following definitions and obligations are imposed: Severity 1 - A Critical function cannot be performed. Centraal shall assign Severity 1 problems to a technician within 30 minutes and resolve such problems within 6 hours on average. Severity 2 - An important, but not critical function, cannot be performed. Centraal shall assign Severity 2 problems to a technician within 2 hours and resolve such problems within 1 working day on average. Severity 3 - A non-critical function that does not meet the criteria for Severity 1 or Severity 2. Centraal shall assign Severity 3 problems to a technician within 1 day and resolve such problems within 7 working days on average. 3.3 Centraal shall notify NSI immediately by telephone once any reported problem has been assigned, and again once the problem is resolved. 3.4 OUTAGES. Centraal shall notify NSI of any scheduled outage at least 48 hours in advance of the outage, via both telephone and email. Centraal shall notify NSI immediately in the event of an unscheduled outage, via telephone. 4. CUSTOMER SERVICE TOOLS. Centraal shall provide existing Web-based customer service tools for use by NSI in connection with its First Level Support obligations, and telesales, if any, subject to any applicable licensing terms. These customer service tools will be modified by Centraal according to a specification jointly agreed to by the parties to provide the functionality required for first level support and telesales functions. 5. TRAINING. Centraal will provide Second Level Support to NSI training personnel as required to answer questions and resolve problems related to training issues. 6. SECURITY. Centraal shall utilize industry-accepted methods for protecting information systems from sabotage, impersonation, or unauthorized access to data. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMMITED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. ATTACHMENT 3 FORM OF WARRANT [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMMITED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. THIS WARRANT AND ANY SHARES OF COMMON STOCK ISSUED UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE AFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE WARRANT EVIDENCED HEREBY IS NON-TRANSFERRABLE. NO. NSI-___ CENTRAAL CORPORATION [DATE OF ISSUE] COMMON STOCK PURCHASE WARRANT This certifies that, for good and valuable consideration, Network Solutions, Inc. ("NSI") is entitled, upon the terms and subject to the conditions hereinafter set forth, to acquire from Centraal Corporation (the "COMPANY"), in whole or from time to time in part, up to _________ fully paid and nonassessable shares of Common Stock, par value $0.001 per share, of the Company ("WARRANT STOCK") at a purchase price per share of $________ (the "EXERCISE PRICE"). Such number of shares, type of security and Exercise Price are subject to adjustment as provided herein, and all references to "Warrant Stock" and "Exercise Price" herein shall be deemed to include any such adjustment or series of adjustments. 1. EXERCISE OF WARRANT (a) EXPIRATION TIME. The term "EXPIRATION TIME" means the close of business on [DATE OF EXPIRATION]. (b) EXERCISE PROCEDURE. The purchase rights represented by this Warrant are exercisable, in whole or in part, at any time and from time to time at or after the date hereof and at or prior to the Expiration Time, by the surrender of this Warrant and the Notice of Exercise form attached hereto duly executed to the office of the Company at 811 Hansen Way, Palo Alto, California 94303, Attn: Corporate Secretary (or such other office or agency of the Company as it may designate by notice in writing to the registered holder hereof at the address of such holder appearing on the books of the Company), and upon payment of the Exercise Price for the shares thereby purchased (by wire transfer, by certified bank check payable to the order of the Company, by cancellation of indebtedness of the Company to the holder hereof, if any, at the time of exercise, or by any combination thereof, in an amount, payable in United States dollars, equal to the purchase price of the shares thereby purchased); whereupon the holder of this Warrant shall be entitled to receive from the Company a stock certificate in proper form representing the number of shares of Warrant Stock so purchased, and a new Warrant in substantially identical form for the purchase of that number of shares of Warrant Stock equal to the difference, if any, between the number of shares of Warrant Stock subject hereto and the number of shares of Warrant Stock as to which this Warrant is so exercised. 2. ISSUANCE OF SHARES; NO FRACTIONAL SHARES OR SCRIP Certificates for shares purchased hereunder shall be delivered within a reasonable time after the date on which this Warrant shall have been exercised in accordance with the terms hereof. The Company hereby represents and warrants that all shares of Warrant Stock which may be issued upon the exercise of this Warrant will, upon such exercise, be duly and validly authorized and issued, fully paid and nonassessable and free from all taxes, liens and charges in respect of the issuance thereof (other than liens or charges [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMMITED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. created by or imposed upon the holder of the Warrant Stock). The Company agrees that the shares so issued shall be and shall for all purposes be deemed to have been issued as of the close of business on the date on which this Warrant shall have been exercised in accordance with the terms hereof. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. With respect to any fraction of a share called for upon the exercise of this Warrant, an amount equal to such fraction multiplied by the Fair Market Value (as determined in good faith by the Company's Board of Directors) of a share of Warrant Stock on the date of exercise shall be paid in cash or check to the holder of this Warrant. 3. CHARGES, TAXES AND EXPENSES The holder shall pay all issue and transfer taxes and other incidental expenses in respect of the issuance of certificates for shares of Warrant Stock upon the exercise of this Warrant, and such certificates shall be issued in the name of the holder of this Warrant. 4. NO RIGHTS AS A STOCKHOLDER This Warrant does not entitle the holder hereof to any voting rights or other rights as a stockholder of the Company prior to the exercise hereof. 5. RESTRICTIONS ON TRANSFER; LOCK-UP (a) RESTRICTIONS ON WARRANT. This Warrant is not transferable, whether by sale, pledge or other disposition, voluntarily or by operation of law or otherwise without the prior written consent of the Company, which consent may be withheld in the Company's sole discretion. Any transfer in violation hereof shall be void and the Warrant shall terminate immediately upon any such purported transfer. (b) RESTRICTIONS ON TRANSFER OF WARRANT STOCK. In no event will the holder make a disposition of the Warrant Stock unless and until (i) it shall have notified the Company of the proposed disposition in writing, and (ii) if requested by the Company, it shall have furnished the Company with an opinion of counsel satisfactory to the Company and its counsel to the effect that (A) appropriate action necessary for compliance with the Securities Act of 1933, as amended (the "SECURITIES ACT") provisions relating to sale of an unregistered security has been taken, or (B) an exemption from the registration requirements of the Securities Act is available. Notwithstanding the foregoing, the restrictions imposed upon the transferability of the Warrant Stock shall terminate as to any particular share of Warrant Stock when (1) such security shall have been sold without registration in compliance with Rule 144 under the Securities Act, or (2)a letter shall have been issued to the holder at its request by the staff of the Securities and Exchange Commission or a ruling shall have been issued to the holder at its request by such Commission stating that no action shall be recommended by such staff or taken by such Commission, as the case may be, if such security is transferred without registration under the Securities Act in accordance with the conditions set forth in such letter or ruling and such letter or ruling specifies that no subsequent restrictions on transfer are required, or (3) such security shall have been registered under the Securities Act and sold by the holder thereof in accordance with such registration. (c) LOCK-UP. In the event of any registration of the Company's securities, the holder will not, upon request of the Company or the underwriters managing any underwritten offering of the Company's securities, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of the Warrant Stock or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Warrant Stock, [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMMITED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -2- whether or not any such transaction described in clause (i) or (ii) above is to be settled by delivery of such Warrant Stock, in cash or otherwise, without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 180 days) from the effective date of such registration as may be requested by the Company or such managing underwriters. (d) NO PUBLIC MARKET. At the date of issuance of this Warrant, no public market exists for any of the securities of the Company, and the Company makes no assurances that a public market will ever exist for the Company's securities. (e) RESTRICTIVE LEGENDS. The certificates representing the Warrant Stock and any securities of the Company issued with respect thereto shall be imprinted with legends restricting transfer except in compliance with the terms hereof and with applicable Federal and state securities laws. 6. EXCHANGE AND REGISTRY OF WARRANT The Company shall maintain at the office or agency referred to in Section 1(b) hereof a registry showing the name and address of the registered holder of this Warrant. This Warrant may be surrendered for exercise in accordance with its terms at such office or agency of the Company, and the Company shall be entitled to rely in all respects upon such registry. 7. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT On receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant, and in case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of such Warrant, the Company will execute and deliver to the holder, in lieu thereof, a new Warrant in substantially identical form. 8. SATURDAYS, SUNDAYS AND HOLIDAYS If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday or a Sunday or shall be a legal holiday in the United States or the State of California, then such action may be taken or such right may be exercised on the next succeeding business day. 9. ADJUSTMENT TO NUMBER AND TYPE OF SECURITIES AND EXERCISE PRICE The type and number of securities of the Company issuable upon exercise of this Warrant and the Exercise Price are subject to adjustment as set forth below: (a) ADJUSTMENT FOR STOCK SPLITS, STOCK DIVIDENDS, RECAPITALIZATIONS, ETC. The Exercise Price and the number and type of securities and/or other property issuable upon exercise of this Warrant shall be appropriately and proportionately adjusted to reflect any stock dividend, stock split, combination of shares, reclassification, recapitalization or other similar event affecting the number or character of outstanding shares of Warrant Stock, so that the number and type of securities and/or other property issuable upon exercise of this Warrant shall be equal to that which would have been issuable with respect to the number of shares of Warrant Stock subject hereto at the time of such event, had such shares of Warrant Stock then been outstanding. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMMITED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -3- b) ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC. In case of any consolidation or merger of the Company with or into any other corporation, entity or person, or any other corporate reorganization, in which the Company shall not be the continuing or surviving entity of such consolidation, merger or reorganization (any such transaction being hereinafter referred to as a "REORGANIZATION"), then, in each case, the holder of this Warrant, on exercise hereof at any time after the consummation or effective date of such Reorganization, shall receive, in lieu of the Warrant Stock issuable on such exercise prior to the date of such Reorganization, the stock and other securities and property (including cash) to which such holder would have been entitled upon the date of such Reorganization if such holder had exercised this Warrant immediately prior thereto. (c) CERTIFICATE AS TO ADJUSTMENTS. In case of any adjustment in the Exercise Price or number and type of securities issuable on the exercise of this Warrant, the Company will promptly give written notice thereof to the holder of this Warrant in the form of a certificate, certified and confirmed by an officer of the Company, setting forth such adjustment and showing in reasonable detail the facts upon which such adjustment is based. 10. REPRESENTATIONS AND COVENANTS OF. NSI represents and covenants to the Company as follows: (a) INVESTMENT PURPOSE. This Warrant and the Warrant Stock will be acquired for investment for NSI's own account, and not as a nominee or agent and not with a view to the distribution of any part thereof. NSI further represents that it does not have any contract, undertaking agreement or arrangement with any person to sell, transfer or grant participations to such person, or to any third person, with respect to this Warrant. (b) PRIVATE ISSUE. NSI understands (i)that the Warrant and the Warrant Stock are not registered under the Securities Act, or qualified under applicable state securities laws on the ground that the issuance of this Warrant will be exempt from the registration and qualifications requirements thereof, and (ii) that the Company's reliance on such exemption is predicated on the representations set forth in this Section 10. (c) SALES OF COMMON STOCK. NSI represents and warrants that NSI is familiar with the provisions of Rule 144 promulgated under the Securities Act which, in substance, permits limited public resale of "restricted securities" acquired, directly or indirectly, from the issuer thereof (or from an affiliate of such issuer) in a non-public offering subject to the satisfaction of certain conditions, including, among other things: (i) the availability of certain public information about the Company; (ii) the resale occurring not less than one year after the party has purchased, and made full payment for, within the meaning of Rule 144, the securities to be sold; and (iii) in the case of an affiliate, or of a non-affiliate who has held the securities less than two years, the sale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as such term is defined under the Securities Exchange Act of 1934, as amended) and the amount of securities being sold during any three month period not exceeding the specified limitations stated therein, if applicable. NSI acknowledges that in the event the applicable requirements of Rule 144 are not met, registration under the Securities Act or compliance with another exemption from registration will be required for any disposition of the Common Stock issuable upon exercise of this Warrant. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMMITED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -4- (d) FINANCIAL RISK. NSI has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment, and has the ability to bear the economic risks of its investment. (e) ACCREDITED INVESTOR. NSI is an "accredited investor" within the meaning of Rule 501 of Regulation D promulgated under the Securities Act. 11. GOVERNING LAW This Warrant shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts made and to be performed wholly within such state. 12. COMPLETE AGREEMENT AND MODIFICATIONS This Warrant and any documents referred to herein or executed contemporaneously herewith constitute the Company's and NSI's entire agreement with respect to the subject matter hereof and supersede all agreements, representations, warranties, statements, promises and understandings, whether oral or written, with respect to the subject matter hereof. This Warrant may not be amended, altered or modified except by a writing signed by the Company and the holder of this Warrant. 13. NOTICES Except as otherwise provided herein, all notices under this Warrant shall be in writing and shall be delivered by personal service, facsimile, courier service promising overnight delivery or certified mail (if such service is not available, then by first class mail), postage prepaid. Notices shall be addressed as follows: If to: Network Solutions, Inc. 505 Huntmar Park Drive Herndon, Virginia 20170 Facsimile: _____________________ Attention: _____________________ If to the Company: Centraal Corporation 811 Hanson Way Palo Alto, California 94303 Facsimile: (650) 858-0454 Attention: Corporate Secretary With a copy to: Wilson Sonsini Goodrich & Rosati 650 Page Mill Road Palo Alto, California 94304-1050 Facsimile: (415) 493-6811 Attention: James N. Strawbridge, Esq. 14. WAIVERS STRICTLY CONSTRUED With regard to any power, remedy or right provided herein or otherwise available to any party hereunder (i) no waiver or extension of time shall be effective unless expressly contained in a writing signed [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMMITED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -5- by the waiving party; and (ii) no alteration, modification or impairment shall be implied by reason of any previous waiver, extension of time, delay or omission in exercise, or other indulgence. 15. SEVERABILITY The validity, legality or enforceability of the remainder of this Warrant shall not be affected even if one or more of its provisions shall be held to be invalid, illegal or unenforceable in any respect. * * * [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMMITED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -6- IN WITNESS WHEREOF, the Company and NSI have caused this Warrant to be executed by their duly authorized representatives. CENTRAAL CORPORATION, a Delaware corporation By: ------------------------------- Name: ------------------------------- Title: ------------------------------- NETWORK SOLUTIONS, INC. By: ------------------------------- Name: ------------------------------- Title: ------------------------------- [SIGNATURE PAGE TO COMMON STOCK PURCHASE WARRANT] [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMMITED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. NOTICE OF EXERCISE To: Centraal Corporation, a Delaware corporation (1) The undersigned hereby elects to purchase ________shares of Common Stock of Centraal Corporation, a Delaware corporation, pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price in full. (2) The undersigned represents that the aforesaid shares are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares, except in compliance with applicable Federal and state securities laws. (3) The undersigned accepts such shares subject to the restrictions on transfer set forth in the attached Warrant. Holder: ------------------------- By: ---------------------------- - --------------------- Name: (Date) -------------------------- Title: ------------------------- [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMMITED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. AMENDMENT #1 TO REALNAME SALES REPRESENTATIVE AGREEMENT This Amendment is made as of February 18th, 1999 (the "Effective Date") by and between Network Solutions, Inc. ("NSI") and Centraal Corporation ("Centraal") for the purpose of modifying the RealName Sales Representative Agreement between the parties dated as of December 8, 1998 ("Agreement"). WHEREAS, the parties have entered into the Agreement which provides for NSI to solicit sales of RealNames Services (as such term is defined in the Agreement); and WHEREAS, the parties wish Centraal's logo and hyperlink to appear on NSI's "Dot Com Toolkit" Web page to enable the direction of NSI's customers to Centraal's transactional web site and thereby facilitate sales by Centraal of it RealNames Services. Now, therefore, the parties agree as follows: 1. Section 7.1(a) (Use of Centraal's Trademarks) of the Agreement will be changed by adding the following: In addition, during the term of this Agreement, NSI may display a hyperlink using the Centraal Marks as provided in Section 2.16(b). 2. The following will be added to Section 1 of the Agreement 1.11 "Centraal Home Page" means the entry page on the WWW located at the URL address http://www.realnames.com which is the page a user's web browser will generate as a result of requesting such URL or any other URL with which that the Parties replace such URL. 1.12 "Centraal Web Site" means the Centraal Home Page and other web pages sharing a similar URL that are connected to it. 1.13 "Dot Com Toolkit" means the area on the NSI Web Site that users are referred to for the presentation of offerings to assist small and medium size businesses in building, establishing or promoting their Internet identity or conducting business on the Internet by offering easy access to tools, products and services to facilitate the development, enhancement and promotion of their web site. 1.14 "Dot Com Toolkit Page" means the content area of the Dot Com Toolkit for the Centraal product/service offering descriptions. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMMITED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 1.15 "Host" means a computer system that carries a web site or sites. 1.16 "Hyper Link" or "hyperlink" means the icon, logo, highlighted or colored text, figure, or image representing a URL provided by each Party to the other under this Agreement, which allows an Internet user to move from one web site to another web site. 1.17 "NSI Home Page" means the entry page on the WWW located at the URL address http://www.networksolutions.com which is the page a user's web browser will generate as a result of requesting such URL or any other URL with which NSI replaces such URL. 1.18 "NSI Web Site" means the NSI Home Page and the other pages, sharing a similar URL, which are connected to it. 3. Section 1.10 (Definition of "Sold") will be changed as follows: "(i) solicited by NSI on Centraal's behalf" will be changed to "(i) solicited by NSI on Centraal's behalf, including without limitation through referral from the Dot Com Toolkit Page" 4. The following new Section 2.16 will be added to the Agreement. 2.16 DOT COM TOOLKIT 2.16 (a) CENTRAAL'S OBLIGATIONS 2.16 (a) (i) DEVELOPMENT. As between the parties, Centraal will be responsible to develop and maintain the content of the Centraal Web Site, in a manner of Centraal's choosing at its sole discretion, for the offering of the RealNames Services under this Agreement. 2.16 (a) (ii) DOT COM TOOLKIT PAGE. Centraal shall prepare its Dot Com Toolkit Page content pursuant to the specifications and requirements provided by NSI, which may be changed from time to time in NSI's reasonable discretion. Centraal shall provide NSI with the URL where its Dot Com Toolkit Page is located to enable NSI to harvest such content for the purpose of incorporating into the Dot Com Toolkit. The Dot Com Toolkit Page will have a Hyper Link to the Centraal Web Site to enable customers and visitors of the NSI Web Site ("NSI Customers") to purchase the Central RealNames Services. 2.16(a)(iii) HOSTING OF THE CENTRAAL WEB SITE. As between the parties, Centraal will be responsible to Host the Centraal Web Site on its web server, in a manner of Centraal's choosing at its sole discretion. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMMITED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 2.16(b) NSI'S OBLIGATIONS 2.16(b)(i) DEVELOPMENT OF DOT COM TOOLKIT. NSI, at its sole cost, will develop and maintain the Dot Com Toolkit web site. The Dot Com Toolkit will be compatible with version 3.0 or better web browsers. The Dot Com Toolkit will contain a listing of categories identifying the types of products/service offerings available from parties under contract to NSI. NSI will maintain a Hyper Link on the Centraal Dot Com Toolkit page to enable NSI Customers to go to the Centraal Web Site to purchase the RealNames Services. Centraal will provide its logo and other identifier information, in the format requested by NSI, to enable NSI to establish the Hyper Link. 2.16(b)(ii) DEVELOPMENT OF DOT COM TOOL KIT CATEGORY PAGE. NSI will develop, maintain and Host individual category pages within the Dot Com Tool Kit for different categories of product/service offerings with a description of specific offerings available from parties under contract to NSI. NSI will provide Centraal with a specification regarding the individual Dot Com Toolkit Page requirements for storage space, content, artwork, logo size, product/service offering descriptions and other applicable requirements. 2.16(b)(iii) REPORTING AND TRACKING. NSI will provide Centraal an individual electronic bi-weekly report of the number of click-throughs from Centraal's Dot Com Toolkit page to the Centraal Web Site. NSI will provide Centraal with procedures for accessing its weekly report. 2.16(b)(iv) CUSTOMER SUPPORT. NSI will provide support to NSI Customers for all issues relating to the Dot Com Toolkit. 5. Section 3.1(a) (Customer Services; Support) will be changed by adding the following after the first sentence: The parties acknowledge that prior to the date NSI begins to provide such customer support under this Section 3.1(a), as between the parties, Centraal will be responsible for providing customer support for the Centraal Web Site, in a manner of Centraal's own choosing at its sole discretion. 6. The following new Section 11.11 will be added to the Agreement: 11.11 AUDIT. Each party reserves the right to audit, at its sole cost and expense, no more than one per year, upon 10 business days advance written notice, the appropriate records of the other party to verify any amounts due under this Agreement. Such audits shall be conducted by an independent certified public accounting firm in accordance with generally accepted auditing standards, limited to records for the 12 month period immediately preceding the month of the audit. If any audit reveals an underpayment of 10% or more for the period under audit, then the audited party will immediately pay the auditing party for all underpaid commission fees and the reasonable costs of the audit. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMMITED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 7. Except as amended by this Amendment, the terms and conditions of the Agreement will remain in full force and effect. CENTRAAL CORPORATION NETWORK SOLUTIONS, INC. Signed: /S/TED WEST Signed: /S/JAMES M. ULAM --------------------------- ----------------------- By: TED WEST By: JAMES M. ULAM ------------------------------ -------------------------- Title: EVP - SALES & MARKETING Title: COUNSEL ---------------------------- ------------------------ [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMMITED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. AMENDMENT #2 TO REALNAME SALES REPRESENTATIVE AGREEMENT This Amendment is made as of the 25th day of May, 1999 (the "Effective Date") by and between Network Solutions, Inc. ("NSI") and Centraal Corporation ("Centraal") for the purpose of modifying the RealNames Sales Representative Agreement between the parties dated as of December 8, 1998 ("Agreement"). WHEREAS, the parties have entered into the Agreement, which provides for NSI to solicit sales of RealNames Services (as such term is defined in the Agreement); and WHEREAS, the parties wish to modify the Agreement to reflect a short term promotional incentive program and changes to the Parties customer Support obligations. NOW, THEREFORE, in consideration of the mutual covenants and premises contained herein and other good and valuable consideration, the receipt and sufficiency of which hereby is acknowledged, Centraal and NSI hereby agree to amend the Agreement as follows: 1. DEFINED TERMS. Except as otherwise provided herein, all of the capitalized terms used herein shall have the same meanings as provided in the Agreement. 2. CENTRAAL/NSI PROMOTIONAL INCENTIVE FOR ISP CHANNELS - THE FOLLOWING CHANGES ARE MADE TO SECTION 2 OF THE AGREEMENT: 2.5 For the remaining term of this Agreement, Centraal agrees to accept RealNames Subscriptions ordered through any NSI Affiliate from Key Accounts and to pay Commissions to NSI for such RealNames Subscriptions in accordance with Section 2.8 of the Agreement. 2.8 For the period of June 1, 1999 through September 30, 1999, Centraal agrees to pay NSI an additional Commission of [*] of the NSI Customer Subscription Fee plus the standard Commission (the greater of (i) [*] , or (ii) [*] for each NSI Customer Subscription Fee acquired through any NSI Affiliate that NSI elects to pass on such additional commission as an additional incentive to stimulate interest in selling RealNames Subscriptions. NSI agrees that the additional Commission of [*] of the NSI Customer Subscription Fee will be paid directly to the respective NSI Affiliate. For NSI Affiliates that NSI elects to provide the additional [*] Commission, NSI agrees to pay a minimum of [*] per each RealName subscription sold through the NSI Affiliates for the same period of time and in addition to the [*] commission. The minimum commission to each of the NSI Affiliates that NSI elects to provide the additional [*] Commission during the promotional incentive period will thus be [*] of the RealName Subscription Fee plus [*] . Centraal will pay the commission directly to NSI for distribution to the NSI Affiliates after sales are made and funds collected. NSI will provide Centraal with information reasonably necessary to validate actual partner subscription sales and commission payments. 3. CUSTOMER SUPPORT - THE FOLLOWING CHANGES ARE MADE TO SECTION 3 OF THE AGREEMENT: [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMMITED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 3.1 (a) Centraal will continue to provide First Level Support past June 1, 1999 according to the plan described in Attachment 1 to the Agreement in a timely manner pending NSI's readiness for providing such services. NSI agrees to use its best efforts to commence providing First Level Support on or before January 1, 2000. 3.2 Until such time as NSI commences providing First Level Support, it agrees not to withhold commissions according to the section 3.2 of the agreement from RealNames Subscription Fees. IN WITNESS WHEREOF, the parties hereto caused this Amendment to be signed by duly authorized officers or representatives as of May 25, 1999. Centraal Corporation By: /S/J MICHAEL ARRINGTON ------------------------------ Name: J. Michael Arrington Title: Vice President, Business Development, and General Counsel Network Solutions, Inc. By: /S/JAMES M. ULAM ----------------------------- Name: James M. Ulam Title: Counsel [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMMITED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. EX-10.10 14 EXHIBIT 10.10 Exhibit 10.10 CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. REALNAMES SERVICE AGREEMENT BETWEEN CENTRAAL AND ALTAVISTA This Agreement regarding RealNames Service (the "AGREEMENT") is entered into as of April 1, 1999 ("EFFECTIVE DATE") by and between Centraal Corporation, a Delaware corporation with offices at 2 Circle Star Way, 2nd Floor San Carlos, CA 94070-1350 ("CENTRAAL") and AltaVista Company, a Delaware corporation with offices at 529 Bryant Street, Palo Alto, CA, U.S.A. 94301 ("ALTAVISTA"). WHEREAS, Centraal is a provider of "RealNames Service", which allows users of the Internet to access the World Wide Web sites of RealNames Subscribers, by using a short key word, trade name or phrase in lieu of a Uniform Resource Locator ("URL"); and WHEREAS, ALTAVISTA is a provider of Internet services which allow Internet users to search the World Wide Web; and WHEREAS, Centraal and ALTAVISTA desire to offer RealNames Service in conjunction its World Wide Web search engines on the terms and conditions set forth below; and WHEREAS, ALTAVISTA and Centraal desire to supersede all previous agreements relating to the provision of the RealNames Service on ALTAVISTA's World Wide Web services. NOW, THEREFORE, the parties agree as follows: 1. DEFINITIONS. 1.1 "ALTAVISTA PRODUCT" means the ALTAVISTA World Wide Web services described in EXHIBIT A hereto and other Internet properties of ALTAVISTA and all corrections, updates, upgrades, patches or other modifications or additions thereto during the term of this Agreement. 1.2 "ANNUAL NET SUBSCRIPTION FEE" means gross annual subscription fee less any payments actually paid to third parties who directly provide services for the RealNames Service (not to exceed thirty percent (30%) of such annual subscription fee where applicable) and less taxes, discounts, allowances and adjustments, refunds, and bad debts. Centraal may set such discounts, or make such allowances and adjustments, or provide refunds to its customers, as it deems advisable. 1.3 "CENTRAAL COMPETITOR" means as of the Effective Date, NetWord and Labrador Software and such other competitors as the parties may mutually agree upon from time to time in writing. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 1.4 "CENTRAAL MATERIALS" means the Software, Documentation, RealNames Data or Confidential Information disclosed by Centraal and any part or combination thereof. 1.5 "DOCUMENTATION" means the Centraal documents and materials described in EXHIBIT A hereto. 1.6 "INTEGRATED PRODUCT" means an ALTAVISTA Product that is combined with the Software in object code form in order to provide RealNames Service integrated with the ALTAVISTA Product. 1.7 "LOCALIZATION" and "Localized" means the translation of English language Centraal Materials described in EXHIBIT A into a non-English language designated in EXHIBIT A such that a user fluent in such non-English language would be able to understand and/or operate such Centraal Materials to the same extent a user fluent in English would be able to understand and/or operate such Centraal Materials in English. 1.8 "NET PAID ADVERTISING FEES" means gross advertising fees actually paid to ALTAVISTA less agency or advertising representation from commissions (or the internal equivalent ALTAVISTA cost to generate gross revenues not to exceed 30%) and less credits, discounts, taxes, and technology or content distribution royalty fees where actually paid. 1.9 "NET REALNAMES RESOLUTION FEES" means gross RealNames Resolution fees less any payments actually paid to third parties who provide services for the RealNames Service (not to exceed thirty percent (30%) of such gross RealNames Resolution fees and less taxes, discounts, allowances and adjustments, refunds, and bad debts. Centraal may set such discounts, or make such allowances and adjustments, or provide refunds to its customers, as it deems advisable. 1.10 "PRECISE RESULTS" means when the term searched by a an Internet user in RealNames Resolution results in an identical match to the term used by the Internet user. 1.11 "REALNAMES ADDRESS" means the proprietary natural language address assigned by Centraal to a RealNames Subscriber which can be translated into a URL address through RealNames Resolution. 1.12 "REALNAMES DATA" means the proprietary address information database maintained by Centraal relating to RealNames Addresses for RealNames Subscribers' URLs. 1.13 "REALNAMES ENABLER" means a software extension which is proprietary to Centraal and which allows Internet users to perform RealNames Resolutions in the browser. 1.14 "REALNAMES ENABLED RESULTS" means those results in an Integrated Product which shows the Internet User the results of a RealNames Resolution. RealNames Enabled Results includes both Precise Results and Relevant Results. 1.15 "REALNAMES IMPRESSION" means the appearance of a particular RealNames Subscriber's RealNames Address on RealNames Enabled Results either as a Precise Result or a Relevant Result. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Page 2 1.16 "REALNAMES RESOLUTION" means the process by which a natural language or other search term that generates a RealNames Impression may be used by an Internet user to direct the Internet user to the URL of a RealNames Subscriber. 1.17 "REALNAMES SERVICE" means the provision of a RealNames Address to a RealNames Subscriber and the provision of RealNames Resolution services. 1.18 "REALNAMES SUBSCRIBER" means a third party entity with a World Wide Web page which has entered into a Subscriber Agreement and has been granted a RealNames Address. 1.19 "RELEVANT RESULTS" means when the term searched by an Internet user in RealNames Resolution results in a match that is not identical, but close to, the exact search term used by the Internet user. 1.20 "SOFTWARE" means the Centraal software described in EXHIBIT A in object code only and any Updates thereto. 1.21 "SUBSCRIBER AGREEMENT" means the Subscriber Agreement attached as EXHIBIT E hereto which may be amended by Centraal in its sole discretion. 1.22 "UPDATE" means any correction, update, upgrade, patch or other modification or addition to the Software supplied by Centraal in its sole discretion. 2. LICENSE GRANTS. 2.1 LICENSE TO SOFTWARE. Subject to the terms and conditions of this Agreement, Centraal hereby grants to ALTAVISTA the following licenses: (a) A non-exclusive, non-transferable license to display or perform the Software, in object code or binary form only, only as part of Integrated Products; (b) A non-exclusive, non-transferable license to use the Software solely to provide technical support for the Integrated Products; and (c) A non-exclusive, non-transferable license to use and reproduce the Software (in object code form or binary form only) and Documentation solely for ALTAVISTA's own internal business purposes on Integrated Products, solely as necessary to exercise the rights granted in this Section 2. 2.2 LICENSE TO REALNAMES DATA. Subject to the terms and conditions of this Agreement, Centraal further grants to ALTAVISTA a non-exclusive license to access, display and transmit portions of the RealNames Data (as may be provided by Centraal in its sole discretion), solely as necessary to provide RealNames Service on an Integrated Product in accordance with this Agreement. 2.3 SUB-LICENSE. ALTAVISTA may sublicense to third parties, solely in connection with the simultaneous license of an ALTAVISTA Product, the rights under Sections [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Page 3 2.1 and 2.2, pursuant to a written agreement which is at least as protective of Centraal's intellectual property rights and is consistent with the terms and conditions of this Agreement, but only with the prior written approval of Centraal. 2.4 PROPRIETARY NOTICES. On each copy of the Software or RealNames Data reproduced or displayed, ALTAVISTA shall reproduce all copyright or other proprietary notices contained on the Software, RealNames Data or other Centraal Materials. 2.5 OWNERSHIP IN CENTRAAL MATERIALS. As between Centraal and ALTAVISTA, Centraal will retain all right, title, and interest in the Centraal Materials and RealNames Data, and all intellectual property rights therein. ALTAVISTA shall not remove, modify, or obscure any copyright or other proprietary notices on the Centraal Materials and RealNames Data. ALTAVISTA shall not, and shall not authorize any third party to (1) create derivative works of, alter or in any way modify the Centraal Materials or RealNames Data without the prior written consent of Centraal, (2) translate, decompile, disassemble, reverse compile, reverse engineer, or decode the Software or in any other manner reduce the Software to human perceivable form, or (3) use any Centraal Materials or RealNames Data to construct, reverse engineer or assemble any database, including without limitation, a URL database. Centraal hereby reserves all rights not expressly granted to ALTAVISTA in this Agreement. 3. LOCALIZATION. 3.1 LOCALIZATION. Centraal agrees to provide the Centraal Materials described in EXHIBIT A in the languages described in EXHIBIT A. In the event that the parties agree that additional Localization work shall be performed, the parties shall agree in writing which materials shall be Localized, which languages and which party shall be responsible for such Localization. All Localization shall be done at each party's respective costs, unless agreed otherwise in writing. ALTAVISTA represents and warrants that all ALTAVISTA employees, agents, contractors or consultants that will be provided access to Centraal Materials have signed agreements with customary terms containing confidentiality provisions and assignment of inventions. ALTAVISTA covenants that during the term of this Agreement, it will continue to require all ALTAVISTA employees, agents, contractors or consultants which have access to Centraal Materials to sign an Employee NDA/Invention Agreement providing for an assignment of intellectual property rights to ALTAVISTA. 3.2 OWNERSHIP OF LOCALIZED CENTRAAL MATERIALS. Centraal shall own all right, title, and interest in the Localization of the Centraal Materials regardless of which party shall perform such Localization. ALTAVISTA hereby irrevocably transfers, conveys and assigns to Centraal in perpetuity all right, title, and interest in such Localization of the Centraal Materials, including without limitation all copyrights including the right to make derivative works and collective works with respect thereto, it being understood, however, that ALTAVISTA has, and transfers, no rights with respect to the underlying Centraal Materials. Centraal shall have the exclusive right to apply for or register copyrights and such other proprietary protections as it wishes. ALTAVISTA agrees to execute such documents, render such assistance, and take such other action as Centraal may reasonably request, at Centraal's expense, to apply for, register, perfect, confirm, and protect Centraal's rights in the Localization of the Centraal Materials including (without limitation) an assignment of copyright in the form [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Page 4 attached hereto as EXHIBIT D. Without limiting the foregoing, Centraal shall have the exclusive right to commercialize, prepare and sell products based upon, sublicense, prepare derivative works from, or otherwise use or exploit the Localization of the Centraal Materials. 3.2.1 WAIVER OF MORAL RIGHTS. ALTAVISTA hereby waives any and all moral rights, including any right to identification of authorship or limitation on subsequent modification, that ALTAVISTA (or its employees, agents or consultants) has or may have in any Localization of the Centraal Materials. 3.2.2 POWER OF ATTORNEY. In the event that Centraal is unable to secure ALTAVISTA's signature to any document required for any copyright or other intellectual property application or registration with respect to any Localization of the Centraal Materials, ALTAVISTA hereby irrevocably designates and appoints Centraal and its duly authorized officers and agents as its agents and attorneys-in-fact, to act for and in its behalf and instead of ALTAVISTA, to execute and file any such application, and to do all other lawfully permitted acts to further the prosecution and issuance of intellectual property rights thereon with the same legal force and effect as if executed by ALTAVISTA. This power of attorney shall be deemed coupled with an interest and shall be irrevocable. 4. APPOINTMENT AS A PROVIDER OF REALNAMES SERVICE. 4.1 APPOINTMENT AS PROVIDER OF REALNAMES SERVICE. Subject to the terms and conditions herein, Centraal hereby appoints ALTAVISTA as a non-exclusive RealNames Service provider, and ALTAVISTA hereby accepts such appointment. Centraal reserves the right to provide RealNames Service directly, and to appoint third-parties as providers of RealNames Service. 4.2 PROMOTION OF THE REALNAMES SERVICE. ALTAVISTA shall, at its own expense and in a manner that it shall determine: (i) promote the use of the RealNames Service in the ALTAVISTA Products, (ii) provide links from the ALTAVISTA's World Wide Web site that provide RealNames Service information and access; and (iii) integrate the ALTAVISTA Product and RealNames Service in accordance with Section 4.3 below. In no event shall ALTAVISTA make any representations, guarantees or warranties concerning the RealNames Service except as expressly authorized by Centraal in writing. 4.3 INTEGRATION OF REALNAMES SERVICE INTO ALTAVISTA PRODUCT. 4.3.1 PRODUCT INTEGRATION. ALTAVISTA shall, at its own expense (except for Centraal's reasonable technical assistance which shall be provided at Centraal's expense) integrate the RealNames Service into the ALTAVISTA Product for use by Internet users who wish to search for a RealNames Address or subscribe to a RealNames Address. The RealNames Enabled Results shall be marked with a "RN" superscript to indicate those results which have RealNames Addresses. 4.3.2 CO-BRANDED PAGES. The parties shall, at their own expense, develop a World Wide Web page which carries each parties' Trademarks (as defined in Section 6 below) that display the RealNames Enabled Results (the "Co-Branded Page") based upon the [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Page 5 criteria developed in Section 4.3.2.1 and 4.3.2.2 for the Integrated Product. ALTAVISTA shall have the option to cease display of the Co-Branded page on sixty (60) days' prior written notice. ALTAVISTA shall seek to obtain and maximize advertising or other promotional revenues from the Co-Branded Page and compensate Centraal in accordance with EXHIBIT B. 4.3.2.1 RANKING AND RELEVANCE. The parties shall agree in writing to mutually agreeable relevance and ranking criteria for displaying RealNames Enabled Results on a Co-Branded Page. 4.3.2.2 CO-BRANDED PAGE LOOK AND FEEL. The parties shall agree in writing to the "look and feel" for the Co-Branded Page so as to approximate the "look and feel" of similar pages on the ALTAVISTA Product. Notwithstanding anything herein to the contrary, AltaVista shall maintain control over all aspects of the "look and feel" of its web sites. 4.4 REALNAMES SUBSCRIPTIONS. Subject to the terms and conditions of this Agreement, ALTAVISTA shall have the non-exclusive authority to solicit applications for RealNames Subscriptions by providing a link to a registration site designated by Centraal in writing. Centraal reserves the right to directly or indirectly solicit the subscription of RealNames Addresses. 4.4.1. PRICES AND TERMS OF SALE. Attached as EXHIBIT E hereto is a copy of Centraal's current Subscriber Agreement and registration subscription form. Centraal may alter, at will, the Subscriber Agreement, prices, availability schedules, and other terms and conditions for the RealNames Service upon written notice to ALTAVISTA. Each order shall be governed by the prices, Subscriber Agreement, availability schedules, and other terms and conditions in effect at the time the order is accepted by Centraal. 4.4.2. ORDERS AND ACCEPTANCE. Orders for RealNames Address subscriptions solicited by ALTAVISTA shall take place through a series of HTML registration pages on a Centraal World Wide Web site. All completed orders for the RealNames Service will be processed by Centraal or its designee, and Centraal or its designee will perform the subscription registration, collect the fees for the subscription (where applicable), and send via electronic mail Centraal's then-current acknowledgements, software browser plug-ins, or other materials, to the RealNames Subscriber. All orders solicited by ALTAVISTA are subject to acceptance by Centraal. ALTAVISTA shall have no authority to make any acceptance or commitments to customers on behalf of Centraal. Centraal specifically reserves the right to reject any order or any part thereof for any reason. ALTAVISTA shall have no right to data or information gathered from RealNames Subscribers by Centraal. 4.5 PROVISION OF REALNAMES RESOLUTION. Subject to the terms and conditions of this Agreement, Centraal hereby appoints ALTAVISTA as a non-exclusive provider of RealNames Resolution services on the Integrated Product, and ALTAVISTA hereby accepts such appointment. Centraal shall perform RealNames Resolutions for ALTAVISTA, as follows: (a) the Integrated Products shall include, an input mechanism to prompt the World Wide Web user for a key word or search term; (b) ALTAVISTA shall cause its computer servers to determine which key words are appropriate for RealNames Resolutions; (c) ALTAVISTA shall cause its computer servers to communicate such key words to the computer servers of Centraal, [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Page 6 at an address and according to specifications reasonably required by Central; (d) Central, upon receipt of such key word, will cause its computer servers to perform RealNames Resolutions, and will display a list of results of such RealNames Resolutions that correspond with such key word or search term and corresponding URLs on the co-branded RealNames Enabled Results page created pursuant to Section 4.3.2; (e) the RealNames Enabled Results shall be marked with a "RN" superscript to denote those results which have a RealNames Address; and (f) should the World Wide Web user click on one of the search results displayed on the RealNames Enabled Results page that are produced through the RealNames Resolutions process the Internet user will be directed to the correct URL through the RealNames Resolvers. 4.6 EXCLUSIVITY. During the term of this Agreement, ALTAVISTA shall not provide a subscriber based keyword matching system of a Centraal Competitor. 4.7 SUB-DISTRIBUTORS. ALTAVISTA shall not sub-license or appoint sub-distributors of its rights and obligations under Section 4 without Centraal's prior written consent. 5. COMPENSATION. 5.1 FEES. Fees will be paid as described in EXHIBIT B. 6. USE OF TRADEMARKS. 6.1 BRANDING. ALTAVISTA shall apply the "RealNames (sm) enabled" and/or RealNames (sm)" logo (a copy of which is attached as EXHIBIT F-1) on the Co-Branded page created pursuant to Section 4.3.2, in a manner agreed upon by the parties. ALTAVISTA shall also include the phase, "-C- 1999 Centraal Corporation. All rights reserved. REALNAMES (sm) is a service mark of Centraal Corporation" with each use of the Centraal Trademark. 6.2 USE OF CENTRAAL TRADEMARKS. 6.2.1. AUTHORIZED USES. During the term of this Agreement, ALTAVISTA may state that the Integrated Product includes the RealNames Service, and may use in its packaging, marketing, promotional and advertising materials of the Integrated Products such applicable trademarks, trade names and logos of Centraal (collectively, the "Centraal Trademarks") in connection therewith, but only as set forth, and in the manner indicated, on EXHIBIT F-1 or as Centraal may otherwise provide in writing. ALTAVISTA may also indicate to the public that it is an authorized provider of Centraal's RealNames Service and advertise such RealNames Service under Centraal's Trademarks. Before any such use of a Centraal Trademark, ALTAVISTA must provide to Centraal samples of any such materials, and ALTAVISTA shall not engage in any use of any Centraal Trademark not approved by Central. If Centraal does not object within five (5) business days after receipt of such samples, the materials will be deemed approved. Centraal will not unreasonably withhold on delay its approval of such materials. 6.2.2. OWNERSHIP BY CENTRAAL. Nothing herein will grant ALTAVISTA any right, title or interest in Centraal's Trademarks. Any and all good will arising from ALTAVISTA's use of the Centraal Trademarks will inure solely to the benefit of Centraal ALTAVISTA shall not assert any claim to the Centraal Trademarks (or any confusingly similar [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Page 7 mark) or such good will. ALTAVISTA shall execute such documents as Centraal may reasonably request from time to time to record or effectuate Centraal's ownership of the Centraal Trademarks and related good will. ALTAVISTA shall not register any Centraal Trademark, or any mark confusingly similar thereto for any products or services in any jurisdiction. If ALTAVISTA registers or applies for such registration in any jurisdiction, Centraal may require (in Centraal's sole discretion) ALTAVISTA to assign (at ALTAVISTA's expense) all of the rights pertaining to such registration or application to Centraal or withdraw from all such procedures. 6.2.3. REGISTERED USER AGREEMENTS. To the extent necessary to properly protect Centraal's rights, ALTAVISTA and Centraal shall enter into registered user agreements with respect to Centraal's Trademarks pursuant to applicable trademark law requirements. ALTAVISTA shall be responsible for proper filing of the registered user agreement with appropriate government authorities and shall pay all costs or fees associated with such filing. 6.3 USE OF ALTAVISTA TRADEMARKS. 6.3.1. AUTHORIZED USES. During the term of this Agreement, Centraal may use in its packaging, marketing, promotional and advertising materials such applicable trademarks, trade names and logos of ALTAVISTA (collectively, the "ALTAVISTA Trademarks") in connection therewith, but only as set forth, and in the manner indicated, on EXHIBIT F-2 or as ALTAVISTA may otherwise provide in writing. Before any such use of a ALTAVISTA Trademark, Centraal must provide to ALTAVISTA samples of any such materials, and Centraal shall not engage in any use of any ALTAVISTA Trademark not approved by ALTAVISTA. If ALTAVISTA does not object within five (5) business days after receipt of such samples, the materials will be deemed approved. ALTAVISTA will not unreasonably withhold on delay its approval of such materials. 6.3.2. OWNERSHIP BY ALTAVISTA. Nothing herein will grant Centraal any right, title or interest in ALTAVISTA's Trademarks. Any and all good will arising from Centraal's use of the ALTAVISTA Trademarks will inure solely to the benefit of ALTAVISTA. Centraal shall not assert any claim to the ALTAVISTA Trademark (or any confusingly similar mark) or such good will. Centraal shall execute such documents as ALTAVISTA may reasonably request from time to time to record or effectuate ALTAVISTA's ownership of the ALTAVISTA Trademarks and related good will. Centraal shall not register any ALTAVISTA Trademark, or any mark confusingly similar thereto for any products or services in any jurisdiction. If Centraal registers or applies for such registration in any jurisdiction, ALTAVISTA may require (in ALTAVISTA's sole discretion) Centraal to assign (at Centraal's expense) all of the rights pertaining to such registration or application to ALTAVISTA or withdraw from all such procedures. 6.3.3. REGISTERED USER AGREEMENTS. To the extent necessary to properly protect ALTAVISTA's rights, ALTAVISTA and Centraal shall enter into registered user agreements with respect to ALTAVISTA's Trademarks pursuant to applicable trademark law requirements. Centraal shall be responsible for proper filing of the registered user agreement with appropriate government authorities and shall pay all costs or fees associated with such filing. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Page 8 7. TRAINING. SUPPORT AND MAINTENANCE. Centraal's obligations regarding training, support and maintenance for the RealNames Service; the respective rights and responsibilities of Centraal and ALTAVISTA for such training, support and maintenance; and any charges to ALTAVISTA for such training, support or maintenance, are set forth in EXHIBIT C. 8. TERM AND TERMINATION. 8.1 TERM. This Agreement will commence on the Effective Date and continue for an initial term which will expire on December 31, 2000, unless earlier terminated as set forth herein. Thereafter, this Agreement will be automatically renewed for successive one (1) year terms, unless, at least sixty (60) days prior to the commencement of an additional one (1) year term, a party notifies the other party in writing of its intention not to renew the Agreement. Either party may terminate this agreement for convenience upon sixty (60) days' written notice to the other party. 8.2 DEFAULT. If either party materially defaults in the performance of any of its material obligations hereunder and if any such default is not corrected within sixty (60) days after notice in writing, then the non-defaulting party, at its option, may, in addition to any other remedies it may have, thereupon terminate this Agreement by giving written notice of termination to the defaulting party; provided however, no party shall be deemed to be in breach of this Agreement, and there shall be no termination for default, during such time that a party makes diligent efforts to correct a default which is capable of correction. 8.3 INSOLVENCY. This Agreement may be terminated by either party, upon written notice: (i) upon the institution by the other party of insolvency, receivership or bankruptcy proceedings or any other proceedings for the settlement of its debts, which are not dismissed or otherwise resolved in its favor within sixty (60) days thereafter, (ii) upon the other party's making a general assignment for the benefit of creditors, or (iii) upon the other party's dissolution or ceasing to conduct business in the ordinary course. 8.4 RETURN OF CENTRAAL MATERIALS. All information and materials provided or delivered to ALTAVISTA under this Agreement, including without limitation any source code which may be provided by Centraal, and all copies or portions of copies and any summaries thereof, shall be promptly returned to Centraal. Within thirty (30) days after the termination of this Agreement, ALTAVISTA shall certify in writing that: (1) all such materials have been returned to Centraal, or (2) all such materials have been destroyed. 8.5 SURVIVAL. (a) The parties' rights and obligations of Sections 2.4, 2.5, 3.2, 6.2.2, 6.2.3, 6.3.2, 6.3.3, 8.4, 8.5, 9, 10, 11, 12 and 13 will survive any termination or expiration of this Agreement. In addition, each party shall be obligated to pay any amounts owing pursuant to Section 5. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Page 9 (b) Upon expiration or termination of this Agreement, all of ALTAVISTA's rights and licenses with respect to the Software will automatically and immediately terminate. (c) Upon expiration or termination of this Agreement, ALTAVISTA shall take all reasonable action which is requested by Centraal for the orderly transfer of RealNames Service from ALTAVISTA to Centraal or its designee. 8.6 LIMITATION OF LIABILITY UPON TERMINATION. In the event of termination by either party in accordance with any of the provisions of this Agreement, neither party will be liable to the other, because of such termination, for compensation, reimbursement or damages on account of the loss of prospective profits or anticipated sales or on account of expenditures, investments, or commitments in connection with the business or goodwill. 9. INFRINGEMENT INDEMNITY. 9.1 CENTRAAL'S INDEMNITY. Centraal, at its own expense, shall defend or at its option settle, any claim brought against ALTAVISTA on the issue of infringement of any copyright, United States patent, trade secret or trademark of any third party to the extent attributable to the RealNames Service, provided that ALTAVISTA provides Centraal with: (i) prompt written notice of such claim, (ii) control over the defense and settlement of such claim, and (iii) proper and full information and assistance to settle or defend any such claim. If Centraal believes, in its sole discretion, that it is likely that ALTAVISTA will be prohibited from exercising its right to use the RealNames Service as provided under this Agreement, then Centraal may, at its sole option and expense: (i) procure the right to use the RealNames Service as provided herein, (ii) replace the RealNames Service with other non-infringing services with equivalent functionality, (iii) suitably modify the RealNames Service so that they do not infringe, or (iv)terminate this Agreement. Notwithstanding the above, Centraal assumes no liability for infringement claims arising from combination of the RealNames Service with products or services not provided by Centraal, but not arising from the RealNames Service standing alone. THE FOREGOING PROVISIONS OF THIS SECTION 9.1 STATE THE ENTIRE LIABILITY AND OBLIGATIONS OF CENTRAAL, AND THE EXCLUSIVE REMEDY OF ALTAVISTA, WITH RESPECT TO ANY ACTUAL OR ALLEGED INFRINGEMENT OF ANY INTELLECTUAL PROPERTY RIGHTS UNDER THIS AGREEMENT. 9.2 ALTAVISTA'S INDEMNITY. ALTAVISTA, at its own expense, shall defend or at its option settle, any claim brought against Centraal on the issue of infringement of any copyright, United States patent, trade secret or trademark of any third-party by the Integrated Product (except to the extent excluded under Section 9.1), provided that Centraal provides ALTAVISTA with: (i) prompt written notice of such claim, (ii) control over the defense and settlement of such claim, and (iii) proper and full information and assistance to settle or defend any such claim. THE FOREGOING PROVISIONS OF THIS SECTION 9.2 STATE THE ENTIRE LIABILITY AND OBLIGATIONS OF ALTAVISTA, AND THE EXCLUSIVE REMEDY OF CENTRAAL, WITH RESPECT TO ANY ACTUAL OR ALLEGED INFRINGEMENT OF ANY INTELLECTUAL PROPERTY RIGHT UNDER THIS AGREEMENT. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Page 10 10. WARRANTY AND DISCLAIMER. EACH PARTY ACKNOWLEDGES AND AGREES THAT THE SERVICES OF THE OTHER PARTY PROVIDED HEREUNDER ARE BEING PROVIDED "AS IS, WITH ALL FAULTS," AND THAT NEITHER PARTY MAKES ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, AND SPECIFICALLY DISCLAIMS, ON ITS OWN BEHALF ON AND BEHALF OF ITS SUPPLIERS AND LICENSORS, ANY WARRANTIES AS TO THE USEFULNESS, ACCURACY, RELIABILITY OR EFFECTIVENESS OF SUCH SERVICES OR THAT ANY OF SUCH SERVICES PROVIDED HEREUNDER WILL BE ERROR FREE, OR THAT DEFECTS HAVE OR WILL BE CORRECTED, OR THAT SUCH SERVICES WILL MEET THE NEEDS OF SUCH PARTY OR ANY THIRD PARTY. WITHOUT LIMIT THE FOREGOING, EACH PARTY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY FAILURE, DISRUPTION, DOWNTIME, INCORRECT LINKAGE OR OTHER NON PERFORMANCE OF EACH OTHER'S SERVICE. 11. LIMITATION OF LIABILITY. CENTRAAL'S LIABILITY ARISING OUT OF THIS AGREEMENT WILL NOT EXCEED THE AMOUNTS PAID BY CENTRAAL TO ALTAVISTA PURSUANT TO THIS AGREEMENT. CENTRAAL WILL NOT BE LIABLE FOR LOST PROFITS OR ANY CONSEQUENTIAL, SPECIAL, INCIDENTAL, OR INDIRECT DAMAGES, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY, ARISING OUT OF THIS AGREEMENT WHETHER OR NOT CENTRAAL HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. ALTAVISTA ACKNOWLEDGES THAT COMMISSIONS AGREED UPON BY CENTRAAL AND ALTAVISTA ARE BASED IN PART UPON THESE LIMITATIONS, AND THAT THESE LIMITATIONS WILL APPLY NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY. 12. CONFIDENTIALITY. 12.1 CONFIDENTIAL INFORMATION. The term "Confidential Information" means any information disclosed by one party to the other pursuant to this, Agreement that is in written, graphic, machine readable or other tangible form and is designated "Confidential", "Proprietary" or in some other manner to indicate its confidential nature. Confidential Information may also include oral information disclosed by one party to the other pursuant to this Agreement, provided that such information is designated as confidential at the time of disclosure and is reduced to writing by the disclosing party within a reasonable time (not to exceed thirty (30) days) after its oral disclosure, and such writing is marked in a manner to indicate its confidential nature and delivered to the receiving party. Confidential Information shall include (without limitation) any source code that may be provided by Centraal. 12.2 CONFIDENTIALITY. Each party shall treat as confidential all Confidential Information of the other party, shall not use such Confidential Information except to exercise its rights and perform its obligations under this Agreement herein, and shall not disclose such Confidential Information to any third party. Without limiting the foregoing, each of the parties shall use at least the same degree of care it uses to prevent the disclosure of its own confidential information of like importance, to prevent the disclosure of Confidential Information of the other [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Page 11 party. Each party shall promptly notify the other party of any actual or suspected misuse or unauthorized disclosure of the other party's Confidential Information. 12.3 EXCEPTIONS. Confidential Information excludes information that: (i) was in the public domain at the time it was disclosed or has become in the public domain through no fault of the receiving party; (ii) was known to the receiving party, without restriction, at the time of disclosure, as demonstrated by files in existence at the time of disclosure; (iii) is disclosed with the prior written approval of the disclosing party; (iv) was independently developed by the receiving party without any use of the Confidential Information; (v) becomes known to the receiving party, without restriction, from a source other than the disclosing party, without breach of this Agreement, by the receiving party; or (vi) is disclosed generally to third parties by the disclosing party without restrictions similar to those contained in this Agreement. The receiving party may disclose the other party's Confidential Information to the extent such disclosure is required by order or requirement of a court, administrative agency, or other governmental body, but only if the receiving party provides prompt notice thereof to the disclosing party to enable the disclosing party to seek a protective order or otherwise prevent or restrict such disclosure. 12.4 CONFIDENTIALITY OF AGREEMENT. Each party may disclose the existence of this Agreement, but agrees that the terms and conditions of this Agreement will be treated as Confidential Information; provided, however, that each party may disclose the terms and conditions of this Agreement: (i) as required by any court or other governmental body; (ii) as otherwise required by law; (iii) to legal counsel of the parties; (iv) in confidence, to accountants, banks, and financing sources and their advisors; (v) in connection with the enforcement of this Agreement or rights under this Agreement; or (vi) in confidence, in connection with an actual or proposed merger, acquisition, or similar transaction. After the Effective Date of this Agreement, Centraal shall issue a press release announcing this Agreement and the inclusion of RealNames Service in the ALTAVISTA Product; provided however, that prior to such press release, Centraal shall submit the press release to ALTAVISTA for its approval, which shall not be unreasonably withheld or delayed. 12.5 SOURCE CODE SECURITY. In the event that Centraal provides source code to ALTAVISTA, ALTAVISTA shall use the source code for the Software only under carefully controlled conditions at Centraal's facilities or ALTAVISTA's facilities for the purposes set forth in this Agreement, and shall inform all employees who are given access to the Software by ALTAVISTA that the source code of the Software is a confidential trade secret of Centraal. ALTAVISTA shall restrict access to the Software to those employees of ALTAVISTA who have agreed to be bound by a confidentiality obligation substantially in the form of this Section 12, and who have a need to access the source code to carry out the purposes of this Agreement. Upon request by Centraal, ALTAVISTA shall provide Centraal with the names of all individuals who have accessed such materials, and shall take all actions reasonably required to recover any such materials in the event of loss or misappropriation, or to otherwise prevent their unauthorized disclosure or use. ALTAVISTA shall indemnify and hold harmless Centraal for any breach of such confidentiality obligation or of this Agreement by any of ALTAVISTA's employees, agents and representatives. Upon conclusion of the Localization in EXHIBIT A, ALTAVISTA shall return to Centraal, all copies and portions thereof (in any form) of the Software. Upon Centraal's request, ALTAVISTA shall promptly certify in writing its compliance with this Section 12.5. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Page 12 13. GENERAL. 13.1 INDEMNIFICATION OF CENTRAAL. In addition to the intellectual property infringement claims provided for under Section 9, ALTAVISTA shall indemnify and hold Centraal harmless against any liability, or any litigation cost or expense (including attorneys' fees), arising out of third party claims against Centraal as a result of ALTAVISTA's use or distribution of the RealNames Service and Centraal Materials. 13.2 PARTIAL INVALIDITY. If any provision in this Agreement is found invalid or unenforceable, then the meaning of such provision will be construed, to the extent feasible, so as to render the provision enforceable, and if no feasible interpretation would save such provision, it will be severed from the remainder of this Agreement, which will remain in full force and effect, and the parties shall negotiate, in good faith, a substitute, valid and enforceable provision that most nearly effects the parties' intent in entering into this Agreement. 13.3 INDEPENDENT CONTRACTORS. The parties hereto are independent contractors. Nothing contained herein will constitute either party the agent of the other party, or constitute the parties as partners or joint venturers. ALTAVISTA shall make no representations or warranties on behalf of Centraal with respect to the Software. 13.4 MODIFICATION. No alteration, amendment, waiver, cancellation or any other change in any term or condition of this Agreement will be valid or binding on either party unless the same is mutually agreed to in writing by both parties. 13.5 WAIVER. The failure of either party to enforce at any time any of the provisions of this Agreement, or the failure to require at any time performance by the other party of any of the provisions of this Agreement, will not be construed to be a waiver of such provisions, or in any way affect the right of either party to enforce such provision thereafter. The express waiver by either party of any provision of this Agreement will not constitute a waiver of any future obligation to comply with such provision. 13.6 ASSIGNMENT. This Agreement will be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that neither party shall assign any of its rights, obligations, or privileges (by operation of law or otherwise) hereunder without the prior written consent of the other party. Notwithstanding the foregoing, either party may assign this Agreement to a successor in interest (or its equivalent) of all or substantially all of its relevant assets, whether by sale, merger, or otherwise. In the event that the ALTAVISTA Product is spun-off as part of a newly formed separate legal entity, this Agreement shall be promptly and fully assigned to such entity. Any attempted assignment in violation of this section shall be void. 13.7 NOTICES. Any notice required or permitted to be given by either party under this Agreement will be in writing and personally delivered or sent by commercial courier service (e.g., DHL), or by first class airmail (certified or registered if available), to the other party at its address below, or such new address as may from time to time be supplied hereunder by the parties hereto. If mailed, notices will be deemed effective five (5) working days after deposit, postage prepaid, in the mail: [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Page 13 IF TO CENTRAAL: IF BY COURIER/OVERNIGHT DELIVERY Centraal Corporation 2 Circle Star Way, 2nd Floor San Carlos, CA 94070-1350 Attention: J. Michael Arrington, Esq. General Counsel IF BY MAIL Centraal Corporation P.O. Box 3500 San Carlos, CA 94070-1350 Attention: J. Michael Arrington, Esq. General Counsel WITH A REQUIRED COPY TO: James N. Strawbridge, Esq. Wilson Sonsini Goodrich & Rosati 650 Page Mill Road Palo Alto CA 94304 Tel: 650-493-9300 IF TO ALTAVISTA: ALTAVISTA COMPANY 1825 S. Grant Street, Suite 410 San Mateo; CA; 94402 Tel: (650) 295-2500 Fax: (650) 295-3314 Attention: General Manager WITH A REQUIRED COPY TO: ALTAVISTA COMPANY 529 Bryant Street Palo Alto CA 94301 Attention: Legal Department 13.8 EXPORT REGULATIONS. ALTAVISTA understands and acknowledges that the Centraal is subject to regulation by agencies of the United States Government, including, but not limited to, the U.S. Department of Commerce, which prohibit export or diversion of certain technology to certain countries. Any obligations of the Centraal to provide services are subject in all respects to such United States laws and regulations as from time to time govern the license [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Page 14 and delivery of technology and services outside the United States. ALTAVISTA shall comply with all applicable provisions of U.S. Law, and shall not export, reexport, transfer, divert or disclose, directly or indirectly, including via remote access, the Software, any confidential information contained or embodied in the Software, or any direct product thereof, except as authorized under the Export Administration Regulations or other United States laws and regulations governing exports in effect from time to time. 13.9 PAYMENT. Payment must be in U.S. Dollars. All references to "dollars" or "$" in this Agreement mean United States dollars. 13.10 FORCE MAJEURE. Notwithstanding anything else in this Agreement, no default, delay or failure to perform on the part of either party will be considered a breach of this Agreement if such default, delay or failure to perform is shown to be due to causes beyond reasonable control of the party charged with a default, including, but not limited to, causes such as strikes, lockouts or other labor disputes, riots, civil disturbances, actions or inactions of governmental authorities or suppliers, epidemics, war, embargoes, severe weather, fire, earthquakes, acts of God or the public enemy, nuclear disasters, or default of a common carrier. A party seeking to excuse its performance under this Section 13.10, shall provide notice to the other party, and shall perform its obligations under this Agreement as soon as reasonably possible under the circumstances. 13.11 ENTIRE AGREEMENT. The terms and conditions of this Agreement, including all Exhibits hereto, constitute the entire agreement between the parties and supersede all previous agreements and understandings, whether oral or written, between the parties hereto with respect to the subject matter hereof. Nothing in this Agreement shall be construed to supersede the terms of any non-disclosure agreement previously entered into by the Parties. 13.12 LANGUAGE. This Agreement is in the English language only, which language will be controlling in all respects, and all versions hereof in any other language will not be binding on the parties hereto. All communications and notices to be made or given pursuant to this Agreement must be in the English language. The parties hereto confirm that it is their wish that this Agreement, as well as other documents relating hereto, including notices, have been and will be written in the English language only. 13.13 TAXES. All payments by ALTAVISTA must be made free and clear of, and without reduction for, any withholding taxes. Any such taxes which are otherwise imposed on payments to Centraal will be the sole responsibility of ALTAVISTA. 13.14 GOVERNING LAW. The rights and obligations of the parties under this Agreement will not be governed by the 1980 U.N. Convention on Contracts for the International Sale of Goods; rather such rights and obligations shall be governed by and construed under the laws of the State of California, without reference to its conflict of laws principles. 13.15 APPLICABILITY OF PROVISIONS LIMITING CENTRAAL'S LIABILITY. The provisions of this Agreement under which the liability of Centraal is excluded or limited, will not apply to the extent that such exclusions or limitations arc declared illegal or void under law, [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Page 15 unless the illegality or invalidity is cured under such laws by the fact that the law of the State of California (USA) governs this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed by duly authorized officers or representatives as of the date first above written. CENTRAAL CORPORATION ALTAVISTA COMPANY By: /s/Keith Teare By: /s/Greg Memo ---------------------------- ------------------------- Print Name: Keith Teare Print Name: Greg Memo -------------------- ----------------- Title: CEO Title: ------------------------- ---------------------- [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Page 16 EXHIBIT A Software and Deliverables A. CENTRAAL MATERIALS MADE AVAILABLE TO ALTAVISTA: The following Centraal Materials are to be provided to ALTAVISTA in a manner and form of Centraal's choosing: (1) Marketing Material, (2) Resolution Result Page and (3) Software APIs. The Software API's provided to ALTAVISTA consists of the following: (1) HTTP APIs for RealNames Resolvers and (2) XML interface for RealNames Data. B. ALTAVISTA PRODUCT The AltaVista Product shall include without limitation the following, as well as any Updates thereto: www.altavista.com www.altavista.de www.zip2.com www. shopping.com C. LOCALIZED CENTRAAL MATERIALS: All Centraal Materials and RealNames Service shall be provided to ALTAVISTA in the U.S. English language form unless specified otherwise. In addition, the following Centraal Materials and RealNames Service shall be provided by Centraal in a German Localized manner: Subscriber Agreement, Centraal's privacy policy and additional materials to be determined in writing by the parties. Centraal shall notify ALTAVISTA in writing when Localization in additional languages becomes available. The parties can agree in writing to update this Exhibit A with such additional Localized languages. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Page 17 EXHIBIT B Fees A. COMPENSATION FOR SUBSCRIPTIONS. ALTAVISTA's sole compensation under the terms of this Agreement for solicitation of RealNames Subscribers shall be in accordance with this Section A. During the term of this Agreement, ALTAVISTA shall receive a commission which equals [*] of the initial Annual Net Subscription Fees [*] actually received by Centraal for each paid subscription for a RealNames Address generated through the co-branded registration pages on the Integrated Product as provided for under the Agreement("ALTAVISTA Subscription Commission"). By way of example, Customer X pays a $100 subscription fee, which there is a tax owing of $10 which has not been paid by Customer X, and which Centraal must pay a third party provider of RealNames support services [*] for Customer X. The payment owing to ALTAVISTA for ALTAVISTA Subscription Commission of Customer X would be [*] of [*] ($100 less $10 (tax) and less ([*] third party payment)), or [*]. The ALTAVISTA Subscription Commission on a given order will be due and payable once per quarter. Centraal shall submit to ALTAVISTA at avreport@altavista.com quarterly statements of the commission or annuities due and payable to ALTAVISTA under the terms of this Section A of EXHIBIT B within 30 days of the end of each such quarter, and such report shall be accompanied with payment for such amounts owing in U.S. Dollars. B. COMPENSATION FOR REALNAMES RESOLUTION. During the term of this Agreement, ALTAVISTA's sole compensation for the provision of RealNames Resolution services shall be in accordance with this Section B. During the term of this Agreement, ALTAVISTA shall receive a commission which equals [*] of Net RealNames Resolution Fees generated through an Integrated Product ("ALTAVISTA Resolution Commission). ALTAVISTA acknowledges and accepts that as of the Effective Date of this Agreement only a limited number of RealNames Subscribers have agreed to compensate Centraal on a RealNames Resolution basis. By way of example, assume that Customer Y pays on a per RealNames Resolution basis and generates $1000 dollars worth of Real Names Resolutions during the relevant quarter. Assume also, that 50% of such RealNames Resolutions took place on an Integrated Product. Further assume that there is a tax of $100 owing, and Centraal must pay a third party provider of RealNames support services [*] for Customer Y. The payment owing to ALTAVISTA for ALTAVISTA Resolution Commission of Customer Y would be [*] of [*] ($500 (50% of the $1000 resolution income) less $100 (tax) and less [*] (third party payment)), or [*]. The ALTAVISTA Resolution Commission on a given order will be due and payable once per quarter. Centraal shall submit to ALTAVISTA at avreport@altavista.com quarterly statements of the commission or annuities due and payable to ALTAVISTA under the terms of [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Page 18 this Section B of EXHIBIT B within 30 days of the end of each such quarter, and such report shall be accompanied with payment for such amounts owing in U.S. Dollars. C. COMPENSATION FROM CO-BRANDED PAGES. During the term of this Agreement, Centraal's sole compensation for creation and display of the Co-Branded Pages contemplated under Section 4 of the Agreement shall be in accordance with this Section C. During the term of this Agreement, Centraal shall receive a commission which equals [*] of the Net Paid Advertising Fees (including but not limited to Banner Ads) generated from such Co-Branded Pages ("Centraal Banner Commission). By way of example, assume that COMPANY Z accrues a bill of $1000 for banner advertising during the relevant quarter. Further assume that ALTAVISTA grants a $100 dollar discount off the bill due to service interruption. The payment owing to Centraal for Centraal Banner Commission of COMPANY Z would be [*] of $ 900 ($1000 less $100 refund), or [*]. The Centraal Banner Commission on a given order will be due and payable once per quarter. ALTAVISTA shall submit to Centraal quarterly statements of the commission or annuities due and payable to Centraal under the terms of this Section C of EXHIBIT B within 30 days of the end of each such quarter, and such report shall be accompanied with payment for such amounts owing in U.S. Dollars. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Page 19 EXHIBIT C TRAINING, SUPPORT AND MAINTENANCE SUPPORT During the term of this Agreement, Centraal shall provide a reasonable amount of telephone, e-mail, or fax back technical support, during Centraal's normal business hours, to ALTAVISTA's technical staff regarding the operation and integration of the RealNames Service. ALTAVISTA shall designate one technical support contact on ALTAVISTA's staff, and Centraal will not be obligated to provide technical support except pursuant to the request of such contact; provided, however, that upon written notice to Centraal, ALTAVISTA may replace such designee. All support will be provided in the U.S. English language. MAINTENANCE During the term of this Agreement, Centraal shall provide all Updates that are generally released without additional cost to Centraal's other customers, to ALTAVISTA without such additional cost. Support for previous Updates Will end six (6) months after the release of the next update. All maintenance releases will be provided in the U.S. English language. ORDER ADMINISTRATION During the term of this Agreement, Centraal or its designee shall be responsible for the administration of orders for RealNames Subscriptions and renewals thereof, including billings and collections. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Page 20 EXHIBIT D ASSIGNMENT OF COPYRIGHT For good and valuable consideration, the receipt of which is hereby acknowledged, ALTAVISTA located at ________________ (hereinafter referred to as "ASSIGNOR"), hereby grants and assigns to Centraal Corporation ("Centraal"), 2 Circle Star Way, 2nd Floor San Carlos, CA 94070-1350 all right, title and interest whatsoever, throughout the world, in and under the following materials:_____________________________________, to have and to hold the same, unto Centraal, its successors and assigns, for the full duration of all such rights, and any renewals and extensions thereof. This assignment is made pursuant to, and is subject to all of the terms of the Software Localization and Provider Agreement between ASSIGNOR and Centraal dated April ,1999. IN WITNESS THEREOF, I have hereunto set hand and seal this ________ day of______________________________, ______. (Signature) NAME: ---------------------- TITLE: ---------------------- NAME OF ASSIGNOR: ---------------------- State of ) )S.S. County of ) Before me this__________ day of __________________________ ,19 ________ personally appeared: ___________________________________ to me known to be the person who is described in and who executed the foregoing assignment instrument and acknowledged to me that he/she executed the same of his/her own free will for the purpose therein expressed. Notary Public or Consular Officer of the United State of America [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Page 21 EXHIBIT E SUBSCRIBER AGREEMENT CENTRAAL CORPORATION REALNAMES SUBSCRIPTION AGREEMENT A. INTRODUCTION. This RealNames Subscription Agreement ("Agreement") is submitted to CENTRAAL CORPORATION ("CENTRAAL") for the purpose of subscribing to CENTRAAL's RealNames Service (SM) on the Internet through CENTRAAL's subscription system also known as the RealNames System (SM). If this Agreement is accepted by CENTRAAL, and a RealNames (SM) address is allocated in CENTRAAL's Web address system to the Subscriber ("Subscriber"), Subscriber agrees to be bound by the terms of this Agreement. B. FEES AND PAYMENTS. Subscriber agrees to pay a NON-REFUNDABLE fee of ____________(US$_____) per year in consideration of each subscribed RealNames address. The payment may be made payable either directly to "CENTRAAL Corporation," or indirectly to CENTRAAL through a certified reseller. This NON-REFUNDABLE fee covers a period of one (1) year for each new subscription or reservation of a RealNames address. This NON-REFUNDABLE fee includes any permitted modification(s) to the RealNames address record during the subscription or reservation. It also covers up to ten thousand (10,000) uses of the RealNames address per calendar month; CENTRAAL reserves the right to stop processing uses of the RealNames address after ten thousand (10,000) uses in a calendar month. Subscribers will be notified by CENTRAAL when a RealNames address usage exceeds ten thousand (10,000) uses per calendar month. Subscribers of a RealNames address which usage exceeds ten thousand (10,000) uses per calendar month will be subject to additional usage fees, at a rate to be agreed upon by CENTRAAL and Subscriber in advance of such charges. In the event that CENTRAAL and Subscriber cannot agree on such fees, Subscriber understands and agrees that CENTRAAL may terminate this Agreement without liability, including Subscriber's use of any RealNames address. All payments will be due within thirty (30) days from the date of invoice. Subscriber understands and agrees that CENTRAAL may cancel Subscriber's subscription or reservation in the event that any payment is not made when due. On the date of expiration, RealNames address subscriptions will be automatically renewed for the period of one year, unless the Subscriber notifies CENTRAAL in writing of its intention not to renew the RealNames subscription. Notification to cancel automatic renewals must be communicated to CENTRAAL by fax (1-650-858-0454) or email (sales@centraal.com) at least ten days prior to the RealNames subscription expiration date. Automatic renewals will be billed at CENTRAAL's then-current annual subscription price. C. ALLOCATION OF REALNAMES ADDRESSES BY CENTRAAL. Subscriber agrees that allocation of RealNames addresses by CENTRAAL is subject to CENTRAAL's discretion. CENTRAAL may at any time, with notice to Subscriber that is reasonable in the circumstances (including immediate notice when that is appropriate) reallocate a RealNames address previously or currently used by Subscriber. Any notice provided to Subscriber will be at the last address furnished by Subscriber to CENTRAAL. Subscriber understands that all systems of address with respect to the Internet are subject to varied and occasionally inconsistent principles, jurisdictions, and claims of right. Subscriber understands and agrees that CENTRAAL requires absolute discretion over, the allocation of RealNames addresses in light of the uncertain and often conflicting principles that are at work in the current state of the Internet. Subscriber understands and agrees that, because of CENTRAAL's discretion, CENTRAAL has the absolute right to allocate RealNames addresses, withdraw them, and reallocate them according to its own judgment as to what constitutes an optimal service and system. Subscriber further recognizes that CENTRAAL, with a view to optimizing its RealNames Service and RealNames Services, may apply standards of decision regarding allocation, reallocation, or withdrawal of RealNames addresses that evolve or change over time. If CENTRAAL does [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Page 22 not approve any RealNames address requested by Subscriber, or withdraws approval of, a RealNames address, CENTRAAL will attempt to provide an alternative RealNames address that is acceptable to both CENTRAAL and Subscriber. Subscriber accords to CENTRAAL the right to make decisions that it deems best in each context. Subscriber understands that CENTRAAL has no dispute resolution, system. Subscriber also agrees that all goodwill in any RealNames address as an address in the RealNames Service, and all property rights in any RealNames address as an address in the RealNames Service, belong exclusively to CENTRAAL. Subscriber's use of the RealNames Service confers no property, business, or competition rights upon Subscriber. D. DISPUTES. In the event that Subscriber's subscription, reservation, RealNames address, or any other aspect of the RealNames Services, or any conduct by the Subscriber results in any challenge, claim, demand, or action to or against CENTRAAL, Subscriber agrees that CENTRAAL shall have the right to decide in its sole discretion what actions to take, including without limitation whether to continue to provide Subscriber's subscription, reservation, RealNames address, reservation or any other aspect of the RealNames Services affected by such claim. Subscriber understands and agrees that it has no vested interest or right in any procedures or rules of dispute resolution. E. INDEMNITY. Subscriber agrees to defend and indemnify CENTRAAL, as well as CENTRAAL's officers, employees, agents, resellers and representatives, against claims, demands, damages, costs, and liabilities arising from Subscriber's use, reference to, or advertising of a RealNames address; from the allocation by CENTRAAL of a RealNames address to Subscriber; and from the Subscriber's subscription, reservation or use of the RealNames Services or RealNames Service. Subscriber agrees that the financial obligation of Subscriber to CENTRAAL pursuant to this indemnity may be incorporated in CENTRAAL's invoices for services and are due when the invoices are due. F. BREACH. Subscriber understands and agrees that its failure to abide by any provision of this Agreement may be considered by CENTRAL to be a basis for cancellation of the subscription or reservation, withdrawal of the assigned RealNames address, and/or cancellation of the subscription or reservation. G. AGENTS. Subscriber agrees that if this Agreement is completed by an agent for the Subscriber, such as an ISP or Administrative Contact/Agent, the Subscriber is nonetheless bound as a principal by all terms and conditions herein. H. USAGE STATISTICS. Subscriber understands and agrees that CENTRAAL has the right to compile usage statistics and other data regarding use of CENTRAAL's RealNames Services and to sell and provide any and all such data to third parties. I. LIMITATION OF LIABILITY. Subscriber agrees that CENTRAAL, its officers, employees, agents, resellers and representatives shall have no liability to the Subscriber for any loss Subscriber may incur in connection with CENTRAAL's processing of this Agreement, in connection with CENTRAAL's processing of any authorized modification to the RealNames Service (including without limitation the RealNames address) during the covered period, as a result of the Subscriber's ISP's failure to pay either the initial subscription or reservation fee or renewal fee. Subscriber agrees that in no event shall the maximum liability of CENTRAAL, officers, employees, agents, resellers and representatives under this Agreement for any matter exceed and aggregate of five hundred United States dollars (US $500). J. NO GUARANTY. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Page 23 Subscriber agrees that, by subscription or reservation of a RealNames address, such subscription or reservation does not confer immunity from objection to either the subscription, reservation or use of the RealNames address. CENTRAAL DOES NOT WARRANT THAT THE OPERATION OF THE REALNAMES SERVICE AND/OR ANY REALNAMES ADDRESS WILL BE WITHOUT INTERRUPTION OR ERROR FREE. CENTRAAL DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT WILL CENTRAL BE LIABLE TO SUBSCRIBER OR ANY OTHER THIRD PARTY FOR ANY FAILURE, DISRUPTION, DOWNTIME, INCORRECT LINKAGE OR OTHER NON-PERFORMANCE OF THE REALNAMES SERVICE. K. RIGHT OF REFUSAL. CENTRAAL, in its sole discretion, reserves the right to refuse to enter into an agreement for any Subscriber. Subscriber agrees that the submission of this Agreement does not obligate CENTRAAL to accept this Agreement. Subscriber agrees that CENTRAAL shall not be liable for loss or damages that may result from CENTRAAL's refusal to accept this Agreement. L. ENTIRETY. Subscriber agrees that this Agreement comprises the complete and exclusive agreement between Subscriber and CENTRAAL regarding the subscription or reservation of Subscriber's RealNames address. This Agreement supersedes all prior agreements and understandings. M. GOVERNING LAW. Subscriber agrees that this Agreement shall be governed in all respects by and construed in accordance with the laws of the State of California, United States of America, without regard to conflicts-of-law principles, applicable to contracts formed in California for services rendered in California. By submitting this Agreement, Subscriber consents to the exclusive and personal jurisdiction and venue of the federal and state courts located in the Northern District of California. This Agreement shall be deemed accepted at the offices of CENTRAAL in Palo Alto, California, U.S.A. CENTRAAL CORPORATION REALNAMES SUBSCRIPTION AGREEMENT (0.3) [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Page 24 EXHIBIT F-1 CENTRAAL TRADEMARKS [Insert Logo Here] REALNAMES STANDARDIZED LOGO Font: OCRB [Insert Logo Here] REALNAMES ENABLED LOGO Font: OCRB -C-1998 REALNAMES (sm) is a service mark of centraal corporation [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Page 25 EXHIBIT F-2 ALTAVISTA Trademarks -------------------- [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Confidential Page 26 5/18/99 May 27, 1999 BY HAND DELIVERY, REGISTERED MAIL, AND FAX Fax: 650-298-8085 CENTRAAL CORPORATION Two, Circle Star Way, 2nd Floor P.O. Box 3500 San Carlos, CA 94070-1350 Re: Internet Services Agreement, dated April 2, 1998, between Digital Equipment Corp. (a wholly-owned SUBSIDIARY OF COMPAQ) AND CENTRAAL CORPORATION Gentlemen: Compaq Computer Corporation ("Compaq") has entered into a Contribution and Subscription Agreement with the AltaVista Company, a Delaware corporation and a wholly-owned subsidiary of Compaq ("AltaVista"), dated as of June 1, 1999, pursuant to which Compaq will contribute certain of its assets into AltaVista and AltaVista will assume certain liabilities of Compaq. In connection with such contribution, Compaq desires to assign to AltaVista all of its rights and obligations under the Internet Services Agreement, dated April 2, 1998, by and between Digital Equipment Corp. (a wholly-owned subsidiary of Compaq) and Centraal Corporation (the "Agreement"). Please indicate your consent to Compaq's assignment to AltaVista of its rights and obligations pursuant to the Agreement by signing the attached copy of this letter and returning it to the undersigned. In the future, please direct any notices related to the Agreement to AltaVista Company, VP & General Manager, 1825 S. Grant Street, Suite 410, San Mateo, California 94402. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 1 Very truly yours, COMPAQ COMPUTER CORPORATION By: /S/ Kurt Losert Name: Kurt Losert Title: Vice President Consented to and confirmed as aforesaid: CENTRAAL CORPORATION By: /s/ Michael Arrington Name: Michael Arrington Title: General Counsel [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 2 EX-10.11 15 EXHIBIT 10.11 EXHIBIT 10.11 ---------------------------------------------- ---------------------------------------------- CENTRAAL CORPORATION SECOND AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT AUGUST 6, 1999 ---------------------------------------------- ---------------------------------------------- TABLE OF CONTENTS
PAGE ---- 1. Certain Definitions..........................................................1 2. Restrictions on Transferability..............................................3 3. Restrictive Legend...........................................................3 4. Notice of Proposed Transfers.................................................4 5. Registration.................................................................5 5.1 Requested Registration..............................................5 5.2 Company Registration................................................7 5.3 Registration on Form S-3............................................8 5.4 Subsequent Registration Rights......................................9 5.5 Expenses of Registration............................................9 5.6 Registration Procedures............................................10 5.7 Indemnification....................................................11 5.8 Information by Holder..............................................12 5.9 Rule 144 Reporting.................................................12 5.10 Termination of Registration Rights.................................13 6. Financial Information Rights................................................13 7. Lockup Agreement............................................................14 8. Investors' Option to Sell Shares to the Company.............................15 9. Right of First Refusal......................................................16 10. Vesting of Employee Options.................................................17 11. Employment, Confidential Information and Invention Assignment Agreements....17 12. Transfer of Rights..........................................................17 13. Effectiveness; Amendment and Restatement of Existing Agreement..............18 14. Amendment...................................................................18 15. Governing Law...............................................................18 16. Entire Agreement............................................................18 17. Notices, etc................................................................18 18. Aggregation of Stock........................................................19 19. Counterparts................................................................19 20. Legal Expenses..............................................................19 21. Titles and Subtitles........................................................19 22. Waiver of Right of First Refusal............................................19
CENTRAAL CORPORATION SECOND AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT This Second Amended and Restated Investor Rights Agreement (this "AGREEMENT") is made effective as of August 6, 1999, by and among Centraal Corporation, a Delaware corporation (the "COMPANY"), and the persons and entities listed on the Schedule of Investors attached hereto as EXHIBIT A (the "INVESTORS"). RECITALS A. In connection with the sale and issuance of its Series B Preferred Stock, the Company entered into that certain Amended and Restated Investor Rights Agreement dated December 8, 1998 (the "EXISTING AGREEMENT") with the purchasers of its Series A Preferred Stock and Series B Preferred Stock (the "EXISTING PREFERRED INVESTORS"). B. The Company and certain of the Investors (the "PURCHASERS") are parties to that certain Series C Preferred Stock Purchase Agreement dated as of the date hereof (the "PURCHASE AGREEMENT") whereby the Company will sell, and the Purchasers will buy, Series C Preferred Stock of the Company. C. The obligations of the Company and the Purchasers under the Purchase Agreement are conditioned, among other things, upon the execution and delivery of this Agreement by the Company and the Purchasers. D. Section 14 of the Existing Agreement provides that the written consent of the Company and the holders of a majority of the (i) outstanding Registrable Securities (as defined under the Original Agreement) (the "MAJORITY INVESTORS") and (ii) the outstanding shares of Series B Preferred Stock (or Conversion Stock issued upon conversion thereof) (the "MAJORITY SERIES B INVESTORS") is required to amend the Existing Agreement. E. The Company, the Majority Investors and the Majority Series B Investors now desire to amend and restate the Existing Agreement in its entirety in order to add the Purchasers as parties thereto and to make certain other changes. AGREEMENT NOW, THEREFORE, in consideration of the mutual promises and covenants herein, the receipt and sufficiency are hereby acknowledged, the parties hereto agree to amend and restate the Existing Agreement in its entirety as follows: 1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall have the following respective meanings: "COMMISSION" means the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. "CONVERSION STOCK" means the Company's Common Stock issued or issuable pursuant to conversion of the Preferred Stock. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or any similar federal rule or statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "HOLDER" means (i) any Existing Preferred Investor or Purchaser holding Registrable Securities and (ii) any person holding Registrable Securities to whom the rights under this Agreement have been transferred either (a) in accordance with Section 12 hereof, or (b) prior to the date hereof, in accordance with either Section 12 of the Existing Agreement or Section 12 of the Original Agreement (as defined in the Existing Agreement). "INITIATING HOLDERS" means any Holder or Holders who, in the aggregate, hold not less than 50% of the Registrable Securities then outstanding. "PREFERRED STOCK" shall mean the Company's Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock. "QUALIFIED INITIAL PUBLIC OFFERING" shall mean the Company's initial public offering pursuant to an effective registration statement under the Securities Act covering the offer and sale of the Company's Common Stock to the public with gross proceeds to the Company of not less than $35 million at a per share price of at least $6.75 (as adjusted for recapitalizations, stock dividends, stock splits and the like.) "REGISTRABLE SECURITIES" means shares of (i) the Conversion Stock and (ii) any Common Stock of the Company issued or issuable in respect of the Preferred Stock or Conversion Stock upon any stock split, stock dividend, recapitalization or similar event; PROVIDED, HOWEVER, that securities shall only be treated as Registrable Securities if and so long as (x) they have not been registered or sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction and (y) the registration rights with respect to such securities have not terminated pursuant to Section 5.10. Notwithstanding the foregoing, Registrable Securities shall not include any securities sold in a transaction in which the transferor's rights to registration are not assigned in accordance with the terms herein. The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement. "REGISTRATION EXPENSES" shall mean all expenses, except as otherwise stated below, incurred by the Company in complying with Sections 5.1, 5.2 and 5.3 hereof, including without limitation, all registration, qualification and filing fees, printing expenses, escrow fees, fees and disbursements of -2- counsel for the Company, blue sky fees and expenses, the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company). Registration Expenses shall also include the fees and disbursements for one special counsel to the selling stockholders, not to exceed $15,000 per registration, for each registration pursuant to Section 5.1 and Section 5.2, and up to two registrations pursuant to Section 5.3 hereof. "RESTRICTED SECURITIES" shall mean the securities of the Company required to bear the legends set forth in Section 3 hereof. "RULE 144" and "RULE 145" shall mean Rules 144 and 145, respectively, promulgated under the Securities Act, or any similar federal rules thereunder, all as the same shall be in effect at the time. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or any similar federal rule or statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "SELLING EXPENSES" shall mean all underwriting discounts, selling commissions and stock transfer taxes applicable to the securities registered by the Holders and, except as set forth above, all fees and disbursements of counsel for any Holder. 2. RESTRICTIONS ON TRANSFERABILITY. The Preferred Stock, the Conversion Stock and any other securities issued in respect of such stock upon any stock split, stock dividend, recapitalization, merger, or similar event, shall not be sold, assigned, transferred or pledged except upon the conditions specified in this Agreement, which conditions are intended to ensure compliance with the provisions of the Securities Act. Each Holder or transferee will cause any proposed purchaser, assignee, transferee, or pledgee of any such shares held by the Holder or transferee to agree to take and hold such securities subject to the restrictions and upon the conditions specified in this Agreement. 3. RESTRICTIVE LEGEND. Each certificate representing the Preferred Stock, the Conversion Stock or any other securities issued in respect of such stock upon any stock split, stock dividend, recapitalization, merger, or similar event, shall (unless otherwise permitted by the provisions of Section 4 below) be stamped or otherwise imprinted with legends in substantially the following form (in addition to any legends required by agreement or by applicable state securities laws): THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). SUCH SECURITIES MAY NOT BE TRANSFERRED UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH TRANSFER OR IN THE OPINION OF COUNSEL FOR THE COMPANY, SUCH TRANSFER MAY BE MADE PURSUANT TO RULE 144 OR REGISTRATION -3- UNDER THE ACT IS OTHERWISE UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE ACT. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A LOCKUP PERIOD OF UP TO 180 DAYS FOLLOWING THE EFFECTIVE DATE OF A REGISTRATION STATEMENT OF THE COMPANY FILED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AS SET FORTH IN AN AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH LOCKUP PERIOD IS BINDING ON TRANSFEREES OF THESE SHARES. Each Holder consents to the Company making a notation on its records and giving stop transfer instructions to any transfer agent of its capital stock in order to implement the restrictions on transfer established in this Agreement. 4. NOTICE OF PROPOSED TRANSFERS. The holder of each certificate representing Restricted Securities by acceptance thereof agrees to comply in all respects with the provisions of this Section 4. Without in any way limiting the immediately preceding sentence, no sale, assignment, transfer or pledge of Restricted Securities shall be made by any holder thereof to any person unless such person shall first agree in writing to be bound by the restrictions of this Agreement. Prior to any proposed sale, assignment, transfer or pledge of any Restricted Securities, unless there is in effect a registration statement under the Securities Act covering the proposed transfer, the holder thereof shall give written notice to the Company of such holder's intention to effect such transfer, sale, assignment or pledge. Each such notice shall describe the manner and circumstances of the proposed transfer, sale, assignment or pledge in sufficient detail, and, if requested by the Company, the holder shall also provide, at such holder's expense, either (i) a written opinion of legal counsel who shall be, and whose legal opinion shall be, reasonably satisfactory to the Company addressed to the Company, to the effect that the proposed transfer of the Restricted Securities may be effected without registration under the Securities Act, or (ii) a "no action" letter from the Commission to the effect that the transfer of such securities without registration will not result in a recommendation by the staff of the Commission that action be taken with respect thereto, whereupon the holder of such Restricted Securities shall be entitled to transfer such Restricted Securities in accordance with the terms of the notice delivered by the holder to the Company; PROVIDED, HOWEVER, that the Company shall not request an opinion of counsel or "no action" letter with respect to (i) a transfer not involving a change in beneficial ownership, (ii) a transaction involving the distribution without consideration of Restricted Securities by the holder to its constituent partners or members in proportion to their ownership interests in the holder, or (iii) a transaction involving the transfer without consideration of Restricted Securities by an individual holder during such holder's lifetime by way of gift or on death by will or intestacy. Each certificate evidencing the Restricted Securities transferred as above provided shall bear, except if such transfer is made pursuant to Rule 144, the appropriate restrictive legend set forth in Section 3 above, except that such certificate shall not bear such restrictive legend if in the opinion of counsel for such holder and counsel for the Company such -4- legend is not required in order to establish compliance with any provision of the Securities Act. Notwithstanding the foregoing, each holder of Restricted Securities agrees that it will not request that a transfer of the Restricted Securities be made or that the legend set forth in Section 3 be removed from the certificate representing the Restricted Securities, solely in reliance on Rule 144(k), if as a result thereof the Company would be rendered subject to the reporting requirements of the Exchange Act. 5. REGISTRATION. 5.1 REQUESTED REGISTRATION. (a) REQUEST FOR REGISTRATION. In case the Company shall receive from Initiating Holders a written request that the Company effect any registration with respect to shares of Registrable Securities, the Company will: (i) promptly give written notice of the proposed registration to all other Holders; and (ii) as soon as practicable, use commercially reasonable efforts to effect such registration as part of a firm commitment underwritten public offering with underwriters reasonably acceptable to the Initiating Holders and the Company (including, without limitation, appropriate qualification under applicable state securities laws and appropriate compliance with applicable regulations issued under the Securities Act and any other governmental requirements or regulations) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request by delivering a written notice to such effect to the Company within twenty days after the date of such written notice from the Company. Notwithstanding the foregoing, the Company shall not be obligated to take any action to effect or complete any such registration pursuant to this Section 5.1: (A) Prior to the earlier of (i) six months after the effective date of the Company's first registered public offering of its Common Stock or (ii) five years from the date hereof; (B) Unless the requested registration would have an aggregate offering price of all Registrable Securities sought to be registered by all Holders, net of underwriting discounts and commissions, exceeding $5,000,000; (C) Following the filing of, and for 180 days immediately following the effective date of, any registration statement pertaining to securities of the Company (other than a registration of securities in a Rule 145 transaction or with respect to an employee benefit plan), provided that the Company is actively employing in good faith commercially reasonable efforts to cause such registration statement to become effective; -5- (D) After the Company has effected two registrations pursuant to this Section 5.1(a) in which the Initiating Holders were able to include in each such registration at least 50% of the Registrable Securities sought to be included therein and such registrations have been declared or ordered effective; PROVIDED, HOWEVER, that if the Company includes shares to be sold by it in a registration requested by the Initiating Holders pursuant to this Section 5.1(a), such registration will not be considered in determining if the Company has effected two registrations pursuant to this Section 5.1(a)(ii)(D); (E) If the Initiating Holders are able to request a registration on Form S-3 pursuant to Section 5.3 hereof; (F) Within twelve months after the Company has effected such a registration pursuant to this Section 5.1(a), and such registration has been declared or ordered effective; or (G) If the Company shall furnish to the Initiating Holders a certificate signed by the President of the Company (i) giving notice of its bona fide intention to effect the filing of a registration statement with the Commission, or (ii) stating that in the good faith judgment of the Board of Directors it would be seriously detrimental to the Company or its stockholders for a registration statement to be filed in the near future. In such case, the Company's obligation to use its commercially reasonable efforts to register, qualify or comply under this Section 5.1(a) may be deferred one or more times for a period not to exceed 90 days in the aggregate. Subject to the foregoing clauses (A) through (G), the Company shall file a registration statement covering the Registrable Securities so requested to be registered as soon as practicable after receipt of the request or requests of the Initiating Holders. (b) In addition to the registration rights contained in Section 5.1(a) above, and subject to the same limitations stated in Section 5.1(a)(ii)(A)-(C) and Section 5.1(a)(ii)(E)-(G), in the event the Company receives a written request from holders of not less than 50% of the Registrable Securities issued or issuable pursuant to conversion of the Series B Preferred Stock then outstanding (the "INITIATING SERIES B HOLDERS"), the Company will, as soon as practicable, use commercially reasonable efforts to effect such registration as part of a firm commitment underwritten public offering with underwriters reasonably acceptable to the Initiating Series B Holders and the Company (including, without limitation, appropriate qualification under applicable state securities laws and appropriate compliance with applicable regulations issued under the Securities Act and any other governmental requirements or regulations) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request. Notwithstanding anything herein to the contrary, the Company shall not be obligated to take any action to effect or complete any such registration pursuant to this Section 5.1(b) prior to 180 days after the effective date of the Company's first registered public offering of its Common Stock. -6- (c) UNDERWRITING. In the event of a registration pursuant to Section 5.1, the Company shall advise the Holders as part of the notice given pursuant to Section 5.1(a)(i) that the right of any Holder to registration pursuant to Section 5.1 shall be conditioned upon such Holder's participation in the underwriting arrangements required by this Section 5.1, and the inclusion of such Holder's Registrable Securities in the underwriting to the extent requested shall be limited to the extent provided herein. The Company shall, together with all Holders proposing to distribute their securities through such underwriting, enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by a majority in interest of the Initiating Holders, but subject to the Company's reasonable approval. Notwithstanding any other provision of this Section 5.1, if the managing underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the managing underwriter may limit the Registrable Securities to be included in such registration (i) in the case of the Company's initial public offering, to zero, and (ii) in the case of any other offering, to an amount no less than 33% of all shares to be included in such offering. The Company shall so advise all Holders requesting to be included in the registration and underwriting and the number of shares of Registrable Securities that may be included in the registration and underwriting shall be allocated among all the Holders requesting to be included in the registration and underwriting in proportion, as nearly as practicable, to the respective amounts of Registrable Securities held by them at the time of filing the registration statement. No Registrable Securities excluded from the underwriting by reason of the underwriter's marketing limitation shall be included in such registration. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder to the nearest 100 shares. If any Holder of Registrable Securities disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company. 5.2 COMPANY REGISTRATION. (a) NOTICE OF REGISTRATION. If at any time or from time to time the Company shall determine to register any of its equity securities, either for its own account or for the account of a Holder or other holders, other than (i) a registration relating solely to employee benefit plans, (ii) a registration relating solely to a Rule 145 transaction, or (iii) a registration in which the only equity security being registered is Common Stock issuable upon conversion of convertible debt securities which are also being registered, the Company will: (i) promptly give to each Holder written notice thereof; and (ii) include in such registration (and any related qualifications including compliance with Blue Sky laws), and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made within ten days after the date of such written notice from the Company, by any Holder. (b) UNDERWRITING. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders -7- as a part of the written notice given pursuant to Section 5.2(a)(i). In such event, the right of any Holder to registration pursuant to Section 5.2 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of Registrable Securities in the underwriting shall be limited to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company and the other holders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by the Company. Notwithstanding any other provision of this Section 5.2, if the managing underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the managing underwriter may limit the Registrable Securities to be included in such registration (i) in the case of the Company's initial public offering, to zero, and (ii) in the case of any other offering, to an amount no less than 33% of all shares to be included in such offering. The Company shall so advise all Holders requesting to be included in the registration and underwriting and the number of shares of Registrable Securities that may be included in the registration and underwriting shall be allocated among all the Holders requesting to be included in the registration and underwriting in proportion, as nearly as practicable, to the respective amounts of Registrable Securities held by them at the time of filing the registration statement. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder to the nearest 100 shares. If any Holder disapproves of the terms of any such underwriting, such person may elect to withdraw therefrom by written notice to the Company. (c) RIGHT TO TERMINATE REGISTRATION. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 5.2 prior to the effectiveness of such registration whether or not any Holder has elected to include securities in such registration. 5.3 REGISTRATION ON FORM S-3. (a) REQUEST FOR REGISTRATION. In the event that the Company shall receive from Initiating Holders a written request that the Company file a registration statement on Form S-3 (or any successor form to Form S-3) for a public offering of Registrable Securities the aggregate price to the public of which, net of underwriting discounts and commissions, would exceed $3,000,000, and the Company is a registrant entitled to use Form S-3 to register the Registrable Securities for such an offering, the Company shall use commercially reasonable efforts to cause such Registrable Securities to be registered for the offering on such form and to cause such Registrable Securities to be qualified in such jurisdictions as such Holder or Holders may reasonably request; PROVIDED, HOWEVER, that the Company shall not be required to effect more than one registration pursuant to this Section 5.3 in any twelve month period. If such offering is to be an underwritten offering, the underwriters must be acceptable to both the Initiating Holders and the Company. The Company shall inform the other Holders of the proposed registration and offer them the opportunity to participate. In the event the registration is proposed to be part of a firm commitment underwritten public offering, the substantive provisions of Section 5.1(c) shall be applicable to each such registration initiated under this Section 5.3. -8- (b) Notwithstanding the foregoing, the Company shall not be obligated to take any action pursuant to this Section 5.3: (i) Following the filing of, and for 180 days immediately following the effective date of, any registration statement pertaining to securities of the Company (other than a registration of securities in a Rule 145 transaction or with respect to an employee benefit plan), provided that the Company is actively employing in good faith commercially reasonable efforts to cause such registration statement to become effective; (ii) Within twelve months after the Company has effected such a registration pursuant to Section 5.3(a), and such registration has been declared or ordered effective; or (iii) If the Company shall furnish to the Initiating Holders a certificate signed by the President of the Company (i) giving notice of its bona fide intention to effect the filing of a registration statement with the Commission, or (ii) stating that, in the good faith judgment of the Board of Directors, it would be seriously detrimental to the Company or its stockholders for a registration statement to be filed in the near future, then the Company's obligation to use its commercially reasonable efforts to file a registration statement may be deferred one or more times for a period not to exceed 90 days in the aggregate. 5.4 SUBSEQUENT REGISTRATION RIGHTS. (a) Without the consent of any holder of Registrable Securities hereunder, the Company may grant to any holder of securities of the Company registration rights inferior to those granted hereunder. (b) The Company shall not enter into any agreement granting any holder or prospective holder of any securities of the Company registration rights superior to or on a pari passu basis with the rights granted the Purchasers hereunder without the written consent of the holders of a majority of the Registrable Securities. Notwithstanding the foregoing, the Company may, without obtaining any further consent of the holders of Registrable Securities, amend this Agreement to the extent necessary to grant rights and obligations on a pari passu basis with the rights and obligations of the Purchasers to investors in any subsequent round of financing with respect to the securities purchased by such investors in such financing. 5.5 EXPENSES OF REGISTRATION. All Registration Expenses incurred in connection with (i) two registrations pursuant to Section 5.1, (ii) all registrations pursuant to Section 5.2, and (iii) two registrations pursuant to Section 5.3, shall be borne by the Company. Notwithstanding the foregoing, in the event that Initiating Holders cause the Company to begin a registration pursuant to Section 5.1 or Section 5.3, and the request for such registration is subsequently withdrawn by the Initiating Holders or such registration is not completed due to failure to meet the net proceeds requirement set forth in such section or is otherwise not successfully completed, in each case due to no fault of the Company, all Holders shall be deemed to have forfeited their right to one registration under Section 5.1, or a registration at the expense of the Company under Section 5.3, as applicable, -9- unless the Initiating Holders pay for, or reimburse the Company for, the Registration Expenses incurred in connection with such withdrawn or incomplete registration. Unless otherwise stated, all Selling Expenses relating to securities registered on behalf of the Holders and all other registration expenses shall be borne by the Holders of such securities pro rata on the basis of the number of shares so registered or proposed to be so registered. 5.6 REGISTRATION PROCEDURES. In the case of each registration effected by the Company pursuant to this Agreement, the Company will keep each Holder advised in writing as to the initiation of such registration and as to the completion thereof. The Company will: (a) Prepare and file with the Commission a registration statement and such amendments and supplements as may be necessary and use commercially reasonable efforts to cause such registration statement to become and remain effective for at least 180 days or until the distribution described in the registration statement has been completed, whichever first occurs; and (b) Furnish to the Holders participating in such registration and to the underwriters of the securities being registered such reasonable number of copies of the registration statement, preliminary prospectus, final prospectus and such other documents as such underwriters may reasonably request in order to facilitate the public offering of such securities. Notwithstanding the foregoing, the Company shall notify each Holder whose securities are included in a registration of the happening of any event which makes any statement made in the registration statement or related prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or which requires the making of any changes in the registration statement or prospectus so that, in the case of the registration statement, it will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the prospectus, it will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. In such event, the Company may suspend use of the prospectus on written notice to each participating Holder, in which case each participating Holder shall not dispose of Registrable Securities covered by the registration statement or prospectus until copies of a supplemented or amended prospectus are distributed to the participating Holders or until the participating Holders are advised in writing by the Company that the use of the applicable prospectus may be resumed (the period of such suspension shall be a "BLACKOUT PERIOD"). The Company shall use its commercially reasonable efforts to ensure that the use of the prospectus may be resumed as soon as practicable. The Company shall, upon the occurrence of any event contemplated by this paragraph, prepare a supplement or post-effective amendment to the registration statement or a supplement to the related prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities being sold thereunder, such prospectus will not contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. In the event that the Company declares one or more Blackout Periods, the 180-day effectiveness period for the -10- applicable registration set forth in Section 5.6(a) shall be extended by the number of days that constitute any such Blackout Periods. 5.7 INDEMNIFICATION. (a) The Company will indemnify each Holder, each of its officers and directors and partners, and each person controlling such Holder within the meaning of Section 15 of the Securities Act, with respect to which registration has been effected pursuant to this Agreement, against all expenses, claims, losses, damages and liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document, or any amendment or supplement thereto, incident to any such registration, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or any violation by the Company of the Securities Act, the Exchange Act, state securities laws or any rule or regulation promulgated under such laws applicable to the Company in connection with any such registration, and the Company will reimburse each such Holder, each of its officers and directors, and each person controlling such Holder, for any legal and any other expenses reasonably incurred, as such expenses are incurred, in connection with investigating, preparing or defending any such claim, loss, damage, liability or action, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission or alleged untrue statement or omission, made in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Holder for use therein. (b) Each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration is being effected, indemnify the Company, each of its officers and directors, each person who controls the Company within the meaning of Section 15 of the Securities Act, each other holder of the Company's securities covered by such registration statement, and each such holder's, officers and directors and each person controlling such holder within the meaning of Section 15 of the Securities Act, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Holder of the Securities Act, the Exchange Act, state securities laws or any rule or regulation promulgated under such laws applicable to the Holder, and will reimburse the Company, such other holders, such officers, directors, or control persons for any legal or any other expenses reasonably incurred, as such expenses are incurred, in connection with investigating or defending any such claim, loss, damage, liability or action, but in the case of the Company or the other holders or their officers, directors, or control persons, only to the extent that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in -11- conformity with information furnished to the Company in writing by such Holder. Notwithstanding the foregoing, the liability of each Holder under this subsection 5.7(b) shall be limited to an amount equal to the net proceeds from the offering received by such Holder, unless such liability arises out of or is based on willful misconduct or fraud by such Holder. (c) Each party entitled to indemnification under this Section 5.7 (the "INDEMNIFIED PARTY") shall give notice to the party required to provide indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Agreement unless the failure to give such notice is materially prejudicial to an Indemnifying Party's ability to defend such action and provided further, that the Indemnifying Party shall not assume the defense for matters as to which there is a conflict of interest or there are separate and different defenses. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party (whose consent shall not be unreasonably withheld), consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. (d) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control. 5.8 INFORMATION BY HOLDER. The Holder or Holders of Registrable Securities included in any registration shall furnish to the Company such information regarding such Holder or Holders, the Registrable Securities held by them and the distribution proposed by such Holder or Holders as the Company may request in writing and as shall be required in connection with any registration referred to in this Agreement. 5.9 RULE 144 REPORTING. With a view to making available the benefits of certain rules and regulations of the Commission which may at any time permit the sale of the Restricted Securities to the public without registration, after such time as a public market exists for the Common Stock of the Company, the Company agrees to use commercially reasonable efforts to: (a) Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times after the effective date of a registration statement under the Securities Act or after the Company becomes subject to the reporting requirements of the Exchange Act; -12- (b) File with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements); and (c) So long as a Holder owns any Restricted Securities, to furnish to the Holder forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of said Rule 144 (at any time after 90 days after the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents of the Company and other information in the possession of or reasonably obtainable by the Company as the Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing the Holder to sell any such securities without registration. 5.10 TERMINATION OF REGISTRATION RIGHTS. The rights granted pursuant to Sections 5.1, 5.2 and 5.3 of this Agreement shall terminate as to any Holder upon the earlier of (i) the date four years after the effective date of the Company's initial public offering and (ii) the date such Holder is able to sell securities of the Company pursuant to Rule 144 under the Securities Act and holds 2% or less of the Company's outstanding capital stock. 6. FINANCIAL INFORMATION RIGHTS. (a) The Company will provide the following documents to each Investor who continues to hold at least 750,000 shares of Preferred Stock and/or Conversion Stock (as adjusted for stock splits, stock dividends, stock combinations and the like): (i) As soon as practicable after the end of the fiscal year ending December 31, 1999 and each fiscal year thereafter, and in any event within 90 days after the end of each such fiscal year, consolidated balance sheets of the Company and its subsidiaries, if any, as of the end of such fiscal year, and consolidated statements of operations and consolidated statements of cash flows and stockholders' equity of the Company and its subsidiaries, if any, for such year, prepared in accordance with generally accepted accounting principles and setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and audited by independent public accountants of national standing selected by the Company, and a capitalization table in reasonable detail for such fiscal year; (ii) As soon as practicable after the end of the first, second and third quarterly accounting periods in each fiscal year of the Company and in any event within 45 days thereafter, a consolidated balance sheet of the Company and its subsidiaries, if any, as of the end of each such quarterly period, and consolidated statements of operations and consolidated statements of cash flows of the Company and its subsidiaries, if any, for such period and for the current fiscal year to date, prepared in accordance with generally accepted accounting principles (other than accompanying notes), subject to changes resulting from year-end audit adjustments, in reasonable detail and signed by the principal financial or accounting officer of the Company, and a capitalization table in reasonable detail for such quarterly period; -13- (iii) At least thirty days prior to the beginning of each fiscal year, commencing with the fiscal year beginning January 1, 2000, a budget as adopted by the Company's Board of Directors for the fiscal year; (iv) As soon as practicable after the end of the first and second month of each quarterly accounting period, if available, a consolidated balance sheet of the Company and its subsidiaries (if any), as of the end of each such monthly period, and, if available, consolidated statements of operations and consolidated statements of cash flows of the Company and its subsidiaries (if any), for such periods and for the current quarter to date, prepared in accordance with generally accepted accounting principles (other than accompanying notes), subject to changes resulting from quarter-end and year-end adjustments, in reasonable detail and signed by the principal financial or accounting officer of the Company; and (v) Copies of press releases, reports of adverse developments and such other documents generally distributed or made available to the Company's stockholders; provided, however, that the Company shall not be obligated to provide information which it deems in good faith to be proprietary or confidential. (b) For purposes of determining the minimum holdings pursuant to this Section 6, the holdings of an Investor together with its affiliates and related persons shall be aggregated and any Investor which is a partnership or limited liability company shall be deemed to hold any Preferred Stock originally purchased by such Investor and subsequently distributed to constituent partners or members of such Investor, but which have not been resold by such partners or members. If the partnership or limited liability company is still in existence, the Company may satisfy any obligation to distribute reports to individual partners of the partnership or members of a limited liability company by delivering a single copy of each report to the partnership or limited liability company as agent for the constituent partners or members. (c) Each Investor or transferee of rights under this Section 6 acknowledges and agrees that any information obtained pursuant to this Section 6 which may be considered nonpublic information will be maintained in confidence by such Investor or transferee and will not be utilized by such Investor or transferee in connection with purchases or sales of the Company's securities except in compliance with applicable state and Federal securities laws. (d) The covenants of the Company set forth in this Section 6 shall terminate and be of no further force or effect upon the closing of a firm commitment underwritten public offering of the Company's Common Stock or at such time as the Company is required to file reports pursuant to Section 13 or 15(d) of the Exchange Act, whichever shall occur first. 7. LOCKUP AGREEMENT. Each Investor, Holder and transferee hereby agrees that, in connection with the Company's Qualified Initial Public Offering, if so requested by the Company or any representative of the underwriters (the "MANAGING UNDERWRITER"), such Investor, Holder or transferee shall not sell or otherwise transfer any securities of the Company, except those securities acquired in the Qualified Initial Public Offering or in an open-market transaction thereafter, during the period specified by the Company's Board of Directors at the request of the Managing -14- Underwriter (the "MARKET STANDOFF PERIOD"), with such period not to exceed 180 days following the effective date of a registration statement of the Company filed under the Securities Act; provided, however, such Market Standoff Period shall only be imposed if similar contractual lockup restrictions are placed upon all capital stock of the Company issued now or hereafter to all (i) current officers and directors of the Company, (ii) stockholders owning one percent (1%) or more of the outstanding capital stock of the Company and (iii) holders of registration rights with respect to capital stock of the Company. The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such Market Standoff Period. 8. INVESTORS' OPTION TO SELL SHARES TO THE COMPANY. (a) Beginning on August 6, 2004, an Investor may elect (the "Repurchase Option"), by delivery of written notice to the Company (the "Repurchase Notice"), to require the Company, on the terms set forth in this Section 8, to repurchase shares of Series A Preferred Stock owned by such Investor at a price of $0.451 per share and shares of Series B Preferred Stock owned by such Investor at a price of $1.00 per share and shares of Series C Preferred Stock owned by such Investor at a price of $4.50 per share (in each case as adjusted for stock splits, stock dividends, recapitalizations and the like) plus any declared but unpaid dividends (such price, as applicable, the "Repurchase Price"); PROVIDED, HOWEVER, that an Investor may only require the Company to repurchase shares pursuant to this Section 8 if such repurchase is in each instance for not less than 50% of such Investor's shares of Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock, as applicable, initially purchased by such Investor and such repurchase is permitted by applicable corporate law. The Company shall not be required to repurchase shares which have been converted into Common Stock. (b) In the event that an Investor (an "ELECTING INVESTOR") delivers a Repurchase Notice to the Company to exercise the Repurchase Option pursuant to Section 8(a), the Company shall promptly, and in any event within ten (10) days, give each other Investor written notice of the Electing Investor's exercise of the Repurchase Option. The other Investors shall have ten (10) days from the date of receipt of such notice to exercise their Repurchase Option by delivering a Repurchase Notice pursuant to Section 8(a) above. (c) All Investors who exercise their Repurchase Option pursuant to Section 8(a) above (the "PARTICIPATING INVESTORS") shall rank on parity with each other as to the repurchase by the Company of the shares owned by such Participating Investors and set forth in the Repurchase Notice. If the assets and funds of the Company legally available to repurchase such shares are insufficient to permit the payment to all Participating Investors of the aggregate Repurchase Price to which each Participating Investor is entitled (an "Insufficiency"), then the assets and funds legally available for the repurchase of such shares shall be allocated ratably among the Participating Investors based on the aggregate Repurchase Price to which each such Participating Investor would otherwise be entitled to receive. Any shares identified in a Repurchase Notice but not repurchased due to an Insufficiency shall be repurchased by the Company in accordance with the previous sentence as assets and funds become legally available therefor. -15- (d) The provisions of this Section 8 will terminate and be of no further force or effect upon the closing of a Qualified Initial Public Offering. 9. RIGHT OF FIRST REFUSAL. (a) The Company hereby grants to each Investor (each such Investor referred to herein as a "QUALIFIED INVESTOR"), the right of first refusal to purchase its Pro Rata Share of New Securities (as defined in this Section 9) which the Company may, from time to time following the date hereof, propose to sell and issue. A "PRO RATA SHARE," for purposes of this right of first refusal, is the ratio that (i) the sum of the number of shares of Common Stock then held by each Qualified Investor plus the number of shares of Common Stock issuable upon exercise or conversion of all securities exercisable for or convertible into, directly or indirectly, Common Stock then held by such Qualified Investor bears to (ii) the sum of the number of shares of Common Stock then outstanding plus the number of shares of Common Stock issuable upon exercise or conversion of all then outstanding securities exercisable for or convertible into, directly or indirectly, Common Stock. (b) Except as set forth below, "NEW SECURITIES" shall mean any shares of capital stock of the Company, including Common Stock and any series of preferred stock, whether now authorized or not, and rights, options or warrants to purchase said shares of Common Stock or preferred stock, and securities of any type whatsoever that are, or may become, convertible into or exchangeable for said shares of Common Stock or preferred stock. Notwithstanding the foregoing, "NEW SECURITIES" does not include: (i) Conversion Stock; (ii) Common Stock offered to the public generally pursuant to a Qualified Initial Public Offering; (iii) securities issued pursuant to any transaction approved by the vote of two-thirds of the members of the Board of Directors primarily for the purpose of (A) a joint venture, technology licensing or research and development activity, (B) distribution or manufacture of the Company's products or services, or (C) any other transaction involving a corporate partner that is primarily for a purpose other than raising capital; (iv) securities issued pursuant to the acquisition of another corporation by the Company by merger, purchase of all or substantially all of the assets or other reorganization; (v) any shares of the Company's Common Stock or related options, warrants or other rights to purchase such Common Stock issued to employees, officers and directors of, and consultants to, the Company, pursuant to arrangements approved by the Board of Directors of the Company, but not exceeding 2,358,493 shares of Common Stock; (vi) securities issued to equipment lessors, banks, financial institutions or similar entities in a transaction approved by vote of two-thirds of the members of the Board of Directors of the Company, the principal purpose of which is other than the raising of capital through the sale of equity securities of the Company; (vii) stock issued pursuant to any rights, agreements or convertible securities, including without limitation options and warrants, provided that the rights of first refusal established by this Section 9 applied with respect to the initial sale or grant by the Company of such rights, agreements or convertible securities; or (viii) stock issued in connection with any stock split, stock dividend or recapitalization by the Company. (c) In the event the Company proposes to undertake an issuance of New Securities, it shall give each Qualified Investor written notice of its intention, describing the amount -16- and type of New Securities, and the price and terms upon which the Company proposes to issue the same. Each Qualified Investor shall have ten days from the date of receipt of any such notice to agree to purchase up to its respective Pro Rata Share of such New Securities for the price and upon the terms specified in the notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased. (d) Beginning ten days after the notice given pursuant to Section 9(c) above, the Company shall have 180 days to sell the New Securities not elected or eligible to be purchased by Qualified Investors at the price and upon the terms no more favorable to the purchasers of such securities than specified in the Company's notice. In the event the Company has not sold all of the New Securities within said 180-day period, the Company shall not thereafter issue or sell any New Securities without first offering such securities in the manner provided above. (e) The provisions of this Section 9 will terminate and be of no further force or effect upon the closing of a Qualified Initial Public Offering. 10. VESTING OF EMPLOYEE OPTIONS. Unless otherwise agreed to by a majority of the Directors who are not then employees of the Company, options granted to employees of the Company under the Company's 1997 Stock Plan or other approved stock plans will vest, until the option holder's employment with or service to the Company terminates, on terms no more favorable to the employee than ratably over three years. 11. EMPLOYMENT, CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENTS. The Company will cause each person now or hereafter employed by it or any subsidiary with access to confidential information to enter into an Employment, Confidential Information and Invention Assignment Agreement substantially in a form approved by the Board of Directors. 12. TRANSFER OF RIGHTS. The rights granted under Sections 5, 6, 8 and 9 of this Agreement may be assigned to any transferee or assignee, other than a Competitor (as defined below) or potential Competitor of the Company in connection with any transfer or assignment by the Holder of Registrable Securities or Preferred Stock, provided that: (i) such transfer is otherwise effected in accordance with applicable securities laws and the terms of this Agreement; (ii) such assignee or transferee acquires at least 750,000 shares (as adjusted for stock splits, stock dividends, stock combinations and the like) of Registrable Securities (including Preferred Stock convertible into Registrable Securities), (iii) written notice is promptly given to the Company; and (iv) such transferee or assignee agrees in writing to be bound by the provisions of this Agreement; provided, however, that items (ii) and (iv) shall not apply to any transfer or assignment by a Holder to any affiliated person or entity that is a signatory to this Agreement. Notwithstanding the foregoing, the rights granted to the Investors hereunder may be assigned without compliance with item (ii) above to any constituent partner or member of an Investor which is a partnership or limited liability company, or to an affiliate of an Investor which is a corporation, partnership or limited liability company. For purposes of this Section 12, "COMPETITOR" shall mean any company that is primarily engaged, or which has a business unit that is primarily engaged, in the business or providing services that enable users to search for and thereafter access sites on the Internet. -17- 13. EFFECTIVENESS; AMENDMENT AND RESTATEMENT OF EXISTING AGREEMENT. This Agreement constitutes an amendment and restatement of the Existing Agreement pursuant to Section 14 thereof and shall become effective and binding on all parties thereto and persons bound by the terms thereof upon obtaining the consent evidenced by execution of this Agreement by the Company, the Majority Investors and the Majority Series B Investors. 14. AMENDMENT. Except as otherwise provided herein, additional parties may be added to this Agreement, any provision of this Agreement (other than Section 5.1(b) and Section 7) may be amended or the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of (i) the Company, and (ii) the Holders of at least a majority of the Registrable Securities then outstanding; provided, however that Section 5.1(b) and Section 7 may be amended or the observance thereof may be waived only with the written consent of the holders of at least a majority of the then outstanding shares of Series B Preferred Stock or Conversion Stock issued upon conversion thereof that are Registrable Securities. Any amendment or waiver effected in accordance with Section 5.4 or this Section 14, as applicable, shall be binding upon each Investor, Holder of Registrable Securities at the time outstanding, each future holder of any of such securities, and the Company. 15. GOVERNING LAW. This Agreement shall be governed in all respects by the internal laws of the State of California without regard to conflict of laws provisions. 16. ENTIRE AGREEMENT. This Agreement constitutes the full and entire understanding and Agreement among the parties regarding the matters set forth herein. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon the successors, assigns, heirs, executors and administrators of the parties hereto. 17. NOTICES, ETC. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, or otherwise delivered by facsimile transmission, by hand or by messenger, addressed: (a) if to a Holder, to such Holder's address as set forth in EXHIBIT A, or to such other address as such Holder shall have furnished to the Company. (b) if to the Company, to: Centraal Corporation 2 Circle Star Way, 2d Floor Palo Alto, California 94070 Attn: Keith Teare, President and Chief Executive Officer Fax: (650) 298-8085 or to such other address as the Company shall have furnished to the Holders, with a copy to: Wilson Sonsini Goodrich & Rosati 650 Page Mill Road -18- Palo Alto, California 94304-1050 Attn: Mark A. Bertelsen, Esq. Fax: (650) 493-6811 Each such notice or other communication shall for all purposes of this Agreement be treated as effective or having been given when delivered if delivered personally, if sent by facsimile, the first business day after the date of confirmation that the facsimile has been successfully transmitted to the facsimile number for the party notified, or, if sent by mail, at the earlier of its receipt or 72 hours after the same has been deposited in a regularly maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid. 18. AGGREGATION OF STOCK. All shares of Preferred Stock held or acquired by affiliated entities or persons shall be aggregated for the purpose of determining the availability of any rights under this Agreement. 19. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original and all of which together shall constitute one instrument. 20. LEGAL EXPENSES. The prevailing party in any legal action brought by one party against another and arising out of this Agreement shall be entitled, in addition to any other rights and remedies it may have, to reimbursement for its expenses, including court costs and reasonable attorneys' fees. 21. TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 22. WAIVER OF RIGHT OF FIRST REFUSAL. The signatories to this Agreement who are also parties to the Existing Agreement (other than the Company) hereby waive, on behalf of all Existing Preferred Investors, their right of first refusal set forth in Section 9 of the Existing Agreement and any associated notice rights. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -19- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above. CENTRAAL CORPORATION INVESTOR a Delaware corporation By: --------------------------- By: Name: ------------------------------------ ------------------------- Keith Teare, Title: President and Chief Executive Officer ------------------------ [SIGNATURE PAGE TO INVESTOR RIGHTS AGREEMENT] EXHIBIT A SCHEDULE OF INVESTORS EX-10.12 16 EXHIBIT 10.12 Exhibit 10.12 FULL-RECOURSE PROMISSORY NOTE ----------------------------- Palo Alto, California $270,000 May 29, 1998 FOR VALUE RECEIVED, the undersigned, Keith W. Teare (the "Debtor") promises to pay to centraal corporation, a Delaware corporation (the "Company"), or its assigns (the Company, together with its successors and assigns, is herein referred to as the "Holder"), the principal sum of $270,000 with interest thereon (computed on a basis of a 360-day year and a 30-day month) at the rate of 7.25% per annum simple interest on the unpaid balance of the principal sum. The principal and interest hereof shall be payable in U.S. dollars at the principal office of the Company, or by mail to the registered address of any other Holder. The principal amount of this note and all accrued but unpaid interest shall be due and payable on December 31, 1998 (the "Repayment Date"); provided, however, that the Holder may accelerate the Repayment Date to any earlier date upon thirty days prior written notice to the Debtor. The privilege is reserved to prepay any portion of this note at any time. If the Debtor shall default in the payment of amounts hereunder when due, the Holder of this note shall be entitled to payment by the Debtor of all costs of collection, including, without limitation, reasonable attorneys' fees and costs incurred in connection with such collection efforts, whether or not suit on this note is filed. This is a full-recourse note against all assets of the Debtor, and the Holder of this note shall not be required to proceed against the collateral securing this note in the event of default. Further, as security for payment of all obligations under this note, including without limitation, any extensions, modifications or renewals thereof, the Debtor hereby grants to the Holder a security interest in the collateral listed on EXHIBIT A attached hereto, which collateral has a fair market value at least equal to the principal hereof. If for any reason the fair market value of such collateral falls below the outstanding principal hereof, Debtor shall immediately notify the Holder in writing and shall immediately grant the Holder a security interest in additional collateral so that the fair market value of all such collateral is at least equal to the outstanding principal hereof. The entire unpaid principal sum of this note and any accrued but unpaid interest shall become immediately due and payable upon the execution by the Debtor of a general assignment for the benefit of creditors, the filing by or against the Debtor of any petition in bankruptcy or any petition for relief under the provisions of any federal, state or other statute relating to bankruptcy, insolvency or other similar relief for debtors and the continuation of such petition without dismissal for a period of thirty days or more, or the appointment of a receiver or trustee to take possession of the property or assets of the Debtor and the continuation of such appointment without dismissal for a period of thirty days or more. This note shall be governed by the laws of the State of California as they apply to contracts entered into and wholly to be performed within such state. Acceptance of partial or delinquent payment from the undersigned hereunder, or the failure of the Holder to exercise any right hereunder shall not constitute a waiver of any obligation of the undersigned or any right of the Holder under this note, and shall not affect in any way the right to require full performance at any time thereafter. The undersigned hereby waives presentment payment, protest, notice of protest, notice of dishonor and notice of non-payment of this note. IN WITNESS WHEREOF, this note has been executed as of the date written above. /s/ Keith W. Teare ------------------------------ Keith W. Teare Amendment and Waiver This Amendment and Waiver (this "AMENDMENT") to the Full-Recourse Promissory Note signed by Keith W. Teare (the "HOLDER") on May 29, 1999 (the "NOTE") is made as of October 4, 1999. Whereas, RealNames Corporation, a Delaware corporation (the "COMPANY"), desires to amend the Note so as to extend the maturity date thereof. Now, therefore, the Company agrees as follows: 1. The Company waives the existing repayment default, but does not waive the right to be repaid all amounts owing under the Note, which amounts shall be paid as provided below. 2. The interest on the Note shall continue to accrue at the rate of 7.25% per annum simple interest. 3. The unpaid principal sum of the Note and any accrued but unpaid interest shall be due and payable on December 31, 2001, provided, that the Holder may prepay any portion of the Note any time. 4. This Amendment shall be governed by the terms and conditions of the Note and all other terms and conditions of the Note shall remain in full effect. IN WITNESS WHEREOF, the Company has caused this Waiver and Amendment to be signed by its duly authorized officer or representative as of the date first above written. REALNAMES CORPORATION By: /s/ Jim Strawbridge Name: Jim Strawbridge Title: Executive Vice President, Chief Financial and Operating Officer EX-10.13 17 EXHIBIT 10.13 Exhibit 10.13 REALNAMES INC. 2735 Byron Street Palo Alto CA 94306 USA Tel: 415-323-5365 April 17, 1997 Nicolas Popp 196 Santa Monica Avenue Palo Alto CA 94025 Dear Nico Further to our recent conversations we would like to offer you the position of Director of Engineering in RealNames Inc. You will be responsible for the development of the Go! Service and other future services. You will report to me. Your annual salary will be $130,000 payable bi-weekly. You will be offered the right to purchase 100,000 shares of RealNames Inc. common stock at $0.10 per share under the employee stock purchase plan. 25,000 shams will vest on the first anniversary of your hire date. The remainder will vest quarterly over the following three years. Each of us will have the right to terminate your employment at will. Your start date is Monday May 5, 1997, unless otherwise agreed. On the first date of your employment you will be required to sign an employee confidentiality and proprietary rights agreement. Please advise us in writing of your acceptance of our offer no later than 28 April 1997. Nico, we look forward to you joining the company and playing an important part in a great project. Sincerely, /s/ Jean-Marie Hullot Jean-Marie Hullot Chief Technology Officer - ------------------------------------------------------------------------------- I accept this offer. Signed: /s/ Nico Popp Nico Popp Date: 4/20/97 EX-10.14 18 EXHIBIT 10.14 Exhibit 10.14 10 May 1998 Mr. Ted West 22 Venado Drive Tiburon, CA 94920 Dear Ted, I am extremely pleased to be able to offer you the position of Executive Vice President of Sales and Marketing at Centraal Corporation. You will be reporting directly to myself. I acknowledge your desire to be considered for the title of Chief Operating Officer (COO) and have constructed a package that reflects that level of seniority. The board will review your title before the end of 1998. As EVP Sales & Marketing you will be responsible for Sales, Marketing and Strategic Partnerships. Rusti Baker (Director Business Development), Amy Katch (Director of Sales) and Gene McPherson (VP Communications) will report directly to you. Your start date will be 5/11/1998. I acknowledge that between this date and 7/1/1998 you will work 3 days a week. I further acknowledge that you will have unpaid leave between 11-22 June 1998. Your annual salary will be $150,000, which will be paid on a bi-weekly basis. A further $50,000 will be paid as bonus during 1998. This will be contingent on the company achieving its $10m revenue goal for 1998 and will be paid quarterly. Payment will be proportionate to the percent of goal achieved. Additionally I will recommend to the Centraal board of directors that the following stock options be granted: - - 750,.000 shares of common stock at a $0.10 strike price. These to vest over 4 years on a monthly basis. - - 50,000 bonus options in 1998, 100,000 in 1999 and 100,000 in 2000 based on achievement of agreed upon objectives (MBOs). These options will be priced at the then current strike price and will vest over a four year period from the date of offer. Vesting will be monthly. - - You will have the option to purchase 250,000 shares of common stock, currently held by myself, at a $0.45 price. The company may agree to loan you $112,500.00 to pay for these at the appropriate time of excercise. - - Further, a pool of 500,000 of common stock, currently held by myself, will be put aside and made available to you for purchase at $0.45 a share. You will be entitled to purchase these should the company sell additional stock at any point over the next 24 months. The number you purchase will be capped at 500,000 and can only be 5% of any additional stock sold. The aim is to maintain a 5% ownership by yourself up to a further 500,000 common shares. The option to buy these shares will last for 30 days from the date of any additional stock sale. Payment will be within 60 days. The company will entertain any request to advance a loan for these purchases, and will seek repayment over 24 months. There will be various protections for both you and Centraal Corporation built into this offer: 1. In relationship to the 750,000 options, the company agrees that these will vest monthly if legally possible. If not then, should the company terminate your employment before 12 months, you will be permitted to vest the relevant proportion of the first year options on the first anniversary of your employment. Should you leave the company of your own volition within 12 months all options will be cancelled (or returned at the $0.10 purchase price if already vested). 2. All 1998 bonuses (cash and stock options) will be paid in proportion to the goal of $10m revenues in 1998. Revenue is calculated as cash received in the calendar year irrespective of accounting practices. You will be responsible for objectives being defined and a compensation plan for the whole company being developed. This will be effective by 1 Jan 1999 at the latest. 3. A promissory note to the company will cover the loan to facilitate the purchase of common stock from myself. Should you leave the company of your own volition you will repay this loan within 30 days or return the stock. In addition to your compensation plan, Centraal offers a competitive benefits package including the choice of several medical plans, dental, vision, disability and life insurance, which are paid for by the company. You may choose to purchase additional life insurance for you and your family at a nominal fee from 3x to 5x your annual salary, not to exceed $500,000. We offer 3 weeks vacation per year, as well as 13 paid holidays including a floating holiday to be appointed by you. Centraal Corporation reserves the right for either party to cancel employment at will. This offer is contingent on: 1. Proof of your eligibility to work in the US. You will receive an "I-9 Form" for your completion, in accordance with the Immigration Reform and Control Act. 2. Your signing and returning Centraal's non-disclosure agreement. 3. Your signing and returning this original letter to me no later than May 11th 1998. 4. The approval of the board on 19 May 1998. Ted, I really look forward to having you join the team! I know this goes for the rest of the company. /s/ Keith Teare Keith Teare Chief Executive Officer - ------------------------------------------------------------------------------- I accept this fantastic offer! Name: Ted West Signature: /s/ Ted West ----------------------------- Start Date: 5/11/98 ---------------------------- EX-23.1 19 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in this Registration Statement on Form S-1 of our report dated March 12, 1999, except as to the items described in Note 10 which is as of October 5, 1999, relating to the financial statements of RealNames Corporation (formerly Centraal Corporation), which appear in such Registration Statement. We also consent to the references to us under the headings "Experts" and "Selected Financial Data" in such Registration Statement. PricewaterhouseCoopers LLP San Jose, California October 6, 1999 EX-27.1 20 EXHIBIT 27.1
5 1,000 YEAR 6-MOS DEC-31-1998 DEC-31-1999 JAN-01-1998 JAN-01-1999 DEC-31-1998 JUN-30-1999 11,290 4,058 0 0 489 1,098 6 28 0 0 12,017 5,511 928 3,456 187 516 12,883 9,226 1,304 3,643 0 0 0 0 22 22 15 19 11,542 5,271 12,883 9,226 0 0 537 1,059 0 0 556 702 5,954 11,571 6 22 94 170 (5,879) (11,044) 0 0 (5,879) (11,044) 0 0 0 0 0 0 (5,879) (11,044) (0.40) (0.75) (0.40) (0.75)
-----END PRIVACY-ENHANCED MESSAGE-----